KBS REIT II Explains to Shareholders the Decrease in NAV
December 4, 2019
In a December 3, 2019, letter to shareholders, KBS Real Estate Investment Trust II, Inc.’s board of directors explained the decrease in the estimated value per share of the REIT’s common stock to $3.79. This represents a decrease from the December 2018 estimated value per share. In June 2019, the December 2018 estimated value per share was adjusted solely for a $0.45 per share special distribution paid in June 2019 to stockholders of record as of the close of business on June 17, 2019, resulting in an estimated value per share of $4.50 effective as of June 17, 2019. The further decrease in share value was largely attributable to the decrease in property values at the Campus Drive Properties and Union Bank as discussed further below.
Portfolio Update
Campus Drive Properties, Florham Park, New Jersey
The Campus Drive Properties are currently under contract to sale and for purposes of determining the estimated value per share, these properties were valued at the contractual sales price less estimated closing credits. The value declined $56.3 million from the December 2018 appraised value due to various reasons. Despite renovations to modernize the park, the addition of ample amenities and creative connectivity to rail via a proprietary shuttle service, certain institutional investors that would have previously been in the market for this asset have either too much exposure in suburban office or have moved away from suburban properties and thus did not pursue the asset. Additionally, the asset is too large for small and mid-sized investors, who otherwise like the asset, but are unable to put the funds together without an institutional partner. As a result, there was a small buyer pool for the properties and the offer pricing was well below the 2018 appraised value. A buyer for the properties has been selected and has entered a purchase and sale agreement to acquire the properties. We anticipate the sale to close no later than January 31, 2020.
Union Bank, Los Angeles, California
The estimated value of Union Bank declined $15.0 million from the December 2018 appraised value, despite spending approximately $15.0 million in capital expenditures to improve the property. The primary reason for the decline in value is due to Union Bank downsizing more than previously anticipated in connection with the recently executed lease amendment to extend their lease, as well as the cost of building and tenant improvements being higher than previously anticipated. The REIT has launched a renovation plan, which will include renovations of the main lobby and common areas, renovations to Coral Tree Plaza and construction of a retail pavilion. The plans have been presented to the local market and brokerage community, and it is hoped that these plans bring the property to a more modern and competitive standard resulting in significant new leasing and stabilization of the property in 2020.
District | 237 (formerly Corporate Tech Centre), San Jose, California
District | 237 was rebranded and repositioned in early 2019 and consists of five buildings ranging in size from 46,000 square feet to 100,000 square feet. The goal is to execute a series of strategic renovations such as creating large collaborative open work spaces, adding a tenant amenity package, renovating the lobbies and other interior spaces, and updating the landscaping, in order to create a campus environment for one large tenant or multiple tenants with their own individual building. During 2019, the REIT executed two full-building leases at District | 237 and is currently negotiating a lease with a large company for two of the other buildings.
Source: SEC
