UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 8-K
__________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 30, 2018
KBS STRATEGIC OPPORTUNITY REIT, INC.
(Exact Name of Registrant as Specified in Its Charter)
______________________________________________________
Maryland | 000-54382 | 26-3842535 | ||
(State or Other Jurisdiction of Incorporation or Organization) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||
800 Newport Center Drive, Suite 700
Newport Beach, California 92660
(Address of principal executive offices)
Registrant's telephone number, including area code: (949) 417-6500
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
On November 30, 2018, KBS Strategic Opportunity REIT, Inc. (the “Company”, “we”, “our” or “us”), through an indirect wholly owned subsidiary, sold a portfolio of 21 office/flex/industrial buildings containing a total of 778,472 rentable square feet located on approximately 41 acres of land in Redmond, Washington (the “Westpark Portfolio”) to Keppel-KBS Westpark, LLC, a wholly owned subsidiary of Keppel-KBS US REIT (the “SREIT”). The sale price, net of closing credits, of the Westpark Portfolio was $165.5 million, before third-party closing costs of approximately $3.1 million and excluding any disposition fees payable to KBS Capital Advisors LLC, the Company’s external advisor. Prior to the sale of the Westpark Portfolio, the Company owned 43,999,500 common units of the SREIT, representing a 6.96% ownership interest. On November 26, 2018, the SREIT issued an aggregate of 186,236,224 common units of the SREIT as a result of their renounceable and underwritten rights issue. The Company purchased 12,979,852 common units of the SREIT for $6.5 million in connection with this offering, maintaining its 6.96% ownership interest. In connection with the sale of the Westpark Portfolio, the Company repaid $84.8 million of outstanding debt secured by the Westpark Portfolio.
The SREIT is externally managed by a joint venture (the “Manager”) between (i) an entity in which Keith D. Hall, the Company’s Chief Executive Officer and a director, and Peter McMillan III, the Company’s President and Chairman of the board of directors, have an indirect ownership interest and (ii) Keppel Capital Holding Pte. Ltd., which is not affiliated with the Company. The SREIT pays certain purchase and sale commissions and asset management fees to the Manager in exchange for the provision of certain management services.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(b) | Pro Forma Financial Information. |
KBS Strategic Opportunity REIT, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
KBS STRATEGIC OPPORTUNITY REIT, INC. | ||||||
Dated: November 30, 2018 | BY: | /s/ Jeffrey K. Waldvogel | ||||
Jeffrey K. Waldvogel | ||||||
Chief Financial Officer, Treasurer and Secretary | ||||||
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KBS STRATEGIC OPPORTUNITY REIT, INC.
SUMMARY OF UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following pro forma information should be read in conjunction with the consolidated balance sheet and notes of KBS Strategic Opportunity REIT, Inc. (“KBS SOR”) as of September 30, 2018, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2017 and for the nine months ended September 30, 2018 and the notes thereto. The consolidated financial statement of KBS SOR for the year ended December 31, 2017 and the consolidated financial statements as of and for the nine months ended September 30, 2018 have been included in KBS SOR’s prior filings with the SEC.
The unaudited pro forma balance sheet as of September 30, 2018 has been prepared to give effect to the disposition of a portfolio of 21 office/flex/industrial buildings containing a total of 778,472 rentable square feet located on approximately 41 acres of land in Redmond, Washington (the “Westpark Portfolio”), as if the disposition occurred on September 30, 2018.
The unaudited pro forma statements of operations for the nine months ended September 30, 2018 and for the year ended December 31, 2017 have been prepared to give effect to the disposition of the Westpark Portfolio on November 30, 2018, as if such disposition occurred on January 1, 2017.
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 disposition of the Westpark Portfolio been consummated as of the dates indicated.
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KBS STRATEGIC OPPORTUNITY REIT, INC.
UNAUDITED PRO FORMA BALANCE SHEET
As of September 30, 2018
(in thousands, except share and per share amounts)
Pro Forma Adjustments | |||||||||||||
KBS Strategic Opportunity REIT Historical (a) | Westpark Portfolio (b) | Pro Forma Total | |||||||||||
Assets | |||||||||||||
Real estate held for investment, net | $ | 804,079 | $ | (124,119 | ) | $ | 679,960 | ||||||
Real estate equity securities | 98,735 | 6,490 | (c) | 105,225 | |||||||||
Real estate debt securities, net | 17,855 | — | 17,855 | ||||||||||
Total real estate and real estate-related investments, net | 920,669 | (117,629 | ) | 803,040 | |||||||||
Cash and cash equivalents | 93,357 | 69,290 | (d) | 162,647 | |||||||||
Restricted cash | 12,525 | — | 12,525 | ||||||||||
Investments in unconsolidated joint ventures | 47,304 | — | 47,304 | ||||||||||
Rents and other receivables, net | 14,103 | (2,700 | ) | 11,403 | |||||||||
Above-market leases, net | 3,485 | (7 | ) | 3,478 | |||||||||
Prepaid expenses and other assets | 18,056 | (2,433 | ) | 15,623 | |||||||||
Total assets | $ | 1,109,499 | $ | (53,479 | ) | $ | 1,056,020 | ||||||
Liabilities and equity | |||||||||||||
Notes and bonds payable, net | 741,129 | (84,503 | ) | (e) | 656,626 | ||||||||
Accounts payable and accrued liabilities | 17,788 | — | 17,788 | ||||||||||
Due to affiliate | 65 | — | 65 | ||||||||||
Below-market leases, net | 5,554 | (160 | ) | 5,394 | |||||||||
Other liabilities | 16,538 | — | 16,538 | ||||||||||
Redeemable common stock payable | 4,442 | — | 4,442 | ||||||||||
Total liabilities | 785,516 | (84,663 | ) | 700,853 | |||||||||
Commitments and contingencies | |||||||||||||
Redeemable common stock | — | — | — | ||||||||||
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, 54,231,264 issued and outstanding as of September 30, 2018 | 542 | — | 542 | ||||||||||
Additional paid-in capital | 428,622 | — | 428,622 | ||||||||||
Cumulative distributions and net income | (107,770 | ) | 31,184 | (76,586 | ) | ||||||||
Total KBS Strategic Opportunity REIT, Inc. stockholders’ equity | 321,394 | 31,184 | 352,578 | ||||||||||
Noncontrolling interests | 2,589 | — | 2,589 | ||||||||||
Total equity | 323,983 | 31,184 | 355,167 | ||||||||||
Total liabilities and equity | $ | 1,109,499 | $ | (53,479 | ) | $ | 1,056,020 | ||||||
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KBS STRATEGIC OPPORTUNITY REIT, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
As of September 30, 2018
(a) | Historical financial information derived from KBS SOR’s Quarterly Report on Form 10-Q as of September 30, 2018. |
(b) | Represents adjustments to reflect the disposition of the Westpark Portfolio. The sale price, net of closing credits, of the Westpark Portfolio was $165.5 million. |
(c) | Represents the purchase of 12,979,852 common units of the SREIT for $6.5 million in order to maintain the Company’s 6.96% ownership interest. |
(d) | Represents the amount of proceeds from the Westpark Portfolio disposition after closing credits of approximately $3.9 million, third-party closing costs of approximately $3.1 million, disposition fees of approximately $1.6 million, the repayment of $85.0 million of outstanding debt secured by the Westpark Portfolio and the purchase of 12,979,852 common units of the SREIT for $6.5 million. |
(e) | Represents the required repayment of the outstanding debt due under the mortgage secured by the Westpark Portfolio. As of September 30, 2018, the aggregate outstanding principal balance of the loan was $85.0 million. |
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KBS STRATEGIC OPPORTUNITY REIT, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2018
(in thousands, except share and per share amounts)
Pro Forma Adjustments | |||||||||||||
KBS Strategic Opportunity REIT Historical (a) | Westpark Portfolio (b) | Pro Forma Total | |||||||||||
Revenues: | |||||||||||||
Rental income | $ | 53,681 | $ | (7,797 | ) | $ | 45,884 | ||||||
Tenant reimbursements | 9,729 | (2,565 | ) | 7,164 | |||||||||
Other operating income | 2,001 | — | 2,001 | ||||||||||
Interest income from real estate debt securities | 1,525 | — | 1,525 | ||||||||||
Dividend income from real estate equity securities | 5,146 | — | 5,146 | ||||||||||
Total revenues | 72,082 | (10,362 | ) | 61,720 | |||||||||
Expenses: | |||||||||||||
Operating, maintenance, and management | 21,395 | (2,665 | ) | 18,730 | |||||||||
Real estate taxes and insurance | 8,982 | (906 | ) | 8,076 | |||||||||
Asset management fees to affiliate | 6,342 | (784 | ) | 5,558 | |||||||||
General and administrative expenses | 6,037 | (79 | ) | 5,958 | |||||||||
Foreign currency transaction gain, net | (9,106 | ) | — | (9,106 | ) | ||||||||
Depreciation and amortization | 26,133 | (5,151 | ) | 20,982 | |||||||||
Interest expense | 22,814 | (3,046 | ) | 19,768 | |||||||||
Total expenses | 82,597 | (12,631 | ) | 69,966 | |||||||||
Other income (loss): | |||||||||||||
Income from unconsolidated joint venture | 428 | — | 428 | ||||||||||
Other interest income | 1,602 | (1 | ) | 1,601 | |||||||||
Equity in loss of unconsolidated joint venture | (7,394 | ) | — | (7,394 | ) | ||||||||
Loss on real estate equity securities | (6,546 | ) | — | (6,546 | ) | ||||||||
Gain on sale of real estate | 45,340 | — | 45,340 | ||||||||||
Loss on extinguishment of debt | (26 | ) | — | (26 | ) | ||||||||
Total other income, net | 33,404 | (1 | ) | 33,403 | |||||||||
Net income before income taxes | 22,889 | 2,268 | 25,157 | ||||||||||
Income tax provision | (178 | ) | — | (178 | ) | ||||||||
Net income | 22,711 | 2,268 | 24,979 | ||||||||||
Net loss attributable to noncontrolling interests | 141 | — | 141 | ||||||||||
Net income attributable to common stockholders | $ | 22,852 | $ | 2,268 | $ | 25,120 | |||||||
Net income per common share, basic and diluted | $ | 0.38 | $ | 0.42 | |||||||||
Weighted-average number of common shares outstanding, basic and diluted | 59,649,846 | 59,649,846 | |||||||||||
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KBS STRATEGIC OPPORTUNITY REIT, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2018
(a) | Historical financial information derived from KBS SOR’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2018. |
(b) | Amounts represent the historical operations of the Westpark Portfolio as reflected in the historical statement of operations of KBS SOR for the nine months ended September 30, 2018. |
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KBS STRATEGIC OPPORTUNITY REIT, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 2017
(in thousands, except share and per share amounts)
Pro Forma Adjustments | |||||||||||||
KBS Strategic Opportunity REIT Historical (a) | Westpark Portfolio (b) | Pro Forma Total | |||||||||||
Revenues: | |||||||||||||
Rental income | $ | 110,690 | $ | (9,598 | ) | $ | 101,092 | ||||||
Tenant reimbursements | 21,710 | (3,134 | ) | 18,576 | |||||||||
Other operating income | 4,001 | (11 | ) | 3,990 | |||||||||
Interest income from real estate debt securities | 1,782 | — | 1,782 | ||||||||||
Dividend income from real estate equity securities | 2,531 | — | 2,531 | ||||||||||
Total revenues | 140,714 | (12,743 | ) | 127,971 | |||||||||
Expenses: | |||||||||||||
Operating, maintenance, and management | 42,611 | (2,941 | ) | 39,670 | |||||||||
Real estate taxes and insurance | 17,404 | (1,124 | ) | 16,280 | |||||||||
Asset management fees to affiliate | 10,686 | (999 | ) | 9,687 | |||||||||
General and administrative expenses | 6,138 | (6 | ) | 6,132 | |||||||||
Foreign currency transaction loss, net | 15,298 | — | 15,298 | ||||||||||
Depreciation and amortization | 53,446 | (7,292 | ) | 46,154 | |||||||||
Interest expense | 37,149 | (3,350 | ) | 33,799 | |||||||||
Total expenses | 182,732 | (15,712 | ) | 167,020 | |||||||||
Other income, net: | |||||||||||||
Income from unconsolidated joint venture | 2,073 | — | 2,073 | ||||||||||
Other interest income | 1,105 | (1 | ) | 1,104 | |||||||||
Equity in loss of unconsolidated joint venture | (6,037 | ) | — | (6,037 | ) | ||||||||
Gain on sale of real estate | 255,935 | — | 255,935 | ||||||||||
Loss on extinguishment of debt | (478 | ) | — | (478 | ) | ||||||||
Total other income, net | 252,598 | (1 | ) | 252,597 | |||||||||
Net income | 210,580 | 2,968 | 213,548 | ||||||||||
Net loss attributable to noncontrolling interests | 64 | — | 64 | ||||||||||
Net income attributable to common stockholders | $ | 210,644 | $ | 2,968 | $ | 213,612 | |||||||
Net income per common share, basic and diluted | $ | 3.77 | $ | 3.83 | |||||||||
Weighted-average number of common shares outstanding, basic and diluted | 55,829,708 | 55,829,708 | |||||||||||
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KBS STRATEGIC OPPORTUNITY REIT, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 2017
(a) | Historical financial information derived from KBS SOR’s Annual Report on Form 10-K for the year ended December 31, 2017. |
(b) | Amounts represent the historical operations of the Westpark Portfolio as reflected in the historical statement of operations of KBS SOR for the year ended December 31, 2017. |
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