KBS Real Estate Investment Trust III, Inc 8-K, filed Feb 12, 2024
KBS Real Estate Investment Trust III, Inc. (KBSR)
8-K
2024-02-12
For: 2024-02-06
View Original
Added on
April 06, 2026
About this 8-K
KBS Real Estate Investment Trust III, Inc filed this 8-K on February 12, 2024, reporting on events of February 6, 2024.
Items reported
- Item 1.01: Entered into a material agreement
- Item 2.03: New debt or off-balance-sheet obligation
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 6, 2024
(Exact Name of Registrant as Specified in Its Charter)
______________________________________________________
| (State or Other Jurisdiction of Incorporation or Organization) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||||||||||||
(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:
Securities registered pursuant to Section 12(b) of the Act:
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| None | N/A | N/A | ||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
The information in this Report set forth under Item 2.03 regarding the Amended and Restated Portfolio Loan Facility (defined below) is incorporated herein by reference.
ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT
Amended and Restated Portfolio Loan Facility
On November 3, 2021, certain of KBS Real Estate Investment Trust III, Inc.’s (“KBS REIT III”) indirect wholly owned subsidiaries (the “Amended and Restated Portfolio Loan Facility Borrowers”), entered into a two-year loan agreement with Bank of America, N.A., as administrative agent (the “Agent”); BofA Securities, Inc., Wells Fargo Securities, LLC and Capital One, National Association as joint lead arrangers and joint book runners; Wells Fargo Bank, N.A., as syndication agent; and each of the financial institutions signatory thereto as lenders (as subsequently modified and amended, the “Amended and Restated Portfolio Loan Facility”). The current lenders under the Amended and Restated Portfolio Loan Facility are Bank of America, N.A.; Wells Fargo Bank, National Association; U.S. Bank, National Association; Capital One, National Association; PNC Bank, National Association; Regions Bank; and Zions Bankcorporation, N.A., DBA California Bank & Trust (together, the “Portfolio Loan Lenders”). The Amended and Restated Portfolio Loan Facility is secured by 60 South Sixth, Preston Commons, Sterling Plaza, Towers at Emeryville, Ten Almaden and Town Center (the “Properties”).
On February 6, 2024, KBS REIT III, through the Amended and Restated Portfolio Loan Facility Borrowers, entered into a fourth loan modification and extension agreement with the Agent and the Portfolio Loan Lenders (the “Fourth Extension Agreement”). Pursuant to the Fourth Extension Agreement, the Agent and Portfolio Loan Lenders agreed to extend the maturity of the facility to August 6, 2024. The aggregate outstanding principal balance of the Amended and Restated Portfolio Loan Facility was approximately $601.3 million as of February 6, 2024.
Under the Fourth Extension Agreement, the Agent and the Portfolio Loan Lenders waived the requirement for the Properties to satisfy the minimum required ongoing debt service coverage ratio as of the December 31, 2023, March 31, 2024 and June 30, 2024 test dates and waived the requirement for REIT Properties as guarantor to satisfy a net worth covenant for the period between February 6, 2024 and August 6, 2024.
The Fourth Extension Agreement also includes a requirement to meet each of the following milestones:
(a) On or prior to February 29, 2024, the Amended and Restated Portfolio Loan Facility Borrowers will have delivered to Agent a reasonably comprehensive plan for KBS REIT III that includes a comprehensive cash flow analysis and plan for repayment of all indebtedness of KBS REIT III and its direct and indirect subsidiaries;
(b) On or prior to March 29, 2024, KBS REIT III will have engaged an investment bank for purposes of raising not less than $100,000,000 in new equity, debt or a combination of both for purposes of recapitalizing KBS REIT III and the Amended and Restated Portfolio Loan Facility Borrowers; and
(c) On or prior to July 15, 2024, not less than $100,000,000 in new equity, debt or a combination of both shall have been raised by KBS REIT III.
With regard to the milestones above, KBS REIT III has provided a comprehensive cash flow analysis to the Lenders and is working to finalize that plan, inclusive of a plan for repayment of all indebtedness, over the next two weeks. Additionally, on February 12, 2024, after running an interview process with several investment banks, KBS REIT III engaged Moelis & Company LLC, a global investment bank with expertise in real estate, capital raising and restructuring, to assist KBS REIT III in developing, evaluating and pursuing the initiatives in accordance with the Fourth Extension Agreement. KBS REIT III will continue to work to meet all of the milestones in the Fourth Extension Agreement, though there can be no assurance as to the certainty or timing of KBS REIT III’s plans to raise capital or additional debt. To the extent each milestone above is not met, it will constitute an immediate default under the Amended and Restated Portfolio Loan Facility, without any requirement of notice or opportunity to cure.
The Fourth Extension Agreement provides that 100% of excess cash flow from the Properties continues to be deposited monthly into a cash collateral account (the “Cash Sweep Collateral Account”). Excess cash flow for any calendar month is generally defined as (a) gross revenues from the Properties plus amounts received under certain pledged swaps, less (b) approved operating expenses of the Properties, payments under the Amended and Restated Portfolio Loan Facility, payments under permitted interest rate swaps and in certain cases REIT-level general and administrative costs and asset management fees allocated the Properties. Funds may not be withdrawn from the Cash Sweep Collateral Account without the prior written consent of the Agent, and upon certain events, the Agent has the right to withdraw funds from the Cash Sweep Collateral Account.
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The Fourth Extension Agreement provides that, subject to the requirements contained therein, the Amended and Restated Portfolio Loan Facility Borrowers will be permitted to withdraw funds from the Cash Sweep Collateral Account to pay or reimburse the Amended and Restated Portfolio Loan Facility Borrowers for approved tenant improvements, leasing commissions and capital improvements and for operating shortfalls related to the Properties to the extent they occur in any month.
Additionally, the Fourth Extension Agreement provides a default will occur under the Amended and Restated Portfolio Loan Facility if a written demand for payment following a default under the following loans is delivered by U.S. Bank, National Association under (a) KBS REIT III’s unsecured credit facility, (b) the payment guaranty agreement of KBS REIT III’s Modified Portfolio Revolving Loan Facility or (c) any other indebtedness of KBS REIT Properties III LLC, an indirect wholly owned subsidiary of KBS REIT III, where the demand made or amount guaranteed is greater than $5.0 million.
The Amended and Restated Portfolio Loan Facility Borrowers also agreed (a) to pay the Portfolio Loan Lenders a non-refundable fee in the amount of $0.9 million, (b) to deposit $5.0 million into the Cash Sweep Collateral Account (which will generally be used to fund capital expenditures and operating cash flow needs of the Properties), (c) to pay the Agent certain fees, commissions and costs incurred by the Agent and its counsel in connection with the Fourth Extension Agreement, and (d) to pay the Portfolio Loan Lenders an exit fee in the amount of $1.0 million, which is due on the earliest to occur of the maturity date, the repayment of the loan in full and the occurrence of a default under the loan.
Forward-Looking Statements
Certain statements included in this Current Report on Form 8-K are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of KBS REIT III and members of its management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. These include statements about KBS REIT III’s plans, strategies and prospects, including its ability to comply with any terms, conditions, obligations or covenants contained in any agreements related to debt obligations, including but not limited to its ability to raise capital as required by the Fourth Extension Agreement. These statements are subject to known and unknown risks and uncertainties. Readers are cautioned not to place undue reliance on these forward-looking statements. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and KBS REIT III undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law. Moreover, you should interpret many of the risks identified in this report, as well as the risks set forth below, as being heightened as a result of the continued disruptions in the financial markets impacting the U.S. commercial real estate industry, especially as it pertains to commercial office buildings. All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of KBS REIT III’s Annual Report on Form 10-K for the year ended December 31, 2022 and in Part II, Item 1A of KBS REIT III’s Quarterly Reports on Form 10-Q, each as filed with the Securities and Exchange Commission.
As a result of KBS REIT III’s upcoming loan maturities, the challenging commercial real estate lending environment, the current interest rate environment, leasing challenges in certain markets where KBS REIT III owns properties and the lack of transaction volume in the U.S. office market as well as general market instability, there is substantial doubt as to KBS REIT III’s ability to continue as a going concern for at least a year from November 14, 2023. If KBS REIT III is unable to repay, refinance or extend maturing loans, the lenders may seek to foreclose on the underlying collateral. There is no assurance that KBS REIT III will be able to satisfy, extend or refinance any maturing loans, and even if KBS REIT III does, KBS REIT III may still be adversely affected if substantial principal paydowns are required or if it is unable to satisfy any covenants or other terms and conditions contained in any agreement evidencing such extension or refinancing, including the requirement to raise additional capacity as set forth in the Fourth Extension Agreement. In addition to the factors noted above, KBS REIT III's ability to raise additional capital in a timely manner, if at all, is dependent on many factors beyond its control, including general macroeconomic conditions and volatility or disruptions of the capital markets. There is no assurance that KBS REIT III will be able to satisfy any covenants or other terms and conditions contained in any of current agreements evidencing its debt obligations or any extension or refinancing agreement that is entered into.
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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 REAL ESTATE INVESTMENT TRUST III, INC. | ||||||||||||||
| Dated: February 12, 2024 | BY: | /s/ Jeffrey K. Waldvogel | ||||||||||||
| Jeffrey K. Waldvogel | ||||||||||||||
| Chief Financial Officer, Treasurer and Secretary | ||||||||||||||