The board of directors for KBS Real Estate Investment Trust III, Inc., a publicly registered non-traded real estate investment trust, said it would remain neutral and make no recommendation to stockholders regarding an unsolicited tender offer from West 4 to purchase up to 2,295,000 shares of KBS REIT III common stock at a price of $0.80 per share.
The offer reflects approximately 1.55% of the company’s outstanding shares.
West 4, which with its affiliates currently owns approximately 430,026 shares of KBS REIT III, is not affiliated with KBS REIT III, its adviser KBS Capital Advisors LLC, or KBS Capital Markets Group LLC. Stockholders may have recently received, or will soon receive, offering materials detailing West 4’s offer.
In a letter to stockholders, KBS REIT III stated that its board, after careful evaluation and consultation with management, decided on neutrality primarily due to the REIT’s “current lack of liquidity and the uncertain timing of future liquidity to its stockholders.” The board acknowledged that each stockholder’s financial situation and liquidity needs are different.
Several factors influenced the board’s decision to remain neutral, including the challenging current economic environment and particularly uncertainties in the real estate and debt markets. Key considerations outlined by KBS REIT III include:
- Strategic focus:The REIT is concentrated on managing its loan maturity and paydown schedule, navigating the economic downturn to maximize long-term portfolio value, and identifying beneficial sale opportunities for its properties to enhance liquidity.
- Significant debt obligations:As of March 31, 2025, KBS REIT III faced $467.2 million in loan maturities and required principal paydowns within the next 12 months, with extension options available on only $65 million of this maturing debt. The company noted it had refinanced over $1.3 billion of maturing debt obligations since Jan. 1, 2024.
- Refinancing constraints:Recent debt refinancing, restructurings, or extensions have, in some cases, involved reduced loan commitments or paydowns. These agreements also include conditions not solely within KBS REIT III’s control, such as principal paydowns during loan terms and asset sales, which could yield lower prices in the current market.
- Suspension of dividends and redemptions:Due to restrictions and covenants in its loan agreements from recent refinancing, KBS REIT III does not anticipate paying dividends or distributions, or redeeming any common stock, until certain loans are repaid or refinanced. One such loan has a current maturity of January 2027, though it may be extended. The REIT has also terminated its share redemption program and stated it “is unable to predict when or if it will be in a position to pay distributions to or provide liquidity to KBS REIT III’s common stockholders.”
- Portfolio and market headwinds:Ongoing challenges with upcoming and recent tenant lease expirations, leasing difficulties in certain markets, and a slower-than-anticipated return-to-office trend, especially in the greater San Francisco Bay Area where KBS REIT III holds several assets, have materially impacted property appraisal values and the REIT’s ability to access credit facilities and maintain ongoing cash flow.
- Going concern uncertainty:Despite substantial refinancing activity, the REIT acknowledged that “management’s plans may not be considered probable and thus do not alleviate substantial doubt about KBS REIT III’s ability to continue as a going concern for at least a year from March 14, 2025.” At one time, the REIT’s estimated NAV was more than $12.00 per share. The REIT first issued a “going concern” warning in late 2023.
The board noted its approval of an unaudited estimated value per share of its common stock of $3.89 as of Dec. 12, 2024, a decrease of 30.5% compared to the Dec. 12, 2023, valuation of $5.60 per share. The board cautioned that the December 2024 estimate did not reflect market and portfolio developments after that date. Furthermore, the third-party appraisals used for this valuation were as of Sept. 30, 2024.
Given the “ongoing challenges affecting the U.S. commercial real estate industry, especially as it pertains to commercial office buildings, there is no certainty that KBS REIT III would be able to sell its properties at the Sept. 30, 2024, appraised values in the current market,” according to the REIT.
KBS REIT III is required by securities regulations to inform stockholders of its position on the tender offer.
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