KBS Real Estate Investment Trust III, Inc. - FORM 8-K/A - May 10, 2012







UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

    

FORM 8-K/A
    

CURRENT REPORT

Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 27, 2012

KBS REAL ESTATE INVESTMENT TRUST III, INC.
(Exact name of registrant specified in its charter)
    

Maryland
000-54687
27-1627696
(State or other jurisdiction of
incorporation or organization)
(Commission File Number)
(IRS Employer
Identification No.)

620 Newport Center Drive, Suite 1300
Newport Beach, California 92660
(Address of principal executive offices)

Registrant's telephone number, including area code: (949) 417-6500

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

£    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
£    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
£    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
£    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))







ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
On March 29, 2012, KBS Real Estate Investment Trust III, Inc. (the “Company”) filed a Current Report on Form 8-K dated March 27, 2012 with regard to the acquisition of three office buildings totaling 522,043 rentable square feet located on approximately 10.3 acres of land located in Plano, Texas (“Town Center”). The Company hereby amends the Form 8-K dated March 27, 2012 to provide the required financial information related to its acquisition of Town Center.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS



1

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
KBS REAL ESTATE INVESTMENT TRUST III, INC.
 
 
 
Dated: May 10, 2012
 
BY:
 
/s/ David E. Snyder
 
 
 
 
David E. Snyder
 
 
 
 
Chief Financial Officer
 
 
 
 
 






REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
KBS Real Estate Investment Trust III, Inc.

We have audited the accompanying statement of revenues over certain operating expenses of Town Center for the year ended December 31, 2011. This statement is the responsibility of Town Center's management. Our responsibility is to express an opinion on the statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues over certain operating expenses. An audit also includes assessing the basis of accounting used and significant estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as described in Note 2, and is not intended to be a complete presentation of Town Center's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of Town Center for the year ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.



/s/ Ernst & Young LLP


Irvine, California
May 10, 2012


F-1

TOWN CENTER
STATEMENT OF REVENUES OVER CERTAIN OPERATING EXPENSES
For the Year Ended December 31, 2011
(in thousands)
Revenues:
 
 
Rental income
 
$
10,073

Tenant reimbursements
 
1,086

Other income
 
691

Total revenues
 
11,850

Expenses:
 
 
Real estate taxes and insurance
 
1,821

Repairs and maintenance
 
1,235

Utilities
 
997

General and administrative
 
714

Total expenses
 
4,767

Revenues over certain operating expenses
 
$
7,083

See accompanying notes.

F-2
TOWN CENTER
NOTES TO STATEMENT OF REVENUES OVER CERTAIN OPERATING EXPENSES
For the Year Ended December 31, 2011


1.
DESCRIPTION OF REAL ESTATE PROPERTY
On March 27, 2012, KBS Real Estate Investment Trust III, Inc. (“KBS REIT III”), through an indirect wholly owned subsidiary, acquired from North Dallas Town Center LP and Tennyson Development LP three office buildings totaling 522,043 rentable square feet located on approximately 10.3 acres of land in Plano, Texas (“Town Center”). The sellers are not affiliated with KBS REIT III or its external advisor, KBS Capital Advisors LLC. The contractual purchase price of Town Center was approximately $113.0 million plus closing costs.
KBS REIT III is a Maryland corporation formed to invest in and manage a diverse portfolio of real estate properties located throughout the United States and real estate-related investments.
2.
BASIS OF PRESENTATION
The accompanying statement of revenues over certain operating expenses has been prepared to comply with the rules and regulations of the Securities and Exchange Commission (“SEC”).
Town Center is not a legal entity and the accompanying statement of revenues over certain operating expenses is not representative of the actual operations for the periods presented, as certain revenues and expenses have been excluded that may not be comparable to the revenues and expenses KBS REIT III expects to incur in the future operations of Town Center. Excluded items include interest expense, depreciation and amortization, and certain general and administrative costs not directly comparable to the future operations of Town Center.
An audited statement of revenues over certain operating expenses is being presented for the most recent fiscal year available instead of the three most recent years based on the following factors: (i) Town Center was acquired from an unaffiliated party and (ii) based on due diligence of Town Center by KBS REIT III, management is not aware of any material factors relating to Town Center that would cause this financial information not to be indicative of future operating results.
Square footage, acreage, occupancy and other measures used to describe real estate included in these notes to the statement of revenues over certain operating expenses are presented on an unaudited basis.
3.
SIGNIFICANT ACCOUNTING POLICIES
Rental Revenues
Minimum rent, including rental abatements, lease incentives and contractual fixed increases attributable to operating leases, is recognized on a straight-line basis over the term of the related lease and amounts expected to be received in later years are recorded as deferred rent. The adjustment to record deferred rent increased rental revenue by $0.9 million for the year ended December 31, 2011.
Use of Estimates
The preparation of financial statements, as described in Note 2 and in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.
4.
DESCRIPTION OF LEASING ARRANGEMENTS
As of December 31, 2011, Town Center was 91% leased by 49 tenants. For the year ended December 31, 2011, Town Center earned approximately 11% of its rental income from a religious, nonprofit organization which occupied 46,972 rentable square feet, or approximately 9% of the total rentable square feet. This tenant’s lease expired on February 29, 2012.
No other tenant leases represented more than 10% of rental income for the year ended December 31, 2011.

F-3
TOWN CENTER
NOTES TO STATEMENT OF REVENUES OVER CERTAIN OPERATING EXPENSES (CONTINUED)
For the Year Ended December 31, 2011

5.
FUTURE MINIMUM RENTAL COMMITMENTS
As of December 31, 2011, the future minimum rental receipts due under non-cancelable operating leases for the years ending December 31 were as follows (in thousands):
2012
$
8,718

2013
9,312

2014
8,588

2015
7,650

2016
6,830

Thereafter
20,521

 
$
61,619

6.
COMMITMENTS AND CONTINGENCIES
Tenant Lease Termination Options
Certain tenants have lease termination options built into their leases, which are subject to termination fees. In the event that a tenant does exercise its option to terminate its lease early and the terminated space is not subsequently leased out, the total amount of future minimum rent received by Town Center will be reduced.
Environmental
Town Center is subject to various environmental laws of federal, state and local governments. Compliance with existing environmental laws is not expected to have a material adverse effect on Town Center's financial condition and results of operations as of December 31, 2011.
7.
SUBSEQUENT EVENTS
KBS REIT III evaluates subsequent events up until the date the statements of revenues over certain operating expenses are issued. The accompanying statements of revenues over certain operating expenses were issued on May 10, 2012.

4

KBS REAL ESTATE INVESTMENT TRUST III, INC.
SUMMARY OF UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following pro forma information should be read in conjunction with the consolidated balance sheets of KBS Real Estate Investment Trust III, Inc. (“KBS REIT III”) as of December 31, 2011, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2011, and the notes thereto. The consolidated financial statements of KBS REIT III as of and for the year ended December 31, 2011 have been included in KBS REIT III’s prior filings with the SEC. In addition, this pro forma information should be read in conjunction with the statements of revenues over certain operating expenses and the notes thereto of Las Cimas IV, which have been previously filed on Form 8-K/A with the SEC on December 27, 2011, and the statement of revenues over certain operating expenses and notes thereto of Town Center, which are included herein.
The unaudited pro forma balance sheet as of December 31, 2011 has been prepared to give effect to the acquisition of Town Center as if the acquisition occurred on December 31, 2011.
The unaudited pro forma statement of operations for the year ended December 31, 2011 has been prepared to give effect to the acquisitions of (i) Las Cimas IV acquired on October 28, 2011 and (ii) Town Center acquired on March 27, 2012, as if the acquisitions occurred on January 1, 2011.
These unaudited pro forma financial statements are prepared for informational purposes only and are not necessarily indicative of future results or of actual results that would have been achieved had the acquisitions of Las Cimas IV and Town Center been consummated as of January 1, 2011. In addition, the pro forma balance sheet includes pro forma preliminary estimates of the fair value of the assets and liabilities acquired in connection with the acquisitions. These preliminary estimates may be adjusted in the future upon finalization of the purchase accounting.

F-5

KBS REAL ESTATE INVESTMENT TRUST III, INC.
UNAUDITED PRO FORMA BALANCE SHEET
As of December 31, 2011
(in thousands, except share and per share amounts)
 
 
KBS Real Estate Investment Trust III Historical (a)
 
Pro Forma Adjustment
 
 
Pro Forma Total
 
 
 
Town Center (b)
 
 
Assets
 
 
 
 
 
 
 
Real estate:
 
 
 
 
 
 
 
Land
 
$
7,500

 
$
7,428

(c)
 
$
14,928

Building and improvements
 
63,849

 
95,780

(c)
 
159,629

Tenant origination and absorption costs
 
12,080

 
12,767

(c)
 
24,847

Total real estate, cost
 
83,429

 
115,975

 
 
199,404

Less accumulated depreciation and amortization
 
(1,100
)
 
—

 
 
(1,100
)
Total real estate, net
 
82,329

 
115,975

 
 
198,304

Real estate loan receivable, net
 
10,310

 
—

 
 
10,310

Total real estate and real estate-related investments, net
 
92,639

 
115,975

 
 
208,614

Cash and cash equivalents
 
37,179

 
(37,179
)
 
 
—

Rents and other receivables, net
 
383

 
—

 
 
383

Above-market leases, net
 
101

 
9

(c)
 
110

Deferred financing costs, prepaid expenses and other assets
 
556

 
315

(d)
 
871

Total assets
 
$
130,858

 
$
79,120

 
 
$
209,978

Liabilities and stockholders’ equity
 
 
 
 
 
 
 
Note payable
 
$
42,250

 
$
60,250

(b)
 
$
102,500

Accounts payable and accrued liabilities
 
1,920

 
—

 
 
1,920

Due to affiliates
 
13

 
—

 
 
13

Distributions payable
 
533

 
—

 
 
533

Below-market leases, net
 
298

 
3,413

(c)
 
3,711

Other liabilities
 
833

 
—

 
 
833

Total liabilities
 
45,847

 
63,663

 
 
109,510

Commitments and contingencies
 
 
 
 
 
 
 
Redeemable common stock
 
740

 
—

 
 
740

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,
10,468,043 shares issued and outstanding, 13,609,620 pro forma shares
 
105

 
18

 
 
123

Additional paid-in capital
 
88,801

 
15,439

 
 
104,240

Cumulative distributions and net losses
 
(4,635
)
 
—

 
 
(4,635
)
Total stockholders’ equity
 
84,271

 
15,457

 
 
99,728

Total liabilities and stockholders’ equity
 
$
130,858

 
$
79,120

 
 
$
209,978



F-6
KBS REAL ESTATE INVESTMENT TRUST III, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
As of December 31, 2011

(a)
Historical financial information derived from KBS REIT III’s Annual Report on Form 10-K as of December 31, 2011.
(b)
Represents the acquisition of Town Center. The purchase price of Town Center was $112.6 million. This amount was funded from a one-year mortgage loan of $60.3 million secured by Town Center, and cash available from proceeds, net of offering costs, from KBS REIT III’s initial public offering through the acquisition date. The pro forma adjustments assume the proceeds, net of offering costs, were raised as of December 31, 2011 and KBS REIT III received a gross offering price of $10.00 per share.
(c)
KBS REIT III determined the cost of tangible assets, identifiable intangibles and assumed liabilities (consisting of above and below-market leases and tenant origination and absorption costs) acquired in the business combination based on their estimated fair values. The purchase accounting for these acquisitions is preliminary and subject to change.
(d)
Represents loan fees incurred in conjunction with the financing of Town Center.


  

F-7

KBS REAL ESTATE INVESTMENT TRUST III, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 2011
(in thousands, except share and per share amounts)
 
 
KBS Real Estate Investment Trust III Historical (a)
 
Pro Forma Adjustments
 
 
Pro Forma Total
 
 
 
 
Las Cimas IV
 
 
Town Center
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
1,426

 
$
2,002

(b)
 
$
10,946

(b)
 
$
14,374

 
Tenant reimbursements
 
691

 
933

(c)
 
1,086

(c)
 
2,710

 
Interest income from real estate loan receivable
 
395

 
—

 
 
—

 
 
395

 
Total revenues
 
2,512

 
2,935

 
 
12,032

 
 
17,479

 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Operating, maintenance, and management
 
421

 
619

(d)
 
2,946

(d)
 
3,986

 
Real estate taxes and insurance
 
314

 
411

(e)
 
1,821

(e)
 
2,546

 
Asset management fees to affiliate
 
178

 
221

(f)
 
846

(f)
 
1,245

 
Real estate acquisition fees to affiliates
 
836

 
(360
)
(g)
 
—

 
 
476

 
Real estate acquisition fees and expenses
 
432

 
(153
)
(g)
 
—

 
 
279

 
General and administrative expenses
 
1,386

 
—

 
 
—

 
 
1,386

 
Depreciation and amortization
 
1,100

 
3,095

(h)
 
8,716

(h)
 
12,911

 
Interest expense
 
300

 
626

(i)
 
1,811

(j)
 
2,737

 
Total expenses
 
4,967

 
4,459

 
 
16,140

 
 
25,566

 
Other income:
 
 
 
 
 
 
 
 
 
 
 
Other interest income
 
15

 
—

 
 
691

 
 
706

 
Net loss
 
$
(2,440
)
 
$
(1,524
)
 
 
$
(3,417
)
 
 
$
(7,381
)
 
Net loss per common share, basic and diluted
 
$
(0.66
)
 
 
 
 
 
 
 
$
(0.68
)
 
Weighted-average number of common shares outstanding, basic and diluted
 
3,724,745

 
 
 
 
 
 
 
10,929,795

(k)


F-8
KBS REAL ESTATE INVESTMENT TRUST III, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 2011

(a)
Historical financial information derived from KBS REIT III’s Annual Report on Form 10-K for the year ended December 31, 2011.
(b)
Represents base rental income (not reflected in the historical statement of operations of KBS REIT III), including amortization of above-market lease assets and below-market lease liabilities, for the year ended December 31, 2011. Base rent is recognized on a straight-line basis beginning on the pro forma acquisition date of January 1, 2011. Above-market lease assets and below-market lease liabilities are amortized over the remaining non‑cancelable terms of the respective lease, including any below-market renewal periods.
(c)
Represents operating cost reimbursements from tenants (not reflected in the historical statement of operations of KBS REIT III) for the year ended December 31, 2011, based on historical operations of the previous owners.
(d)
Represents operating expenses (not reflected in the historical statement of operations of KBS REIT III) for the year ended December 31, 2011, based on historical operations of the previous owners.
(e)
Represents real estate taxes and insurance expense (not reflected in the historical statement of operations of KBS REIT III) for the year ended December 31, 2011 based on historical operations of the previous owners.
(f)
Represents asset management fees (not reflected in the historical statement of operations of KBS REIT III) for the year ended December 31, 2011 that would be due to affiliates of KBS REIT III had the assets been acquired on January 1, 2011. With respect to investments in real property, the asset management fee is a monthly fee paid to KBS REIT III's advisor equal to one‑twelfth of 0.75% of the amount paid to acquire the investment. This amount includes any portion of the investment that was debt financed and is inclusive of acquisition expenses related thereto, but excludes acquisition fees payable to KBS REIT III's advisor.
(g)
Represents adjustments to eliminate acquisition fees and expenses related to the specific real estate investment which are reflected in KBS REIT III's historical statement of operations.
(h)
Represents depreciation expense (not reflected in the historical statement of operations of KBS REIT III) for the year ended December 31, 2011. Depreciation expense on the purchase price of buildings is recognized using the straight-line method and a 39-year life. Depreciation expense on tenant improvements is recognized using the straight-line method over the life of the lease. Amortization expense on lease intangible costs is recognized using the straight-line method over the life of the lease.
(i)
Represents loan fee amortization and interest expense (not reflected in the historical statement of operations of KBS REIT III) incurred on a $24.0 million portion of a $42.3 million bridge loan used to finance Las Cimas IV, which bears interest at a variable rate of 225 basis points over one-month LIBOR, maturing September 29, 2012.
(j)
Represents loan fee amortization and interest expense incurred on a $60.3 million mortgage loan secured by Town Center (the “Town Center Mortgage Loan”). The Town Center Mortgage Loan bears interest at a floating rate of 225 basis points over one-month LIBOR and matures on March 27, 2013.
(k)
Represents pro forma weighted-average number of common shares, basic and diluted. The calculation assumes that proceeds, net of offering costs, from KBS REIT III’s initial public offering required to complete the acquisitions were raised as of January 1, 2011 and KBS REIT III received a gross offering price of $10.00 per share.
 


F-9

KBS Real Estate Investment Trust III, Inc. Reports