KBS Strategic Opportunity REIT II Board Advises Rejection of $2.75 Tender Offer

February 1, 2019 | James Sprow | Blue Vault

In a January 31, 2019, letter to stockholders, Chairman Peter McMillan of KBS Strategic Opportunity REIT II, Inc. advised common shareholders to reject a tender offer by MacKenzie Capital Management, LP to purchase Class A shares of the REIT for $2.75 per share. In the letter to shareholders, McMillan reminded shareholders that MacKenzie has a history of making tender offers for non-traded REIT shares at prices that are significantly below their disclosed estimated value and the amount of the bidder’s purchase price does not reflect any adverse events to the portfolio of the REIT or the value of the shares. Rather, the REIT believes it represents an opportunistic attempt by the bidder to make a profit off the shares by purchasing them at a deeply discounted price. The REIT believes the bidder’s offer price is substantially below the value of the Class A shares and recommends against selling shares at the $2.75 price.

In arriving at its recommendation against selling shares to the bidder, the REIT considered the following:

• On December 6, 2018, the REIT’s board of directors approved an estimated net asset value per share of the REIT’s common stock of $9.65, based on the estimated value of the REIT’s assets less the estimated value of the REIT’s liabilities, or net asset value, divided by the number of shares outstanding, all as of September 30, 2018.

• The REIT’s share redemption program (the “SRP”) provides stockholders the ability to sell their shares to the REIT, subject to certain restrictions and limitations. During any calendar year, the REIT may redeem (i) only the number of shares that the REIT could purchase with the amount of net proceeds from the sale of shares under the REIT’s dividend reinvestment plan during the prior calendar year, provided that the last $0.5 million of available funds is reserved exclusively for shares redeemed in connection with a stockholder’s death, “qualifying disability,” or “determination of incompetence” (each as defined in the SRP, and collectively “special redemptions”) and (ii) no more than 5% of the weighted average number of shares outstanding during the prior calendar year.

Based on the amount of net proceeds raised from the sale of shares under the REIT’s dividend reinvestment plan during 2018, the REIT has $3.0 million available to redeem shares under the SRP during 2019, with $0.5 million of that amount being reserved for special redemptions. The REIT redeems shares on the last business day of each month and following the January 2019 redemption date, the REIT has exhausted all funds available for ordinary redemptions in 2019. The REIT will continue to process special redemptions at a redemption price per share equal to the most recent estimated NAV per share as of the applicable redemption date or $9.65 currently.

The REIT can provide no assurances as to whether the REIT’s board of directors will authorize additional funds for redemptions and it is not likely that the REIT will be able to redeem shares submitted as ordinary redemptions for the remainder of 2019. The board may amend, suspend or terminate the SRP program upon 10 business days’ notice to stockholders.

Source: SEC