KBS REIT III Board Recommends Rejecting Two Third-Party Tender Offers
October 1, 2018 | Blue Vault | James Sprow
The board of directors of KBS REIT III, in a letter to shareholders filed with the SEC on September 28, alerted shareholders that they may soon receive correspondence regarding two separate tender offers to purchase their shares of KBS Real Estate Investment Trust III, Inc. (the “REIT”); one from Liquidity Partners Trust I (“Liquidity Partners”) and the other from MacKenzie Realty Capital, Inc. (“MacKenzie”). Liquidity Partners’ tender offer’s price will be $7.65 per share. MacKenzie has informed the REIT that its offer price will be $7.62 per share. The board believes the offer price in both tender offers is substantially below the value of the REIT’s shares and recommends against selling shares in either tender offer.
In arriving at their recommendation against selling shares to Liquidity Partners and MacKenzie, some of the factors the board considered were:
• On December 6, 2017, the REIT’s board of directors approved an estimated value per share of the REIT’s common stock of $11.73, 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, 2017, with the exception of a reduction to the REIT’s net asset value for deferred financing costs related to a portfolio loan facility that closed subsequent to September 30, 2017. For a full description of the methodologies and assumptions used in the REIT’s valuation, see the REIT’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 8, 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 unless the REIT’s board of directors authorizes additional funds for redemption (and provided that the last $10.0 million of available funds is reserved for Special Redemptions) and (ii) no more than 5% of the weighted average number of shares outstanding during the prior calendar year.
• The REIT initially had $59.8 million available for redemptions of shares eligible for redemption in 2018. On May 8, 2018, the REIT’s board of directors approved an increase of the funding available solely for redemptions sought in connection with Special Redemptions under the share redemption program by up to an additional $10.0 million for the May 2018 redemption date. In addition, on May 8, 2018, the REIT’s board of directors approved the Fourth Amended and Restated SRP, which provides that in addition to 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 calendar year 2017, that the REIT may redeem up to an additional $42.0 million of shares, less the actual dollar amount of Special Redemptions processed on the May 2018 redemption date, with some limitations.
• Because of the limitations on the dollar amount of shares that may be redeemed under the SRP and the number of shares that may be redeemed during a calendar year, it is not likely that the REIT will be able to redeem shares submitted as ordinary redemptions for the remainder of 2018. The board may amend, suspend or terminate the share redemption program upon 10 business days’ notice to stockholders.
The board believes that both tender offers are meant to take advantage of the illiquidity of the REIT’s shares by buying shares at a price significantly below their fair value in order to make a significant profit. The REIT believes that tendering stockholders whose shares are accepted for payment will lose the opportunity to participate in any potential future upside and future growth of the REIT with respect to such shares and will lose the right to receive any future distributions that the REIT may declare and pay.
According to Blue Vault, KBS Real Estate Investment Trust III raised $1,865.4 million in its public offering, including distributions reinvested. It distributes 6.50% annually based upon its original $10.00 share price. The $11.73 net asset value per share as of September 30, 2017, represents a 17.3% increase over the $10.00 price. As of June 30, 2018, the REIT owned 28 properties and had two joint ventures, with a combined 10.9 million square feet that were 92% occupied. Share redemptions in Q2 2018 represented 1.69% of the weighted average shares outstanding for the quarter, down from 2.87% in Q1 2018.
Sources: SEC, Blue Vault
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