x | ANNUAL 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 | 26-3842535 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
800 Newport Center Drive, Suite 700 Newport Beach, California | 92660 | |
(Address of Principal Executive Offices) | (Zip Code) |
Title of Each Class | Name of Each Exchange on Which Registered | |
None | None |
Large Accelerated Filer | ¨ | Accelerated Filer | ¨ | |||
Non-Accelerated Filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
ITEM 1. | |||
ITEM 1A. | |||
ITEM 1B. | |||
ITEM 2. | |||
ITEM 3. | |||
ITEM 4. | |||
ITEM 5. | |||
ITEM 6. | |||
ITEM 7. | |||
ITEM 7A. | |||
ITEM 8. | |||
ITEM 9. | |||
ITEM 9A. | |||
ITEM 9B. | |||
ITEM 10. | |||
ITEM 11. | |||
ITEM 12. | |||
ITEM 13. | |||
ITEM14. | |||
ITEM 15. | |||
• | 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 property investments 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, limiting our ability to pay distributions to our stockholders. |
• | Our opportunistic investment strategy involves a higher risk of loss than would a strategy of investing in some other types of real estate and real estate-related investments. |
• | We have paid distributions from financings and in the future we may not pay distributions solely from our cash flow from operations or gains from asset sales. To the extent that we pay distributions from sources other than our cash flow from operations or gains from asset sales, we will have less funds available for investment in loans, properties and other assets, the overall return to our stockholders may be reduced and subsequent investors may experience dilution. |
• | All of our executive officers and 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 our advisor, our dealer manager and 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. |
• | We pay substantial fees to and expenses of our advisor and its affiliates and, in connection with our initial public offering, we paid substantial fees to our dealer manager and participating broker-dealers. These payments increase the risk that our stockholders will not earn a profit on their investment in us and increase our stockholders’ risk of loss. |
• | 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, future funding obligations under any real estate loans receivable we acquire the funding of capital expenditures on our real estate investments or the repayment of debt. If such funds are not available from the 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. |
• | We have focused, and may continue to focus, our investments in non-performing real estate and real estate‑related loans, real estate-related loans secured by non-stabilized assets and real estate-related securities, which involve more risk than investments in performing real estate and real estate-related assets. |
ITEM 1. | BUSINESS |
• | to provide our stockholders with attractive and stable returns; and |
• | to preserve and return our stockholders’ capital contributions. |
Current Maturity | Extended Maturity | |||||||
2016 | $ | 13,649 | $ | 4,615 | ||||
2017 | 426,026 | 115,623 | ||||||
2018 | 81,182 | 263,276 | ||||||
2019 | 812 | 138,155 | ||||||
2020 | 846 | 846 | ||||||
Thereafter | 28,281 | 28,281 | ||||||
$ | 550,796 | $ | 550,796 |
ITEM 1A. | RISK FACTORS |
• | the values of our investments in commercial properties could decrease below the amounts paid for such investments; |
• | the value of collateral securing our loan investment could decrease below the outstanding principal amount of such loan; and/or |
• | revenues from our properties could decrease due to fewer tenants and/or lower rental rates, making it more difficult for us to pay distributions or meet our debt service obligations on debt financing. |
• | disrupt the proper functioning of our networks and systems and therefore our operations; |
• | result in misstated financial reports, violations of loan covenants and/or missed reporting deadlines; |
• | result in our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT; |
• | result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us or which could expose us to damage claims by third-parties for disruptive, destructive or otherwise harmful purposes and outcomes; |
• | require significant management attention and resources to remedy any damages that result; |
• | subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements; or |
• | damage our reputation among our stockholders. |
• | the continuation, renewal or enforcement of our agreements with KBS Capital Advisors and its affiliates, including the advisory agreement; |
• | public offerings of equity by us, which may entitle KBS Capital Markets Group to dealer-manager fees and would likely entitle KBS Capital Advisors to increased acquisition and origination fees and asset management fees; |
• | sales of investments, which entitle KBS Capital Advisors to disposition fees and possible subordinated incentive fees; |
• | acquisitions of investments and originations of loans, which entitle KBS Capital Advisors to acquisition and origination fees and asset management fees and, in the case of acquisitions of investments from other KBS-sponsored programs, might entitle affiliates of KBS Capital Advisors to disposition fees and possible subordinated incentive fees in connection with its services for the seller; |
• | borrowings to acquire investments and to originate loans, which borrowings increase the acquisition and origination fees and asset management fees payable to KBS Capital Advisors; |
• | whether and when we seek to list our common stock on a national securities exchange, which listing (i) may make it more likely for us to become self-managed or internalize our management or (ii) could entitle our advisor to a subordinated incentive listing fee, and which could also adversely affect the sales efforts for other KBS-sponsored programs, depending on the price at which our shares trade; |
• | whether we seek stockholder approval to become self-managed or internalize our management, which we will only pursue if our advisor agrees to do so without the payment of any internalization fee or other consideration; and |
• | whether and when we seek to sell the company or its assets, which sale could entitle KBS Capital Advisors to disposition fees or a subordinated incentive fee and terminate the asset management fee. |
• | limitations on capital structure; |
• | restrictions on specified investments; |
• | prohibitions on transactions with affiliates; and |
• | compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly increase our operating expenses. |
• | pursuant to section 3(a)(1)(A) is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities (the “primarily engaged test”); or |
• | pursuant to section 3(a)(1)(C) is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of such issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis (the “40% test”). “Investment securities” excludes U.S. government securities and securities of majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) (relating to private investment companies). |
• | 97.5% of our most recent estimated value per share as of the applicable redemption date for those shares held for at least one year but less than four years; and |
• | 100% of our most recent estimated value per share as of the applicable redemption date for those shares held for at least four years. |
• | a stockholder would be able to resell his or her shares at this estimated value per share; |
• | a stockholder would ultimately realize distributions per share equal to our estimated value per share upon liquidation of our assets and settlement of our liabilities or a sale of the company; |
• | our shares of common stock would trade at the estimated value per share on a national securities exchange; |
• | an independent third-party appraiser or other third-party valuation firm would agree with our estimated value per share; or |
• | the methodology used to estimate our value per share would be acceptable to FINRA or for compliance with ERISA reporting requirements. |
• | natural disasters such as hurricanes, earthquakes and floods; |
• | acts of war or terrorism, including the consequences of terrorist attacks, such as those that occurred on September 11, 2001; |
• | adverse changes in national and local economic and real estate conditions; |
• | an oversupply of (or a reduction in demand for) space in the areas where particular properties are located and the attractiveness of particular properties to prospective tenants; |
• | changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance therewith and the potential for liability under applicable laws; |
• | costs of remediation and liabilities associated with environmental conditions affecting properties; and |
• | the potential for uninsured or underinsured property losses. |
• | interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates; |
• | available interest rate hedging products may not correspond directly with the interest rate risk for which protection is sought; |
• | the duration of the hedge may not match the duration of the related liability or asset; |
• | the amount of income that a REIT may earn from hedging transactions to offset losses due to fluctuations in interest rates is limited by federal tax provisions governing REITs; |
• | the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; |
• | the party owing money in the hedging transaction may default on its obligation to pay; and |
• | we may purchase a hedge that turns out not to be necessary, i.e., a hedge that is out of the money. |
• | that our co-venturer or partner in an investment could become insolvent or bankrupt; |
• | that such co-venturer or partner may at any time have economic or business interests or goals that are or that become inconsistent with our business interests or goals; or |
• | that such co-venturer or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives. |
• | In order to qualify as a REIT, we must distribute annually at least 90% of our REIT taxable income to our stockholders (which is determined without regard to the dividends-paid deduction or net capital gain). To the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on the undistributed income. |
• | We will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. |
• | If we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we must pay a tax on that income at the highest corporate income tax rate. |
• | If we sell an asset, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business, our gain would be subject to the 100% “prohibited transaction” tax unless such sale were made by one of our taxable REIT subsidiaries. |
• | not be allowed to be offset by a stockholder’s net operating losses; |
• | be subject to a tax as unrelated business income if a stockholder were a tax-exempt stockholder; |
• | be subject to the application of federal income tax withholding at the maximum rate (without reduction for any otherwise applicable income tax treaty) with respect to amounts allocable to foreign stockholders; and |
• | be taxable (at the highest corporate tax rate) to us, rather than to our stockholders, to the extent the excess inclusion income relates to stock held by disqualified organizations (generally, tax-exempt companies not subject to tax on unrelated business income, including governmental organizations). |
• | the investment is consistent with their fiduciary and other obligations under ERISA and the Internal Revenue Code; |
• | the investment is made in accordance with the documents and instruments governing the plan or IRA, including the plan’s or account’s investment policy; |
• | the investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable provisions of ERISA and the Internal Revenue Code; |
• | the investment in our shares, for which no public market currently exists, is consistent with the liquidity needs of the plan or IRA; |
• | the investment will not produce an unacceptable amount of “unrelated business taxable income” for the plan or IRA; |
• | our stockholders will be able to comply with the requirements under ERISA and the Internal Revenue Code to value the assets of the plan or IRA annually; and |
• | the investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code. |
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
ITEM 2. | PROPERTIES |
Property Location of Property | Date Acquired or Foreclosed on | Property Type | Rentable Square Feet | Total Real Estate at Cost (in thousands) | Occupancy | Ownership % | |||||||||||
Northridge Center I & II Atlanta, GA | 03/25/2011 | Office | 188,509 | $ | 9,404 | 81.8 | % | 100.0 | % | ||||||||
Iron Point Business Park Folsom, CA | 06/21/2011 | Office | 211,887 | 22,116 | 91.8 | % | 100.0 | % | |||||||||
Richardson Portfolio Richardson, TX | 11/23/2011 | Office/ Undeveloped Land | 569,980 | 42,795 | 85.6 | % | 90.0 | % | |||||||||
Park Highlands North Las Vegas, NV | 12/30/2011 | Undeveloped Land | — | 30,695 | N/A | 50.1 | % | ||||||||||
Bellevue Technology Center Bellevue, WA | 07/31/2012 | Office | 330,508 | 85,182 | 96.8 | % | 100.0 | % | |||||||||
Powers Ferry Landing East Atlanta, GA | 09/24/2012 | Office | 149,324 | 9,787 | 94.9 | % | 100.0 | % | |||||||||
1800 West Loop Houston, TX | 12/04/2012 | Office | 400,101 | 74,338 | 87.3 | % | 100.0 | % | |||||||||
West Loop I & II Houston, TX | 12/07/2012 | Office | 313,873 | 39,773 | 79.7 | % | 100.0 | % | |||||||||
Burbank Collection Burbank, CA | 12/12/2012 | Retail | 39,508 | 14,348 | 47.8 | % | 90.0 | % | |||||||||
Austin Suburban Portfolio Austin, TX | 03/28/2013 | Office | 517,974 | 78,845 | 79.1 | % | 100.0 | % | |||||||||
Westmoor Center Westminster, CO | 06/12/2013 | Office | 612,890 | 85,031 | 76.9 | % | 100.0 | % | |||||||||
Central Building Seattle, WA | 07/10/2013 | Office | 191,705 | 35,112 | 91.8 | % | 100.0 | % | |||||||||
50 Congress Street Boston, MA | 07/11/2013 | Office | 179,872 | 53,241 | 91.1 | % | 100.0 | % | |||||||||
1180 Raymond Newark, NJ | 08/20/2013 | Apartment | 268,688 | 45,386 | 90.2 | % | 100.0 | % | |||||||||
Park Highlands II North Las Vegas, NV | 12/10/2013 | Undeveloped Land | — | 22,192 | N/A | 99.5 | % | ||||||||||
Maitland Promenade II Orlando, FL | 12/18/2013 | Office | 230,366 | 31,554 | 86.6 | % | 100.0 | % | |||||||||
Plaza Buildings Bellevue, WA | 01/14/2014 | Office | 490,994 | 196,794 | 77.4 | % | 100.0 | % | |||||||||
424 Bedford Brooklyn, NY | 01/31/2014 | Apartment | 49,220 | 34,087 | 98.5 | % | 90.0 | % | |||||||||
Richardson Land II Richardson, TX | 09/04/2014 | Undeveloped Land | — | 3,394 | N/A | 90.0 | % | ||||||||||
4,745,399 | $ | 914,074 |
Industry | Number of Tenants | Annualized Base Rent (1) (in thousands) | Percentage of Annualized Base Rent | ||||||
Finance | 49 | $ | 10,952 | 13.8 | % | ||||
Computer System Design & Programming | 42 | 10,250 | 12.9 | % | |||||
Insurance Carriers & Related Activities | 28 | 8,704 | 11.0 | % | |||||
$ | 29,906 | 37.7 | % |
Year of Expiration | Number of Leases Expiring | Annualized Base Rent (in thousands) (1) | % of Portfolio Annualized Base Rent Expiring | Leased Rentable Square Feet Expiring | % of Portfolio Rentable Square Feet Expiring | |||||||||||
Month-to-Month | 30 | $ | 2,204 | 2.7 | % | 156,943 | 4.2 | % | ||||||||
2016 | 84 | 8,968 | 11.3 | % | 442,202 | 11.9 | % | |||||||||
2017 | 93 | 10,214 | 12.9 | % | 488,440 | 13.1 | % | |||||||||
2018 | 93 | 13,436 | 16.9 | % | 595,969 | 16.0 | % | |||||||||
2019 | 62 | 11,138 | 14.0 | % | 544,514 | 14.6 | % | |||||||||
2020 | 61 | 10,070 | 12.7 | % | 436,608 | 11.8 | % | |||||||||
2021 | 34 | 7,130 | 9.0 | % | 345,190 | 9.3 | % | |||||||||
2022 | 10 | 3,782 | 4.8 | % | 173,309 | 4.7 | % | |||||||||
2023 | 15 | 5,307 | 6.7 | % | 211,836 | 5.7 | % | |||||||||
2024 | 10 | 3,223 | 4.1 | % | 132,582 | 3.6 | % | |||||||||
2025 | 10 | 3,187 | 4.0 | % | 156,281 | 4.2 | % | |||||||||
Thereafter | 5 | 755 | 0.9 | % | 33,337 | 0.9 | % | |||||||||
Total | 507 | $ | 79,414 | 100 | % | 3,717,211 | 100 | % |
ITEM 3. | LEGAL PROCEEDINGS |
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
December 8, 2015 Estimated Value per Share | December 9, 2014 Estimated Value per Share (1) | Change in Estimated Value per Share | ||||||||||
Real estate properties (2) | $ | 21.97 | $ | 20.77 | $ | 1.20 | ||||||
Real estate loan receivable | 0.47 | 0.46 | 0.01 | |||||||||
Cash | 0.43 | 0.32 | 0.11 | |||||||||
Investments in unconsolidated joint ventures (3) | 2.38 | 1.74 | 0.64 | |||||||||
Other assets | 0.20 | 0.10 | 0.10 | |||||||||
Mortgage debt (4) | (9.40 | ) | (8.75 | ) | (0.65 | ) | ||||||
Advisor participation fee potential liability | (0.33 | ) | (0.17 | ) | (0.16 | ) | ||||||
Other liabilities | (0.46 | ) | (0.34 | ) | (0.12 | ) | ||||||
Non-controlling interest | (1.82 | ) | (1.89 | ) | 0.07 | |||||||
Estimated value per share | $ | 13.44 | $ | 12.24 | $ | 1.20 | ||||||
Estimated enterprise value premium | None assumed | None assumed | None assumed | |||||||||
Total estimated value per share | $ | 13.44 | $ | 12.24 | $ | 1.20 |
Change in Estimated Value per Share | ||||
December 9, 2014 estimated value per share | $ | 12.24 | ||
Changes to estimated value per share | ||||
Real estate | ||||
Real estate | 1.21 | |||
Investments in unconsolidated joint ventures | 0.59 | |||
Capital expenditures on real estate | (0.63 | ) | ||
Total change related to real estate | 1.17 | |||
Operating cash flows in excess of quarterly distributions declared | 0.16 | |||
Minority interest in consolidated joint ventures | 0.02 | |||
Advisor participation fee potential liability | (0.15 | ) | ||
Total change in estimated value per share | $ | 1.20 | ||
December 8, 2015 estimated value per share | $ | 13.44 |
Range in Values | Weighted-Average Basis | |||
Consolidated Investments in Real Estate Properties (Excluding Undeveloped Land) | ||||
Terminal capitalization rate | 4.50% to 8.00% | 6.70% | ||
Discount rate | 5.00% to 8.75% | 7.82% | ||
Net operating income compounded annual growth rate (1) | 1.59% to 12.31% | 5.60% | ||
Undeveloped Land | ||||
Price per acre (2) (3) | $98,035 to $719,623 | $112,078 |
Increase (Decrease) on the Estimated Value per Share due to | ||||||||||||||||
Decrease of 25 basis points | Increase of 25 basis points | Decrease of 5% | Increase of 5% | |||||||||||||
Terminal capitalization rates | $ | 0.36 | $ | (0.34 | ) | $ | 0.48 | $ | (0.45 | ) | ||||||
Discount rates | 0.28 | (0.29 | ) | 0.45 | (0.44 | ) |
Increase (Decrease) on the Estimated Value per Share due to | ||||||||
Decrease of 5% | Increase of 5% | |||||||
Price per acre | $ | (0.08 | ) | $ | 0.08 |
Increase (Decrease) on the Estimated Value per Share due to | ||||||||||||||||
Decrease of 25 basis points | Increase of 25 basis points | Decrease of 5% | Increase of 5% | |||||||||||||
Terminal capitalization rates | $ | 0.07 | $ | (0.07 | ) | $ | 0.09 | $ | (0.10 | ) | ||||||
Discount rates | 0.05 | (0.07 | ) | 0.08 | (0.09 | ) |
Increase (Decrease) on the Estimated Value per Share due to | ||||||||||||||||
Decrease of 25 basis points | Increase of 25 basis points | Decrease of 5% | Increase of 5% | |||||||||||||
Discount rates | $ | (0.05 | ) | $ | 0.04 | $ | (0.03 | ) | $ | 0.02 |
• | a stockholder would be able to resell his or her shares at this estimated value per share; |
• | a stockholder would ultimately realize distributions per share equal to our estimated value per share upon liquidation of our assets and settlement of our liabilities or a sale of the company; |
• | our shares of common stock would trade at the estimated value per share on a national securities exchange; |
• | an independent third-party appraiser or other third-party valuation firm would agree with our estimated value per share; or |
• | the methodology used to calculate our estimated value per share would be acceptable to FINRA or for compliance with ERISA reporting requirements. |
Estimated Value per Share | Effective Date of Valuation | Filing with the Securities and Exchange Commission | ||
$12.24 | December 9, 2014 | Current Report on Form 8-K, filed December 11, 2014 | ||
$11.27 | March 25, 2014 | Current Report on Form 8-K, filed March 27, 2014 |
2015 | |||||||||||||||||||
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | Total | |||||||||||||||
Total Distributions Declared | $ | 5,547 | $ | 5,620 | $ | 5,585 | $ | 5,528 | $ | 22,280 | |||||||||
Total Per Share Distribution | $ | 0.092 | $ | 0.093 | $ | 0.095 | $ | 0.095 | $ | 0.375 | |||||||||
Rate Based on Initial Public Offering Purchase Price of $10.00 Per Share | 0.9 | % | 0.9 | % | 1.0 | % | 1.0 | % | 3.8 | % | |||||||||
2014 | |||||||||||||||||||
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | Total | |||||||||||||||
Total Distributions Declared | $ | 2,937 | $ | 3,343 | $ | 4,137 | $ | 5,279 | $ | 15,696 | |||||||||
Total Per Share Distribution | $ | 0.049 | $ | 0.056 | $ | 0.069 | $ | 0.088 | $ | 0.262 | |||||||||
Rate Based on Initial Public Offering Purchase Price of $10.00 Per Share | 0.5 | % | 0.6 | % | 0.7 | % | 0.9 | % | 2.6 | % |
2015 | 2014 | |||||
Ordinary Income | 59 | % | — | % | ||
Return of Capital | 8 | % | 100 | % | ||
Capital Gain | 33 | % | — | % | ||
Total | 100 | % | 100 | % |
• | 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 2015, redemptions were limited to the amount of net proceeds from the sale of shares under our dividend reinvestment plan during 2014 plus an additional $21.0 million. The last $1.0 million of net proceeds from the dividend reinvestment plan during 2014 was reserved exclusively for shares redeemed in connection with a stockholder’s death, “qualifying disability,” or “determination of incompetence”. |
• | 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. |
• | In 2016, we may not redeem more than $3.0 million of shares in a given quarter (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”). To the extent that we redeem less than $3.0 million of shares (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”) in a given fiscal quarter, any remaining excess capacity to redeem shares in such fiscal quarter will be added to our capacity to otherwise redeem shares (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”) during the succeeding fiscal quarter. We may increase or decrease this limit upon ten business days’ notice to stockholders. Our board of directors may approve an increase in this limit to the extent that we have received proceeds from asset sales or the refinancing of debt or for any other reason deemed appropriate by the board of directors. |
Month | Total Number of Shares Redeemed | Average Price Paid Per Share (1) | Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program | ||||||
January 2015 | 22,221 | $ | 11.78 | (2) | |||||
February 2015 | 33,001 | $ | 11.78 | (2) | |||||
March 2015 | 42,961 | $ | 11.92 | (2) | |||||
April 2015 | 73,281 | $ | 11.86 | (2) | |||||
May 2015 | 54,082 | $ | 11.94 | (2) | |||||
June 2015 | 212,935 | $ | 12.24 | (2) | |||||
July 2015 | 297,059 | $ | 12.24 | (2) | |||||
August 2015 | 821,987 | $ | 12.24 | (2) | |||||
September 2015 | 412,105 | $ | 12.24 | (2) | |||||
October 2015 | 387,713 | $ | 12.24 | (2) | |||||
November 2015 | 71,630 | $ | 12.24 | (2) | |||||
December 2015 | 33,771 | $ | 13.44 | (2) | |||||
Total | 2,462,746 |
• | 92.5% of our most recent estimated value per share as of the applicable redemption date for those shares held for at least one year; |
• | 95.0% of our most recent estimated value per share as of the applicable redemption date for those shares held for at least two years; |
• | 97.5% of our most recent estimated value per share as of the applicable redemption date for those shares held for at least three years; and |
• | 100.0% of our most recent estimated value per share as of the applicable redemption date for those shares held for at least four years. |
ITEM 6. | SELECTED FINANCIAL DATA |
As of December 31, | |||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Balance sheet data | |||||||||||||||||||
Total real estate and real estate-related investments, net | $ | 850,364 | $ | 882,510 | $ | 660,385 | $ | 394,356 | $ | 166,354 | |||||||||
Total assets | 1,004,214 | 1,016,313 | 771,184 | 537,085 | 257,326 | ||||||||||||||
Total notes and bond payable, net | 547,323 | 524,062 | 252,466 | 32,908 | 62,066 | ||||||||||||||
Total liabilities | 585,565 | 556,266 | 278,925 | 43,782 | 65,491 | ||||||||||||||
Redeemable common stock | 9,859 | 9,911 | 17,573 | 9,651 | 5,291 | ||||||||||||||
Total equity | 408,790 | 450,136 | 474,686 | 483,652 | 186,544 | ||||||||||||||
For the Years Ended December 31, | |||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Operating data | |||||||||||||||||||
Total revenues | $ | 112,128 | $ | 106,154 | $ | 68,496 | $ | 18,880 | $ | 3,901 | |||||||||
Income (loss) from continuing operations attributable to common stockholders | 2,444 | (23,176 | ) | 150 | (8,840 | ) | (7,400 | ) | |||||||||||
Income (loss) from continuing operations per common share - basic and diluted | $ | 0.04 | $ | (0.39 | ) | $ | — | $ | (0.25 | ) | $ | (0.65 | ) | ||||||
Net income (loss) attributable to common stockholders | 2,444 | (23,194 | ) | 11,493 | (9,762 | ) | (7,581 | ) | |||||||||||
Net income (loss) per common share - basic and diluted | $ | 0.04 | $ | (0.39 | ) | $ | 0.20 | $ | (0.28 | ) | $ | (0.66 | ) | ||||||
Other data | |||||||||||||||||||
Cash flows provided by (used in) operating activities | $ | 27,056 | $ | 11,450 | $ | 24,630 | $ | (1,028 | ) | $ | (3,507 | ) | |||||||
Cash flows provided by (used in) investing activities | 1,992 | (285,814 | ) | (289,875 | ) | (242,074 | ) | (154,405 | ) | ||||||||||
Cash flows (used in) provided by financing activities | (25,083 | ) | 235,461 | 197,281 | 282,683 | 220,649 | |||||||||||||
Distributions declared | $ | 22,280 | $ | 15,696 | $ | 25,679 | $ | 12,885 | $ | 6,405 | |||||||||
Distributions declared per common share (1) | 0.38 | 0.26 | 0.44 | 0.40 | 0.30 | ||||||||||||||
Weighted-average number of common shares outstanding, basic and diluted | 59,656,667 | 59,714,540 | 58,359,568 | 35,458,656 | 11,432,823 |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
• | Proceeds from the primary portion of our initial public offering; |
• | Proceeds from our dividend reinvestment plan; |
• | Debt financing; |
• | Proceeds from the sale of real estate and the repayment of real estate-related investments; and |
• | Cash flow generated by our real estate and real estate-related investments. |
• | Proceeds from the sale of real estate of $38.8 million; |
• | Improvements to real estate of $35.6 million; |
• | Proceeds from condemnation agreements of $5.9 million; |
• | Funding of restricted cash for development obligations of $4.6 million; |
• | Investment in an unconsolidated joint venture of $2.8 million; |
• | Insurance proceeds for property damages of $0.3 million; |
• | $30.1 million of cash used for redemptions of common stock; |
• | $19.8 million of net cash provided by debt and other financings as a result of proceeds from notes payable of $61.2 million, partially offset by principal payments on notes payable of $40.6 million and payments of deferred financing costs of $0.8 million; |
• | $8.7 million of net cash distributions to stockholders, after giving effect to distributions reinvested by stockholders of $13.6 million; and |
• | $6.0 million of net distributions to noncontrolling interests, after giving effect to contributions from noncontrolling interests of $1.3 million. |
Payments Due During the Years Ending December 31, | ||||||||||||||||||||
Contractual Obligations | Total | 2016 | 2017-2018 | 2019-2020 | Thereafter | |||||||||||||||
Outstanding debt obligations (1) | $ | 550,796 | $ | 13,649 | $ | 507,208 | $ | 812 | $ | 29,127 | ||||||||||
Interest payments on outstanding debt obligations (2) | 30,450 | 13,775 | 8,622 | 2,777 | 5,276 |
For the Years Ended December 31, | Increase (Decrease) | Percentage Change | $ Change Due to Acquisitions/ Originations/Dispositions (1) | $ Change Due to Investments Held Throughout Both Periods (2) | ||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||
Rental income | 88,543 | $ | 83,682 | $ | 4,861 | 6 | % | $ | 138 | $ | 4,723 | |||||||||||
Tenant reimbursements | 18,313 | 16,273 | 2,040 | 13 | % | 152 | 1,888 | |||||||||||||||
Interest income from real estate loans receivable | 1,968 | 3,366 | (1,398 | ) | (42 | )% | — | (1,398 | ) | |||||||||||||
Other operating income | 3,304 | 2,833 | 471 | 17 | % | 593 | (122 | ) | ||||||||||||||
Operating, maintenance, and management costs | 37,512 | 35,957 | 1,555 | 4 | % | 302 | 1,253 | |||||||||||||||
Real estate taxes and insurance | 14,565 | 14,189 | 376 | 3 | % | (6 | ) | 382 | ||||||||||||||
Asset management fees to affiliate | 8,348 | 7,648 | 700 | 9 | % | 526 | 174 | |||||||||||||||
Real estate acquisition fees to affiliate | — | 2,231 | (2,231 | ) | n/a | (2,231 | ) | n/a | ||||||||||||||
Real estate acquisition fees and expenses | — | 2,177 | (2,177 | ) | n/a | (2,177 | ) | n/a | ||||||||||||||
General and administrative expenses | 3,246 | 3,418 | (172 | ) | (5 | )% | n/a | n/a | ||||||||||||||
Depreciation and amortization | 44,739 | 47,063 | (2,324 | ) | (5 | )% | (707 | ) | (1,617 | ) | ||||||||||||
Interest expense | 14,986 | 15,598 | (612 | ) | (4 | )% | (896 | ) | 284 | |||||||||||||
Other income | 5,085 | — | 5,085 | n/a | n/a | n/a | ||||||||||||||||
Gain on sale of real estate, net | 13,665 | 55 | 13,610 | n/a | 13,610 | n/a | ||||||||||||||||
Impairment charges on real estate | — | 579 | (579 | ) | n/a | — | (579 | ) |
For the Years Ended December 31, | Increase (Decrease) | Percentage Change | $ Change Due to Acquisitions/ Originations/Dispositions (1) | $ Change Due to Investments Held Throughout Both Periods (2) | |||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||||
Rental income | $ | 83,682 | $ | 46,191 | $ | 37,491 | 81 | % | $ | 33,253 | $ | 4,238 | |||||||||||
Tenant reimbursements | 16,273 | 9,964 | 6,309 | 63 | % | 5,112 | 1,197 | ||||||||||||||||
Interest income from real estate loans receivable | 3,366 | 10,276 | (6,910 | ) | (67 | )% | (6,910 | ) | — | ||||||||||||||
Interest income from real estate securities | — | 91 | (91 | ) | n/a | (91 | ) | — | |||||||||||||||
Other operating income | 2,833 | 1,974 | 859 | 44 | % | 1,118 | (259 | ) | |||||||||||||||
Operating, maintenance, and management costs | 35,957 | 22,804 | 13,153 | 58 | % | 11,611 | 1,542 | ||||||||||||||||
Real estate taxes and insurance | 14,189 | 9,282 | 4,907 | 53 | % | 4,209 | 698 | ||||||||||||||||
Asset management fees to affiliate | 7,648 | 4,068 | 3,580 | 88 | % | 3,465 | 115 | ||||||||||||||||
Real estate acquisition fees to affiliate | 2,231 | 2,784 | (553 | ) | (20 | )% | (553 | ) | n/a | ||||||||||||||
Real estate acquisition fees and expenses | 2,177 | 1,218 | 959 | 79 | % | 959 | n/a | ||||||||||||||||
General and administrative expenses | 3,418 | 3,160 | 258 | 8 | % | n/a | n/a | ||||||||||||||||
Depreciation and amortization | 47,063 | 28,677 | 18,386 | 64 | % | 18,310 | 76 | ||||||||||||||||
Interest expense | 15,598 | 2,706 | 12,892 | 476 | % | 10,424 | 2,468 | ||||||||||||||||
Impairment charges on real estate | 579 | 1,433 | (854 | ) | (60 | )% | — | (854 | ) | ||||||||||||||
Gain from foreclosure of real estate loan receivable | — | 7,473 | (7,473 | ) | n/a | n/a | n/a | ||||||||||||||||
Total (loss) income from discontinued operations | (18 | ) | 11,741 | (11,759 | ) | (100 | )% | 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, while also providing investors with a useful supplemental metric that addresses core operating performance by removing rent we expect to receive in a future period or rent that was received in a prior period; |
• | Amortization of above- and below-market leases. Similar to depreciation and amortization of real estate assets and lease related costs that are excluded from FFO, GAAP implicitly assumes that the value of intangible lease assets and liabilities diminishes predictably over time and requires that these charges be recognized currently in revenue. Since market lease rates in the aggregate have historically risen or fallen with local market conditions, management believes that by excluding these charges, MFFO provides useful supplemental information on the realized economics of the real estate; |
• | 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 below). We believe excluding these items provides investors with a useful supplemental metric that directly addresses core operating performance; |
• | Acquisition fees and expenses. Acquisition fees and expenses related to the acquisition of real estate 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 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 |
• | Prepayment fees related to the extinguishment of debt. Prepayment fees related to the extinguishment of debt are generally included in interest expense. 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, as we do not believe that the infrequent payment of such fees is reflective of the ongoing operations of our portfolio of real estate investments. |
For the Year Ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Net income (loss) attributable to common stockholders | $ | 2,444 | $ | (23,194 | ) | $ | 11,493 | ||||
Depreciation of real estate assets | 24,143 | 20,278 | 10,003 | ||||||||
Depreciation of real estate assets - discontinued operations | — | — | 250 | ||||||||
Amortization of lease-related costs | 20,596 | 26,785 | 18,674 | ||||||||
Amortization of lease-related costs - discontinued operations | — | — | 807 | ||||||||
Impairment charges on real estate | — | 579 | 1,433 | ||||||||
Gain on sale of real estate, net | (13,665 | ) | (55 | ) | (13,108 | ) | |||||
Gain on foreclosure of real estate loan receivable, net | — | — | (7,473 | ) | |||||||
Adjustments for noncontrolling interests - consolidated entity (1) | 3,218 | (657 | ) | (89 | ) | ||||||
Adjustments for investment in unconsolidated entity (2) | 7,599 | 5,312 | — | ||||||||
FFO attributable to common stockholders (3) | 44,335 | 29,048 | 21,990 | ||||||||
Straight-line rent and amortization of above- and below-market leases | (5,144 | ) | (9,731 | ) | (4,556 | ) | |||||
Amortization of discounts and closing costs | (428 | ) | (605 | ) | (806 | ) | |||||
Real estate acquisition fees to affiliate | — | 2,231 | 2,784 | ||||||||
Real estate acquisition fees and expenses | — | 2,177 | 1,218 | ||||||||
Amortization of net premium/discount on bond and notes payable | 25 | (1 | ) | (92 | ) | ||||||
Prepayment fees related to the extinguishment of debt | 250 | 332 | 119 | ||||||||
Adjustments for noncontrolling interests - consolidated entity (1) | (52 | ) | (135 | ) | 12 | ||||||
Adjustments for investment in unconsolidated entity (2) | (4,821 | ) | (3,388 | ) | 146 | ||||||
MFFO attributable to common stockholders (3) | 34,165 | 19,928 | 20,815 | ||||||||
Other capitalized operating expenses (4) | (2,658 | ) | (2,942 | ) | (3,390 | ) | |||||
Adjustments for noncontrolling interests - consolidated entity (1) | 262 | 314 | 314 | ||||||||
Adjusted MFFO attributable to common stockholders (3) | $ | 31,769 | $ | 17,300 | $ | 17,739 |
Distribution Declared | Distributions Declared Per Share | Distributions Paid | Cash Flows Provided by Operations | |||||||||||||||||||||
Period | Cash | Reinvested | Total | |||||||||||||||||||||
First Quarter 2015 | $ | 5,547 | $ | 0.092 | $ | 2,087 | $ | 3,460 | $ | 5,547 | $ | 2,792 | ||||||||||||
Second Quarter 2015 | 5,620 | 0.093 | 2,145 | 3,475 | 5,620 | 9,363 | ||||||||||||||||||
Third Quarter 2015 | 5,585 | 0.095 | 2,251 | 3,334 | 5,585 | 9,629 | ||||||||||||||||||
Fourth Quarter 2015 | 5,528 | 0.095 | 2,224 | 3,304 | 5,528 | 5,272 | ||||||||||||||||||
$ | 22,280 | $ | 0.375 | $ | 8,707 | $ | 13,573 | $ | 22,280 | $ | 27,056 |
Buildings | 25-40 years |
Building Improvements | 10-40 years |
Tenant Improvements | Shorter of lease term or expected useful life |
Tenant origination and absorption costs | Remaining term of related leases, including below-market renewal periods |
• | Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities; |
• | Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and |
• | Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable. |
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Maturity Date | Total Value | |||||||||||||||||||||||||||||||
2016 | 2017 | 2018 | 2019 | 2020 | Thereafter | Fair Value | ||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Loan receivable, book value | ||||||||||||||||||||||||||||||||
Mortgage loan - fixed rate (1) | $ | 27,850 | (1) | (1) | (1) | (1) | (1) | $ | 27,850 | $ | 27,850 | |||||||||||||||||||||
Annual effective interest rate | (1) | — | — | — | — | — | (1) | |||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Notes and Bond Payable, principal outstanding | ||||||||||||||||||||||||||||||||
Fixed rate | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 32,153 | $ | 32,153 | $ | 34,025 | ||||||||||||||||
Average interest rate (2) | — | — | — | — | — | 4.5 | % | 4.5 | % | |||||||||||||||||||||||
Variable rate | $ | 9,098 | $ | 428,613 | $ | 80,932 | $ | — | $ | — | $ | — | $ | 518,643 | $ | 519,982 | ||||||||||||||||
Average interest rate (2) | 2.6 | % | 2.4 | % | 2.3 | % | — | — | — | 2.4 | % |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9A. | CONTROLS AND PROCEDURES |
ITEM 9B. | OTHER INFORMATION |
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
ITEM 11. | EXECUTIVE COMPENSATION |
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
Ex. | Description | |
3.1 | Second Articles of Amendment and Restatement, incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed February 4, 2010 | |
3.2 | Amended and Restated Bylaws, 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. 333-156633 | |
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. 333-156633 | |
4.2 | Fifth Amended and Restated Dividend Reinvestment Plan, incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2015 | |
10.1 | Advisory Agreement by and between the Company and KBS Capital Advisors LLC, dated October 8, 2015, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2015 | |
10.2 | Underwriting Agreement, dated March 3, 2016, by and among KBS SOR (BVI) Holdings, Ltd and Poalim I.B.I Underwriting and Issuing Ltd. and Leumi Partners Underwriting, incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed March 4, 2016 | |
21.1 | Subsidiaries of the Company | |
23.1 | Consent of Ernst & Young LLP | |
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 | |
99.1 | Eighth Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed December 10, 2015 | |
99.3 | Consent of Duff & Phelps, LLC | |
99.4 | Consent of Landauer Services, LLC | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase | |
101.LAB | XBRL Taxonomy Extension Label Linkbase | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
Consolidated Financial Statements | |
Financial Statement Schedule | |
December 31, | ||||||||
2015 | 2014 | |||||||
Assets | ||||||||
Real estate held for investment, net | $ | 822,514 | $ | 845,134 | ||||
Real estate held for sale, net | — | 9,954 | ||||||
Real estate loan receivable, net | 27,850 | 27,422 | ||||||
Total real estate and real estate-related investments, net | 850,364 | 882,510 | ||||||
Cash and cash equivalents | 23,058 | 19,093 | ||||||
Investments in unconsolidated joint ventures | 74,437 | 72,045 | ||||||
Rents and other receivables, net | 24,487 | 18,283 | ||||||
Above-market leases, net | 1,038 | 2,061 | ||||||
Assets related to real estate held for sale | — | 98 | ||||||
Prepaid expenses and other assets | 30,830 | 22,223 | ||||||
Total assets | $ | 1,004,214 | $ | 1,016,313 | ||||
Liabilities and equity | ||||||||
Notes and bond payable: | ||||||||
Notes and bond payable, net | $ | 547,323 | $ | 519,528 | ||||
Notes payable related to real estate held for sale, net | — | 4,534 | ||||||
Total notes payable and bond payable, net | 547,323 | 524,062 | ||||||
Accounts payable and accrued liabilities | 17,543 | 18,609 | ||||||
Due to affiliates | 59 | — | ||||||
Below-market leases, net | 2,735 | 4,403 | ||||||
Other liabilities | 17,905 | 9,192 | ||||||
Total liabilities | 585,565 | 556,266 | ||||||
Commitments and contingencies (Note 12) | ||||||||
Redeemable common stock | 9,859 | 9,911 | ||||||
Equity | ||||||||
KBS Strategic Opportunity REIT, Inc. 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, 58,696,115 and 60,044,329 shares issued and outstanding as of December 31, 2015 and December 31, 2014, respectively | 587 | 600 | ||||||
Additional paid-in capital | 504,303 | 524,489 | ||||||
Cumulative distributions and net losses | (111,527 | ) | (91,691 | ) | ||||
Total KBS Strategic Opportunity REIT, Inc. stockholders’ equity | 393,363 | 433,398 | ||||||
Noncontrolling interests | 15,427 | 16,738 | ||||||
Total equity | 408,790 | 450,136 | ||||||
Total liabilities and equity | $ | 1,004,214 | $ | 1,016,313 |
Years Ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Revenues: | |||||||||||
Rental income | $ | 88,543 | $ | 83,682 | $ | 46,191 | |||||
Tenant reimbursements | 18,313 | 16,273 | 9,964 | ||||||||
Interest income from real estate loans receivable | 1,968 | 3,366 | 10,276 | ||||||||
Interest income from real estate securities | — | — | 91 | ||||||||
Other operating income | 3,304 | 2,833 | 1,974 | ||||||||
Total revenues | 112,128 | 106,154 | 68,496 | ||||||||
Expenses: | |||||||||||
Operating, maintenance, and management | 37,512 | 35,957 | 22,804 | ||||||||
Real estate taxes and insurance | 14,565 | 14,189 | 9,282 | ||||||||
Asset management fees to affiliate | 8,348 | 7,648 | 4,068 | ||||||||
Real estate acquisition fees to affiliate | — | 2,231 | 2,784 | ||||||||
Real estate acquisition fees and expenses | — | 2,177 | 1,218 | ||||||||
General and administrative expenses | 3,246 | 3,418 | 3,160 | ||||||||
Depreciation and amortization | 44,739 | 47,063 | 28,677 | ||||||||
Interest expense | 14,986 | 15,598 | 2,706 | ||||||||
Impairment charges on real estate | — | 579 | 1,433 | ||||||||
Total expenses | 123,396 | 128,860 | 76,132 | ||||||||
Other income (loss): | |||||||||||
Other interest income | 18 | 22 | 62 | ||||||||
Other income | 5,085 | — | — | ||||||||
Income from unconsolidated joint venture | — | — | 95 | ||||||||
Equity in loss of unconsolidated joint venture | (368 | ) | (1,101 | ) | (146 | ) | |||||
Gain on sale of real estate, net | 13,665 | 55 | — | ||||||||
Gain on foreclosure of real estate loan receivable | — | — | 7,473 | ||||||||
Total other income (loss), net | 18,400 | (1,024 | ) | 7,484 | |||||||
Income (loss) from continuing operations | 7,132 | (23,730 | ) | (152 | ) | ||||||
Discontinued operations: | |||||||||||
Gain on sale of real estate, net | — | — | 13,108 | ||||||||
Loss from discontinued operations | — | (18 | ) | (1,367 | ) | ||||||
Total (loss) income from discontinued operations | — | (18 | ) | 11,741 | |||||||
Net income (loss) | 7,132 | (23,748 | ) | 11,589 | |||||||
Net (income) loss attributable to noncontrolling interests | (4,688 | ) | 554 | (96 | ) | ||||||
Net income (loss) attributable to common stockholders | $ | 2,444 | $ | (23,194 | ) | $ | 11,493 | ||||
Basic and diluted income (loss) per common share: | |||||||||||
Continuing operations | $ | 0.04 | $ | (0.39 | ) | $ | — | ||||
Discontinued operations | — | — | 0.20 | ||||||||
Net income (loss) per common share | $ | 0.04 | $ | (0.39 | ) | $ | 0.20 | ||||
Weighted-average number of common shares outstanding, basic and diluted | 59,656,667 | 59,714,540 | 58,359,568 |
Years Ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Net income (loss) | $ | 7,132 | $ | (23,748 | ) | $ | 11,589 | ||||
Other comprehensive income: | |||||||||||
Unrealized gain on real estate securities | — | 9 | 4 | ||||||||
Total other comprehensive income | — | 9 | 4 | ||||||||
Total comprehensive income (loss) | 7,132 | (23,739 | ) | 11,593 | |||||||
Total comprehensive (income) loss attributable to noncontrolling interests | (4,688 | ) | 554 | (96 | ) | ||||||
Total comprehensive income (loss) attributable to common stockholders | $ | 2,444 | $ | (23,185 | ) | $ | 11,497 |
Additional Paid-in Capital | Cumulative Distributions and Net Losses | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||
Common Stock | ||||||||||||||||||||||||||||||
Shares | Amounts | |||||||||||||||||||||||||||||
Balance, December 31, 2012 | 58,127,627 | $ | 581 | $ | 505,907 | $ | (38,615 | ) | $ | (13 | ) | $ | 467,860 | $ | 15,792 | $ | 483,652 | |||||||||||||
Net income | — | — | — | 11,493 | — | 11,493 | 96 | 11,589 | ||||||||||||||||||||||
Other comprehensive income | — | — | — | — | 4 | 4 | — | 4 | ||||||||||||||||||||||
Issuance of common stock | 1,751,478 | 18 | 16,623 | — | — | 16,641 | — | 16,641 | ||||||||||||||||||||||
Transfers to redeemable common stock | — | — | (7,922 | ) | — | — | (7,922 | ) | — | (7,922 | ) | |||||||||||||||||||
Redemptions of common stock | (260,105 | ) | (3 | ) | (2,447 | ) | — | — | (2,450 | ) | — | (2,450 | ) | |||||||||||||||||
Distributions declared | — | — | — | (25,679 | ) | — | (25,679 | ) | — | (25,679 | ) | |||||||||||||||||||
Other offering costs | — | — | (125 | ) | — | — | (125 | ) | — | (125 | ) | |||||||||||||||||||
Noncontrolling interests contributions | — | — | — | — | — | — | 1,213 | 1,213 | ||||||||||||||||||||||
Distributions to noncontrolling interest | — | — | — | — | — | — | (2,237 | ) | (2,237 | ) | ||||||||||||||||||||
Balance, December 31, 2013 | 59,619,000 | $ | 596 | $ | 512,036 | $ | (52,801 | ) | $ | (9 | ) | $ | 459,822 | $ | 14,864 | $ | 474,686 | |||||||||||||
Net loss | — | — | — | (23,194 | ) | — | (23,194 | ) | (554 | ) | (23,748 | ) | ||||||||||||||||||
Other comprehensive income | — | — | — | — | 9 | 9 | — | 9 | ||||||||||||||||||||||
Issuance of common stock | 901,146 | 9 | 9,902 | — | — | 9,911 | — | 9,911 | ||||||||||||||||||||||
Transfers from redeemable common stock | — | — | 7,662 | — | — | 7,662 | — | 7,662 | ||||||||||||||||||||||
Redemptions of common stock | (475,817 | ) | (5 | ) | (5,099 | ) | — | — | (5,104 | ) | — | (5,104 | ) | |||||||||||||||||
Distributions declared | — | — | — | (15,696 | ) | — | (15,696 | ) | — | (15,696 | ) | |||||||||||||||||||
Other offering costs | — | — | (12 | ) | — | — | (12 | ) | — | (12 | ) | |||||||||||||||||||
Noncontrolling interests contributions | — | — | — | — | — | — | 2,585 | 2,585 | ||||||||||||||||||||||
Distributions to noncontrolling interest | — | — | — | — | — | — | (157 | ) | (157 | ) | ||||||||||||||||||||
Balance, December 31, 2014 | 60,044,329 | $ | 600 | $ | 524,489 | (91,691 | ) | — | 433,398 | 16,738 | 450,136 | |||||||||||||||||||
Net income | — | — | — | 2,444 | — | 2,444 | 4,688 | 7,132 | ||||||||||||||||||||||
Issuance of common stock | 1,114,532 | 11 | 13,562 | — | — | 13,573 | — | 13,573 | ||||||||||||||||||||||
Transfers to redeemable common stock | — | — | (3,663 | ) | — | — | (3,663 | ) | — | (3,663 | ) | |||||||||||||||||||
Redemptions of common stock | (2,462,746 | ) | (24 | ) | (30,076 | ) | — | — | (30,100 | ) | — | (30,100 | ) | |||||||||||||||||
Distributions declared | — | — | — | (22,280 | ) | — | (22,280 | ) | — | (22,280 | ) | |||||||||||||||||||
Other offering costs | (9 | ) | — | — | (9 | ) | — | (9 | ) | |||||||||||||||||||||
Noncontrolling interests contributions | — | — | — | — | — | — | 1,343 | 1,343 | ||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (7,342 | ) | (7,342 | ) | ||||||||||||||||||||
Balance, December 31, 2015 | 58,696,115 | $ | 587 | $ | 504,303 | $ | (111,527 | ) | $ | — | $ | 393,363 | $ | 15,427 | $ | 408,790 |
Years Ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Cash Flows from Operating Activities: | |||||||||||
Net income (loss) | $ | 7,132 | $ | (23,748 | ) | $ | 11,589 | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
Loss due to property damages | 2,260 | 707 | — | ||||||||
Equity in loss of unconsolidated joint venture | 368 | 1,101 | 146 | ||||||||
Depreciation and amortization | |||||||||||
Continuing operations | 44,739 | 47,063 | 28,677 | ||||||||
Discontinued operations | — | — | 1,057 | ||||||||
Impairment charges on real estate | — | 579 | 1,433 | ||||||||
Non-cash interest income on real estate related investments | (428 | ) | (614 | ) | (842 | ) | |||||
Gain on sale of real estate, net | (13,665 | ) | (55 | ) | (13,108 | ) | |||||
Other income | (5,085 | ) | — | — | |||||||
Gain on foreclosure of real estate loan receivable, net | — | — | (7,473 | ) | |||||||
Deferred rent | (4,499 | ) | (8,392 | ) | (4,694 | ) | |||||
Bad debt expense | 331 | 176 | 197 | ||||||||
Amortization of above- and below-market leases, net | (645 | ) | (1,339 | ) | 138 | ||||||
Amortization of deferred financing costs | 2,703 | 2,778 | 976 | ||||||||
Interest accretion on real estate securities | — | 9 | 36 | ||||||||
Net amortization of discount and (premium) on bond and notes payable | 25 | (1 | ) | (92 | ) | ||||||
Changes in assets and liabilities: | |||||||||||
Rents and other receivables | (1,126 | ) | (1,817 | ) | (1,312 | ) | |||||
Deferred interest receivable | — | — | 1,001 | ||||||||
Prepaid expenses and other assets | (6,683 | ) | (8,314 | ) | (2,299 | ) | |||||
Accounts payable and accrued liabilities | 595 | 606 | 6,089 | ||||||||
Due to affiliates | 59 | — | (21 | ) | |||||||
Other liabilities | 975 | 2,711 | 3,132 | ||||||||
Net cash provided by operating activities | 27,056 | 11,450 | 24,630 | ||||||||
Cash Flows from Investing Activities: | |||||||||||
Acquisitions of real estate | — | (191,925 | ) | (295,167 | ) | ||||||
Improvements to real estate | (35,586 | ) | (33,892 | ) | (22,398 | ) | |||||
Proceeds from sales of real estate, net | 38,772 | 1,393 | 30,658 | ||||||||
Escrow deposits for future real estate purchases | — | — | (13,000 | ) | |||||||
Investments in real estate loans receivable | — | (5,850 | ) | (21,568 | ) | ||||||
Proceeds from condemnation proceeds | 5,915 | — | — | ||||||||
Insurance proceeds for property damages | 294 | — | — | ||||||||
Payoff of real estate loan receivable | — | — | 35,750 | ||||||||
Principal repayments on real estate securities | — | 333 | 4,452 | ||||||||
Investment in unconsolidated joint venture | (2,760 | ) | (58,987 | ) | (9,000 | ) | |||||
Distribution of capital from unconsolidated joint venture | — | 2,179 | 398 | ||||||||
Extension fee received on real estate loan receivable | — | 935 | — | ||||||||
Funding of restricted cash for development obligations | (4,643 | ) | — | — | |||||||
Net cash provided by (used in) investing activities | 1,992 | (285,814 | ) | (289,875 | ) | ||||||
Cash Flows from Financing Activities: | |||||||||||
Proceeds from notes payable | 61,189 | 307,254 | 251,065 | ||||||||
Principal payments on notes payable | (40,631 | ) | (59,203 | ) | (36,084 | ) | |||||
Payments of deferred financing costs | (826 | ) | (4,117 | ) | (4,988 | ) | |||||
Payments to redeem common stock | (30,100 | ) | (5,104 | ) | (2,450 | ) | |||||
Payments of other offering costs | (9 | ) | (12 | ) | (200 | ) | |||||
Distributions paid | (8,707 | ) | (5,785 | ) | (9,038 | ) | |||||
Noncontrolling interests contributions | 1,343 | 2,585 | 1,213 | ||||||||
Distributions to noncontrolling interests | (7,342 | ) | (157 | ) | (2,237 | ) | |||||
Net cash (used in) provided by financing activities | (25,083 | ) | 235,461 | 197,281 | |||||||
Net increase (decrease) in cash and cash equivalents | 3,965 | (38,903 | ) | (67,964 | ) | ||||||
Cash and cash equivalents, beginning of period | 19,093 | 57,996 | 125,960 | ||||||||
Cash and cash equivalents, end of period | $ | 23,058 | $ | 19,093 | $ | 57,996 | |||||
Supplemental Disclosure of Cash Flow Information: | |||||||||||
Interest paid, net of capitalized interest of $1,856, $1,987 and $2,718 for the years ended December 31, 2015, 2014 and 2013 respectively | $ | 12,265 | $ | 12,258 | $ | 1,635 | |||||
Supplemental Disclosure of Noncash Investing and Financing Activities: | |||||||||||
Increase in development obligations | $ | 4,643 | $ | — | $ | — | |||||
Decrease in restricted cash in connection with development obligations | $ | (515 | ) | $ | — | $ | — | ||||
Mortgage debt assumed in connection with real estate acquisition (at fair value) | $ | — | $ | 24,793 | $ | — | |||||
Application of escrow deposits to acquisition of real estate | $ | — | $ | 13,000 | $ | — | |||||
Investments in real estate acquired through foreclosure | $ | — | $ | — | $ | 45,943 | |||||
Assets assumed in connection with foreclosure of real estate | $ | — | $ | — | $ | 7,156 | |||||
Liabilities assumed in connection with foreclosure of real estate | $ | — | $ | — | $ | 9,671 | |||||
Increase in accrued improvements to real estate | $ | — | $ | 3,095 | $ | 2,583 | |||||
Increase in redeemable common stock payable | $ | 3,715 | $ | — | $ | — | |||||
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan | $ | 13,573 | $ | 9,911 | $ | 16,641 |
1. | ORGANIZATION |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
• | whether the lease stipulates how a tenant improvement allowance may be spent; |
• | whether the amount of a tenant improvement allowance is in excess of market rates; |
• | whether the tenant or landlord retains legal title to the improvements at the end of the lease term; |
• | whether the tenant improvements are unique to the tenant or general-purpose in nature; and |
• | whether the tenant improvements are expected to have any residual value at the end of the lease. |
Buildings | 25-40 years |
Building improvements | 10-40 years |
Tenant improvements | Shorter of lease term or expected useful life |
Tenant origination and absorption costs | Remaining term of related leases, including below-market renewal periods |
• | Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities; |
• | Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and |
• | Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable. |
• | 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), the Company may not redeem shares until the stockholder has held the shares for one year. |
• | During 2015, redemptions were limited to the amount of net proceeds from the sale of shares under the Company’s dividend reinvestment plan during 2014 plus an additional $21.0 million. The last $1.0 million of net proceeds from the dividend reinvestment plan during 2014 was reserved exclusively for shares redeemed in connection with a stockholder’s death, “qualifying disability,” or “determination of incompetence”. |
• | In 2016, the Company may not redeem more than $3.0 million of shares in a given quarter (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”). To the extent that the Company redeems less than $3.0 million of shares (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”) in a given fiscal quarter, any remaining excess capacity to redeem shares in such fiscal quarter will be added to the Company’s capacity to otherwise redeem shares (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”) during the succeeding fiscal quarter. The Company may increase or decrease this limit upon ten business days’ notice to stockholders. The Company’s board of directors may approve an increase in this limit to the extent that the Company has received proceeds from asset sales or the refinancing of debt or for any other reason deemed appropriate by the board of directors. |
• | During any calendar year, the Company may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year. |
• | The Company has 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. |
• | 92.5% of the Company’s most recent estimated value per share as of the applicable redemption date for those shares held for at least one year; |
• | 95.0% of the Company’s most recent estimated value per share as of the applicable redemption date for those shares held for at least two years; |
• | 97.5% of the Company’s most recent estimated value per share as of the applicable redemption date for those shares held for at least three years; and |
• | 100% of the Company’s most recent estimated value per share as of the applicable redemption date for those shares held for at least four years. |
• | 97.5% of the Company’s most recent estimated value per share as of the applicable redemption date for those shares held for at least one year but less than four years; and |
• | 100% of the Company’s most recent estimated value per share as of the applicable redemption date for those shares held for at least four years. |
3. | REAL ESTATE HELD FOR INVESTMENT |
December 31, 2015 | December 31, 2014 | |||||||
Land | $ | 223,201 | $ | 229,053 | ||||
Buildings and improvements | 646,979 | 628,662 | ||||||
Tenant origination and absorption costs | 43,894 | 50,807 | ||||||
Total real estate, cost | 914,074 | 908,522 | ||||||
Accumulated depreciation and amortization | (91,560 | ) | (63,388 | ) | ||||
Total real estate, net | $ | 822,514 | $ | 845,134 |
Property | Date Acquired or Foreclosed on | City | State | Property Type | Land | Building and Improvements | Tenant Origination and Absorption | Total Real Estate, at Cost | Accumulated Depreciation and Amortization | Total Real Estate, Net | Ownership % | ||||||||||||||||||||||||
Northridge Center I & II | 03/25/2011 | Atlanta | GA | Office | $ | 2,234 | $ | 7,170 | $ | — | $ | 9,404 | $ | (1,986 | ) | $ | 7,418 | 100.0 | % | ||||||||||||||||
Iron Point Business Park | 06/21/2011 | Folsom | CA | Office | 2,671 | 19,445 | — | 22,116 | (3,763 | ) | 18,353 | 100.0 | % | ||||||||||||||||||||||
Richardson Portfolio: | |||||||||||||||||||||||||||||||||||
Palisades Central I | 11/23/2011 | Richardson | TX | Office | 1,037 | 10,035 | 684 | 11,756 | (2,028 | ) | 9,728 | 90.0 | % | ||||||||||||||||||||||
Palisades Central II | 11/23/2011 | Richardson | TX | Office | 810 | 17,820 | 1,219 | 19,849 | (4,600 | ) | 15,249 | 90.0 | % | ||||||||||||||||||||||
Greenway I | 11/23/2011 | Richardson | TX | Office | 561 | 2,156 | — | 2,717 | (568 | ) | 2,149 | 90.0 | % | ||||||||||||||||||||||
Greenway III | 11/23/2011 | Richardson | TX | Office | 702 | 3,928 | 785 | 5,415 | (1,561 | ) | 3,854 | 90.0 | % | ||||||||||||||||||||||
Undeveloped Land | 11/23/2011 | Richardson | TX | Undeveloped Land | 3,058 | — | — | 3,058 | — | 3,058 | 90.0 | % | |||||||||||||||||||||||
Total Richardson Portfolio | 6,168 | 33,939 | 2,688 | 42,795 | (8,757 | ) | 34,038 | ||||||||||||||||||||||||||||
Park Highlands | 12/30/2011 | North Las Vegas | NV | Undeveloped Land | 30,695 | — | — | 30,695 | — | 30,695 | 50.1 | % | |||||||||||||||||||||||
Bellevue Technology Center | 07/31/2012 | Bellevue | WA | Office | 25,506 | 55,863 | 3,813 | 85,182 | (8,107 | ) | 77,075 | 100.0 | % | ||||||||||||||||||||||
Powers Ferry Landing East | 09/24/2012 | Atlanta | GA | Office | 1,643 | 8,039 | 105 | 9,787 | (1,607 | ) | 8,180 | 100.0 | % | ||||||||||||||||||||||
1800 West Loop | 12/04/2012 | Houston | TX | Office | 8,360 | 60,647 | 5,331 | 74,338 | (10,360 | ) | 63,978 | 100.0 | % | ||||||||||||||||||||||
West Loop I & II | 12/07/2012 | Houston | TX | Office | 7,300 | 30,290 | 2,183 | 39,773 | (4,582 | ) | 35,191 | 100.0 | % | ||||||||||||||||||||||
Burbank Collection | 12/12/2012 | Burbank | CA | Retail | 4,175 | 9,384 | 789 | 14,348 | (1,284 | ) | 13,064 | 90.0 | % | ||||||||||||||||||||||
Austin Suburban Portfolio | 03/28/2013 | Austin | TX | Office | 8,288 | 67,428 | 3,129 | 78,845 | (9,230 | ) | 69,615 | 100.0 | % | ||||||||||||||||||||||
Westmoor Center | 06/12/2013 | Westminster | CO | Office | 10,058 | 66,164 | 8,809 | 85,031 | (13,542 | ) | 71,489 | 100.0 | % | ||||||||||||||||||||||
Central Building | 07/10/2013 | Seattle | WA | Office | 7,015 | 26,097 | 2,000 | 35,112 | (3,188 | ) | 31,924 | 100.0 | % | ||||||||||||||||||||||
50 Congress Street | 07/11/2013 | Boston | MA | Office | 9,876 | 40,731 | 2,634 | 53,241 | (4,943 | ) | 48,298 | 100.0 | % | ||||||||||||||||||||||
1180 Raymond | 08/20/2013 | Newark | NJ | Apartment | 8,292 | 36,958 | 136 | 45,386 | (2,769 | ) | 42,617 | 100.0 | % | ||||||||||||||||||||||
Park Highlands II | 12/10/2013 | North Las Vegas | NV | Undeveloped Land | 22,192 | — | — | 22,192 | — | 22,192 | 99.5 | % | |||||||||||||||||||||||
Maitland Promenade II | 12/18/2013 | Orlando | FL | Office | 3,434 | 23,825 | 4,295 | 31,554 | (3,668 | ) | 27,886 | 100.0 | % | ||||||||||||||||||||||
Plaza Buildings | 01/14/2014 | Bellevue | WA | Office | 53,040 | 135,772 | 7,982 | 196,794 | (12,458 | ) | 184,336 | 100.0 | % | ||||||||||||||||||||||
424 Bedford | 01/31/2014 | Brooklyn | NY | Apartment | 8,860 | 25,227 | — | 34,087 | (1,316 | ) | 32,771 | 90.0 | % | ||||||||||||||||||||||
Richardson Land II | 09/04/2014 | Richardson | TX | Undeveloped Land | 3,394 | — | — | 3,394 | — | 3,394 | 90.0 | % | |||||||||||||||||||||||
$ | 223,201 | $ | 646,979 | $ | 43,894 | $ | 914,074 | $ | (91,560 | ) | $ | 822,514 |
2016 | $ | 76,903 | |
2017 | 71,825 | ||
2018 | 60,832 | ||
2019 | 48,637 | ||
2020 | 37,094 | ||
Thereafter | 80,506 | ||
$ | 375,797 |
Industry | Number of Tenants | Annualized Base Rent (1) (in thousands) | Percentage of Annualized Base Rent | ||||||
Finance | 49 | $ | 10,952 | 13.8 | % | ||||
Computer System Design & Programming | 42 | 10,250 | 12.9 | % | |||||
Insurance Carriers & Related Activities | 28 | 8,704 | 11.0 | % | |||||
$ | 29,906 | 37.7 | % |
4. | TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES |
Tenant Origination and Absorption Costs | Above-Market Lease Assets | Below-Market Lease Liabilities | ||||||||||||||||||||||
December 31, 2015 | December 31, 2014 | December 31, 2015 | December 31, 2014 | December 31, 2015 | December 31, 2014 | |||||||||||||||||||
Cost | $ | 43,894 | $ | 50,807 | $ | 2,399 | $ | 3,752 | $ | (5,826 | ) | $ | (7,585 | ) | ||||||||||
Accumulated Amortization | (22,749 | ) | (19,113 | ) | (1,361 | ) | (1,691 | ) | 3,091 | 3,182 | ||||||||||||||
Net Amount | $ | 21,145 | $ | 31,694 | $ | 1,038 | $ | 2,061 | $ | (2,735 | ) | $ | (4,403 | ) |
Tenant Origination and Absorption Costs | Above-Market Lease Assets | Below-Market Lease Liabilities | ||||||||||||||||||||||||||||||||||
For the Years Ended December 31, | For the Years Ended December 31, | For the Years Ended December 31, | ||||||||||||||||||||||||||||||||||
2015 | 2014 | 2013 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||
Amortization | $ | (10,555 | ) | $ | (15,020 | ) | $ | (10,942 | ) | $ | (1,023 | ) | $ | (1,070 | ) | $ | (1,456 | ) | $ | 1,668 | $ | 2,409 | $ | 1,565 |
Tenant Origination and Absorption Costs | Above-Market Lease Assets | Below-Market Lease Liabilities | ||||||||||
2016 | $ | (7,417 | ) | $ | (443 | ) | $ | 1,115 | ||||
2017 | (5,209 | ) | (275 | ) | 745 | |||||||
2018 | (3,383 | ) | (130 | ) | 488 | |||||||
2019 | (1,998 | ) | (82 | ) | 159 | |||||||
2020 | (1,282 | ) | (63 | ) | 110 | |||||||
Thereafter | (1,856 | ) | (45 | ) | 118 | |||||||
$ | (21,145 | ) | $ | (1,038 | ) | $ | 2,735 | |||||
Weighted-Average Remaining Amortization Period | 4.1 years | 3.3 years | 3.3 years |
5. | REAL ESTATE LOAN RECEIVABLE |
Loan Name Location of Related Property or Collateral | Date Originated | Property Type | Loan Type | Outstanding Principal Balance as of December 31, 2015 (1) | Book Value as of December 31, 2015 (2) | Book Value as of December 31, 2014 (2) | Contractual Interest Rate (3) | Annualized Effective Interest Rate (3) | Maturity Date | |||||||||||||||
University House First Mortgage | ||||||||||||||||||||||||
New York, New York | 3/20/2013 | Student Housing | Mortgage | $ | 27,850 | $ | 27,850 | $ | 27,422 | 16.0% | (4) | (4) |
Real estate loan receivable - December 31, 2014 | $ | 27,422 | |
Accretion of closing costs, origination fees and extension fees on real estate loan receivable, net | 428 | ||
Real estate loan receivable - December 31, 2015 | $ | 27,850 |
2015 | 2014 | 2013 | ||||||||||
Contractual interest income (including deferred interest) | $ | 1,540 | $ | 2,752 | $ | 8,248 | ||||||
Accretion of closing costs, origination fees and extension fees, net | 428 | 614 | 842 | |||||||||
Interest accretion | — | — | 1,186 | |||||||||
Interest income from real estate loans receivable | $ | 1,968 | $ | 3,366 | $ | 10,276 |
6. | REAL ESTATE SALES AND DISCONTINUED OPERATIONS |
Years Ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Total revenues | $ | 215 | $ | 1,134 | $ | 1,017 | |||||
Total expenses | 645 | 2,473 | 3,496 |
Years Ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Total revenues and other income | $ | — | $ | — | $ | 1,387 | |||||
Total expenses | — | 18 | 2,754 | ||||||||
Loss from discontinued operations before gain on sales of real estate | — | (18 | ) | (1,367 | ) | ||||||
Gain on sales of real estate, net | — | — | 13,108 | ||||||||
Total (loss) income from discontinued operations | $ | — | $ | (18 | ) | $ | 11,741 |
7. | NOTES AND BOND PAYABLE |
Book Value as of December 31, 2015 | Book Value as of December 31, 2014 | Contractual Interest Rate as of December 31, 2015 (1) | Effective Interest Rate at December 31, 2015 (1) | Payment Type | Maturity Date (2) | |||||||||||
Richardson Portfolio Mortgage Loan | $ | 41,177 | $ | 38,000 | One-Month LIBOR + 2.10% | 2.34% | Principal & Interest | 05/01/2017 | ||||||||
Bellevue Technology Center Mortgage Loan | 52,960 | 49,836 | One-Month LIBOR + 2.25% | 2.49% | Interest Only (3) | 03/01/2017 | ||||||||||
Portfolio Revolving Loan Facility (4) | 47,087 | 12,447 | One-Month LIBOR + 2.25% | 2.49% | Interest Only (3) | 05/01/2017 | ||||||||||
Portfolio Mortgage Loan | 100,032 | 93,751 | One-Month LIBOR + 2.25% | 2.49% | Interest Only (3) | 07/01/2017 | ||||||||||
1635 N. Cahuenga Mortgage Loan (5) | — | 4,650 | (5) | (5) | (5) | (5) | ||||||||||
Burbank Collection Mortgage Loan | 9,098 | 9,043 | One-Month LIBOR + 2.35% | 2.60% | Interest Only | 09/30/2016 | ||||||||||
50 Congress Mortgage Loan | 28,075 | 26,935 | One-Month LIBOR + 1.90% | 2.14% | Interest Only (3) | 10/01/2017 | ||||||||||
1180 Raymond Bond Payable | 6,795 | 6,945 | 6.50% | 6.50% | Principal & Interest | 09/01/2036 | ||||||||||
Central Building Mortgage Loan | 24,896 | 24,896 | One-Month LIBOR + 1.75% | 1.99% | Interest Only | 11/13/2018 | ||||||||||
Maitland Promenade II Mortgage Loan (6) | 20,182 | 20,182 | One-Month LIBOR + 2.90% | 3.25% | Interest Only (3) | 01/01/2017 | ||||||||||
Westmoor Center Mortgage Loan | 56,036 | 54,880 | One-Month LIBOR + 2.25% | 2.49% | Interest Only (3) | 02/01/2018 | ||||||||||
Plaza Buildings Senior Loan | 111,000 | 109,707 | One-Month LIBOR + 1.90% | 2.14% | Interest Only (3) | 01/14/2017 | ||||||||||
Plaza Buildings Mezzanine Loan (7) | — | 25,000 | (7) | (7) | (7) | (7) | ||||||||||
424 Bedford Mortgage Loan | 25,358 | 25,866 | 3.91% | 3.91% | Principal & Interest | 10/01/2022 | ||||||||||
1180 Raymond Mortgage Loan | 28,100 | 28,100 | One-Month LIBOR + 2.25% | 2.49% | Interest Only | 12/01/2017 | ||||||||||
Total Notes and Bond Payable principal outstanding | 550,796 | 530,238 | ||||||||||||||
Net Premium/(Discount) on Notes and Bond Payable (8) | 50 | 25 | ||||||||||||||
Deferred financing costs, net | (3,523 | ) | (6,201 | ) | ||||||||||||
Total Notes and Bond Payable, net | $ | 547,323 | $ | 524,062 |
2016 | $ | 13,649 | ||
2017 | 426,026 | |||
2018 | 81,182 | |||
2019 | 812 | |||
2020 | 846 | |||
Thereafter | 28,281 | |||
$ | 550,796 |
8. | FAIR VALUE DISCLOSURES |
• | Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities; |
• | Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and |
• | Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable. |
December 31, 2015 | December 31, 2014 | |||||||||||||||||||||||
Face Value | Carrying Amount | Fair Value | Face Value | Carrying Amount | Fair Value | |||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||
Real estate loan receivable | $ | 27,850 | $ | 27,850 | $ | 27,850 | $ | 27,850 | $ | 27,422 | $ | 27,813 | ||||||||||||
Financial liabilities: | ||||||||||||||||||||||||
Notes and bond payable | $ | 550,796 | $ | 547,323 | $ | 554,007 | $ | 530,238 | $ | 524,062 | $ | 534,045 |
9. | RELATED PARTY TRANSACTIONS |
Incurred | Payable as of December 31, | |||||||||||||||||||
2015 | 2014 | 2013 | 2015 | 2014 | ||||||||||||||||
Expensed | ||||||||||||||||||||
Asset management fees (1) | $ | 8,348 | $ | 7,648 | $ | 4,173 | $ | — | $ | — | ||||||||||
Real estate acquisition fees | — | 2,231 | 2,784 | — | — | |||||||||||||||
Reimbursable operating expenses (2) | 178 | 157 | 139 | 59 | — | |||||||||||||||
Disposition fees (3) | 276 | — | 322 | — | — | |||||||||||||||
Capitalized | ||||||||||||||||||||
Acquisition and origination fees on real estate loans receivable | — | — | 220 | — | — | |||||||||||||||
Acquisition fee on investment in unconsolidated joint venture | — | 1,573 | — | — | — | |||||||||||||||
Acquisition fee on undeveloped land | — | 67 | 199 | — | — | |||||||||||||||
$ | 8,802 | $ | 11,676 | $ | 7,837 | $ | 59 | $ | — |
10. | INVESTMENT IN UNCONSOLIDATED JOINT VENTURES |
Investment Balance at December 31, | ||||||||||||||
Joint Venture | Number of Properties | Location | Ownership % | 2015 | 2014 | |||||||||
NIP Joint Venture | 21 | Various | Less than 5.0% | $ | 5,305 | $ | 5,305 | |||||||
110 William Joint Venture | 1 | New York, New York | 60.0% | 69,132 | 66,740 | |||||||||
$ | 74,437 | $ | 72,045 |
(Unaudited) December 31, 2015 | (Unaudited) December 31, 2014 | |||||||
Assets: | ||||||||
Real estate assets, net of accumulated depreciation and amortization | $ | 269,664 | $ | 276,683 | ||||
Other assets | 18,973 | 14,716 | ||||||
Total assets | $ | 288,637 | $ | 291,399 | ||||
Liabilities and Equity: | ||||||||
Notes payable, net (1) | $ | 162,395 | $ | 167,036 | ||||
Other liabilities | 13,617 | 15,796 | ||||||
Members’ capital | 112,625 | 108,567 | ||||||
Total Liabilities and Equity | $ | 288,637 | $ | 291,399 |
(Unaudited) For the Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Revenues | $ | 34,188 | $ | 22,536 | $ | — | ||||||
Expenses: | ||||||||||||
Operating, maintenance, and management | 10,549 | 6,869 | — | |||||||||
Real estate taxes and insurance | 5,748 | 3,476 | — | |||||||||
Real estate acquisition fees and expenses | 1 | 1,016 | 244 | |||||||||
Depreciation and amortization | 12,596 | 8,806 | — | |||||||||
Interest expense | 6,170 | 4,193 | — | |||||||||
Total expenses | 35,064 | 24,360 | 244 | |||||||||
Total other income | 334 | 36 | — | |||||||||
Net loss | $ | (542 | ) | $ | (1,788 | ) | $ | (244 | ) | |||
Company’s equity in loss of unconsolidated joint venture | $ | (368 | ) | $ | (1,101 | ) | $ | (146 | ) |
11. | SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) |
2015 | ||||||||||||||||
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
Revenues | $ | 27,943 | $ | 28,667 | $ | 28,158 | $ | 27,360 | ||||||||
Net income (loss) | $ | 5,385 | $ | 2,639 | $ | (277 | ) | $ | (682 | ) | ||||||
Net income (loss) attributable to common stockholders | $ | 2,235 | $ | 1,526 | $ | (462 | ) | $ | (922 | ) | ||||||
Net income (loss) per common share, basic and diluted | $ | 0.04 | $ | 0.03 | $ | (0.01 | ) | $ | (0.02 | ) | ||||||
Distributions declared per common share | $ | 0.092 | $ | 0.093 | $ | 0.095 | $ | 0.095 |
2014 | ||||||||||||||||
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
Revenues | $ | 24,626 | $ | 26,244 | $ | 27,598 | $ | 27,686 | ||||||||
Net loss | $ | (9,894 | ) | $ | (5,480 | ) | $ | (3,426 | ) | $ | (4,948 | ) | ||||
Net loss attributable to common stockholders | $ | (9,617 | ) | $ | (5,331 | ) | $ | (3,367 | ) | $ | (4,879 | ) | ||||
Net loss per common share, basic and diluted | $ | (0.16 | ) | $ | (0.09 | ) | $ | (0.06 | ) | $ | (0.08 | ) | ||||
Distributions declared per common share | $ | 0.049 | $ | 0.056 | $ | 0.069 | $ | 0.088 |
12. | COMMITMENTS AND CONTINGENCIES |
13. | EARNINGS PER SHARE |
For the Year Ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Numerator | |||||||||||
Income (loss) from continuing operations | $ | 7,132 | $ | (23,730 | ) | $ | (152 | ) | |||
Loss (income) from continuing operations attributable to noncontrolling interests | (4,688 | ) | 554 | 302 | |||||||
Income (loss) from continuing operations attributable to common stockholders | 2,444 | (23,176 | ) | 150 | |||||||
Total (loss) income from discontinued operations | — | (18 | ) | 11,741 | |||||||
Total income from discontinued operations attributable to noncontrolling interests | — | — | (398 | ) | |||||||
Total (loss) income from discontinued operations attributable to common stockholders | — | (18 | ) | 11,343 | |||||||
Net income (loss) attributable to common stockholders | $ | 2,444 | $ | (23,194 | ) | $ | 11,493 | ||||
Denominator | |||||||||||
Weighted-average number of common shares outstanding, basic and diluted | 59,656,667 | 59,714,540 | 58,359,568 | ||||||||
Basic and diluted (loss) income per common share: | |||||||||||
Continuing operations | $ | 0.04 | $ | (0.39 | ) | $ | — | ||||
Discontinued operations | — | — | 0.20 | ||||||||
Net income (loss) per common share | $ | 0.04 | $ | (0.39 | ) | $ | 0.20 |
14. | SUBSEQUENT EVENTS |
Initial Cost to Company | Gross Amount at which Carried at Close of Period | ||||||||||||||||||||||||||||||||||||||||||
Description | Location | Ownership Percent | Encumbrances | Land | Building and Improvements (1) | Total | Cost Capitalized Subsequent to Acquisition (2) | Land | Building and Improvements (1) | Total (3) | Accumulated Depreciation and Amortization | Original Date of Construction | Date Acquired or Foreclosed on | ||||||||||||||||||||||||||||||
Properties Held for Investment | |||||||||||||||||||||||||||||||||||||||||||
Northridge Center I & II | Atlanta, GA | 100.0% | (6) | $ | 2,234 | $ | 4,457 | $ | 6,691 | $ | 2,713 | $ | 2,234 | $ | 7,170 | $ | 9,404 | $ | (1,986 | ) | 1985/1989 | 03/25/2011 | |||||||||||||||||||||
Iron Point Business Park | Folsom, CA | 100.0% | (5) | 2,671 | 16,576 | 19,247 | 2,869 | 2,671 | 19,445 | 22,116 | (3,763 | ) | 1999/2001 | 06/21/2011 | |||||||||||||||||||||||||||||
Richardson Portfolio | |||||||||||||||||||||||||||||||||||||||||||
Palisades Central I | Richardson, TX | 90.0% | (4) | 1,037 | 8,628 | 9,665 | 2,091 | 1,037 | 10,719 | 11,756 | (2,028 | ) | 1980 | 11/23/2011 | |||||||||||||||||||||||||||||
Palisades Central II | Richardson, TX | 90.0% | (4) | 810 | 17,117 | 17,927 | 1,922 | 810 | 19,039 | 19,849 | (4,600 | ) | 1985 | 11/23/2011 | |||||||||||||||||||||||||||||
Greenway I | Richardson, TX | 90.0% | (4) | 561 | 1,170 | 1,731 | 986 | 561 | 2,156 | 2,717 | (568 | ) | 1983 | 11/23/2011 | |||||||||||||||||||||||||||||
Greenway III | Richardson, TX | 90.0% | (4) | 702 | 4,083 | 4,785 | 630 | 702 | 4,713 | 5,415 | (1,561 | ) | 1983 | 11/23/2011 | |||||||||||||||||||||||||||||
Undeveloped Land | Richardson, TX | 90.0% | (4) | 1,997 | — | 1,997 | 1,061 | 3,058 | — | 3,058 | — | N/A | 11/23/2011 | ||||||||||||||||||||||||||||||
Total Richardson Portfolio | 41,177 | 5,107 | 30,998 | 36,105 | 6,690 | 6,168 | 36,627 | 42,795 | (8,757 | ) | |||||||||||||||||||||||||||||||||
Park Highlands | North Las Vegas, NV | 50.1% | — | 20,307 | — | 20,307 | 10,388 | 30,695 | — | 30,695 | — | N/A | 12/30/2011 | ||||||||||||||||||||||||||||||
Bellevue Technology Center | Bellevue, WA | 100.0% | 52,960 | 25,506 | 52,411 | 77,917 | 7,265 | 25,506 | 59,676 | 85,182 | (8,107 | ) | 1973-2000 | 07/31/2012 | |||||||||||||||||||||||||||||
Powers Ferry Landing East | Atlanta, GA | 100.0% | (6) | 1,643 | 3,761 | 5,404 | 4,383 | 1,643 | 8,144 | 9,787 | (1,607 | ) | 1980/1982/1985 | 09/24/2012 | |||||||||||||||||||||||||||||
1800 West Loop | Houston, TX | 100.0% | (5) | 8,360 | 59,292 | 67,652 | 6,686 | 8,360 | 65,978 | 74,338 | (10,360 | ) | 1982 | 12/04/2012 | |||||||||||||||||||||||||||||
West Loop I & II | Houston, TX | 100.0% | (6) | 7,300 | 29,742 | 37,042 | 2,731 | 7,300 | 32,473 | 39,773 | (4,582 | ) | 1980/1981 | 12/07/2012 | |||||||||||||||||||||||||||||
Burbank Collection | Burbank, CA | 90.0% | 9,098 | 4,175 | 8,799 | 12,974 | 1,374 | 4,175 | 10,173 | 14,348 | (1,284 | ) | 2008 | 12/12/2012 | |||||||||||||||||||||||||||||
Austin Suburban Portfolio | Austin, TX | 100.0% | (6) | 8,288 | 67,745 | 76,033 | 2,812 | 8,288 | 70,557 | 78,845 | (9,230 | ) | 1985/1986/2000 | 03/28/2013 | |||||||||||||||||||||||||||||
Westmoor Center | Westminster, CO | 100.0% | 56,036 | 10,058 | 73,510 | 83,568 | 1,463 | 10,058 | 74,973 | 85,031 | (13,542 | ) | 1998/1999 | 06/12/2013 | |||||||||||||||||||||||||||||
Central Building | Seattle, WA | 100.0% | 24,896 | 7,015 | 26,124 | 33,139 | 1,973 | 7,015 | 28,097 | 35,112 | (3,188 | ) | 1907 | 07/10/2013 | |||||||||||||||||||||||||||||
50 Congress Street | Boston, MA | 100.0% | 28,075 | 9,876 | 43,455 | 53,331 | (90 | ) | 9,876 | 43,365 | 53,241 | (4,943 | ) | 1910/1915 | 07/11/2013 | ||||||||||||||||||||||||||||
1180 Raymond | Newark, NJ | 100.0% | 34,895 | 8,292 | 37,651 | 45,943 | (557 | ) | 8,292 | 37,094 | 45,386 | (2,769 | ) | 1929 | 08/20/2013 | ||||||||||||||||||||||||||||
Park Highlands II | North Las Vegas, NV | 99.5% | — | 20,118 | — | 20,118 | 2,074 | 22,192 | — | 22,192 | — | N/A | 12/10/2013 | ||||||||||||||||||||||||||||||
Maitland Promenade II | Orlando, FL | 100.0% | 20,182 | 3,434 | 27,282 | 30,716 | 838 | 3,434 | 28,120 | 31,554 | (3,668 | ) | 2001 | 12/18/2013 | |||||||||||||||||||||||||||||
Plaza Buildings | Bellevue, WA | 100.0% | 111,000 | 53,040 | 133,157 | 186,197 | 10,597 | 53,040 | 143,754 | 196,794 | (12,458 | ) | 1978/1983 | 01/14/2014 | |||||||||||||||||||||||||||||
424 Bedford | Brooklyn, NY | 90.0% | 25,358 | 8,860 | 24,820 | 33,680 | 407 | 8,860 | 25,227 | 34,087 | (1,316 | ) | 2010 | 01/31/2014 | |||||||||||||||||||||||||||||
Richardson Land II | Richardson, TX | 90.0% | — | 3,096 | — | 3,096 | 298 | 3,394 | — | 3,394 | — | N/A | 09/04/2014 | ||||||||||||||||||||||||||||||
Total Properties Held for Investment | $ | 209,380 | $ | 639,780 | $ | 849,160 | $ | 64,914 | $ | 223,201 | $ | 690,873 | $ | 914,074 | $ | (91,560 | ) |
2015 | 2014 | 2013 | |||||||||
Real Estate (1): | |||||||||||
Balance at the beginning of the year | $ | 919,259 | $ | 668,018 | $ | 326,154 | |||||
Acquisitions (2) | — | 227,339 | 342,985 | ||||||||
Improvements | 32,385 | 36,942 | 24,670 | ||||||||
Write-off of fully depreciated and fully amortized assets | (13,212 | ) | (10,362 | ) | (5,835 | ) | |||||
Impairments | — | (697 | ) | (2,025 | ) | ||||||
Loss due to property damages | (2,260 | ) | (707 | ) | — | ||||||
Sales | (22,098 | ) | (1,274 | ) | (17,931 | ) | |||||
Balance at the end of the year | $ | 914,074 | $ | 919,259 | $ | 668,018 | |||||
Accumulated depreciation and amortization (1): | |||||||||||
Balance at the beginning of the year | $ | 64,171 | $ | 29,859 | $ | 8,521 | |||||
Depreciation and amortization expense | 41,513 | 44,848 | 28,956 | ||||||||
Write-off of fully depreciated and fully amortized assets | (13,212 | ) | (10,362 | ) | (5,835 | ) | |||||
Impairments | — | (118 | ) | (638 | ) | ||||||
Sales | (912 | ) | (56 | ) | (1,145 | ) | |||||
Balance at the end of the year | $ | 91,560 | $ | 64,171 | $ | 29,859 |
KBS STRATEGIC OPPORTUNITY REIT, INC. | ||
By: | /s/ Keith D. Hall | |
Keith D. Hall | ||
Chief Executive Officer and Director (principal executive officer) |
Name | Title | Date | ||
/s/ KEITH D. HALL | Chief Executive Officer and Director (principal executive officer) | March 28, 2016 | ||
Keith D. Hall | ||||
/s/ PETER MCMILLIAN III | Chairman of the Board, President and Director | March 28, 2016 | ||
Peter McMillian III | ||||
/s/ JEFFREY K. WALDVOGEL | Chief Financial Officer (principal financial officer) | March 28, 2016 | ||
Jeffrey K. Waldvogel | ||||
/s/ STACIE K. YAMANE | Chief Accounting Officer (principal accounting officer) | March 28, 2016 | ||
Stacie K. Yamane | ||||
/s/ MICHAEL L. MEYER | Director | March 28, 2016 | ||
Michael L. Meyer | ||||
/s/ WILLIAM M. PETAK | Director | March 28, 2016 | ||
William M. Petak | ||||
/s/ ERIC J. SMITH | Director | March 28, 2016 | ||
Eric J. Smith |
110 William Mezz III, LLC | KBS SOR Acquisition XIV, LLC |
110 William Property Investors III, LLC | KBS SOR Acquisition XV, LLC |
1180 Raymond Urban Renewal, LLC | KBS SOR Acquisition XVI, LLC |
1635 N. Cahuenga, LLC | KBS SOR Acquisition XVII, LLC |
CA Capital Management Services III, LLC | KBS SOR Acquisition XVIII, LLC |
EE 424 Bedford Owner, LLC | KBS SOR Acquisition XIX, LLC |
GPI Burbank Collection, LLC | KBS SOR Acquisition XX, LLC |
JP-Greenway I, LLC | KBS SOR Acquisition XXI, LLC |
JP-Greenway III, LLC | KBS SOR Acquisition XXII, LLC |
JP-KBS Richardson Acquisition I, LLC | KBS SOR Acquisition XXIII, LLC |
JP-KBS Richardson Holdings, LLC | KBS SOR Acquisition XXIV, LLC |
JP-KBS Richardson Holdings II, LLC | KBS SOR Acquisition XXV, LLC |
JP-Palisades I, LLC | KBS SOR Acquisition XXVI, LLC |
JP-Palisades II, LLC | KBS SOR Acquisition XXVII, LLC |
JP-Palisades III, LLC | KBS SOR Austin Suburban Portfolio, LLC |
JP-Palisades IV, LLC | KBS SOR Central Building, LLC |
KBS Finance LLC | KBS SOR CMBS Owner, LLC |
KBS Strategic Opportunity Holdings LLC | KBS SOR Debt Holdings II LLC |
KBS Strategic Opportunity Limited Partnership | KBS SOR Debt Holdings II X LLC |
KBS SOR 100-116 E. Palm Avenue JV, LLC | KBS SOR Iron Point, LLC |
KBS SOR 110 William JV, LLC | KBS SOR NIP JV Member, LLC |
KBS SOR 156th Avenue Northeast, LLC | KBS SOR NIP JV Member TRS Member, LLC |
KBS SOR 1635 N. Cahuenga JV, LLC | KBS SOR Maitland Promenade II, LLC |
KBS SOR 1800 West Loop South, LLC | KBS SOR Northridge, LLC |
KBS SOR 424 Bedford, LLC | KBS SOR Park Highlands, LLC |
KBS SOR 424 Bedford JV, LLC | KBS SOR Park Highlands JV, LLC |
KBS SOR 50 Congress Street, LLC | KBS SOR Park Highlands II, LLC |
KBS SOR 6565-6575 West Loop South, LLC | KBS SOR Park Highlands II JV, LLC |
KBS SOR Academy Point, LLC | KBS SOR Park Highlands TRS, LLC |
KBS SOR Acquisition I, LLC | KBS SOR Plaza Bellevue, LLC |
KBS SOR Acquisition II, LLC | KBS SOR Powers Ferry Landing East, LLC |
KBS SOR Acquisition III, LLC | KBS SOR Properties, LLC |
KBS SOR Acquisition IV, LLC | KBS SOR Richardson Land JV, LLC |
KBS SOR Acquisition V, LLC | KBS SOR Richardson Portfolio JV, LLC |
KBS SOR Acquisition VI, LLC | KBS SOR Roseville Commerce Center, LLC |
KBS SOR Acquisition VII, LLC | KBS SOR SREF III 110 William, LLC |
KBS SOR Acquisition VIII, LLC | KBS SOR TRS Services, LLC |
KBS SOR Acquisition X, LLC | KBS SOR Village Overlook, LLC |
KBS SOR Acquisition XI, LLC | KBS SOR Westmoor Center, LLC |
KBS SOR Acquisition XII, LLC | KBS SOR (BVI) Holdings, Ltd. |
KBS SOR Acquisition XIII, LLC | NIP JV, LLC |
NIP Owner, LLC |
1. | I have reviewed this annual report on Form 10-K of KBS Strategic Opportunity REIT, 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: | March 28, 2016 | By: | /S/ KEITH D. HALL |
Keith D. Hall | |||
Chief Executive Officer and Director | |||
(principal executive officer) |
1. | I have reviewed this annual report on Form 10-K of KBS Strategic Opportunity REIT, 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: | March 28, 2016 | By: | /S/ JEFFREY K. WALDVOGEL |
Jeffrey K. Waldvogel | |||
Chief Financial Officer | |||
(principal 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: | March 28, 2016 | By: | /S/ KEITH D. HALL |
Keith D. Hall | |||
Chief Executive Officer and Director | |||
(principal executive 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: | March 28, 2016 | By: | /S/ JEFFREY K. WALDVOGEL |
Jeffrey K. Waldvogel | |||
Chief Financial Officer | |||
(principal financial officer) |
March 21, 2016 | /s/ Duff & Phelps, LLC | |
Duff & Phelps, LLC |
March 21, 2016 | /s/ Landauer Services, LLC | |
Landauer Services, LLC |
Document and Entity Information Document - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Mar. 23, 2016 |
Jun. 30, 2015 |
|
Document and Entity Information [Abstract] | |||
Entity Registrant Name | KBS Strategic Opportunity REIT, Inc. | ||
Entity Central Index Key | 0001452936 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Filer Category | Non-accelerated Filer | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2015 | ||
Document Fiscal Year Focus | 2015 | ||
Document Fiscal Period Focus | FY | ||
Amendment Flag | false | ||
Entity Common Stock, Shares Outstanding | 58,692,893 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Public Float | $ 0 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Preferred stock, par value (usd per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (usd per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 1,000,000,000 | 1,000,000,000 |
Common stock, shares issued | 58,696,115 | 60,044,329 |
Common stock, shares outstanding | 58,696,115 | 60,044,329 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands |
12 Months Ended | ||
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Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
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Statement of Comprehensive Income [Abstract] | |||
Net income (loss) | $ 7,132 | $ (23,748) | $ 11,589 |
Other comprehensive income: | |||
Unrealized gain on real estate securities | 0 | 9 | 4 |
Total other comprehensive income | 0 | 9 | 4 |
Total comprehensive income (loss) | 7,132 | (23,739) | 11,593 |
Total comprehensive (income) loss attributable to noncontrolling interests | (4,688) | 554 | (96) |
Total comprehensive income (loss) attributable to common stockholders | $ 2,444 | $ (23,185) | $ 11,497 |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($) $ in Thousands |
12 Months Ended | ||
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Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
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Statement of Cash Flows [Abstract] | |||
Interest capitalized | $ 1,856 | $ 1,987 | $ 2,718 |
ORGANIZATION |
12 Months Ended |
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Dec. 31, 2015 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
ORGANIZATION | ORGANIZATION KBS Strategic Opportunity REIT, Inc. (the “Company”) was formed on October 8, 2008 as a Maryland corporation and elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2010. The Company conducts its business primarily through KBS Strategic Opportunity Limited Partnership (the “Operating Partnership”), a Delaware limited partnership formed on December 10, 2008. The Company is the sole general partner of, and owns a 0.1% partnership interest in, the Operating Partnership. KBS Strategic Opportunity Holdings LLC (“REIT Holdings”), a Delaware limited liability company formed on December 9, 2008, owns the remaining 99.9% interest in the Operating Partnership and is its sole limited partner. The Company is the sole member and manager of REIT Holdings. Subject to certain restrictions and limitations, the business of the Company is externally 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 October 8, 2015 (the “Advisory Agreement”). The Advisor conducts the Company’s operations and manages its portfolio of real estate-related loans, opportunistic real estate, real estate-related debt securities and other real estate-related investments. The Advisor owns 20,000 shares of the Company’s common stock. On January 8, 2009, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to offer a minimum of 250,000 shares and a maximum of 140,000,000 shares of common stock for sale to the public (the “Offering”), of which 100,000,000 shares were registered in a primary offering and 40,000,000 shares were registered to be sold under the Company’s dividend reinvestment plan. The SEC declared the Company’s registration statement effective on November 20, 2009. The Company ceased offering shares of common stock in its primary offering on November 14, 2012 and continues to offer shares under its dividend reinvestment plan. The Company sold 56,584,976 shares of common stock in its primary offering for gross offering proceeds of $561.7 million. As of December 31, 2015, the Company had sold 5,096,508 shares of common stock under its dividend reinvestment plan for gross offering proceeds of $52.8 million. Also, as of December 31, 2015, the Company had redeemed 3,281,612 shares sold in the Offering for $38.4 million. Additionally, on December 29, 2011 and October 23, 2012, the Company issued 220,994 shares and 55,249 shares of common stock, respectively, for $2.0 million and $0.5 million, respectively, in private transactions exempt from the registration requirements pursuant to Section 4(2) of the Securities Act of 1933. As of December 31, 2015, the Company owned 10 office properties, one office campus consisting of nine office buildings, one office portfolio consisting of four office buildings and 25 acres of undeveloped land, one office portfolio consisting of three office properties, one retail property, two apartment properties, two investments in undeveloped land encompassing an aggregate of 1,670 acres, one first mortgage loan and two investments in unconsolidated joint ventures. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Basis of Presentation The consolidated financial statements include the accounts of the Company, REIT Holdings, the Operating Partnership and their direct and indirect wholly owned subsidiaries, and joint ventures in which the Company has a controlling interest. All significant intercompany balances and transactions are eliminated in consolidation. The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC. 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. Reclassifications Certain amounts in the Company’s prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods. During the year ended December 31, 2015, the Company sold two office properties. As a result, certain assets and liabilities were reclassified to held for sale on the consolidated balance sheets for all periods presented. During the year ended December 31, 2015, the Company elected to early adopt ASU No. 2015-03 (defined below). As a result, the Company has reclassified debt issuance costs associated with a debt liability from prepaid expenses and other assets to notes and bond payable, net on the consolidated balance sheets for all periods presented. Revenue Recognition Real Estate The Company recognizes minimum rent, including rental abatements, lease incentives and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectibility is reasonably assured and records amounts expected to be received in later years as deferred rent receivable. If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or the Company. When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance (including amounts that can be taken in the form of cash or a credit against the tenant’s rent) that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Tenant improvement ownership is determined based on various factors including, but not limited to:
The Company records property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred. The Company makes estimates of the collectibility of its tenant receivables related to base rents, including deferred rent, expense reimbursements and other revenue or income. Management specifically analyzes accounts receivable, deferred rents receivable, historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy, management makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectibility of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. When a tenant is in bankruptcy, the Company will record a bad debt reserve for the tenant’s receivable balance and generally will not recognize subsequent rental revenue until cash is received or until the tenant is no longer in bankruptcy and has the ability to make rental payments. Real Estate Loans Receivable Interest income on the Company’s real estate loans receivable is recognized on an accrual basis over the life of the investment using the interest method. Direct loan origination or acquisition fees and costs, as well as acquisition premiums or discounts, are amortized over the term of the loan as an adjustment to interest income. The Company places loans on non-accrual status when any portion of principal or interest is 90 days past due, or earlier when concern exists as to the ultimate collection of principal or interest. When a loan is placed on non-accrual status, the Company reserves for any unpaid accrued interest and generally does not recognize subsequent interest income until cash is received, or the loan returns to accrual status. The Company will resume the accrual of interest if it determines the collection of interest, according to the contractual terms of the loan, is probable. The Company generally recognizes income on impaired loans on either a cash basis, where interest income is only recorded when received in cash, or on a cost-recovery basis, where all cash receipts are applied against the carrying value of the loan. The Company considers the collectibility of the loan’s principal balance in determining whether to recognize income on impaired loans on a cash basis or a cost-recovery basis. The Company will recognize interest income on loans purchased at discounts to face value where the Company expects to collect less than the contractual amounts due under the loan when that expectation is due, at least in part, to the credit quality of the borrower. Income is recognized at an interest rate equivalent to the estimated yield on the loan, as calculated using the carrying value of the loan and the expected cash flows. Changes in estimated cash flows are recognized through an adjustment to the yield on the loan on a prospective basis. Projecting cash flows for these types of loans requires a significant amount of assumptions and judgment, which may have a significant impact on the amount and timing of revenue recognized on these investments. The Company recognizes interest income on non-performing loans on a cash basis or cost-recovery basis since these loans generally do not have an estimated yield and collection of principal and interest is not assured. Real Estate Securities The Company recognizes interest income on real estate securities that are beneficial interests in securitized financial assets and are rated “AA” and above on an accrual basis according to the contractual terms of the securities. Discounts or premiums are amortized to interest income over the life of the investment using the interest method. The Company recognizes interest income on real estate securities that are beneficial interests in securitized financial assets that are rated below “AA” using the effective yield method, which requires the Company to periodically project estimated cash flows related to these securities and recognize interest income at an interest rate equivalent to the estimated yield on the security, as calculated using the security’s estimated cash flows and amortized cost basis, or reference amount. Changes in the estimated cash flows are recognized through an adjustment to the yield on the security on a prospective basis. Projecting cash flows for these types of securities requires significant judgment, which may have a significant impact on the timing of revenue recognized on these investments. Cash and Cash Equivalents The Company recognizes interest income on its cash and cash equivalents as it is earned and records such amounts as other interest income. Real Estate Depreciation and Amortization Real estate costs related to the acquisition and improvement of properties are capitalized and amortized over the expected useful life of the asset on a straight-line basis. Repair and maintenance costs are charged to expense as incurred and significant replacements and betterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. The Company considers the period of future benefit of an asset to determine its appropriate useful life. Expenditures for tenant improvements are capitalized and amortized over the shorter of the tenant’s lease term or expected useful life. The Company anticipates the estimated useful lives of its assets by class to be generally as follows:
Real Estate Acquisition Valuation The Company records the acquisition of income-producing real estate or real estate that will be used for the production of income as a business combination. All assets acquired and liabilities assumed in a business combination are measured at their acquisition-date fair values. Acquisition costs are expensed as incurred and restructuring costs that do not meet the definition of a liability at the acquisition date are expensed in periods subsequent to the acquisition date. Real estate obtained in satisfaction of a loan is recorded at the estimated fair value of the real estate (net of liabilities assumed) or the fair value of the loan satisfied if more clearly evident. The excess of the carrying value of the loan over the fair value of the property is charged-off against the reserve for loan losses when title to the property is obtained. Costs of holding the property are expensed as incurred in the Company’s consolidated statements of operations. Intangible assets include the value of in-place leases, which represents the estimated value of the net cash flows of the in-place leases to be realized, as compared to the net cash flows that would have occurred had the property been vacant at the time of acquisition and subject to lease-up. Acquired in-place lease value will be amortized to expense over the average remaining terms of the respective in-place leases, including any below-market renewal periods. The Company assesses the acquisition date fair values of all tangible assets, identifiable intangibles and assumed liabilities using methods similar to those used by independent appraisers, generally utilizing a discounted cash flow analysis that applies appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors, including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it were vacant. The Company records above-market and below-market in-place lease values for acquired properties based on the present value (using a discount that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of above-market in-place leases and for the initial term plus any extended term for any leases with below-market renewal options. The Company amortizes any recorded above-market or below-market lease values as a reduction or increase, respectively, to rental income over the remaining non-cancelable terms of the respective lease, including any below-market renewal periods. The Company estimates the value of tenant origination and absorption costs by considering the estimated carrying costs during hypothetical expected lease up periods, considering current market conditions. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. The Company amortizes the value of tenant origination and absorption costs to depreciation and amortization expense over the remaining non-cancelable term of the leases. Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require the Company to make significant assumptions to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate assumptions would result in an incorrect valuation of the Company’s acquired tangible assets, identifiable intangibles and assumed liabilities, which would impact the amount of the Company’s net income. Direct investments in undeveloped land or properties without leases in place at the time of acquisition are accounted for as an asset acquisition and not as a business combination. Acquisition fees and expenses are capitalized into the cost basis of an asset acquisition. Additionally, during the time in which the Company is incurring costs necessary to bring these investments to their intended use, certain costs such as legal fees, real estate taxes and insurance and financing costs are also capitalized. Impairment of Real Estate and Related Intangible Assets and Liabilities The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related intangible assets and liabilities may not be recoverable or realized. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, the Company assesses the recoverability by estimating whether the Company will recover the carrying value of the real estate and related intangible assets and liabilities through its undiscounted future cash flows and its eventual disposition. If, based on this analysis, the Company does not believe that it will be able to recover the carrying value of the real estate and related intangible assets and liabilities, the Company would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets and liabilities. The Company did not record any impairment losses on its real estate and related intangible assets and liabilities during the year ended December 31, 2015. During the year ended December 31, 2014, the Company recorded an impairment charge of $0.6 million with respect to one real estate property, which was sold on September 10, 2015. During the year ended December 31, 2013, the Company recorded an impairment charge of $1.4 million with respect to two real estate properties, one of which was sold on August 29, 2014 and the other of which was sold on September 10, 2015. Projecting future cash flows involves estimating expected future operating income and expenses related to the real estate and its related intangible assets and liabilities as well as market and other trends. Using inappropriate assumptions to estimate cash flows could result in incorrect fair values of the real estate and its related intangible assets and liabilities and could result in the overstatement of the carrying values of the Company’s real estate and related intangible assets and liabilities and an overstatement of its net income. Insurance Proceeds for Property Damages The Company maintains an insurance policy that provides coverage for property damages and business interruption. Losses due to physical damages are recognized during the accounting period in which they occur, while the amount of monetary assets to be received from the insurance policy is recognized when receipt of insurance recoveries is probable. Losses, which are reduced by the related insurance recoveries, are recorded as operating, maintenance and management expenses on the accompanying consolidated statements of operations. Anticipated proceeds in excess of recognized losses would be considered a gain contingency and recognized when the contingency related to the insurance claim has been resolved. Anticipated recoveries for lost rental revenue due to property damages are also considered to be a gain contingency and recognized when the contingency related to the insurance claim has been resolved. Real Estate Held for Sale and Discontinued Operations The Company generally considers real estate to be “held for sale” when the following criteria are met: (i) management commits to a plan to sell the property, (ii) the property is available for sale immediately, (iii) the property is actively being marketed for sale at a price that is reasonable in relation to its current fair value, (iv) the sale of the property within one year is considered probable and (v) significant changes to the plan to sell are not expected. Real estate that is held for sale and its related assets are classified as “real estate held for sale” and “assets related to real estate held for sale,” respectively, for all periods presented in the accompanying consolidated financial statements. Notes payable and other liabilities related to real estate held for sale are classified as “notes payable related to real estate held for sale” and “liabilities related to real estate held for sale,” respectively, for all periods presented in the accompanying consolidated financial statements. Real estate classified as held for sale is no longer depreciated and is reported at the lower of its carrying value or its estimated fair value less estimated costs to sell. Additionally, with respect to properties that were classified as held for sale in financial statements prior to January 1, 2014, the Company records the operating results and related gains (losses) on sale as discontinued operations for all periods presented if the operations have been or are expected to be eliminated and the Company will not have any significant continuing involvement in the operations of the property following the sale. Operating results and related gains (losses) on sale of properties that were disposed of or classified as held for sale in the ordinary course of business during the years ended December 31, 2015 and 2014 that had not been classified as held for sale in financial statements prior to January 1, 2014 are included in continuing operations on the Company’s consolidated statements of operations. Real Estate Loans Receivable and Loan Loss Reserves The Company’s real estate loans receivable are recorded at amortized cost, net of loan loss reserves (if any), and evaluated for impairment at each balance sheet date. The amortized cost of a real estate loan receivable is the outstanding unpaid principal balance, net of unamortized acquisition premiums or discounts and unamortized costs and fees directly associated with the origination or acquisition of the loan. The amount of impairment, if any, will be measured by comparing the amortized cost of the loan to the present value of the expected cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent and collection of principal and interest is not assured. If a loan is deemed to be impaired, the Company will record a loan loss reserve and a provision for loan losses to recognize impairment. As of December 31, 2015, there was no loan loss reserve and the Company did not record any impairment losses related to its real estate loans receivable during the years ended December 31, 2015, 2014 and 2013. The reserve for loan losses is a valuation allowance that reflects management’s estimate of loan losses inherent in the loan portfolio as of the balance sheet date. The reserve is adjusted through “Provision for loan losses” on the Company’s consolidated statements of operations and is decreased by charge-offs to specific loans when losses are confirmed. The Company considers a loan to be impaired when, based upon current information and events, it believes that it is probable that the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. If the Company purchases a loan at a discount to face value and at the acquisition date the Company expects to collect less than the contractual amounts due under the terms of the loan based, at least in part, on the Company’s assessment of the credit quality of the borrower, the Company will consider such a loan to be impaired when, based upon current information and events, it believes that it is probable that the Company will be unable to collect all amounts the Company estimated to be collected at the time of acquisition. The Company also considers a loan to be impaired if it grants the borrower a concession through a modification of the loan terms or if it expects to receive assets (including equity interests in the borrower) with fair values that are less than the carrying value of the loan in satisfaction of the loan. A reserve is established when the present value of payments expected to be received, observable market prices, the estimated fair value of the collateral (for loans that are dependent on the collateral for repayment) or amounts expected to be received in satisfaction of a loan are lower than the carrying value of that loan. Failure to recognize impairments would result in the overstatement of earnings and the carrying value of the Company’s real estate loans held for investment. Actual losses, if any, could significantly differ from estimated amounts. Investments in Unconsolidated Joint Ventures Equity Method The Company accounts for investments in unconsolidated joint venture entities in which the Company may exercise significant influence over, but does not control, using the equity method of accounting. Under the equity method, the investment is initially recorded at cost and subsequently adjusted to reflect additional contributions or distributions and the Company’s proportionate share of equity in the joint venture’s income (loss). The Company recognizes its proportionate share of the ongoing income or loss of the unconsolidated joint venture as equity in income (loss) of unconsolidated joint venture on the consolidated statements of operations. On a quarterly basis, the Company evaluates its investment in an unconsolidated joint venture for other-than-temporary impairments. As of December 31, 2015, the Company did not identify any indicators of impairment related to its unconsolidated real estate joint venture accounted for under the equity method. Cost Method The Company accounts for investments in unconsolidated joint venture entities in which the Company does not have the ability to exercise significant influence and has virtually no influence over partnership operating and financial policies using the cost method of accounting. Under the cost method, income distributions from the partnership are recognized in other income. Distributions that exceed the Company’s share of earnings are applied to reduce the carrying value of the Company’s investment and any capital contributions will increase the carrying value of the Company’s investment. On a quarterly basis, the Company evaluates its cost method investment in an unconsolidated joint venture for other-than-temporary impairments. The fair value of a cost method investment is not estimated if there are no identified events or changes in circumstances that would indicate a significant adverse effect on the fair value of the investment. As of December 31, 2015, the Company did not identify any indicators of impairment related to its unconsolidated real estate joint venture accounted for under the cost method. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents may include cash and short-term investments. Cash and cash equivalents are stated at cost, which approximates fair value. There were no restrictions on the use of the Company’s cash and cash equivalents as of December 31, 2015 and 2014. The Company’s cash and cash equivalents balance exceeded federally insurable limits as of December 31, 2015. The Company monitors the cash balances in its operating accounts and adjusts the cash balances as appropriate; however, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, the Company has experienced no loss or lack of access to cash in its operating accounts. Rents and Other Receivables The Company periodically evaluates the collectibility of amounts due from tenants and maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under lease agreements. In addition, the Company maintains an allowance for deferred rent receivable that arises from the straight-lining of rents. The Company exercises judgment in establishing these allowances and considers payment history and current credit status of its tenants in developing these estimates. Deferred Financing Costs Deferred financing costs represent commitment fees, loan fees, legal fees and other third-party costs associated with obtaining financing and are presented on the balance sheet as a direct deduction from the carrying value of the associated debt liability. These costs are amortized over the terms of the respective financing agreements using the interest method. Unamortized deferred financing costs are generally expensed when the associated debt is refinanced or repaid before maturity unless specific rules are met that would allow for the carryover of such costs to the refinanced debt. Deferred financing costs incurred before an associated debt liability is recognized are included in prepaid and other assets on the balance sheet. Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined that the financing will not close. Fair Value Measurements Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:
When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and classifies such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines that the market for a financial instrument owned by the Company is illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources. 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. Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument. The Company considers the following factors to be indicators of an inactive market: (i) there are few recent transactions, (ii) price quotations are not based on current information, (iii) price quotations vary substantially either over time or among market makers (for example, some brokered markets), (iv) indexes that previously were highly correlated with the fair values of the asset or liability are demonstrably uncorrelated with recent indications of fair value for that asset or liability, (v) there is a significant increase in implied liquidity risk premiums, yields, or performance indicators (such as delinquency rates or loss severities) for observed transactions or quoted prices when compared with the Company’s estimate of expected cash flows, considering all available market data about credit and other nonperformance risk for the asset or liability, (vi) there is a wide bid-ask spread or significant increase in the bid-ask spread, (vii) there is a significant decline or absence of a market for new issuances (that is, a primary market) for the asset or liability or similar assets or liabilities, and (viii) little information is released publicly (for example, a principal-to-principal market). The Company considers the following factors to be indicators of non-orderly transactions: (i) there was not adequate exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities under current market conditions, (ii) there was a usual and customary marketing period, but the seller marketed the asset or liability to a single market participant, (iii) the seller is in or near bankruptcy or receivership (that is, distressed), or the seller was required to sell to meet regulatory or legal requirements (that is, forced), and (iv) the transaction price is an outlier when compared with other recent transactions for the same or similar assets or liabilities. Dividend Reinvestment Plan The Company has adopted a dividend reinvestment plan (the “DRP”) through which future common stockholders may elect to reinvest an amount equal to the distributions declared on their shares in additional shares of the Company’s common stock in lieu of receiving cash distributions. On March 25, 2014, the Company’s board of directors approved a fourth amended and restated dividend reinvestment plan (the “Fourth Amended DRP”). The Fourth Amended DRP became effective for purchases under the plan on or after April 6, 2014. Pursuant to the Fourth Amended DRP, the purchase price of shares of the Company’s common stock is equal to 95% of the most recently announced estimated value per share of the Company’s common stock. Prior to April 6, 2014 (the effective date of the Fourth Amended DRP), the purchase price per share under the DRP was $9.50. On March 25, 2014, the Company’s board of directors approved an updated primary offering price for the Company’s common stock of $11.27 (unaudited) based on the estimated value of the Company’s assets less the estimated value of the Company’s liabilities, or net asset value, divided by the number of shares outstanding as of December 31, 2013, with the exception of certain adjustments for actual and expected acquisition-related costs subsequent to December 31, 2013. Commencing on April 6, 2014, the purchase price per share under the DRP was $10.71. On December 9, 2014, the Company’s board of directors approved an updated primary offering price for the Company’s common stock of $12.24 (unaudited) based on the estimated value of the Company’s assets less the estimated value of the Company’s liabilities, or net asset value, divided by the number of shares outstanding as of September 30, 2014. Commencing December 29, 2014, the purchase price per share under the DRP was $11.63. On May 12, 2015, the Company’s board of directors adopted a fifth amended and restated dividend reinvestment plan (the “Fifth Amended DRP”). Pursuant to the Fifth Amended DRP, shares may be purchased at a price equal to the estimated value per share most recently announced in a public filing. There were no other changes to the Fifth Amended DRP, which became effective on July 1, 2015. On December 8, 2015, the Company’s board of directors approved an updated primary offering price for the Company’s common stock of $13.44 (unaudited) based on the estimated value of the Company’s assets less the estimated value of the Company’s liabilities, or net asset value, divided by the number of shares outstanding as of September 30, 2015. Commencing January 4, 2016, the purchase price per share under the DRP was $13.44. No selling commissions or dealer manager fees will be paid on shares sold under the DRP. Redeemable Common Stock The Company has adopted a share redemption program that may enable stockholders to sell their shares to the Company in limited circumstances. Pursuant to the share redemption program there are several limitations on the Company’s ability to redeem shares:
Pursuant to the program, the Company redeemed shares from January 1, 2015 to June 12, 2015 at prices determined as follows:
Pursuant to the fifth amended and restated share redemption program, the Company redeemed shares effective June 13, 2015 at a price equal to the most recent estimated value per share as of the applicable redemption date, regardless of how long such shares have been held or whether shares are being redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence.” Effective January 9, 2016, pursuant to the eighth amended and restated share redemption program, the Company will redeem shares at prices determined as follows:
The Company’s board of directors may amend, suspend or terminate the share redemption program with 30 days’ notice to its stockholders. The Company may provide this notice by including such information in a Current Report on Form 8-K or in the Company’s annual or quarterly reports, all publicly filed with the SEC, or by a separate mailing to its stockholders. The Company records amounts that are redeemable under the share redemption program as redeemable common stock in its consolidated balance sheets because the shares will be mandatorily redeemable at the option of the holder and therefore their redemption will be outside the control of the Company. However, because the amounts that can be redeemed will be determinable and only contingent on an event that is likely to occur (e.g., the passage of time) the Company presents the net proceeds from the current year and prior year DRP, net of current year redemptions, as redeemable common stock in its consolidated balance sheets. The Company classifies as liabilities financial instruments that represent a mandatory obligation of the Company to redeem shares. The Company’s redeemable common shares are contingently redeemable at the option of the holder. When the Company determines it has a mandatory obligation to repurchase shares under the share redemption program, it will reclassify such obligations from temporary equity to a liability based upon their respective settlement values. The Company limits the dollar value of shares that may be redeemed under the program as described above. For the year ended December 31, 2015, the Company had redeemed $30.1 million of common stock, which represented all redemption requests received in good order and eligible for redemption through the December 2015 redemption date, except for 276,386 shares due to the limitations described above. The Company recorded $3.7 million of other liabilities on the Company’s balance sheet as of December 31, 2015 related to these unfulfilled redemption requests. Based on the amount of net proceeds raised from the sale of shares under the dividend reinvestment plan during 2015, the Company has $13.6 million available for all redemptions in 2016, including shares that are redeemed in connection with a stockholders’ death, qualifying disability or determination of incompetence. Related Party Transactions Pursuant to the Advisory Agreement and Dealer Manager Agreement, the Company is or was obligated to pay the Advisor and KBS Capital Markets Group, LLC (the “Dealer Manager”) specified fees upon the provision of certain services related to the Offering, the investment of funds in real estate and real estate-related investments, management of the Company’s investments and for other services (including, but not limited to, the disposition of investments). The Company is or was also obligated to reimburse the Advisor and Dealer Manager for organization and offering costs incurred by the Advisor and the Dealer Manager on behalf of the Company, and the Company is or was obligated to reimburse the Advisor for acquisition and origination expenses and certain operating expenses incurred on behalf of the Company or incurred in connection with providing services to the Company. In addition, the Advisor is entitled to certain other fees, including an incentive fee upon achieving certain performance goals, as detailed in the Advisory Agreement. See note 9, “Related Party Transactions.” The Company records all related party fees as incurred, subject to any limitations described in the Advisory Agreement. The Company had not incurred any subordinated participation in net cash flows or subordinated incentive listing fees payable to the Advisor through December 31, 2015. Selling Commissions and Dealer Manager Fees The Company paid the Dealer Manager up to 6.5% and 3.0% of the gross offering proceeds from the primary offering as selling commissions and dealer manager fees, respectively. A reduced sales commission and dealer manager fee was paid with respect to certain volume discount sales. All or a portion of the selling commissions was not charged with regard to shares sold to certain categories of purchasers. No sales commission or dealer manager fee is paid with respect to shares issued through the dividend reinvestment plan. The Dealer Manager reallowed 100% of sales commissions earned to participating broker-dealers. The Dealer Manager could reallow to certain participating broker-dealer up to 1% of the gross offering proceeds attributable to that participating broker-dealer as a marketing fee and, in special cases, the Dealer Manager could increase the reallowance. Organization and Offering Costs Organization and offering costs (other than selling commissions and dealer manager fees) of the Company may be paid by the Advisor, the Dealer Manager or their affiliates on behalf of the Company or may be paid directly by the Company. These offering costs include all expenses incurred by the Company in connection with the Offering. Organization costs include all expenses incurred by the Company in connection with the formation of the Company, including but not limited to legal fees and other costs to incorporate the Company. The Company reimburses the Advisor for organization and offering costs up to an amount that, when combined with selling commissions, dealer manager fees and all other amounts spent by the Company on organization and offering expenses, does not exceed 15% of the gross proceeds of the Company’s primary offering and the offering under the DRP as of the date of reimbursement. At the termination of the primary offering and at the termination of the offering under the DRP, the Advisor agreed to reimburse the Company to the extent that selling commissions, dealer manager fees and other organization and offering expenses incurred by the Company exceed 15% of the gross offering proceeds of the respective offering. In connection with the primary portion of the Offering, the Company reimbursed the Dealer Manager for underwriting compensation, provided that within 30 days after the end of the month in which the primary initial public offering terminated, the Dealer Manager was required to reimburse the Company to the extent that the Company’s reimbursements caused total underwriting compensation for the primary initial public offering to exceed 10% of the gross offering proceeds from such offering. The Company also paid directly or reimbursed the Dealer Manager for bona fide invoiced due diligence expenses of broker dealers. However, no reimbursements made by the Company to the Dealer Manager were allowed to cause total organization and offering expenses incurred by the Company (including selling commissions, dealer manager fees and all other items of organization and offering expenses) to exceed 15% of the aggregate gross proceeds from the Company’s primary offering and the offering under its DRP as of the date of reimbursement. As of December 31, 2015, the Company’s selling commissions, dealer manager fees, and organization and other offering costs did not exceed 15% of the gross offering proceeds. Through December 31, 2015, including shares issued through the Company’s dividend reinvestment plan, the Company had issued 61,681,484 shares in the Offering for gross offering proceeds of $614.5 million and recorded selling commissions and dealer manager fees of $49.6 million and other offering costs of $10.7 million. Organization costs are expensed as incurred and offering costs, which include selling commissions and dealer manager fees, are charged as incurred as a reduction to stockholders’ equity. The Company ceased offering shares of common stock in its primary offering on November 14, 2012 and continues to offer shares under its dividend reinvestment plan. Acquisition and Origination Fees The Company pays the Advisor an acquisition and origination fee equal to 1% of the cost of investments acquired, or the amount funded by the Company to acquire or originate mortgage, mezzanine, bridge or other loans, including any acquisition and origination expenses related to such investments and any debt attributable to such investments. Asset Management Fee With respect to investments in loans and any investments other than real estate, the Company pays the Advisor a monthly fee calculated, each month, as one-twelfth of 0.75% of the lesser of (i) the amount paid or allocated to acquire or fund the loan or other investment, inclusive of acquisition and origination fees and expenses related thereto and the amount of any debt associated with or used to acquire or fund such investment and (ii) the outstanding principal amount of such loan or other investment, plus the acquisition and origination fees and expenses related to the acquisition or funding of such investment, as of the time of calculation. With respect to investments in real estate, the Company pays the Advisor a monthly asset management fee equal to one-twelfth of 0.75% of the amount paid or allocated to acquire the investment, including the cost of subsequent capital improvements, inclusive of acquisition fees and expenses related thereto and the amount of any debt associated with or used to acquire such investment. In the case of investments made through joint ventures, the asset management fee is determined based on the Company’s proportionate share of the underlying investment, inclusive of the Company’s proportionate share of any fees and expenses related thereto. Disposition Fee For substantial assistance in connection with the sale of properties or other investments, the Company pays the Advisor or its affiliates 1.0% of the contract sales price of each property or other investment sold; provided, however, in no event may the disposition fees paid to the Advisor, its affiliates and unaffiliated third parties exceed 6.0% of the contract sales price. Income Taxes The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Company’s annual REIT taxable income to its stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax to the extent it distributes qualifying dividends to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially and adversely affect the Company’s net income and net cash available for distribution to stockholders. However, the Company intends to organize and operate in such a manner as to qualify for treatment as a REIT. The Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements. Neither the Company nor its subsidiaries have been assessed interest or penalties by any major tax jurisdictions. The Company’s evaluations were performed for the tax years ended December 31, 2015, 2014 and 2013. As of December 31, 2015, returns for the calendar year 2011 through 2014 remain subject to examination by major tax jurisdictions. Segments The Company has invested in non-performing loans, opportunistic real estate and other real estate-related assets. In general, the Company intends to hold its investments in non-performing loans, opportunistic real estate and other real estate-related assets for capital appreciation. Traditional performance metrics of non-performing loans, opportunistic real estate and other real estate-related assets may not be meaningful as these investments are generally non-stabilized and do not provide a consistent stream of interest income or rental revenue. These investments exhibit similar long-term financial performance and have similar economic characteristics. These investments typically involve a higher degree of risk and do not provide a constant stream of ongoing cash flows. As a result, the Company’s management views non-performing loans, opportunistic real estate and other real estate-related assets as similar investments. Substantially all of its revenue and net income (loss) is from non-performing loans, opportunistic real estate and other real estate-related assets, and therefore, the Company currently aggregates its operating segments into one reportable business segment. Per Share Data Basic net income (loss) per share of common stock is calculated by dividing net income (loss) attributable to common stockholders 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 years ended December 31, 2015, 2014 and 2013. Distributions declared per share were $0.38, $0.26 and $0.44 during the years ended December 31, 2015, 2014 and 2013, respectively. Square Footage, Occupancy and Other Measures Square footage, number of acres, occupancy and other measures used to describe real estate and real estate-related investments included in the Notes to Consolidated Financial Statements are presented on an unaudited basis. Recently Issued Accounting Standards Updates In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU No. 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification. ASU No. 2014-09 does not apply to lease contracts within the scope of Leases (Topic 840). ASU No. 2014-09 was to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU No. 2015-14”), which defers the effective date of ASU No. 2014-09 by one year. Early adoption is permitted but not before the original effective date. The Company is still evaluating the impact of adopting ASU No. 2014-09 on its financial statements, but does not expect the adoption of ASU No. 2014-09 to have a material impact on its financial statements. In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU No. 2014-15”). The amendments in ASU No. 2014-15 require management to evaluate, for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or are available to be issued when applicable) and, if so, provide related disclosures. ASU No. 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company does not expect the adoption of ASU No. 2014-15 to have a significant impact on its financial statements. In January 2015, the FASB issued ASU No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU No. 2015-01”). The amendments in ASU No. 2015-01 eliminate from GAAP the concept of extraordinary items. Although the amendments will eliminate the requirements in Subtopic 225-20 for reporting entities to consider whether an underlying event or transaction is extraordinary, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. ASU No. 2015-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU No. 2015-01 to have a significant impact on its financial statements. In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU No. 2015-02”), which amended the existing accounting standards for consolidation under both the variable interest model and the voting model. ASU No. 2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU No. 2015-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. A reporting entity may apply the amendments in ASU No. 2015-02 using: (a) a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption; or (b) by applying the amendments retrospectively. The Company is still evaluating the impact of adopting ASU No. 2015-02 on its financial statements, but does not expect the adoption of ASU No. 2015-02 to have a material impact on its financial statements. In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs (“ASU No. 2015-03”). The amendments in ASU No. 2015-03 require debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. ASU No. 2015-03 is limited to the presentation of debt issuance costs and does not affect the recognition and measurement of debt issuance costs. Given the absence of authoritative guidance within ASU No. 2015-03 for debt issuance costs related to line-of-credit arrangements, in August 2015, the FASB issued ASU No. 2015-15, Interest - Imputation of Interest (Subtopic 835-30), Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU No. 2015-15”), which clarifies ASU No. 2015-03 by stating that the staff of the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU No. 2015-03 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and is to be applied retrospectively. Early adoption is permitted for financial statements that have not been previously issued. The Company elected to early adopt ASU No. 2015-03 for the reporting period ending December 31, 2015. As a result of adoption of ASU No. 2015-03, the Company reclassified debt issuance costs associated with a debt liability from prepaid expenses and other assets to notes and bond payable, net on the accompanying consolidated balance sheets. All periods presented have been retroactively adjusted. In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments (“ASU No. 2015-16”). The amendments in ASU No. 2015-16 require that, in a business combination, an acquirer recognizes adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU No. 2015-16 is effective for annual periods beginning after December 15, 2015, and interim periods within those fiscal years and is to be applied prospectively. Early adoption is permitted for financial statements that have not been previously issued. The Company does not expect the adoption of ASU No. 2015-16 to have a significant impact on its financial statements. In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU No. 2016-01”). The amendments in ASU No. 2016-01 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU No. 2016-01 primarily affects accounting for equity investments and financial liabilities where the fair value option has been elected. ASU No. 2016-01 also requires entities to present financial assets and financial liabilities separately, grouped by measurement category and form of financial asset in the balance sheet or in the accompanying notes to the financial statements. ASU No. 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted for financial statements that have not been previously issued. The Company does not expect the adoption of ASU No. 2016-01 to have a significant impact on its financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). The amendments in ASU No. 2016-02 change the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of ASU No. 2016-02 is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting the new leases standard on its consolidated financial statements. |
REAL ESTATE HELD FOR INVESTMENT |
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Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REAL ESTATE HELD FOR INVESTMENT | REAL ESTATE HELD FOR INVESTMENT As of December 31, 2015, the Company owned 10 office properties, one office campus consisting of nine office buildings, one office portfolio consisting of four office buildings and 25 acres of undeveloped land, one office portfolio consisting of three office properties and one retail property encompassing, in the aggregate, approximately 4.4 million rentable square feet. As of December 31, 2015, these properties were 84% occupied. In addition, the Company owned two apartment properties containing 383 units and encompassing approximately 0.3 million rentable square feet, which were 92% occupied. The Company also owned two investments in undeveloped land encompassing an aggregate of 1,670 acres. The following table summarizes the Company’s real estate held for investment as of December 31, 2015 and 2014, respectively (in thousands):
The following table provides summary information regarding the Company’s real estate held for investment as of December 31, 2015 (in thousands):
Operating Leases Certain of the Company’s real estate properties are leased to tenants under operating leases for which the terms and expirations vary. As of December 31, 2015, the leases, excluding options to extend and apartment leases, which have terms that are generally one year or less, had remaining terms of up to 12.3 years with a weighted-average remaining term of 3.8 years. Some of the leases have provisions to extend the lease agreements, 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 a security deposit from tenants in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies 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 and assumed in real estate acquisitions or foreclosures related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets and totaled $5.3 million and $5.0 million as of December 31, 2015 and 2014, respectively. During the years ended December 31, 2015, 2014 and 2013, the Company recognized deferred rent from tenants of $4.5 million, $8.4 million and $4.6 million, respectively, net of lease incentive amortization. As of December 31, 2015 and 2014, the cumulative deferred rent receivable balance, including unamortized lease incentive receivables, was $22.8 million and $16.8 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $2.8 million and $1.6 million of unamortized lease incentives as of December 31, 2015 and 2014, respectively. The Company records property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred. As of December 31, 2015, the future minimum rental income from the Company’s properties, excluding apartment leases, under non-cancelable operating leases was as follows (in thousands):
As of December 31, 2015, the Company’s commercial real estate properties were leased to approximately 500 tenants over a diverse range of industries and geographic areas. 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 December 31, 2015, 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. Geographic Concentration Risk As of December 31, 2015, the Company’s real estate investments in Washington and Texas represented 29.2% and 20.5% of the Company’s total assets, respectively. As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the Washington and Texas real estate markets. Any adverse economic or real estate developments in these markets, 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 and its ability to make distributions to stockholders. Condemnation Agreements During the year ended December 31, 2015, the Company received $5.9 million in proceeds from condemnation agreements. The carrying value of the condemned land was $0.8 million, resulting in a gain of $5.1 million (including amounts for noncontrolling interests of $1.2 million), which is included in other income in the accompanying consolidated statements of operations. Property Damage During the year ended December 31, 2015, 1800 West Loop suffered physical damages due to floods. The Company’s insurance policy provides coverage for property damage and business interruption subject to a deductible of up to $100,000 per incident. Based on management’s estimates, the Company recognized an estimated aggregate loss due to damages of $2.2 million during the year ended December 31, 2015, which was reduced by $2.1 million of estimated insurance recoveries related to such damages, which the Company determined were probable of collection. The aggregate net loss due to damages of $0.1 million during the year ended December 31, 2015 was classified as operating, maintenance and management expenses on the accompanying consolidated statements of operations and relates to the Company’s insurance deductible. Through December 31, 2015, the Company received $0.6 million of insurance proceeds related to this incident. As of December 31, 2015, the total estimated insurance proceeds to be collected of $1.5 million were classified as prepaid expenses and other assets on the accompanying consolidated balance sheets. Dispositions of Undeveloped Land On September 10, 2015, the Company sold an aggregate of 14.3 acres of undeveloped land in the Richardson Portfolio for $6.2 million less credits and closing costs. The purchaser is not affiliated with the Company or the Advisor. In connection with the sale, the Company conveyed 11.7 acres of the non-developable land in the Richardson Portfolio and Richardson Land II and contributed $4.6 million for the funding of certain infrastructure development costs to a non-profit owners association. This disposition resulted in a gain of approximately $2.2 million (including amounts for noncontrolling interests of $0.2 million). On November 2, 2015, the Company sold an aggregate of 11.6 acres of undeveloped land in the Richardson Portfolio and Richardson Land II for $14.3 million less credits and closing costs. The purchaser is not affiliated with the Company or the Advisor. This disposition resulted in a gain of approximately $2.5 million (including amounts for noncontrolling interests of $0.3 million). |
TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES |
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Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES | TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES As of December 31, 2015 and 2014, 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) were 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 years ended December 31, 2015, 2014 and 2013 are as follows (in thousands):
The remaining unamortized balance for these outstanding intangible assets and liabilities as of December 31, 2015 will be amortized for the years ending December 31 as follows (in thousands):
Additionally, as of December 31, 2015 and 2014, the Company had recorded tax abatement intangible assets, net of amortization, which are included in prepaid expenses and other assets in the accompanying balance sheets, of $7.2 million and $8.2 million, respectively. During the years ended December 31, 2015 and 2014, the Company recorded amortization expense of $1.0 million and $0.9 million related to tax abatement intangible assets, respectively. |
REAL ESTATE LOAN RECEIVABLE |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REAL ESTATE LOANS RECEIVABLE | REAL ESTATE LOAN RECEIVABLE As of December 31, 2015 and 2014, the Company owned one real estate loan receivable that it had originated. The information for that real estate loan receivable as of December 31, 2015 and 2014 is set forth below (in thousands):
_____________________ (1) Outstanding principal balance as of December 31, 2015 represents original principal balance outstanding under the loan, increased for any subsequent fundings, including interest income deferred until maturity. (2) Book value of the real estate loan receivable represents outstanding principal balance adjusted for unamortized acquisition discounts, origination fees and direct origination and acquisition costs and additional interest accretion. (3) Contractual interest rate is the stated default interest rate on the face of the loan. Annualized effective interest rate is calculated as the actual interest income recognized in 2015, using the interest method, annualized (if applicable) and divided by the average amortized cost basis of the investment. The annualized effective interest rate and contractual interest rate presented are as of December 31, 2015. (4) See below for a discussion of the maturity default on the University House First Mortgage. On June 30, 2015, the University House First Mortgage matured without repayment. The Company fully collected the 11% contractual interest income due under the loan through June 30, 2015. As a result, on July 1, 2015, the Company provided notice to the borrower of default and may commence foreclosure proceedings on, or otherwise take title to, the property securing the University House First Mortgage. As of July 1, 2015, the Company had determined the University House Mortgage to be impaired and will recognize income on a cash basis. The Company has not recognized any interest income under the cash basis. The Company generally recognizes income on impaired loans on either a cash basis, where interest income is only recorded when received in cash, or on a cost-recovery basis, where all cash receipts are applied against the carrying value of the loan. The Company will resume the accrual of interest if it determines the collection of interest according to the contractual terms of the loan is probable. The Company considers the collectibility or recoverability of the loan’s principal balance in determining whether to recognize income on impaired loans. The Company did not record a provision for loan loss reserves during the year ended December 31, 2015 or 2014 as the Company believes the entire principal balance of $27.9 million related to the University House First Mortgage to be fully recoverable. The following summarizes the activity related to the real estate loan receivable for the year ended December 31, 2015 (in thousands):
For the years ended December 31, 2015, 2014 and 2013 interest income from real estate loans receivable consisted of the following (in thousands):
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REAL ESTATE SALES |
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REAL ESTATE SALES | REAL ESTATE SALES AND DISCONTINUED OPERATIONS In accordance with ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU No. 2014-08”), results of operations and related gains (losses) on sale from properties that are classified as held for sale in the ordinary course of business on or subsequent to January 1, 2014 would generally be included in continuing operations on the Company’s consolidated statements of operations. Results of operations and related gains (losses) on sale from properties that were classified as held for sale in financial statements issued prior to January 1, 2014 will remain in discontinued operations on the Company’s consolidated statements of operations. Prior to the adoption of ASU 2014-08, the operations of properties held for sale or to be disposed of and the aggregate net gains recognized upon their disposition were presented as discontinued operations in the accompanying consolidated statements of operations for all periods presented. During the year ended December 31, 2015, the Company disposed of two office properties and no properties were classified as held for sale as of December 31, 2015. During the years ended December 31, 2014 and 2015, the Company sold one office property and two office properties, respectively, all of which were not classified as held for sale in financial statements issued for the reporting period prior to January 1, 2014. The operations of these properties and gain on sale are included in continuing operations on the accompanying statements of operations. The following table summarizes certain revenue and expenses related to these properties for the years ended December 31, 2015, 2014 and 2013 (in thousands):
Discontinued Operations The following table summarizes certain revenue and expenses related to properties sold prior to January 1, 2014 for the years ended December 31, 2015, 2014, and 2013 (in thousands):
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NOTES AND BOND PAYABLE |
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Notes and Bonds Payable [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTES AND BOND PAYABLE | NOTES AND BOND PAYABLE As of December 31, 2015 and December 31, 2014, the Company’s notes and bond payable consisted of the following (dollars in thousands):
_____________________ (1) Contractual interest rate represents the interest rate in effect under the loan as of December 31, 2015. Effective interest rate is calculated as the actual interest rate in effect as of December 31, 2015 (consisting of the contractual interest rate and contractual floor rates), using interest rate indices at December 31, 2015, where applicable. (2) Represents the initial maturity date or the maturity date as extended as of December 31, 2015; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown. (3) Represents the payment type required under the loan as of December 31, 2015. Certain future monthly payments due under this loan also include amortizing principal payments. For more information of the Company’s contractual obligations under its notes and bond payable, see five-year maturity table below. (4) The Portfolio Revolving Loan Facility is secured by the 1800 West Loop Building and the Iron Point Business Park. The Portfolio Revolving Loan Facility is comprised of $59.5 million of revolving debt and $13.0 million of non-revolving debt available to be used for tenant improvements, leasing commissions and capital improvements, subject to certain terms and conditions contained in the loan documents. As of December 31, 2015, $36.5 million of revolving debt and $10.6 million of non-revolving debt had been disbursed to the Company and the remaining $23.0 million of revolving debt and $2.4 million of non-revolving debt is available for future disbursements, subject to certain conditions contained in the loan documents. Monthly payments are initially interest only. Beginning June 1, 2016, and to the extent that there are amounts outstanding under the non-revolving portion of the loan, monthly payments will include interest and principal amortization payments of up to $80,000 per month. (5) On March 11, 2015, in connection with the disposition of 1635 N. Cahuenga, the joint venture paid off the outstanding principal balance and all other sums due under this loan. (6) Interest on the Maitland Promenade II Mortgage Loan is calculated at a variable annual rate of 290 basis points over one-month LIBOR, but at no point shall the interest rate be less than 3.25%. (7) On April 1, 2015, the Company paid off the outstanding principal balance and all other sums due under this loan. (8) Represents the unamortized premium/discount on notes and bond payable due to the above- and below-market interest rates when the debt was assumed. The discount/premium is amortized over the remaining life of the notes and bond payable. During the years ended December 31, 2015, 2014 and 2013, the Company incurred $15.0 million, $15.6 million and $2.7 million of interest expense, respectively. Included in interest expense for the years ended December 31, 2015, 2014 and 2013, was $2.7 million, $2.8 million and $0.7 million of amortization of deferred financing costs, respectively. Additionally, during the years ended December 31, 2015, 2014 and 2013 the Company capitalized $1.9 million, $2.0 million and $2.7 million of interest, respectively, to our investments in undeveloped land. As of December 31, 2015, the Company’s deferred financing costs were $4.7 million, net of amortization, of which $3.5 million is included in notes and bond payable, net and $1.2 million is included in prepaid expenses and other assets on the accompanying consolidated balance sheets. As of December 31, 2014, the Company’s deferred financing costs were $6.2 million, net of amortization, and are included in notes and bond payable, net and on the accompanying consolidated balance sheets. As of December 31, 2015 and 2014, the Company’s interest payable was $1.2 million. The following is a schedule of maturities, including principal amortization payments, for all notes and bond payable outstanding as of December 31, 2015 (in thousands):
The Company’s notes payable contain financial debt covenants. As of December 31, 2015, the Company was in compliance with all of these debt covenants. |
FAIR VALUE DISCLOSURES |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE DISCLOSURES | FAIR VALUE DISCLOSURES Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:
The fair value for certain financial instruments is derived using 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, rent and other receivables, prepaid expenses and other assets and accounts payable and accrued liabilities: These balances approximate their fair values due to the short maturities of these items. Real estate loan receivable: The Company’s real estate loan receivable is presented in the accompanying consolidated balance sheets at its amortized cost net of recorded loan loss reserves and not at fair value. The fair value of real estate loan receivable was estimated using an internal valuation model that considers 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. The Company classifies these inputs as Level 3 inputs. Notes and bond payable: The fair values of the Company’s notes and bond payable are 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 or 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. The Company classifies these inputs as Level 3 inputs. The following were the face values, carrying amounts and fair values of the Company’s financial instruments as of December 31, 2015 and December 31, 2014, which carrying amounts do not approximate the fair values (in thousands):
Disclosure of the fair value of financial instruments is based on pertinent information available to the Company as of the period end and requires a significant amount of judgment. |
RELATED PARTY TRANSACTIONS |
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Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RELATED PARTY TRANSACTIONS | RELATED PARTY TRANSACTIONS The Advisory Agreement entitles the Advisor and the Dealer Manager Agreement previously entitled 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 disposition of real estate and real estate-related investments (including the discounted payoff of non-performing loans) 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 Advisory Agreement may also entitle the Advisor to certain back-end cash flow participation fees. The Company also entered into a fee reimbursement agreement (the “AIP Reimbursement Agreement”) with the Dealer Manager, pursuant to which the Company agreed to reimburse the Dealer Manager for certain fees and expenses it incurs for administering the Company’s participation in the Depository Trust & Clearing Corporation Alternative Investment Product Platform with respect to certain accounts of the Company’s investors serviced through the platform. The Advisor and Dealer Manager also serve as the advisor and dealer manager, respectively, for KBS Real Estate Investment Trust, Inc. (“KBS REIT I”), KBS Real Estate Investment Trust II, Inc. (“KBS REIT II”), KBS Real Estate Investment Trust III, Inc. (“KBS REIT III”), KBS Legacy Partners Apartment REIT, Inc. (“KBS Legacy Partners Apartment REIT”), KBS Strategic Opportunity REIT II, Inc. (“KBS Strategic Opportunity REIT II”) and KBS Growth & Income REIT, Inc. (“KBS Growth & Income REIT”). On January 6, 2014, the Company, together with KBS REIT I, KBS REIT II, KBS REIT III, KBS Legacy Partners Apartment REIT, KBS Strategic Opportunity REIT II, the Dealer Manager, the Advisor and other KBS-affiliated entities, entered into an errors and omissions and directors and officers liability insurance program where the lower tiers of coverage are shared. The cost of these lower tiers is allocated by the Advisor and its insurance broker among each of the various entities covered by the plan, and is billed directly to each entity. The allocation of these shared coverage costs is proportionate to the pricing by the insurance marketplace for the first tiers of directors and officers liability coverage purchased individually by each REIT. The Advisor’s and the Dealer Manager’s portion of the shared lower tiers’ cost is proportionate to the respective entities’ prior cost for the errors and omissions insurance. In June 2015, KBS Growth & Income REIT was added to the insurance program at terms similar to those described above. During the years ended December 31, 2015, 2014 and 2013, no other business 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 years ended December 31, 2015, 2014 and 2013, respectively, and any related amounts payable as of December 31, 2015 and December 31, 2014 (in thousands):
_____________________ (1) Amounts include asset management fees from discontinued operations. (2)Reimbursable operating expenses primarily consists of internal audit personnel costs, accounting software and cybersecurity related expenses incurred by the Advisor under the Advisory Agreement. 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 amounts totaled $153,000, $141,000 and $134,000 for the years ended December 31, 2015, 2014 and 2013, respectively, and were the only employee costs reimbursed under the Advisory Agreement during these periods. 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. (3) Disposition fees with respect to real estate sold are included in the gain on sales of real estate in the accompanying consolidated statements of operations. |
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES |
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Equity Method Investments and Joint Ventures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES | INVESTMENT IN UNCONSOLIDATED JOINT VENTURES As of December 31, 2015 and 2014, the Company’s investments in unconsolidated joint ventures were composed of the following (dollars in thousands):
Investment in National Industrial Portfolio Joint Venture On May 18, 2012, the Company, through an indirect wholly owned subsidiary, entered into a joint venture (the “NIP Joint Venture”) with OCM NIP JV Holdings, L.P. and HC KBS NIP JV, LLC (“HC-KBS”). As of December 31, 2015, the NIP Joint Venture owned 21 industrial properties and a master lease with respect to another industrial property encompassing 10.8 million square feet. The Company made an initial capital contribution of $8.0 million which represents less than a 5.0% ownership interest in the NIP Joint Venture as of December 31, 2015. The Company has virtually no influence over the NIP Joint Venture’s operations, financial policies or decision making. Accordingly, the Company has accounted for its investment in the NIP Joint Venture under the cost method of accounting. Income, losses and distributions from the NIP Joint Venture are generally allocated among the members based on their respective equity interests. KBS REIT I, an affiliate of the Advisor, is a member of HC-KBS and has a participation interest in certain future potential profits generated by the NIP Joint Venture. However, KBS REIT I does not have any equity interest in the NIP Joint Venture. None of the other joint venture partners are affiliated with the Company or the Advisor. As of December 31, 2015 and 2014, the book value of the Company’s investment in the NIP Joint Venture was $5.3 million. During the year ended December 31, 2015, the Company did not receive any distributions related to its investment in the NIP Joint Venture. During the year ended December 31, 2014, the Company recognized $2.2 million of return of capital from the NIP Joint Venture. During the year ended December 31, 2013, the Company recognized $0.1 million of income distributions and $0.4 million of return of capital from the NIP Joint Venture. Investment in 110 William Joint Venture On December 23, 2013, the Company, through an indirect wholly owned subsidiary, entered into an agreement with SREF III 110 William JV, LLC (the “110 William JV Partner”) to form a joint venture (the “110 William Joint Venture”). On May 2, 2014, the 110 William Joint Venture acquired an office property containing 928,157 rentable square feet located on approximately 0.8 acres of land in New York, New York (“110 William Street”). Each of the Company and the 110 William JV Partner hold a 60% and 40% ownership interest in the 110 William Joint Venture, respectively. The Company exercises significant influence over the operations, financial policies and decision making with respect to the 110 William Joint Venture but significant decisions require approval from both members. Accordingly, the Company has accounted for its investment in the 110 William Joint Venture under the equity method of accounting. Income, losses, contributions and distributions are generally allocated based on the members’ respective equity interests. As of December 31, 2015 and 2014, the book value of the Company’s investment in the 110 William Joint Venture was $69.1 million and $66.7 million, respectively, which includes $1.6 million of unamortized acquisition fees and expenses incurred directly by the Company. During the years ended December 31, 2015, 2014 and 2013, the Company recognized an equity in loss of unconsolidated joint venture of $0.4 million, $1.1 million and $0.1 million, respectively, related to the Company’s share of income and expenses earned and incurred by the 110 William Joint Venture. Summarized financial information for the 110 William Joint Venture follows (in thousands):
(1) Includes (i) a first mortgage loan with an outstanding principal balance of $138.6 million and $140.7 million as of December 31, 2015 and December 31, 2014, respectively, bearing interest at a fixed rate of 4.8% per annum and maturing on July 6, 2017 and (ii) a mezzanine loan with an outstanding principal balance of $20.0 million as of December 31, 2015 and December 31, 2014 bearing interest at a fixed rate of 9.5% per annum and maturing on July 6, 2017. The amount presented includes a premium on notes payable of $4.5 million and $7.5 million as of December 31, 2015 and 2014, respectively, and deferred financing costs, net of $0.7 million and $1.1 million as of December 31, 2015 and 2014, respectively.
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SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) |
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Quarterly Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) | SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Presented below is a summary of the unaudited quarterly financial information for the years ended December 31, 2015 and 2014 (in thousands, except per share amounts):
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COMMITMENTS AND CONTINGENCIES |
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Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | 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, origination, acquisition and disposition of investments; management of the daily operations of the Company’s investment portfolio; and other general and administrative responsibilities. In the event that the Advisor is unable to provide these services, the Company will be required to obtain such services from other sources. Environmental As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Although there can be no assurance, the Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations as of December 31, 2015. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the properties could result in future environmental liabilities. Legal Matters From time to time, the Company is a 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 the Company’s results of operations or financial condition, which would require accrual or disclosure of the contingency and the 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. |
EARNINGS PER SHARE |
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EARNINGS PER SHARE | EARNINGS PER SHARE The following table presents the computation of basic and diluted earnings per share (in thousands, except share and per share amounts):
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SUBSEQUENT EVENTS |
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Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | SUBSEQUENT EVENTS The Company evaluates subsequent events up until the date the consolidated financial statements are issued. Distribution Declared On March 9, 2016, the Company’s board of directors authorized a distribution in the amount of $0.09323770 per share of common stock to stockholders of record as of the close of business on March 22, 2016. The Company expects to pay this distribution on March 29, 2016. The board of directors will declare distributions from time to time based on the Company’s income, cash flow and investing and financing activities. As such, the Company can also give no assurances as to the timing, amount or notice with respect to any other future distribution declarations. Bond Financing On March 2, 2016, KBS SOR (BVI) Holdings, Ltd. (“KBS SOR BVI”), a wholly owned subsidiary of the Company, filed a final prospectus with the Israel Securities Authority for a proposed offering of up to 1,000,000,000 Israeli new Shekels of Series A debentures (the “Debentures”) at an annual interest rate not to exceed 4.25%. On March 1, 2016, KBS SOR BVI commenced the institutional tender of the Debentures and accepted application for 842.5 million Israeli new Shekels. On March 7, 2016, KBS SOR BVI commenced the public tender of the Debentures and accepted 127.7 million Israeli new Shekels. In the aggregate, KBS SOR BVI accepted 970.2 million Israeli new Shekels (approximately $250.0 million as of March 23, 2016) in both the institutional and public tenders at an annual interest rate of 4.25%. KBS SOR BVI issued the Debentures on March 8, 2016. The terms of the Debentures require principal installment payments equal to 20% of the face value of the Debentures on March 1st of each year from 2019 to 2023. At closing, the Company paid legal, rating and underwriting fees of approximately 30.5 million Israeli new Shekels (approximately $7.8 million) in connection with the offering. In addition, the Company funded interest reserves of 20.0 million Israeli new Shekels (approximately $5.1 million) and 1.0 million Israeli new Shekels (approximately $0.3 million) of expense reserve required by the Debenture documents. The net proceeds of 918.8 million Israeli new Shekels (approximately $239.2 million as of March 23, 2016) remain available to the Company. In addition, the Company incurred approximately $1.9 million of legal, accounting and valuation fees that were payable outside of closing for a total of approximately $9.7 million of issuance costs related to the Debentures. In connection with the above-referenced offering, on March 8, 2016, the Operating Partnership assigned to KBS SOR BVI all of its interests in the subsidiaries through which the Company indirectly owns all of its real estate and real estate-related investments. The Operating Partnership owns all of the issued and outstanding equity of KBS SOR BVI. As a result of these transactions, the Company now holds all of its real estate and real estate-related investments indirectly through KBS SOR BVI. |
SCHEDULE III REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND AMORTIZATION |
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SEC Schedule III, Real Estate and Accumulated Depreciation Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SCHEDULE III REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND AMORTIZATION | SCHEDULE III REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 2015 (dollar amounts in thousands)
____________________ (1) Building and improvements include tenant origination and absorption costs. (2) Costs capitalized subsequent to acquisition is net of write-offs of fully depreciated/amortized assets. (3) The aggregate cost of real estate for federal income tax purposes was $957.1 million as of December 31, 2015. (4) As of December 31, 2015, $41.2 million of debt was outstanding secured by the Richardson Portfolio. (5) As of December 31, 2015, $47.1 million of debt was outstanding secured by 1800 West Loop and Iron Point Business Park. (6) As of December 31, 2015, $100.0 million of debt was outstanding secured by Northridge Center I & II, Powers Ferry Landing East, West Loop I & II and the Austin Suburban Portfolio. SCHEDULE III REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND AMORTIZATION (CONTINUED) December 31, 2015 (dollar amounts in thousands)
____________________ (1) Amounts include real estate held for sale. (2) Acquisitions includes properties which the Company acquired through foreclosure on or to which it otherwise received title. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||
Principles of Consolidation and Basis of Presentation | The consolidated financial statements include the accounts of the Company, REIT Holdings, the Operating Partnership and their direct and indirect wholly owned subsidiaries, and joint ventures in which the Company has a controlling interest. All significant intercompany balances and transactions are eliminated in consolidation. The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC. |
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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. |
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Reclassifications | Certain amounts in the Company’s prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods. During the year ended December 31, 2015, the Company sold two office properties. As a result, certain assets and liabilities were reclassified to held for sale on the consolidated balance sheets for all periods presented. During the year ended December 31, 2015, the Company elected to early adopt ASU No. 2015-03 (defined below). As a result, the Company has reclassified debt issuance costs associated with a debt liability from prepaid expenses and other assets to notes and bond payable, net on the consolidated balance sheets for all periods presented. |
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Revenue Recognition, Real Estate | The Company recognizes minimum rent, including rental abatements, lease incentives and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectibility is reasonably assured and records amounts expected to be received in later years as deferred rent receivable. If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or the Company. When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance (including amounts that can be taken in the form of cash or a credit against the tenant’s rent) that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Tenant improvement ownership is determined based on various factors including, but not limited to:
The Company records property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred. The Company makes estimates of the collectibility of its tenant receivables related to base rents, including deferred rent, expense reimbursements and other revenue or income. Management specifically analyzes accounts receivable, deferred rents receivable, historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy, management makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectibility of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. When a tenant is in bankruptcy, the Company will record a bad debt reserve for the tenant’s receivable balance and generally will not recognize subsequent rental revenue until cash is received or until the tenant is no longer in bankruptcy and has the ability to make rental payments. |
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Revenue Recognition, Real Estate Loans Receivable | Interest income on the Company’s real estate loans receivable is recognized on an accrual basis over the life of the investment using the interest method. Direct loan origination or acquisition fees and costs, as well as acquisition premiums or discounts, are amortized over the term of the loan as an adjustment to interest income. The Company places loans on non-accrual status when any portion of principal or interest is 90 days past due, or earlier when concern exists as to the ultimate collection of principal or interest. When a loan is placed on non-accrual status, the Company reserves for any unpaid accrued interest and generally does not recognize subsequent interest income until cash is received, or the loan returns to accrual status. The Company will resume the accrual of interest if it determines the collection of interest, according to the contractual terms of the loan, is probable. The Company generally recognizes income on impaired loans on either a cash basis, where interest income is only recorded when received in cash, or on a cost-recovery basis, where all cash receipts are applied against the carrying value of the loan. The Company considers the collectibility of the loan’s principal balance in determining whether to recognize income on impaired loans on a cash basis or a cost-recovery basis. The Company will recognize interest income on loans purchased at discounts to face value where the Company expects to collect less than the contractual amounts due under the loan when that expectation is due, at least in part, to the credit quality of the borrower. Income is recognized at an interest rate equivalent to the estimated yield on the loan, as calculated using the carrying value of the loan and the expected cash flows. Changes in estimated cash flows are recognized through an adjustment to the yield on the loan on a prospective basis. Projecting cash flows for these types of loans requires a significant amount of assumptions and judgment, which may have a significant impact on the amount and timing of revenue recognized on these investments. The Company recognizes interest income on non-performing loans on a cash basis or cost-recovery basis since these loans generally do not have an estimated yield and collection of principal and interest is not assured. |
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Revenue Recognition, Real Estate Securities | The Company recognizes interest income on real estate securities that are beneficial interests in securitized financial assets and are rated “AA” and above on an accrual basis according to the contractual terms of the securities. Discounts or premiums are amortized to interest income over the life of the investment using the interest method. The Company recognizes interest income on real estate securities that are beneficial interests in securitized financial assets that are rated below “AA” using the effective yield method, which requires the Company to periodically project estimated cash flows related to these securities and recognize interest income at an interest rate equivalent to the estimated yield on the security, as calculated using the security’s estimated cash flows and amortized cost basis, or reference amount. Changes in the estimated cash flows are recognized through an adjustment to the yield on the security on a prospective basis. Projecting cash flows for these types of securities requires significant judgment, which may have a significant impact on the timing of revenue recognized on these investments. |
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Revenue Recognition, Cash and Cash Equivalents | The Company recognizes interest income on its cash and cash equivalents as it is earned and records such amounts as other interest income. |
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Real Estate, Depreciation and Amortization | Real estate costs related to the acquisition and improvement of properties are capitalized and amortized over the expected useful life of the asset on a straight-line basis. Repair and maintenance costs are charged to expense as incurred and significant replacements and betterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. The Company considers the period of future benefit of an asset to determine its appropriate useful life. Expenditures for tenant improvements are capitalized and amortized over the shorter of the tenant’s lease term or expected useful life. The Company anticipates the estimated useful lives of its assets by class to be generally as follows:
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Real Estate, Real Estate Acquisition Valuation | The Company records the acquisition of income-producing real estate or real estate that will be used for the production of income as a business combination. All assets acquired and liabilities assumed in a business combination are measured at their acquisition-date fair values. Acquisition costs are expensed as incurred and restructuring costs that do not meet the definition of a liability at the acquisition date are expensed in periods subsequent to the acquisition date. Real estate obtained in satisfaction of a loan is recorded at the estimated fair value of the real estate (net of liabilities assumed) or the fair value of the loan satisfied if more clearly evident. The excess of the carrying value of the loan over the fair value of the property is charged-off against the reserve for loan losses when title to the property is obtained. Costs of holding the property are expensed as incurred in the Company’s consolidated statements of operations. Intangible assets include the value of in-place leases, which represents the estimated value of the net cash flows of the in-place leases to be realized, as compared to the net cash flows that would have occurred had the property been vacant at the time of acquisition and subject to lease-up. Acquired in-place lease value will be amortized to expense over the average remaining terms of the respective in-place leases, including any below-market renewal periods. The Company assesses the acquisition date fair values of all tangible assets, identifiable intangibles and assumed liabilities using methods similar to those used by independent appraisers, generally utilizing a discounted cash flow analysis that applies appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors, including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it were vacant. The Company records above-market and below-market in-place lease values for acquired properties based on the present value (using a discount that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of above-market in-place leases and for the initial term plus any extended term for any leases with below-market renewal options. The Company amortizes any recorded above-market or below-market lease values as a reduction or increase, respectively, to rental income over the remaining non-cancelable terms of the respective lease, including any below-market renewal periods. The Company estimates the value of tenant origination and absorption costs by considering the estimated carrying costs during hypothetical expected lease up periods, considering current market conditions. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. The Company amortizes the value of tenant origination and absorption costs to depreciation and amortization expense over the remaining non-cancelable term of the leases. Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require the Company to make significant assumptions to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate assumptions would result in an incorrect valuation of the Company’s acquired tangible assets, identifiable intangibles and assumed liabilities, which would impact the amount of the Company’s net income. Direct investments in undeveloped land or properties without leases in place at the time of acquisition are accounted for as an asset acquisition and not as a business combination. Acquisition fees and expenses are capitalized into the cost basis of an asset acquisition. Additionally, during the time in which the Company is incurring costs necessary to bring these investments to their intended use, certain costs such as legal fees, real estate taxes and insurance and financing costs are also capitalized. |
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Real Estate, Impairments of Real Estate and Related Intangible Assets and Liabilities | The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related intangible assets and liabilities may not be recoverable or realized. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, the Company assesses the recoverability by estimating whether the Company will recover the carrying value of the real estate and related intangible assets and liabilities through its undiscounted future cash flows and its eventual disposition. If, based on this analysis, the Company does not believe that it will be able to recover the carrying value of the real estate and related intangible assets and liabilities, the Company would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets and liabilities. The Company did not record any impairment losses on its real estate and related intangible assets and liabilities during the year ended December 31, 2015. During the year ended December 31, 2014, the Company recorded an impairment charge of $0.6 million with respect to one real estate property, which was sold on September 10, 2015. During the year ended December 31, 2013, the Company recorded an impairment charge of $1.4 million with respect to two real estate properties, one of which was sold on August 29, 2014 and the other of which was sold on September 10, 2015. Projecting future cash flows involves estimating expected future operating income and expenses related to the real estate and its related intangible assets and liabilities as well as market and other trends. Using inappropriate assumptions to estimate cash flows could result in incorrect fair values of the real estate and its related intangible assets and liabilities and could result in the overstatement of the carrying values of the Company’s real estate and related intangible assets and liabilities and an overstatement of its net income. |
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Real Estate, Insurance Proceeds for Property Damages | The Company maintains an insurance policy that provides coverage for property damages and business interruption. Losses due to physical damages are recognized during the accounting period in which they occur, while the amount of monetary assets to be received from the insurance policy is recognized when receipt of insurance recoveries is probable. Losses, which are reduced by the related insurance recoveries, are recorded as operating, maintenance and management expenses on the accompanying consolidated statements of operations. Anticipated proceeds in excess of recognized losses would be considered a gain contingency and recognized when the contingency related to the insurance claim has been resolved. Anticipated recoveries for lost rental revenue due to property damages are also considered to be a gain contingency and recognized when the contingency related to the insurance claim has been resolved. |
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Real Estate, Real Estate Held for Sale and Discontinued Operations | The Company generally considers real estate to be “held for sale” when the following criteria are met: (i) management commits to a plan to sell the property, (ii) the property is available for sale immediately, (iii) the property is actively being marketed for sale at a price that is reasonable in relation to its current fair value, (iv) the sale of the property within one year is considered probable and (v) significant changes to the plan to sell are not expected. Real estate that is held for sale and its related assets are classified as “real estate held for sale” and “assets related to real estate held for sale,” respectively, for all periods presented in the accompanying consolidated financial statements. Notes payable and other liabilities related to real estate held for sale are classified as “notes payable related to real estate held for sale” and “liabilities related to real estate held for sale,” respectively, for all periods presented in the accompanying consolidated financial statements. Real estate classified as held for sale is no longer depreciated and is reported at the lower of its carrying value or its estimated fair value less estimated costs to sell. Additionally, with respect to properties that were classified as held for sale in financial statements prior to January 1, 2014, the Company records the operating results and related gains (losses) on sale as discontinued operations for all periods presented if the operations have been or are expected to be eliminated and the Company will not have any significant continuing involvement in the operations of the property following the sale. Operating results and related gains (losses) on sale of properties that were disposed of or classified as held for sale in the ordinary course of business during the years ended December 31, 2015 and 2014 that had not been classified as held for sale in financial statements prior to January 1, 2014 are included in continuing operations on the Company’s consolidated statements of operations. |
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Loans Receivables and Loan Loss Reserves | The Company’s real estate loans receivable are recorded at amortized cost, net of loan loss reserves (if any), and evaluated for impairment at each balance sheet date. The amortized cost of a real estate loan receivable is the outstanding unpaid principal balance, net of unamortized acquisition premiums or discounts and unamortized costs and fees directly associated with the origination or acquisition of the loan. The amount of impairment, if any, will be measured by comparing the amortized cost of the loan to the present value of the expected cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent and collection of principal and interest is not assured. If a loan is deemed to be impaired, the Company will record a loan loss reserve and a provision for loan losses to recognize impairment. As of December 31, 2015, there was no loan loss reserve and the Company did not record any impairment losses related to its real estate loans receivable during the years ended December 31, 2015, 2014 and 2013. The reserve for loan losses is a valuation allowance that reflects management’s estimate of loan losses inherent in the loan portfolio as of the balance sheet date. The reserve is adjusted through “Provision for loan losses” on the Company’s consolidated statements of operations and is decreased by charge-offs to specific loans when losses are confirmed. The Company considers a loan to be impaired when, based upon current information and events, it believes that it is probable that the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. If the Company purchases a loan at a discount to face value and at the acquisition date the Company expects to collect less than the contractual amounts due under the terms of the loan based, at least in part, on the Company’s assessment of the credit quality of the borrower, the Company will consider such a loan to be impaired when, based upon current information and events, it believes that it is probable that the Company will be unable to collect all amounts the Company estimated to be collected at the time of acquisition. The Company also considers a loan to be impaired if it grants the borrower a concession through a modification of the loan terms or if it expects to receive assets (including equity interests in the borrower) with fair values that are less than the carrying value of the loan in satisfaction of the loan. A reserve is established when the present value of payments expected to be received, observable market prices, the estimated fair value of the collateral (for loans that are dependent on the collateral for repayment) or amounts expected to be received in satisfaction of a loan are lower than the carrying value of that loan. Failure to recognize impairments would result in the overstatement of earnings and the carrying value of the Company’s real estate loans held for investment. Actual losses, if any, could significantly differ from estimated amounts. |
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Investment in Unconsolidated Joint Venture, Equity Method | The Company accounts for investments in unconsolidated joint venture entities in which the Company may exercise significant influence over, but does not control, using the equity method of accounting. Under the equity method, the investment is initially recorded at cost and subsequently adjusted to reflect additional contributions or distributions and the Company’s proportionate share of equity in the joint venture’s income (loss). The Company recognizes its proportionate share of the ongoing income or loss of the unconsolidated joint venture as equity in income (loss) of unconsolidated joint venture on the consolidated statements of operations. On a quarterly basis, the Company evaluates its investment in an unconsolidated joint venture for other-than-temporary impairments. As of December 31, 2015, the Company did not identify any indicators of impairment related to its unconsolidated real estate joint venture accounted for under the equity method. |
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Investment in Unconsolidated Joint Venture, Cost Method | The Company accounts for investments in unconsolidated joint venture entities in which the Company does not have the ability to exercise significant influence and has virtually no influence over partnership operating and financial policies using the cost method of accounting. Under the cost method, income distributions from the partnership are recognized in other income. Distributions that exceed the Company’s share of earnings are applied to reduce the carrying value of the Company’s investment and any capital contributions will increase the carrying value of the Company’s investment. On a quarterly basis, the Company evaluates its cost method investment in an unconsolidated joint venture for other-than-temporary impairments. The fair value of a cost method investment is not estimated if there are no identified events or changes in circumstances that would indicate a significant adverse effect on the fair value of the investment. As of December 31, 2015, the Company did not identify any indicators of impairment related to its unconsolidated real estate joint venture accounted for under the cost method. |
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Cash and Cash Equivalents | The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents may include cash and short-term investments. Cash and cash equivalents are stated at cost, which approximates fair value. There were no restrictions on the use of the Company’s cash and cash equivalents as of December 31, 2015 and 2014. The Company’s cash and cash equivalents balance exceeded federally insurable limits as of December 31, 2015. The Company monitors the cash balances in its operating accounts and adjusts the cash balances as appropriate; however, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, the Company has experienced no loss or lack of access to cash in its operating accounts. |
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Rent and Other Receivables | The Company periodically evaluates the collectibility of amounts due from tenants and maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under lease agreements. In addition, the Company maintains an allowance for deferred rent receivable that arises from the straight-lining of rents. The Company exercises judgment in establishing these allowances and considers payment history and current credit status of its tenants in developing these estimates. |
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Deferred Financing Costs | Deferred financing costs represent commitment fees, loan fees, legal fees and other third-party costs associated with obtaining financing and are presented on the balance sheet as a direct deduction from the carrying value of the associated debt liability. These costs are amortized over the terms of the respective financing agreements using the interest method. Unamortized deferred financing costs are generally expensed when the associated debt is refinanced or repaid before maturity unless specific rules are met that would allow for the carryover of such costs to the refinanced debt. Deferred financing costs incurred before an associated debt liability is recognized are included in prepaid and other assets on the balance sheet. Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined that the financing will not close. |
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Fair Value Measurements | Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:
When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and classifies such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines that the market for a financial instrument owned by the Company is illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources. 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. Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument. The Company considers the following factors to be indicators of an inactive market: (i) there are few recent transactions, (ii) price quotations are not based on current information, (iii) price quotations vary substantially either over time or among market makers (for example, some brokered markets), (iv) indexes that previously were highly correlated with the fair values of the asset or liability are demonstrably uncorrelated with recent indications of fair value for that asset or liability, (v) there is a significant increase in implied liquidity risk premiums, yields, or performance indicators (such as delinquency rates or loss severities) for observed transactions or quoted prices when compared with the Company’s estimate of expected cash flows, considering all available market data about credit and other nonperformance risk for the asset or liability, (vi) there is a wide bid-ask spread or significant increase in the bid-ask spread, (vii) there is a significant decline or absence of a market for new issuances (that is, a primary market) for the asset or liability or similar assets or liabilities, and (viii) little information is released publicly (for example, a principal-to-principal market). The Company considers the following factors to be indicators of non-orderly transactions: (i) there was not adequate exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities under current market conditions, (ii) there was a usual and customary marketing period, but the seller marketed the asset or liability to a single market participant, (iii) the seller is in or near bankruptcy or receivership (that is, distressed), or the seller was required to sell to meet regulatory or legal requirements (that is, forced), and (iv) the transaction price is an outlier when compared with other recent transactions for the same or similar assets or liabilities. |
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Dividend Reinvestment Plan | The Company has adopted a dividend reinvestment plan (the “DRP”) through which future common stockholders may elect to reinvest an amount equal to the distributions declared on their shares in additional shares of the Company’s common stock in lieu of receiving cash distributions. On March 25, 2014, the Company’s board of directors approved a fourth amended and restated dividend reinvestment plan (the “Fourth Amended DRP”). The Fourth Amended DRP became effective for purchases under the plan on or after April 6, 2014. Pursuant to the Fourth Amended DRP, the purchase price of shares of the Company’s common stock is equal to 95% of the most recently announced estimated value per share of the Company’s common stock. Prior to April 6, 2014 (the effective date of the Fourth Amended DRP), the purchase price per share under the DRP was $9.50. On March 25, 2014, the Company’s board of directors approved an updated primary offering price for the Company’s common stock of $11.27 (unaudited) based on the estimated value of the Company’s assets less the estimated value of the Company’s liabilities, or net asset value, divided by the number of shares outstanding as of December 31, 2013, with the exception of certain adjustments for actual and expected acquisition-related costs subsequent to December 31, 2013. Commencing on April 6, 2014, the purchase price per share under the DRP was $10.71. On December 9, 2014, the Company’s board of directors approved an updated primary offering price for the Company’s common stock of $12.24 (unaudited) based on the estimated value of the Company’s assets less the estimated value of the Company’s liabilities, or net asset value, divided by the number of shares outstanding as of September 30, 2014. Commencing December 29, 2014, the purchase price per share under the DRP was $11.63. On May 12, 2015, the Company’s board of directors adopted a fifth amended and restated dividend reinvestment plan (the “Fifth Amended DRP”). Pursuant to the Fifth Amended DRP, shares may be purchased at a price equal to the estimated value per share most recently announced in a public filing. There were no other changes to the Fifth Amended DRP, which became effective on July 1, 2015. On December 8, 2015, the Company’s board of directors approved an updated primary offering price for the Company’s common stock of $13.44 (unaudited) based on the estimated value of the Company’s assets less the estimated value of the Company’s liabilities, or net asset value, divided by the number of shares outstanding as of September 30, 2015. Commencing January 4, 2016, the purchase price per share under the DRP was $13.44. No selling commissions or dealer manager fees will be paid on shares sold under the DRP. |
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Redeemable Common Stock | The Company has adopted a share redemption program that may enable stockholders to sell their shares to the Company in limited circumstances. Pursuant to the share redemption program there are several limitations on the Company’s ability to redeem shares:
Pursuant to the program, the Company redeemed shares from January 1, 2015 to June 12, 2015 at prices determined as follows:
Pursuant to the fifth amended and restated share redemption program, the Company redeemed shares effective June 13, 2015 at a price equal to the most recent estimated value per share as of the applicable redemption date, regardless of how long such shares have been held or whether shares are being redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence.” Effective January 9, 2016, pursuant to the eighth amended and restated share redemption program, the Company will redeem shares at prices determined as follows:
The Company’s board of directors may amend, suspend or terminate the share redemption program with 30 days’ notice to its stockholders. The Company may provide this notice by including such information in a Current Report on Form 8-K or in the Company’s annual or quarterly reports, all publicly filed with the SEC, or by a separate mailing to its stockholders. The Company records amounts that are redeemable under the share redemption program as redeemable common stock in its consolidated balance sheets because the shares will be mandatorily redeemable at the option of the holder and therefore their redemption will be outside the control of the Company. However, because the amounts that can be redeemed will be determinable and only contingent on an event that is likely to occur (e.g., the passage of time) the Company presents the net proceeds from the current year and prior year DRP, net of current year redemptions, as redeemable common stock in its consolidated balance sheets. The Company classifies as liabilities financial instruments that represent a mandatory obligation of the Company to redeem shares. The Company’s redeemable common shares are contingently redeemable at the option of the holder. When the Company determines it has a mandatory obligation to repurchase shares under the share redemption program, it will reclassify such obligations from temporary equity to a liability based upon their respective settlement values. The Company limits the dollar value of shares that may be redeemed under the program as described above. For the year ended December 31, 2015, the Company had redeemed $30.1 million of common stock, which represented all redemption requests received in good order and eligible for redemption through the December 2015 redemption date, except for 276,386 shares due to the limitations described above. The Company recorded $3.7 million of other liabilities on the Company’s balance sheet as of December 31, 2015 related to these unfulfilled redemption requests. Based on the amount of net proceeds raised from the sale of shares under the dividend reinvestment plan during 2015, the Company has $13.6 million available for all redemptions in 2016, including shares that are redeemed in connection with a stockholders’ death, qualifying disability or determination of incompetence. |
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Related Party Transactions | Pursuant to the Advisory Agreement and Dealer Manager Agreement, the Company is or was obligated to pay the Advisor and KBS Capital Markets Group, LLC (the “Dealer Manager”) specified fees upon the provision of certain services related to the Offering, the investment of funds in real estate and real estate-related investments, management of the Company’s investments and for other services (including, but not limited to, the disposition of investments). The Company is or was also obligated to reimburse the Advisor and Dealer Manager for organization and offering costs incurred by the Advisor and the Dealer Manager on behalf of the Company, and the Company is or was obligated to reimburse the Advisor for acquisition and origination expenses and certain operating expenses incurred on behalf of the Company or incurred in connection with providing services to the Company. In addition, the Advisor is entitled to certain other fees, including an incentive fee upon achieving certain performance goals, as detailed in the Advisory Agreement. See note 9, “Related Party Transactions.” The Company records all related party fees as incurred, subject to any limitations described in the Advisory Agreement. The Company had not incurred any subordinated participation in net cash flows or subordinated incentive listing fees payable to the Advisor through December 31, 2015. |
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Related Party Transactions, Selling Commissions and Dealer Manager Fees | The Company paid the Dealer Manager up to 6.5% and 3.0% of the gross offering proceeds from the primary offering as selling commissions and dealer manager fees, respectively. A reduced sales commission and dealer manager fee was paid with respect to certain volume discount sales. All or a portion of the selling commissions was not charged with regard to shares sold to certain categories of purchasers. No sales commission or dealer manager fee is paid with respect to shares issued through the dividend reinvestment plan. The Dealer Manager reallowed 100% of sales commissions earned to participating broker-dealers. The Dealer Manager could reallow to certain participating broker-dealer up to 1% of the gross offering proceeds attributable to that participating broker-dealer as a marketing fee and, in special cases, the Dealer Manager could increase the reallowance. |
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Related Party Transactions, Organization and Offering Costs | Organization and offering costs (other than selling commissions and dealer manager fees) of the Company may be paid by the Advisor, the Dealer Manager or their affiliates on behalf of the Company or may be paid directly by the Company. These offering costs include all expenses incurred by the Company in connection with the Offering. Organization costs include all expenses incurred by the Company in connection with the formation of the Company, including but not limited to legal fees and other costs to incorporate the Company. The Company reimburses the Advisor for organization and offering costs up to an amount that, when combined with selling commissions, dealer manager fees and all other amounts spent by the Company on organization and offering expenses, does not exceed 15% of the gross proceeds of the Company’s primary offering and the offering under the DRP as of the date of reimbursement. At the termination of the primary offering and at the termination of the offering under the DRP, the Advisor agreed to reimburse the Company to the extent that selling commissions, dealer manager fees and other organization and offering expenses incurred by the Company exceed 15% of the gross offering proceeds of the respective offering. In connection with the primary portion of the Offering, the Company reimbursed the Dealer Manager for underwriting compensation, provided that within 30 days after the end of the month in which the primary initial public offering terminated, the Dealer Manager was required to reimburse the Company to the extent that the Company’s reimbursements caused total underwriting compensation for the primary initial public offering to exceed 10% of the gross offering proceeds from such offering. The Company also paid directly or reimbursed the Dealer Manager for bona fide invoiced due diligence expenses of broker dealers. However, no reimbursements made by the Company to the Dealer Manager were allowed to cause total organization and offering expenses incurred by the Company (including selling commissions, dealer manager fees and all other items of organization and offering expenses) to exceed 15% of the aggregate gross proceeds from the Company’s primary offering and the offering under its DRP as of the date of reimbursement. As of December 31, 2015, the Company’s selling commissions, dealer manager fees, and organization and other offering costs did not exceed 15% of the gross offering proceeds. Through December 31, 2015, including shares issued through the Company’s dividend reinvestment plan, the Company had issued 61,681,484 shares in the Offering for gross offering proceeds of $614.5 million and recorded selling commissions and dealer manager fees of $49.6 million and other offering costs of $10.7 million. Organization costs are expensed as incurred and offering costs, which include selling commissions and dealer manager fees, are charged as incurred as a reduction to stockholders’ equity. The Company ceased offering shares of common stock in its primary offering on November 14, 2012 and continues to offer shares under its dividend reinvestment plan. |
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Related Party Transactions, Acquisition and Origination Fees | The Company pays the Advisor an acquisition and origination fee equal to 1% of the cost of investments acquired, or the amount funded by the Company to acquire or originate mortgage, mezzanine, bridge or other loans, including any acquisition and origination expenses related to such investments and any debt attributable to such investments. |
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Related Party Transactions, Asset Management Fees | With respect to investments in loans and any investments other than real estate, the Company pays the Advisor a monthly fee calculated, each month, as one-twelfth of 0.75% of the lesser of (i) the amount paid or allocated to acquire or fund the loan or other investment, inclusive of acquisition and origination fees and expenses related thereto and the amount of any debt associated with or used to acquire or fund such investment and (ii) the outstanding principal amount of such loan or other investment, plus the acquisition and origination fees and expenses related to the acquisition or funding of such investment, as of the time of calculation. With respect to investments in real estate, the Company pays the Advisor a monthly asset management fee equal to one-twelfth of 0.75% of the amount paid or allocated to acquire the investment, including the cost of subsequent capital improvements, inclusive of acquisition fees and expenses related thereto and the amount of any debt associated with or used to acquire such investment. In the case of investments made through joint ventures, the asset management fee is determined based on the Company’s proportionate share of the underlying investment, inclusive of the Company’s proportionate share of any fees and expenses related thereto. |
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Related Party Transactions, Disposition Fee | For substantial assistance in connection with the sale of properties or other investments, the Company pays the Advisor or its affiliates 1.0% of the contract sales price of each property or other investment sold; provided, however, in no event may the disposition fees paid to the Advisor, its affiliates and unaffiliated third parties exceed 6.0% of the contract sales price. |
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Income Taxes | The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Company’s annual REIT taxable income to its stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax to the extent it distributes qualifying dividends to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially and adversely affect the Company’s net income and net cash available for distribution to stockholders. However, the Company intends to organize and operate in such a manner as to qualify for treatment as a REIT. The Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements. Neither the Company nor its subsidiaries have been assessed interest or penalties by any major tax jurisdictions. The Company’s evaluations were performed for the tax years ended December 31, 2015, 2014 and 2013. As of December 31, 2015, returns for the calendar year 2011 through 2014 remain subject to examination by major tax jurisdictions. |
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Segments | The Company has invested in non-performing loans, opportunistic real estate and other real estate-related assets. In general, the Company intends to hold its investments in non-performing loans, opportunistic real estate and other real estate-related assets for capital appreciation. Traditional performance metrics of non-performing loans, opportunistic real estate and other real estate-related assets may not be meaningful as these investments are generally non-stabilized and do not provide a consistent stream of interest income or rental revenue. These investments exhibit similar long-term financial performance and have similar economic characteristics. These investments typically involve a higher degree of risk and do not provide a constant stream of ongoing cash flows. As a result, the Company’s management views non-performing loans, opportunistic real estate and other real estate-related assets as similar investments. Substantially all of its revenue and net income (loss) is from non-performing loans, opportunistic real estate and other real estate-related assets, and therefore, the Company currently aggregates its operating segments into one reportable business segment. |
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Per Share Data | Basic net income (loss) per share of common stock is calculated by dividing net income (loss) attributable to common stockholders 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 years ended December 31, 2015, 2014 and 2013. Distributions declared per share were $0.38, $0.26 and $0.44 during the years ended December 31, 2015, 2014 and 2013, respectively. |
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Square Footage, Occupancy and Other Measures | Square footage, number of acres, occupancy and other measures used to describe real estate and real estate-related investments included in the Notes to Consolidated Financial Statements are presented on an unaudited basis. |
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Recently Issued Accounting Standards Update | In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU No. 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification. ASU No. 2014-09 does not apply to lease contracts within the scope of Leases (Topic 840). ASU No. 2014-09 was to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU No. 2015-14”), which defers the effective date of ASU No. 2014-09 by one year. Early adoption is permitted but not before the original effective date. The Company is still evaluating the impact of adopting ASU No. 2014-09 on its financial statements, but does not expect the adoption of ASU No. 2014-09 to have a material impact on its financial statements. In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU No. 2014-15”). The amendments in ASU No. 2014-15 require management to evaluate, for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or are available to be issued when applicable) and, if so, provide related disclosures. ASU No. 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company does not expect the adoption of ASU No. 2014-15 to have a significant impact on its financial statements. In January 2015, the FASB issued ASU No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU No. 2015-01”). The amendments in ASU No. 2015-01 eliminate from GAAP the concept of extraordinary items. Although the amendments will eliminate the requirements in Subtopic 225-20 for reporting entities to consider whether an underlying event or transaction is extraordinary, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. ASU No. 2015-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU No. 2015-01 to have a significant impact on its financial statements. In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU No. 2015-02”), which amended the existing accounting standards for consolidation under both the variable interest model and the voting model. ASU No. 2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU No. 2015-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. A reporting entity may apply the amendments in ASU No. 2015-02 using: (a) a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption; or (b) by applying the amendments retrospectively. The Company is still evaluating the impact of adopting ASU No. 2015-02 on its financial statements, but does not expect the adoption of ASU No. 2015-02 to have a material impact on its financial statements. In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs (“ASU No. 2015-03”). The amendments in ASU No. 2015-03 require debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. ASU No. 2015-03 is limited to the presentation of debt issuance costs and does not affect the recognition and measurement of debt issuance costs. Given the absence of authoritative guidance within ASU No. 2015-03 for debt issuance costs related to line-of-credit arrangements, in August 2015, the FASB issued ASU No. 2015-15, Interest - Imputation of Interest (Subtopic 835-30), Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU No. 2015-15”), which clarifies ASU No. 2015-03 by stating that the staff of the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU No. 2015-03 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and is to be applied retrospectively. Early adoption is permitted for financial statements that have not been previously issued. The Company elected to early adopt ASU No. 2015-03 for the reporting period ending December 31, 2015. As a result of adoption of ASU No. 2015-03, the Company reclassified debt issuance costs associated with a debt liability from prepaid expenses and other assets to notes and bond payable, net on the accompanying consolidated balance sheets. All periods presented have been retroactively adjusted. In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments (“ASU No. 2015-16”). The amendments in ASU No. 2015-16 require that, in a business combination, an acquirer recognizes adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU No. 2015-16 is effective for annual periods beginning after December 15, 2015, and interim periods within those fiscal years and is to be applied prospectively. Early adoption is permitted for financial statements that have not been previously issued. The Company does not expect the adoption of ASU No. 2015-16 to have a significant impact on its financial statements. In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU No. 2016-01”). The amendments in ASU No. 2016-01 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU No. 2016-01 primarily affects accounting for equity investments and financial liabilities where the fair value option has been elected. ASU No. 2016-01 also requires entities to present financial assets and financial liabilities separately, grouped by measurement category and form of financial asset in the balance sheet or in the accompanying notes to the financial statements. ASU No. 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted for financial statements that have not been previously issued. The Company does not expect the adoption of ASU No. 2016-01 to have a significant impact on its financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). The amendments in ASU No. 2016-02 change the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of ASU No. 2016-02 is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting the new leases standard on its consolidated financial statements. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Schedule of Estimated Useful Life | The Company anticipates the estimated useful lives of its assets by class to be generally as follows:
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REAL ESTATE HELD FOR INVESTMENT (Tables) |
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Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Real Estate Investments | The following table summarizes the Company’s real estate held for investment as of December 31, 2015 and 2014, respectively (in thousands):
The following table provides summary information regarding the Company’s real estate held for investment as of December 31, 2015 (in thousands):
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Schedule of Future Minimum Rental Income for Company's Properties | As of December 31, 2015, the future minimum rental income from the Company’s properties, excluding apartment leases, under non-cancelable operating leases was as follows (in thousands):
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Schedules of Concentration of Risk, by Risk Factor | As of December 31, 2015, the Company’s commercial real estate properties were leased to approximately 500 tenants over a diverse range of industries and geographic areas. 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 December 31, 2015, 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. |
TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES (Tables) |
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities | As of December 31, 2015 and 2014, 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) were as follows (in thousands):
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Amortization of Tenant Origination and Absorption Costs, Above-Market Leases and Below-Market Lease Liabilities | 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 years ended December 31, 2015, 2014 and 2013 are as follows (in thousands):
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Schedule of Finite-Lived Intangible Assets, Future Amortization Expense | The remaining unamortized balance for these outstanding intangible assets and liabilities as of December 31, 2015 will be amortized for the years ending December 31 as follows (in thousands):
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REAL ESTATE LOAN RECEIVABLE (Tables) |
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Real Estate Loans Receivable | As of December 31, 2015 and 2014, the Company owned one real estate loan receivable that it had originated. The information for that real estate loan receivable as of December 31, 2015 and 2014 is set forth below (in thousands):
_____________________ (1) Outstanding principal balance as of December 31, 2015 represents original principal balance outstanding under the loan, increased for any subsequent fundings, including interest income deferred until maturity. (2) Book value of the real estate loan receivable represents outstanding principal balance adjusted for unamortized acquisition discounts, origination fees and direct origination and acquisition costs and additional interest accretion. (3) Contractual interest rate is the stated default interest rate on the face of the loan. Annualized effective interest rate is calculated as the actual interest income recognized in 2015, using the interest method, annualized (if applicable) and divided by the average amortized cost basis of the investment. The annualized effective interest rate and contractual interest rate presented are as of December 31, 2015. (4) See below for a discussion of the maturity default on the University House First Mortgage. |
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Schedule of Activity Related to Real Estate Loans Receivable | The following summarizes the activity related to the real estate loan receivable for the year ended December 31, 2015 (in thousands):
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Schedule of Interest Income from Real Estate Loans Receivable | For the years ended December 31, 2015, 2014 and 2013 interest income from real estate loans receivable consisted of the following (in thousands):
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REAL ESTATE SALES (Tables) |
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Revenue and Expenses of Real Estate Held-for-Sale | The following table summarizes certain revenue and expenses related to these properties for the years ended December 31, 2015, 2014 and 2013 (in thousands):
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Disposal Groups, Including Discontinued Operations | The following table summarizes certain revenue and expenses related to properties sold prior to January 1, 2014 for the years ended December 31, 2015, 2014, and 2013 (in thousands):
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NOTES AND BOND PAYABLE (Tables) |
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Notes and Bonds Payable [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt Instruments | As of December 31, 2015 and December 31, 2014, the Company’s notes and bond payable consisted of the following (dollars in thousands):
_____________________ (1) Contractual interest rate represents the interest rate in effect under the loan as of December 31, 2015. Effective interest rate is calculated as the actual interest rate in effect as of December 31, 2015 (consisting of the contractual interest rate and contractual floor rates), using interest rate indices at December 31, 2015, where applicable. (2) Represents the initial maturity date or the maturity date as extended as of December 31, 2015; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown. (3) Represents the payment type required under the loan as of December 31, 2015. Certain future monthly payments due under this loan also include amortizing principal payments. For more information of the Company’s contractual obligations under its notes and bond payable, see five-year maturity table below. (4) The Portfolio Revolving Loan Facility is secured by the 1800 West Loop Building and the Iron Point Business Park. The Portfolio Revolving Loan Facility is comprised of $59.5 million of revolving debt and $13.0 million of non-revolving debt available to be used for tenant improvements, leasing commissions and capital improvements, subject to certain terms and conditions contained in the loan documents. As of December 31, 2015, $36.5 million of revolving debt and $10.6 million of non-revolving debt had been disbursed to the Company and the remaining $23.0 million of revolving debt and $2.4 million of non-revolving debt is available for future disbursements, subject to certain conditions contained in the loan documents. Monthly payments are initially interest only. Beginning June 1, 2016, and to the extent that there are amounts outstanding under the non-revolving portion of the loan, monthly payments will include interest and principal amortization payments of up to $80,000 per month. (5) On March 11, 2015, in connection with the disposition of 1635 N. Cahuenga, the joint venture paid off the outstanding principal balance and all other sums due under this loan. (6) Interest on the Maitland Promenade II Mortgage Loan is calculated at a variable annual rate of 290 basis points over one-month LIBOR, but at no point shall the interest rate be less than 3.25%. (7) On April 1, 2015, the Company paid off the outstanding principal balance and all other sums due under this loan. (8) Represents the unamortized premium/discount on notes and bond payable due to the above- and below-market interest rates when the debt was assumed. The discount/premium is amortized over the remaining life of the notes and bond payable. |
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Schedule of Maturities of Long-term Debt | The following is a schedule of maturities, including principal amortization payments, for all notes and bond payable outstanding as of December 31, 2015 (in thousands):
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FAIR VALUE DISCLOSURES (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Face Value, Carrying Amounts and Fair Value | The following were the face values, carrying amounts and fair values of the Company’s financial instruments as of December 31, 2015 and December 31, 2014, which carrying amounts do not approximate the fair values (in thousands):
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RELATED PARTY TRANSACTIONS (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Related Party Costs | Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the years ended December 31, 2015, 2014 and 2013, respectively, and any related amounts payable as of December 31, 2015 and December 31, 2014 (in thousands):
_____________________ (1) Amounts include asset management fees from discontinued operations. (2)Reimbursable operating expenses primarily consists of internal audit personnel costs, accounting software and cybersecurity related expenses incurred by the Advisor under the Advisory Agreement. 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 amounts totaled $153,000, $141,000 and $134,000 for the years ended December 31, 2015, 2014 and 2013, respectively, and were the only employee costs reimbursed under the Advisory Agreement during these periods. 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. (3) Disposition fees with respect to real estate sold are included in the gain on sales of real estate in the accompanying consolidated statements of operations. |
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Method Investments and Joint Ventures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Investments in Unconsolidated Joint Ventures | Summarized financial information for the 110 William Joint Venture follows (in thousands):
(1) Includes (i) a first mortgage loan with an outstanding principal balance of $138.6 million and $140.7 million as of December 31, 2015 and December 31, 2014, respectively, bearing interest at a fixed rate of 4.8% per annum and maturing on July 6, 2017 and (ii) a mezzanine loan with an outstanding principal balance of $20.0 million as of December 31, 2015 and December 31, 2014 bearing interest at a fixed rate of 9.5% per annum and maturing on July 6, 2017. The amount presented includes a premium on notes payable of $4.5 million and $7.5 million as of December 31, 2015 and 2014, respectively, and deferred financing costs, net of $0.7 million and $1.1 million as of December 31, 2015 and 2014, respectively.
As of December 31, 2015 and 2014, the Company’s investments in unconsolidated joint ventures were composed of the following (dollars in thousands):
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SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Quarterly Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Quarterly Financial Information | Presented below is a summary of the unaudited quarterly financial information for the years ended December 31, 2015 and 2014 (in thousands, except per share amounts):
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EARNINGS PER SHARE (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Earnings Per Share | The following table presents the computation of basic and diluted earnings per share (in thousands, except share and per share amounts):
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Schedule of Useful Life) (Details) |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Building [Member] | Minimum [Member] | |
Property, Plant and Equipment [Line Items] | |
Useful life | 25 years |
Building [Member] | Maximum [Member] | |
Property, Plant and Equipment [Line Items] | |
Useful life | 40 years |
Building Improvements [Member] | Minimum [Member] | |
Property, Plant and Equipment [Line Items] | |
Useful life | 10 years |
Building Improvements [Member] | Maximum [Member] | |
Property, Plant and Equipment [Line Items] | |
Useful life | 40 years |
Tenant Improvements [Member] | |
Property, Plant and Equipment [Line Items] | |
Estimated useful lives | Shorter of lease term or expected useful life |
Tenant Origination and Absorption Costs [Member] | |
Property, Plant and Equipment [Line Items] | |
Estimated useful lives | Remaining term of related leases, including below-market renewal periods |
REAL ESTATE HELD FOR INVESTMENT (Operating Leases) (Narrative) (Details) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015
USD ($)
Tenants
|
Dec. 31, 2014
USD ($)
|
Dec. 31, 2013
USD ($)
|
|
Operating Leased Assets [Line Items] | |||
Deferred rent recognized | $ 4.5 | $ 8.4 | $ 4.6 |
Deferred rent receivables | $ 22.8 | 16.8 | |
Number of tenants | Tenants | 500 | ||
Incentive to lessee | $ 2.8 | 1.6 | |
Maximum [Member] | |||
Operating Leased Assets [Line Items] | |||
Operating lease, term | 12 years 3 months 18 days | ||
Weighted Average [Member] | |||
Operating Leased Assets [Line Items] | |||
Operating lease, term | 3 years 9 months 18 days | ||
Other Liabilities [Member] | |||
Operating Leased Assets [Line Items] | |||
Security deposit liability | $ 5.3 | $ 5.0 |
REAL ESTATE HELD FOR INVESTMENT (Future Minimum Rental Income) (Details) $ in Thousands |
Dec. 31, 2015
USD ($)
|
---|---|
Real Estate [Abstract] | |
2016 | $ 76,903 |
2017 | 71,825 |
2018 | 60,832 |
2019 | 48,637 |
2020 | 37,094 |
Thereafter | 80,506 |
Future minimum rental income | $ 375,797 |
REAL ESTATE HELD FOR INVESTMENT (Highes Tenant Industry Concentrations- Grater than 10% of Annual Base Rent) (Details) $ in Thousands |
12 Months Ended |
---|---|
Dec. 31, 2015
USD ($)
Tenants
| |
Concentration Risk [Line Items] | |
Number of Tenants | Tenants | 500 |
Annualized Base Rent | $ | $ 29,906 |
Percentage of Annualized Base Rent | 37.70% |
Industry - Finance [Member] | |
Concentration Risk [Line Items] | |
Number of Tenants | Tenants | 49 |
Annualized Base Rent | $ | $ 10,952 |
Percentage of Annualized Base Rent | 13.80% |
Industry - Computer System Design & Programming [Member] | |
Concentration Risk [Line Items] | |
Number of Tenants | Tenants | 42 |
Annualized Base Rent | $ | $ 10,250 |
Percentage of Annualized Base Rent | 12.90% |
Industry - Insurance Carriers & Related Activities [Member] | |
Concentration Risk [Line Items] | |
Number of Tenants | Tenants | 28 |
Annualized Base Rent | $ | $ 8,704 |
Percentage of Annualized Base Rent | 11.00% |
REAL ESTATE HELD FOR INVESTMENT (Geographic Concentration Risk) (Details) |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Concentration Risk [Line Items] | |
Concentration risk, percentage | 37.70% |
WASHINGTON [Member] | Assets, Total [Member] | |
Concentration Risk [Line Items] | |
Concentration risk, percentage | 29.20% |
TEXAS [Member] | Assets, Total [Member] | |
Concentration Risk [Line Items] | |
Concentration risk, percentage | 20.50% |
REAL ESTATE HELD FOR INVESTMENT (Property Damages) (Details) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Real Estate Properties [Line Items] | |||
Real estate insurance, maximum deductable per incident | $ 100,000 | ||
Property damages | 2,200,000 | ||
Estimated insurance recoveries | 2,100,000 | ||
Operating, maintenance, and management | 37,512,000 | $ 35,957,000 | $ 22,804,000 |
Proceeds from property damage insurance policies | 600,000 | ||
Estimated insurance recoveries to be collected | 1,500,000 | ||
Damaged Properties [Member] | |||
Real Estate Properties [Line Items] | |||
Operating, maintenance, and management | $ 100,000 |
REAL ESTATE HELD FOR INVESTMENT (Dispositions) (Details) $ in Millions |
Nov. 02, 2015
USD ($)
a
|
Sep. 10, 2015
USD ($)
a
|
---|---|---|
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Infrastructure costs contributed to an HOA | $ 4.6 | |
Undeveloped Land [Member] | ||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Area of land sold | a | 11.6 | 14.3 |
Area of land conveyed | a | 11.7 | |
Gain on sale of properties | $ 2.5 | $ 2.2 |
Proceeds from divestiture of businesses | 14.3 | 6.2 |
Undeveloped Land [Member] | Noncontrolling Interest [Member] | ||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Gain on sale of properties | $ 0.3 | $ 0.2 |
TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES (Narrative) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities [Line Items] | |||
Tax abatement asset | $ 7,200 | $ 8,200 | |
Amortization expense | 44,739 | 47,063 | $ 28,677 |
Property Tax Abatement Intangible Asset [Member] | |||
Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities [Line Items] | |||
Amortization expense | $ 1,000 | $ 900 |
REAL ESTATE LOAN RECEIVABLE (Schedule of Real Estate Loans Receivable) (Details) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015
USD ($)
LoansReceivables
|
Dec. 31, 2014
USD ($)
|
|
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Number of real estate loans and leases receivable | LoansReceivables | 1 | |
Book Value | $ 27,850 | $ 27,422 |
Mortgages [Member] | University House First Mortgage [Member] | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Outstanding Principal Balance | $ 27,900 | |
University House First Mortgage [Member] | Mortgages [Member] | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Date Originated | Mar. 20, 2013 | |
Outstanding Principal Balance | $ 27,850 | |
Book Value | $ 27,850 | $ 27,422 |
Contractual interest rate, percentage | 16.00% |
REAL ESTATE LOAN RECEIVABLE (Schedule of Activity Related to Real Estate Loans Receivable) (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Jun. 30, 2015 |
|
Receivables [Abstract] | ||
Percent of contractual interest income collected | 11.00% | |
Real Estate Loans Receivable [Roll Forward] | ||
Real estate loan receivable - December 31, 2014 | $ 27,422 | |
Accretion of closing costs, origination fees and extension fees on real estate loan receivable, net | 428 | |
Real estate loan receivable - December 31, 2015 | $ 27,850 |
REAL ESTATE LOAN RECEIVABLE (Schedule of Interest Income from Real Estate Loans Receivable) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Receivables [Abstract] | |||
Contractual interest income (including deferred interest) | $ 1,540 | $ 2,752 | $ 8,248 |
Accretion of closing costs, origination fees and extension fees, net | 428 | 614 | 842 |
Interest accretion | 0 | 0 | 1,186 |
Interest income from real estate loans receivable | $ 1,968 | $ 3,366 | $ 10,276 |
REAL ESTATE SALES (Narrative) (Details) - property |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Number of real estate properties classified as held for sale during period | 0 | |
Office Building [Member] | ||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Number of real estate properties disposed | 2 | 1 |
REAL ESTATE SALES (Revenue and Expenses for Real Estate Held-for-Sale) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Discontinued Operations and Disposal Groups [Abstract] | |||
Total revenues | $ 215 | $ 1,134 | $ 1,017 |
Total expenses | $ 645 | $ 2,473 | $ 3,496 |
REAL ESTATE SALES (Schedule of Operating Income from Discontinued Operations) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Discontinued Operations and Disposal Groups [Abstract] | |||
Total revenues and other income | $ 0 | $ 0 | $ 1,387 |
Total expenses | 0 | 18 | 2,754 |
Loss from discontinued operations before gain on sales of real estate | 0 | (18) | (1,367) |
Gain on sales of real estate, net | 0 | 0 | 13,108 |
Total (loss) income from discontinued operations | $ 0 | $ (18) | $ 11,741 |
NOTES AND BOND PAYABLE (Narrative) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Notes and Bonds Payable [Abstract] | |||
Interest expense | $ 14,986 | $ 15,598 | $ 2,706 |
Amortization of deferred financing costs, net of discontinued operations | 2,700 | 2,800 | 700 |
Interest capitalized | 1,856 | 1,987 | $ 2,718 |
Interest payable | 1,200 | 1,200 | |
Debt Instrument [Line Items] | |||
Deferred finance costs | 4,700 | $ 6,200 | |
Notes and Bonds Payable [Member] | |||
Debt Instrument [Line Items] | |||
Deferred finance costs | 3,500 | ||
Prepaid Expenses and Other Current Assets [Member] | |||
Debt Instrument [Line Items] | |||
Deferred finance costs | $ 1,200 |
NOTES AND BOND PAYABLE (Schedule of Maturities of Long-term Debt) (Details) $ in Thousands |
Dec. 31, 2015
USD ($)
|
---|---|
Notes and Bonds Payable [Abstract] | |
2016 | $ 13,649 |
2017 | 426,026 |
2018 | 81,182 |
2019 | 812 |
2020 | 846 |
Thereafter | 28,281 |
Notes and bond payable outstanding | $ 550,796 |
FAIR VALUE DISCLOSURES (Schedule of Face Value, Carrying Amounts and Fair Value) (Details) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Real estate loans receivable, Face Value | $ 27,850 | $ 27,850 |
Notes and bond payable, Face Value | 550,796 | 530,238 |
Carrying Amount [Member] | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Real estate loans receivable, Value | 27,850 | 27,422 |
Notes and bond payable, Value | 547,323 | 524,062 |
Fair Value [Member] | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Real estate loans receivable, Value | 27,850 | 27,813 |
Notes and bond payable, Value | $ 554,007 | $ 534,045 |
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (Investments in Unconsolidated Joint Ventures) (Details) $ in Thousands |
Dec. 31, 2015
USD ($)
property
|
Dec. 31, 2014
USD ($)
|
May. 02, 2014 |
---|---|---|---|
Schedule of Equity Method Investments [Line Items] | |||
Investment Balance | $ 74,437 | $ 72,045 | |
OCM NIP JV Holdings, L.P. and HC KBS NIP JV, LLC (“HC-KBS”) [Member] | |||
Schedule of Equity Method Investments [Line Items] | |||
Number of Properties | property | 21 | ||
Investment Balance | $ 5,305 | 5,305 | |
OCM NIP JV Holdings, L.P. and HC KBS NIP JV, LLC (“HC-KBS”) [Member] | Maximum [Member] | |||
Schedule of Equity Method Investments [Line Items] | |||
Ownership % | 5.00% | ||
110 William Joint Venture [Member] | |||
Schedule of Equity Method Investments [Line Items] | |||
Number of Properties | property | 1 | ||
Ownership % | 60.00% | 60.00% | |
Investment Balance | $ 69,132 | $ 66,740 |
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Dec. 31, 2014 |
Sep. 30, 2014 |
Jun. 30, 2014 |
Mar. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Quarterly Financial Information Disclosure [Abstract] | |||||||||||
Revenues | $ 27,360 | $ 28,158 | $ 28,667 | $ 27,943 | $ 27,686 | $ 27,598 | $ 26,244 | $ 24,626 | $ 112,128 | $ 106,154 | $ 68,496 |
Net income (loss) | (682) | (277) | 2,639 | 5,385 | (4,948) | (3,426) | (5,480) | (9,894) | 7,132 | (23,748) | 11,589 |
Net loss attributable to common stockholders | $ (922) | $ (462) | $ 1,526 | $ 2,235 | $ (4,879) | $ (3,367) | $ (5,331) | $ (9,617) | $ 2,444 | $ (23,194) | $ 11,493 |
Net loss per common share, basic and diluted | $ (0.02) | $ (0.01) | $ 0.03 | $ 0.04 | $ (0.08) | $ (0.06) | $ (0.09) | $ (0.16) | $ 0.04 | $ (0.39) | $ 0.20 |
Distributions declared per common share (in dollars per share) | $ 0.095 | $ 0.095 | $ 0.093 | $ 0.092 | $ 0.088 | $ 0.069 | $ 0.056 | $ 0.049 | $ 0.38 | $ 0.26 | $ 0.44 |
SUBSEQUENT EVENTS (Distribution Declared) (Details) - $ / shares |
3 Months Ended | 12 Months Ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 09, 2016 |
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Dec. 31, 2014 |
Sep. 30, 2014 |
Jun. 30, 2014 |
Mar. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Subsequent Event [Line Items] | ||||||||||||
Distributions declared per common share (in dollars per share) | $ 0.095 | $ 0.095 | $ 0.093 | $ 0.092 | $ 0.088 | $ 0.069 | $ 0.056 | $ 0.049 | $ 0.38 | $ 0.26 | $ 0.44 | |
Subsequent Event [Member] | ||||||||||||
Subsequent Event [Line Items] | ||||||||||||
Distributions declared per common share (in dollars per share) | $ 0.09323770 |
SUBSEQUENT EVENTS (Bond Financing) (Details) - Subsequent Event [Member] - Series A Debentures [Member] - Bonds Payable [Member] $ in Millions |
1 Months Ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 23, 2016
USD ($)
|
Mar. 23, 2016
ILS (₪)
|
Mar. 07, 2016 |
Mar. 07, 2016
USD ($)
|
Mar. 07, 2016
ILS (₪)
|
Mar. 02, 2016
USD ($)
|
Mar. 02, 2016
ILS (₪)
|
Mar. 01, 2016
ILS (₪)
|
Mar. 23, 2016
USD ($)
|
Mar. 23, 2016
ILS (₪)
|
Mar. 02, 2016
ILS (₪)
|
|
Subsequent Event [Line Items] | |||||||||||
Maximum borrowing capacity | ₪ | ₪ 1,000,000,000 | ||||||||||
Interest rate during period | 4.25% | ||||||||||
Proceeds from issuance of debt | $ 239.2 | ₪ 918,800,000 | ₪ 127,700,000 | ₪ 842,500,000 | $ 250.0 | ₪ 970,200,000 | |||||
Principal installment payments required as percent of total debt | 20.00% | 20.00% | |||||||||
Payments of debt issuance costs | $ 7.8 | ₪ 30,500,000 | |||||||||
Interest reserves, funded amount | 5.1 | 20,000,000 | |||||||||
Required expense reserve | $ 0.3 | ₪ 1,000,000 | |||||||||
Debt issuance cost | $ | $ 9.7 | $ 1.9 | |||||||||
Maximum [Member] | |||||||||||
Subsequent Event [Line Items] | |||||||||||
Interest rate during period | 4.25% | 4.25% |
SCHEDULE III REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND AMORTIZATION (Reconciliation) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Real Estate | |||
Balance at the beginning of the year | $ 919,259 | $ 668,018 | $ 326,154 |
Acquisitions | 0 | 227,339 | 342,985 |
Improvements | 32,385 | 36,942 | 24,670 |
Write-off of fully depreciated and fully amortized assets | (13,212) | (10,362) | (5,835) |
Impairments | 0 | (697) | (2,025) |
Loss due to property damages | (2,260) | (707) | 0 |
Sales | (22,098) | (1,274) | (17,931) |
Balance at the end of the year | 914,074 | 919,259 | 668,018 |
Accumulated depreciation and amortization: | |||
Balance at the beginning of the year | 64,171 | 29,859 | 8,521 |
Depreciation and amortization expense | 41,513 | 44,848 | 28,956 |
Write-off of fully depreciated and fully amortized assets | (13,212) | (10,362) | (5,835) |
Impairments | 0 | (118) | (638) |
Sales | (912) | (56) | (1,145) |
Balance at the end of the year | $ 91,560 | $ 64,171 | $ 29,859 |
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