KBS Growth & Income REIT Plans Liquidation
November 15, 2022 | SEC
In the quarterly report filed by KBS Growth & Income REIT on November 10, 2022, the Company discusses the necessity of liquidating due to decreases in occupancy and related cash flow. With the decreases in occupancy and cash flow, the REIT does not expect to be able to refinance its maturing debt. The following excerpts are from its Q3 2022 10-Q filing:
Going Concern Considerations
The accompanying consolidated financial statements and notes have been prepared assuming we will continue as a going concern. We have experienced a decline in occupancy from 90.4% as of December 31, 2020 to 73.1% as of September 30, 2022 and such occupancy may continue to decrease in the future as tenant leases expire. The decrease in occupancy has resulted in a decrease in cash flow from operations and has negatively impacted the market values of our properties in our portfolio. Additionally, the Commonwealth Building Mortgage Loan with an outstanding principal balance of $45.7 million is maturing in February 2023 and the Modified Term Loan with an outstanding balance of $52.3 million is maturing in November 2023. Due to the decrease in occupancies and a decrease in market values of the properties securing these two loans, we do not expect to be able to refinance these loans at current terms and may be required to pay down a portion of the maturing debt in order to refinance the loans. With our limited amount of cash on hand, our ability to make any loan paydowns, without the sale of real estate assets, is severely limited. If we are unable to meet our payment obligations at maturity of the respective loans because we cannot refinance the loans, the lenders could foreclose on the assets that are pledged as collateral to such lender. Additionally, in order to attract or retain tenants needed to increase occupancy and sustain operations, we will need to spend a substantial amount on capital leasing costs, however we have limited amounts of liquidity to make these capital commitments. These conditions raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to refinance our mortgage debt. No assurances can be given that we will be successful in achieving these objectives.
Plan of Liquidation
Our board of directors and a special committee composed of all of our independent directors (the “Special Committee”) has undertaken a review of various strategic alternatives available to us and expects to approve the sale of all of our assets and our dissolution pursuant to the terms of a plan of complete liquidation and dissolution (a “Plan of Liquidation”). Once approved by our board of directors, a Plan of Liquidation will be submitted to our stockholders for approval. Our advisor has been working diligently to develop a Plan of Liquidation to present to our board of directors for approval; however, the impact of the COVID-19 pandemic on a Plan of Liquidation for our portfolio, as well as the decreased demand for office space as employees continue to work from home, the rising interest rate environment that is impacting the ability of buyers to obtain favorable financing and continued social unrest and increased crime in the Portland area where one of our properties is located, have created significant headwinds to finalizing a Plan of Liquidation. The principal purpose of a Plan of Liquidation will be to provide liquidity to our stockholders by selling our assets, paying our debts and distributing the net proceeds from liquidation to our stockholders. Although this is the current intention of our board of directors, we can provide no assurances as to the ultimate approval of a Plan of Liquidation or the timing of the liquidation of the company.
