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Form 10-Q KBS Real Estate Investme For: Jun 30

August 15, 2022 6:25 AM EDT

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________
 
FORM 10-Q
______________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 000-54687
______________________________________________________
 
KBS REAL ESTATE INVESTMENT TRUST III, INC.
(Exact Name of Registrant as Specified in Its Charter)
______________________________________________________
 
Maryland27-1627696
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
800 Newport Center Drive, Suite 700
Newport Beach,California 92660
(Address of Principal Executive Offices) (Zip Code)
(949) 417-6500
(Registrant’s Telephone Number, Including Area Code)
_______________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
None None
Trading Symbol(s)
____________________________________________________
None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-Accelerated FilerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes    No  
As of August 10, 2022, there were 147,053,195 outstanding shares of common stock of KBS Real Estate Investment Trust III, Inc.


KBS REAL ESTATE INVESTMENT TRUST III, INC.
FORM 10-Q
June 30, 2022
INDEX

1


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 June 30, 2022December 31, 2021
 (unaudited) 
Assets
Real estate:
Land$290,121 $290,121 
Buildings and improvements2,167,563 2,090,983 
Tenant origination and absorption costs52,512 60,162 
Total real estate held for investment, cost2,510,196 2,441,266 
Less accumulated depreciation and amortization(613,767)(572,968)
Total real estate, net1,896,429 1,868,298 
Real estate equity securities145,693 180,228 
Total real estate and real estate-related investments, net2,042,122 2,048,526 
Cash and cash equivalents36,774 44,404 
Restricted cash1,765 2,032 
Rents and other receivables, net86,950 88,534 
Above-market leases, net303 348 
Due from affiliate83 343 
Prepaid expenses and other assets93,917 70,014 
Total assets$2,261,914 $2,254,201 
Liabilities and equity
Notes payable, net$1,598,385 $1,465,398 
Accounts payable and accrued liabilities48,189 58,323 
Due to affiliate4,970 8,126 
Distributions payable7,404 7,735 
Below-market leases, net2,445 3,277 
Other liabilities49,910 48,780 
Total liabilities1,711,303 1,591,639 
Commitments and contingencies (Note 11)
Redeemable common stock28,401 42,369 
Stockholders’ equity:
Preferred stock, $.01 par value per share; 10,000,000 shares authorized, no shares issued and outstanding
  
Common stock, $.01 par value per share; 1,000,000,000 shares authorized, 147,273,576 and 153,150,766 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively
1,473 1,532 
Additional paid-in capital1,275,423 1,322,613 
Cumulative distributions in excess of net income(754,686)(703,952)
Total stockholders’ equity522,210 620,193 
Total liabilities and equity$2,261,914 $2,254,201 

See accompanying condensed notes to consolidated financial statements.
2


PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share amounts)
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Revenues:
Rental income$68,187 $69,774 $137,042 $140,858 
Dividend income from real estate equity securities  7,252  
Other operating income4,551 4,080 8,744 7,731 
Total revenues72,738 73,854 153,038 148,589 
Expenses:
Operating, maintenance and management17,456 16,202 34,832 32,065 
Real estate taxes and insurance14,114 14,000 28,162 28,379 
Asset management fees to affiliate4,985 4,944 9,861 9,839 
General and administrative expenses2,014 1,880 3,800 3,602 
Depreciation and amortization26,638 27,920 53,858 55,319 
Interest expense11,170 8,345 19,826 16,678 
Net (gain) loss on derivative instruments (7,469)554 (28,938)(964)
Total expenses68,908 73,845 121,401 144,918 
Other (loss) income:
Unrealized loss on real estate equity securities(17,268) (34,535) 
Write-off of prepaid offering costs(2,728) (2,728) 
Equity in income of an unconsolidated entity 63  3,350 
Gain on sale of real estate, net   20,459 
Other income  6  
Other interest income9 16 17 31 
Total other (loss) income, net(19,987)79 (37,240)23,840 
Net (loss) income$(16,157)$88 $(5,603)$27,511 
Net (loss) income per common share, basic and diluted$(0.11)$ $(0.04)$0.15 
Weighted-average number of common shares outstanding, basic and diluted149,331,890 185,687,307 150,866,501 185,278,533 

See accompanying condensed notes to consolidated financial statements.
3


PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONSOLIDATED STATEMENTS OF EQUITY
For the Three Months Ended June 30, 2022 and 2021 (unaudited)
(dollars in thousands)
 
Common Stock
Additional Paid-in CapitalCumulative Distributions in Excess of Net Income Total Stockholders’ Equity
 SharesAmounts
Balance, March 31, 2022149,941,515 $1,499 $1,322,644 $(716,193)$607,950 
Net loss— — — (16,157)(16,157)
Issuance of common stock892,341 10 9,129 — 9,139 
Transfers to redeemable common stock— — (19,429)— (19,429)
Redemptions of common stock(3,560,280)(36)(36,920)— (36,956)
Distributions declared— — — (22,336)(22,336)
Other offering costs— — (1)— (1)
Balance, June 30, 2022
147,273,576 $1,473 $1,275,423 $(754,686)$522,210 

 
Common Stock
Additional Paid-in CapitalCumulative Distributions in Excess of Net Income Total Stockholders’ Equity
 SharesAmounts
Balance, March 31, 2021185,068,595 $1,851 $1,641,175 $(745,207)$897,819 
Net income— — — 88 88 
Issuance of common stock1,463,769 14 14,945 — 14,959 
Transfers to redeemable common stock— — (361,988)— (361,988)
Redemptions of common stock(276,362)(3)(2,968)— (2,971)
Distributions declared— — — (27,755)(27,755)
Balance, June 30, 2021
186,256,002 $1,862 $1,291,164 $(772,874)$520,152 

See accompanying condensed notes to consolidated financial statements.
4


PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONSOLIDATED STATEMENTS OF EQUITY
For the Six Months Ended June 30, 2022 and 2021 (unaudited)
(dollars in thousands)
 
Common Stock
Additional Paid-in CapitalCumulative Distributions in Excess of
Net Income
Total Stockholders’ Equity
 SharesAmounts
Balance, December 31, 2021
153,150,766 $1,532 $1,322,613 $(703,952)$620,193 
Net loss— — — (5,603)(5,603)
Issuance of common stock1,504,393 15 15,390 — 15,405 
Transfers from redeemable common stock— — 13,968 — 13,968 
Redemptions of common stock(7,381,583)(74)(76,547)— (76,621)
Distributions declared— — — (45,131)(45,131)
Other offering costs— — (1)— (1)
Balance, June 30, 2022
147,273,576 $1,473 $1,275,423 $(754,686)$522,210 

 
Common Stock
Additional Paid-in CapitalCumulative Distributions in Excess of
Net Income
Total Stockholders’ Equity
 SharesAmounts
Balance, December 31, 2020
184,249,076 $1,842 $1,641,184 $(744,990)$898,036 
Net income— — — 27,511 27,511 
Issuance of common stock2,573,027 26 26,259 — 26,285 
Transfers to redeemable common stock— — (370,202)— (370,202)
Redemptions of common stock(566,101)(6)(6,077)— (6,083)
Distributions declared— — — (55,395)(55,395)
Balance, June 30, 2021
186,256,002 $1,862 $1,291,164 $(772,874)$520,152 

See accompanying condensed notes to consolidated financial statements.
5


PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Six Months Ended June 30,
20222021
Cash Flows from Operating Activities:
Net (loss) income$(5,603)$27,511 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization53,858 55,319 
Equity in income of an unconsolidated entity (3,350)
Unrealized loss on real estate equity securities34,535  
Distribution of operating cash flow from an unconsolidated entity 9,904 
Deferred rents(4,548)(3,577)
Amortization of above- and below-market leases, net(787)(1,139)
Amortization of deferred financing costs1,912 1,978 
Unrealized gain on derivative instruments(35,870)(9,830)
Gain on sale of real estate (20,459)
Write-off of prepaid offering costs2,728  
Interest rate swap settlements for off-market swap instruments1,008 1,438 
Changes in operating assets and liabilities:
Rents and other receivables4,949 (3,033)
Due from affiliate260  
Prepaid expenses and other assets(8,801)(6,823)
Accounts payable and accrued liabilities(15,139)(3,451)
Due to affiliate(3,156)982 
Other liabilities(1,817)(1,477)
Net cash provided by operating activities23,529 43,993 
Cash Flows from Investing Activities:
Improvements to real estate(54,445)(33,260)
Proceeds from sale of real estate, net 98,000 
Net cash (used in) provided by investing activities(54,445)64,740 
Cash Flows from Financing Activities:
Proceeds from notes payable148,218  
Principal payments on notes payable(17,143) 
Payments of deferred financing costs(33)(60)
Interest rate swap settlements for off-market swap instruments(1,234)(1,431)
Payments to redeem common stock(76,621)(6,083)
Payments of prepaid other offering costs(110)(943)
Payments of other offering costs(1) 
Distributions paid to common stockholders(30,057)(38,298)
Net cash provided by (used in) financing activities23,019 (46,815)
Net (decrease) increase in cash, cash equivalents and restricted cash(7,897)61,918 
Cash, cash equivalents and restricted cash, beginning of period46,436 77,811 
Cash, cash equivalents and restricted cash, end of period$38,539 $139,729 
Supplemental Disclosure of Cash Flow Information:
Interest paid
$23,352 $22,250 
Supplemental Disclosure of Noncash Investing and Financing Activities:
Distributions payable$7,404 $ 
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan
$15,405 $26,285 
Accrued prepaid other offering costs$3 $464 
Redeemable common stock payable$ $254,737 
Accrued improvements to real estate$23,185 $15,536 
Accrued interest rate swap settlements related to off-market swap instruments$32 $252 

See accompanying condensed notes to consolidated financial statements.
6


PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(unaudited)
1. ORGANIZATION

KBS Real Estate Investment Trust III, Inc. (the “Company”) was formed on December 22, 2009 as a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2011 and it intends to continue to operate in such manner. Substantially all of the Company’s business is conducted through KBS Limited Partnership III (the “Operating Partnership”), a Delaware limited partnership. The Company is the sole general partner of and owns a 0.1% partnership interest in the Operating Partnership. KBS REIT Holdings III LLC (“REIT Holdings III”), the limited partner of the Operating Partnership, owns the remaining 99.9% interest in the Operating Partnership and is its sole limited partner. The Company is the sole member and manager of REIT Holdings III.
Subject to certain restrictions and limitations, the business of the Company is externally managed by KBS Capital Advisors LLC (the “Advisor”), an affiliate of the Company, pursuant to an advisory agreement the Company entered into with the Advisor (the “Advisory Agreement”). On January 26, 2010, the Company issued 20,000 shares of its common stock to the Advisor at a purchase price of $10.00 per share. As of June 30, 2022, the Advisor owned 20,857 shares of the Company’s common stock.
The Company owns a diverse portfolio of real estate investments. As of June 30, 2022, the Company owned 16 office properties, one mixed-use office/retail property and an investment in the equity securities of Prime US REIT, a Singapore real estate investment trust (the “SREIT”).
The Company commenced its initial public offering (the “Offering”) on October 26, 2010. Upon commencing the Offering, the Company retained KBS Capital Markets Group LLC (the “Dealer Manager”), an affiliate of the Company, to serve as the dealer manager of the Offering pursuant to a dealer manager agreement, as amended and restated (the “Dealer Manager Agreement”). The Company ceased offering shares of common stock in the primary Offering on May 29, 2015 and terminated the primary Offering on July 28, 2015.
The Company sold 169,006,162 shares of common stock in the primary Offering for gross proceeds of $1.7 billion. As of June 30, 2022, the Company had also sold 42,324,144 shares of common stock under its dividend reinvestment plan for gross offering proceeds of $437.1 million. Also as of June 30, 2022, the Company had redeemed or repurchased 72,056,406 shares sold in the Offering for $764.5 million.
Additionally, on October 3, 2014, the Company issued 258,462 shares of common stock for $2.4 million in private transactions exempt from the registration requirements pursuant to Section 4(a)(2) of the Securities Act of 1933.
The Company continues to offer shares of common stock under its dividend reinvestment plan. In some states, the Company will need to renew the registration statement annually or file a new registration statement to continue its dividend reinvestment plan offering. The Company may terminate its dividend reinvestment plan offering at any time.
COVID-19 Pandemic
One of the most significant risks and uncertainties facing the real estate industry generally, and in particular office REITs like the Company, continues to be the effect of the public health crisis of the novel coronavirus disease (“COVID-19”) pandemic. To date, the Company has not experienced significant disruptions in its operations from the COVID-19 pandemic. During the year ended December 31, 2020, the Company did, however, recognize an impairment charge on an office/retail property due to the continued deterioration of retail demand at the property, which was further impacted by the COVID-19 pandemic.
The extent to which the COVID-19 pandemic impacts the Company’s operations and those of its tenants and the Company’s investment in the SREIT depends on future developments, which remain uncertain and cannot be predicted with confidence, including among other developments, potential changes in customer behavior, such as the continued social acceptance, desirability and perceived economic benefits of work-from-home arrangements, resulting from the COVID-19 pandemic, which could materially and negatively impact the future demand for office space, resulting in slower overall leasing and an adverse impact to the Company’s operations.
7


PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2022
(unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2021. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).
Principles of Consolidation and Basis of Presentation
The accompanying unaudited consolidated financial statements and condensed notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
The consolidated financial statements include the accounts of the Company, REIT Holdings III, the Operating Partnership and their direct and indirect wholly owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements and condensed notes thereto in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and condensed notes. Actual results could materially differ from those estimates.
Reclassifications
Certain amounts in the Company’s prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods. During the three and six months ended June 30, 2022, the Company presented gains and losses on derivative instruments separate from interest expense on the Company’s consolidated statement of operations. Accordingly, the Company’s gains and losses on derivative instruments were reclassified for all periods presented.
Dividend Reinvestment Plan
The Company has adopted a dividend reinvestment plan pursuant to which common stockholders may elect to have all or a portion of their dividends and other distributions, exclusive of dividends and other distributions that the Company’s board of directors designates as ineligible for reinvestment through the dividend reinvestment plan, reinvested in additional shares of the Company’s common stock in lieu of receiving cash distributions. Participants in the dividend reinvestment plan acquire shares of the Company’s common stock at a price equal to 95% of the estimated value per share of the Company’s common stock, as determined by the Advisor or another firm chosen by the Company’s board of directors for that purpose.
8


PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2022
(unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
On December 7, 2020, the Company’s board of directors approved an estimated value per share of the Company’s common stock of $10.74 (unaudited) based on the estimated value of the Company’s assets less the estimated value of the Company’s liabilities, or net asset value, divided by the number of shares outstanding, all as of September 30, 2020, with the exception of adjustments to the Company’s net asset value to give effect to the change in the estimated value of the Company’s investment in units of the SREIT (SGX-ST Ticker: “OXMU”) as of December 1, 2020. The change in the dividend reinvestment plan purchase price was effective for the January 4, 2021 dividend reinvestment plan purchase date and was effective until the estimated value per share was updated. Commencing with the January 4, 2021 purchase date and until the estimated value per share was updated, the purchase price per share under the dividend reinvestment plan was $10.21.
On May 13, 2021, the Company’s board of directors approved an estimated value per share of the Company’s common stock of $10.77 (unaudited) based on the estimated value of the Company’s assets less the estimated value of the Company’s liabilities, or net asset value, divided by the number of shares outstanding, all as of March 31, 2021, with the exception of adjustments to the Company’s net asset value to give effect to the change in the estimated value of the Company’s investment in units of the SREIT (SGX-ST Ticker: OXMU) as of April 29, 2021. The change in the dividend reinvestment plan purchase price was effective for the June 1, 2021 dividend reinvestment plan purchase date and was effective until the estimated value per share was updated. Commencing with the June 1, 2021 purchase date and until the estimated value per share was updated, the purchase price per share under the dividend reinvestment plan was $10.23.
On November 1, 2021, the Company’s board of directors approved an estimated value per share of the Company’s common stock of $10.78 (unaudited) based on the estimated value of the Company’s assets less the estimated value of the Company’s liabilities, or net asset value, divided by the number of shares outstanding, all as of September 30, 2021, with the exception of adjustments to the Company’s net asset value to give effect to (i) the change in the estimated value of the Company’s investment in units of the SREIT (SGX-ST Ticker: “OXMU”) as of October 22, 2021 and (ii) the contractual sales price less estimated disposition costs and fees of one property that was under contract to sell as of November 1, 2021. The change in the dividend reinvestment plan purchase price was effective for the December 1, 2021 dividend reinvestment plan purchase date and is effective until the estimated value per share is updated. Commencing with the December 1, 2021 purchase date and until the estimated value per share is updated, the purchase price per share under the dividend reinvestment plan is $10.24.
No selling commissions or dealer manager fees will be paid on shares sold under the dividend reinvestment plan. The board of directors of the Company may amend or terminate the dividend reinvestment plan for any reason upon ten days’ notice to participants.
Redeemable Common Stock
The Company’s board of directors has adopted a share redemption program that may enable stockholders to sell their shares to the Company in limited circumstances. The restrictions of the Company’s share redemption program will limit its stockholders’ ability to sell their shares should they require liquidity and will limit the stockholders’ ability to recover an amount equal to the Company’s estimated value per share. The following is a description of the Company’s share redemption program from January 1, 2021 through June 30, 2021 and the amendments to the program made by (i) the July 2021 amended and restated share redemption program (the “July 2021 Amended Share Redemption Program”), which became effective as of the July 30, 2021 redemption date, (ii) the March 2022 amended and restated share redemption program (the “March 2022 Amended Share Redemption Program”), which became effective as of the March 31, 2022 redemption date, and (iii) the April 2022 amended and restated share redemption program (the “April 2022 Amended Share Redemption Program”), which became effective as of the April 29, 2022 redemption date.
9


PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2022
(unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In December 2019, the Company’s board of directors determined to temporarily suspend Ordinary Redemptions under the share redemption program, and Ordinary Redemptions remained suspended through June 30, 2021. Ordinary Redemptions are all redemptions other than those that qualify for the special provisions for redemptions sought in connection with a stockholder’s death, “Qualifying Disability” or “Determination of Incompetence” (each as defined in the share redemption program and, together, “Special Redemptions”). Upon suspension, all Ordinary Redemption requests that had been received were cancelled and no Ordinary Redemption requests were accepted or collected during the suspension of the share redemption program. Further, on June 3, 2021, the Company announced that, in connection with the approval of a self-tender offer, the Company’s board of directors approved a temporary suspension of all redemptions under the share redemption program, including Special Redemptions. Upon suspension, all outstanding redemption requests under the share redemption program were cancelled, and no requests were accepted or collected under the share redemption program. On July 14, 2021, the Company’s board of directors approved the July 2021 Amended Share Redemption Program and Ordinary Redemptions and Special Redemptions resumed effective for the July 30, 2021 redemption date.
There are several limitations on the Company’s ability to redeem shares under the share redemption program:
Unless the shares are being redeemed in connection with a Special Redemption, the Company may not redeem shares unless the stockholder has held the shares for one year.
Except as provided otherwise for calendar years 2022 and 2021 only, during any calendar year, the share redemption program limits the number of shares the Company may redeem to those that the Company could purchase with the amount of net proceeds from the sale of shares under the dividend reinvestment plan during the prior calendar year, provided that once the Company has received requests for redemptions, whether in connection with Special Redemptions or otherwise, that if honored, and when combined with all prior redemptions made during the calendar year, would result in the amount of remaining funds available for the redemption of additional shares in such calendar year being $10.0 million or less, the last $10.0 million of available funds shall be reserved exclusively for Special Redemptions. Notwithstanding anything contained in the share redemption program to the contrary, the Company may increase or decrease the funding available for the redemption of shares pursuant to the program upon ten business days’ notice to its stockholders.
10


PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2022
(unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For calendar year 2022 only,
Prior to effectiveness of the March 2022 Amended Share Redemption Program, the Company could redeem only the number of shares that the Company could purchase with the amount of net proceeds from the sale of shares under the Company’s dividend reinvestment plan during the prior calendar year, provided that once the Company had received requests for redemptions, whether in connection with Special Redemptions or otherwise, that if honored, and when combined with all prior redemptions made during the calendar year, would result in the amount of remaining funds available for the redemption of additional shares in such calendar year being $10.0 million or less, the last $10.0 million of available funds was reserved exclusively for Special Redemptions.
Upon effectiveness of the March 2022 Amended Share Redemption Program and prior to effectiveness of the April 2022 Amended Share Redemption Program, the Company could redeem only the number of shares that the Company could purchase with the amount of net proceeds from the sale of shares under the Company’s dividend reinvestment plan during the prior calendar year, provided that once the Company had received requests for redemptions, whether in connection with Special Redemptions or otherwise, that if honored, and when combined with all prior redemptions made during the calendar year, would result in the amount of remaining funds available for the redemption of additional shares in such calendar year being $2.0 million or less, the last $2.0 million of available funds was reserved exclusively for redemptions sought in connection with Special Redemptions.
Upon effectiveness of the April 2022 Amended Share Redemption Program, for calendar year 2022, the Company may redeem up to 5% of the weighted-average number of shares outstanding during the 2021 calendar year, provided that once the Company has received requests for redemptions, whether in connection with Special Redemptions or otherwise, that if honored, and when combined with all prior redemptions made during the 2022 calendar year, would result in the number of remaining shares available for redemption in the 2022 calendar year being 500,000 or less, the last 500,000 shares available for redemption shall be reserved exclusively for redemptions sought in connection with a Special Redemption.
Pursuant to the July 2021 Amended Share Redemption Program, for calendar year 2021 only, the Company could redeem up to 5% of the weighted-average number of shares outstanding during the 2020 calendar year, provided that if the Company received requests for redemptions, whether in connection with Special Redemptions or otherwise, that if honored, and when combined with all prior redemptions made during the 2021 calendar year, would result in the number of remaining shares available for redemption in the 2021 calendar year being 500,000 or less, the last 500,000 shares available for redemption were reserved exclusively for Special Redemptions.
During any calendar year, the Company may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year.
The Company has no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland General Corporation Law, as amended from time to time, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.
Pursuant to the share redemption program, redemptions made in connection with Special Redemptions are made at a price per share equal to the most recent estimated value per share of the Company’s common stock as of the applicable redemption date.
11


PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2022
(unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
From January 1, 2021 through June 30, 2021, Ordinary Redemptions were made at a price per share equal to 95% of the Company’s most recent estimated value per share as of the applicable redemption date. Upon effectiveness of the July 2021 Amended Share Redemption Program and commencing with the July 30, 2021 redemption date, Ordinary Redemptions are made at a price per share equal to 96% of the Company’s most recent estimated value per share as of the applicable redemption date.
On December 7, 2020, the Company’s board of directors approved an estimated value per share of its common stock of $10.74 (unaudited) as described above under “— Dividend Reinvestment Plan.” This estimated value per share became effective for the December 2020 redemption date, which was December 31, 2020.
On May 13, 2021, the Company’s board of directors approved an estimated value per share of its common stock of $10.77 (unaudited) as described above under “— Dividend Reinvestment Plan.” This estimated value per share became effective for the May 2021 redemption date, which was May 28, 2021.
On November 1, 2021, the Company’s board of directors approved an estimated value per share of its common stock of $10.78 (unaudited) as described above under “— Dividend Reinvestment Plan.” This estimated value per share became effective for the November 2021 redemption date, which was November 30, 2021. The Company currently expects to utilize an independent valuation firm to update its estimated value per share no later than December 2022.
For purposes of determining the time period a redeeming stockholder has held each share, the time period begins as of the date the stockholder acquired the share; provided, that shares purchased by the redeeming stockholder pursuant to the Company’s dividend reinvestment plan or received as a stock dividend will be deemed to have been acquired on the same date as the initial share to which the dividend reinvestment plan shares or stock dividend shares relate. The date of the share’s original issuance by the Company is not determinative.
The Company will classify as liabilities financial instruments that represent a mandatory obligation of the Company to redeem shares. The Company’s redeemable common shares are contingently redeemable at the option of the holder. When the Company determines it has a mandatory obligation to repurchase shares under the share redemption program, it will reclassify such obligations from temporary equity to a liability based upon their respective settlement values.
The Company may (a) amend, suspend or terminate the share redemption program for any reason, or (b) consistent with SEC guidance and interpretations, increase or decrease the funding available for the redemption of shares pursuant to the share redemption program, each upon ten business days’ notice to the Company’s stockholders. The Company may provide notice by including such information in a (i) Current Report on Form 8-K or in its annual or quarterly reports, all publicly filed with the SEC or (ii) separate mailing to the stockholders.
Offering Costs
Direct and incremental costs related to the issuance of stock such as legal fees, printing costs and bankers’ or underwriters’ fees are accounted for as a reduction in the proceeds from the sale of the stock and accordingly, recorded as a reduction of equity in the Company’s consolidated statements of equity. Prior to the effective date of an equity offering, these costs are deferred and included in prepaid expenses and other assets on the Company’s consolidated balance sheets. The deferred costs of a subsequently aborted offering are expensed. During the three and six months ended June 30, 2022, the Company wrote-off $2.7 million of prepaid offering costs in connection with the withdrawal of the Company’s Registration Statement on Form S-11 to offer additional shares under a proposed offering, which were included as an expense in the Company’s consolidated statements of operations.
12


PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2022
(unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Per Share Data
Basic net income (loss) per share of common stock is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no potentially dilutive securities outstanding during the three and six months ended June 30, 2022 and 2021, respectively.
Distributions declared per common share were $0.149 and $0.298 in the aggregate for the three and six months ended June 30, 2021, respectively. Distributions declared per common share were $0.149 and $0.298 in the aggregate for the three and six months ended June 30, 2022, respectively. Distributions declared per common share assumes each share was issued and outstanding each day that was a record date for distributions and were based on a monthly record date for each month during the periods commencing January 2021 through June 2021 and January 2022 through June 2022. For each monthly record date for distributions during the period from January 1, 2021 through June 30, 2021 and January 1, 2022 through June 30, 2022, distributions were calculated at a rate of $0.04983333 per share.
Segments
The Company has invested in core real estate properties and real estate-related investments with the goal of acquiring a portfolio of income-producing investments. The Company’s real estate properties exhibit similar long-term financial performance and have similar economic characteristics to each other. Accordingly, the Company aggregated its investments in real estate properties into one reportable business segment.
Square Footage, Occupancy and Other Measures
Square footage, occupancy, number of tenants and other measures, including annualized base rent and annualized base rent per square foot, used to describe real estate investments included in these condensed notes to the consolidated financial statements are unaudited and outside the scope of the Company’s independent registered public accounting firm’s review of the Company’s financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.
13


PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2022
(unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Standards Update
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU No. 2020-04”) to provide temporary optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). Modified contracts that meet the following criteria are eligible for relief from the modification accounting requirements under GAAP: (1) the contract references LIBOR or another rate that is expected to be discontinued due to reference rate reform, (2) the modified terms directly replace or have the potential to replace the reference rate that is expected to be discontinued due to reference rate reform, and (3) any contemporaneous changes to other terms (i.e., those that do not directly replace or have the potential to replace the reference rate) that change or have the potential to change the amount and timing of contractual cash flows must be related to the replacement of the reference rate. For a contract that meets the criteria, the guidance generally allows an entity to account for and present modifications as an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. That is, the modified contract is accounted for as a continuation of the existing contract. In addition, ASU No. 2020-04 provides various optional expedients for hedging relationships affected by reference rate reform, if certain criteria are met. The amendments in ASU No. 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic, the amendments in this update must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. An entity may elect to apply the amendments in ASU No. 2020-04 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.
For the period from January 1, 2020 (the earliest date the Company may elect to apply ASU No. 2020-04) through June 30, 2022, the Company did not have any contract modifications that meet the criteria described above, specifically contract modifications that have been modified from LIBOR to an alternative reference rate. Certain of the Company’s loan agreements, derivative instruments, and lease agreements use LIBOR as the current reference rate. For eligible contract modifications, the Company expects to adopt the temporary optional expedients described in ASU No. 2020-04. The optional expedients for hedging relationships described in ASU No. 2020-04 are not expected to have an impact to the Company as the Company has elected to not designate its derivative instruments as a hedge.
14


PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2022
(unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In April 2020, the FASB issued a FASB Staff Q&A related to Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic (“Topic 842 Q&A”). The Company adopted the lease accounting standards of Topic 842 beginning January 1, 2019. Under Topic 842, subsequent changes to lease payments that are not stipulated in the original lease contract are generally accounted for as lease modifications. Some contracts may contain explicit or implicit enforceable rights and obligations that require lease concessions if certain circumstances arise that are beyond the control of the parties to the contract. If a lease contract provides enforceable rights and obligations for concessions in the contract and no changes are made to that contract, the concessions are not accounted for under the lease modification guidance in Topic 842. If concessions granted by lessors are beyond the enforceable rights and obligations in the contract, entities would generally account for those concessions in accordance with the lease modification guidance in Topic 842. Because of the unprecedented and global nature of the COVID-19 pandemic, the FASB staff is aware that it may be exceedingly challenging for entities to determine whether existing contracts provide enforceable rights and obligations for lease concessions and whether those concessions are consistent with the terms of the contract or are modifications to the contract. As such, the FASB staff believes that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract). Consequently, for concessions related to the effects of the COVID-19 pandemic, an entity will not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and can elect to apply or not apply the lease modification guidance in Topic 842 to those contracts. This election is available for concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. For example, this election is available for concessions that result in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract. The FASB staff expects that reasonable judgment will be exercised in making those determinations. Some concessions will provide a deferral of payments with no substantive changes to the consideration in the original contract. A deferral affects the timing, but the amount of the consideration is substantially the same as that required by the original contract. The staff expects that there will be multiple ways to account for those deferrals, none of which the staff believes are more preferable than the others. Two of those methods are: (1) Account for the concessions as if no changes to the lease contract were made. Under that accounting, a lessor would increase its lease receivable, and a lessee would increase its accounts payable as receivables/payments accrue. In its income statement, a lessor would continue to recognize income, and a lessee would continue to recognize expense during the deferral period and (2) Account for the deferred payments as variable lease payments.
In accordance with the Topic 842 Q&A, the Company made the election to account for lease concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the rights of the Company as lessor consistent with how those concessions would be accounted for under Topic 842 as though enforceable rights and obligations for those concessions existed. Accordingly, the Company does not analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and elected not to apply the lease modification guidance in Topic 842. For deferrals, the Company accounts for the concessions as if no changes to the lease contract were made and continues to recognize rental income during the deferral period. The amount of deferred rent is assessed for collectability at the end of each reporting period. For rental abatements, the Company recognizes negative variable lease income for the forgiven rent, thereby reversing the rental income and rent receivable for the abated period.
The Company has granted a number of lease concessions related to the effects of the COVID-19 pandemic but these lease concessions did not have a material impact to the Company’s consolidated balance sheets as of June 30, 2022 and December 31, 2021 or consolidated statements of operations for the three and six months ended June 30, 2022 and 2021. As of June 30, 2022, the Company had entered into lease amendments related to the effects of the COVID-19 pandemic, granting $4.0 million of rent deferrals for the period from March 2020 through March 2023 and granting $4.3 million in rental abatements.
15


PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2022
(unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
As of June 30, 2022, the Company had $0.7 million of receivables for lease payments that had been deferred as lease concessions related to the effects of the COVID-19 pandemic, of which $0.4 million was reserved for payments not probable of collection, which were included in rent and other receivables, net on the accompanying consolidated balance sheet. For the three and six months ended June 30, 2022, the Company recorded $0.9 million and $1.3 million, respectively, of rental abatements granted to tenants as a result of the COVID-19 pandemic. For the three and six months ended June 30, 2021, the Company recorded $0.2 million and $0.6 million, respectively, of rental abatements granted to tenants as a result of the COVID-19 pandemic.
Tenants may request additional lease concessions, in the form of rent deferrals or abatements, for future periods, which may have an impact on the Company’s business, financial condition and results of operations, but the ultimate impact will largely depend on future developments, which remain uncertain and cannot be predicted with confidence, including among other developments, potential changes in customer behavior, such as the continued social acceptance, desirability and perceived economic benefits of work-from-home arrangements, resulting from the COVID-19 pandemic, which could materially and negatively impact the future demand for office space, resulting in slower overall leasing and an adverse impact to the Company’s operations.

16


PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2022
(unaudited)
3. REAL ESTATE
As of June 30, 2022, the Company’s real estate portfolio was composed of 16 office properties and one mixed-use office/retail property encompassing in the aggregate approximately 7.3 million rentable square feet. As of June 30, 2022, the Company’s real estate portfolio was collectively 80.0% occupied. The following table summarizes the Company’s investments in real estate as of June 30, 2022 (in thousands):
PropertyDate AcquiredCityStateProperty Type
Total Real Estate, at Cost (1)
Accumulated Depreciation and Amortization (1)
Total Real Estate, Net (1)
Town Center03/27/2012PlanoTXOffice$133,267 $(44,983)$88,284 
McEwen Building04/30/2012FranklinTNOffice38,546 (9,820)28,726 
Gateway Tech Center05/09/2012Salt Lake CityUTOffice33,462 (9,562)23,900 
60 South Sixth (2)
01/31/2013MinneapolisMNOffice150,697 (50,403)100,294 
Preston Commons06/19/2013DallasTXOffice140,465 (34,827)105,638 
Sterling Plaza 06/19/2013DallasTXOffice89,452 (25,560)63,892 
201 Spear Street 12/03/2013San FranciscoCAOffice151,706 (33,787)117,919 
Accenture Tower
12/16/2013ChicagoILOffice533,987 (128,416)405,571 
Ten Almaden12/05/2014San JoseCAOffice130,982 (35,092)95,890 
Towers at Emeryville
12/23/2014EmeryvilleCAOffice217,351 (52,329)165,022 
3003 Washington Boulevard12/30/2014ArlingtonVAOffice153,252 (38,298)114,954 
Park Place Village 06/18/2015LeawoodKSOffice/Retail81,599 (7,993)73,606 
201 17th Street 06/23/2015AtlantaGAOffice102,366 (27,850)74,516 
515 Congress 08/31/2015Austin TXOffice131,849 (27,431)104,418 
The Almaden09/23/2015San JoseCAOffice194,862 (40,308)154,554 
3001 Washington Boulevard11/06/2015ArlingtonVAOffice60,941 (11,837)49,104 
Carillon 01/15/2016CharlotteNCOffice165,412 (35,271)130,141 
$2,510,196 $(613,767)$1,896,429 
_____________________
(1) Amounts presented are net of impairment charges and write-offs of fully depreciated/amortized assets.
(2) This property was formerly known as RBC Plaza and was re-named 60 South Sixth in connection with the Company’s re-branding strategy for this property.
As of June 30, 2022, the following property represented more than 10% of the Company’s total assets:
PropertyLocationRentable Square FeetTotal Real Estate, Net
(in thousands)
Percentage of Total Assets
Annualized Base Rent
(in thousands) (1)
Average Annualized Base Rent per sq. ft.Occupancy
Accenture TowerChicago, IL1,457,724 $405,571 17.9 %$28,737 $27.45 71.8 %
___________________
(1) Annualized base rent represents annualized contractual base rental income as of June 30, 2022, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.
17


PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2022
(unaudited)
3. REAL ESTATE (CONTINUED)
Operating Leases
The Company’s office and office/retail properties are leased to tenants under operating leases for which the terms and expirations vary. As of June 30, 2022, the leases, including leases that have been executed but not yet commenced, had remaining terms, excluding options to extend, of up to 16.9 years with a weighted-average remaining term of 5.5 years. Some of the leases have provisions to extend the term of the leases, options for early termination for all or a part of the leased premises after paying a specified penalty, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires a security deposit from the tenant in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies depending upon the terms of the respective lease and the creditworthiness of the tenant, but generally is not a significant amount. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets and totaled $8.7 million and $8.7 million as of June 30, 2022 and December 31, 2021, respectively.
During the six months ended June 30, 2022 and 2021, the Company recognized deferred rent from tenants of $4.5 million and $3.6 million, respectively. As of June 30, 2022 and December 31, 2021, the cumulative deferred rent balance was $82.5 million and $85.2 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $15.6 million and $22.8 million of unamortized lease incentives as of June 30, 2022 and December 31, 2021, respectively.
As of June 30, 2022, the future minimum rental income from the Company’s properties under its non-cancelable operating leases was as follows (in thousands):
July 1, 2022 through December 31, 2022$100,665 
2023190,030 
2024179,698 
2025160,872 
2026141,719 
Thereafter529,616 
$1,302,600 

As of June 30, 2022, the Company’s office and office/retail properties were leased to approximately 560 tenants over a diverse range of industries and geographic areas. The Company’s highest tenant industry concentrations (greater than 10% of annualized base rent) were as follows:
IndustryNumber of Tenants
Annualized Base Rent (1)
(in thousands)
Percentage of
Annualized Base Rent
Finance110$39,297 18.8 %
Real Estate5522,758 10.9 %
$62,055 29.7 %
_____________________
(1) Annualized base rent represents annualized contractual base rental income as of June 30, 2022, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.
18


PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2022
(unaudited)
3. REAL ESTATE (CONTINUED)
As of June 30, 2022, no other tenant industries accounted for more than 10% of annualized base rent and no tenant accounted for more than 10% of annualized base rent.
Geographic Concentration Risk
As of June 30, 2022, the Company’s net investments in real estate in California, Illinois and Texas represented 23.6%, 17.9% and 16.0% of the Company’s total assets, respectively. As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the California, Illinois and Texas real estate markets. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local business climate, could adversely affect the Company’s operating results and its ability to pay distributions to stockholders.

4. REAL ESTATE DISPOSITIONS
During the year ended December 31, 2021, the Company sold two office properties to purchasers unaffiliated with the Company or the Advisor. In November 2021, the Company completed the sale of one office property for $143.0 million, before third-party closing costs, closing credits and disposition fees payable to the Advisor, and in January 2021, the Company sold one office property for $103.5 million, before third-party closing costs, credits and disposition fees payable to the Advisor.
As of June 30, 2022, the Company did not have any real estate properties held for sale.
The results of operations for the office properties sold during the year ended December 31, 2021 are included in continuing operations on the Company’s consolidated statements of operations. The following table summarizes certain revenues and expenses related to these properties for the three and six months ended June 30, 2021 (in thousands).
 For the Three Months Ended
June 30,
For the Six Months Ended
June 30,
2022202120222021
Revenues
Rental income$ $2,418 $ $5,010 
Other operating income   94 
Total revenues$ $2,418 $ $5,104 
Expenses
Operating, maintenance, and management$ $23 $ $216 
Real estate taxes and insurance 18  121 
Asset management fees to affiliate 112  261 
General and administrative expenses 33  33 
Depreciation and amortization 837  1,592 
Interest expense 174  348 
Total expenses$ $1,197 $ $2,571 


19


PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS REAL ESTATE INVESTMENT TRUST III, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2022
(unaudited)
5. TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-
MARKET LEASE LIABILITIES
As of June 30, 2022 and December 31, 2021, the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) were as follows (in thousands):
 Tenant Origination and
Absorption Costs
Above-Market
Lease Assets
Below-Market
Lease Liabilities
 June 30,
2022
December 31, 2021June 30,
2022
December 31, 2021June 30,
2022
December 31, 2021
Cost$52,512 $60,162 $983 $1,112 $(10,876)$(15,395)
Accumulated Amortization(36,975)(41,387)(680)(764)8,431 12,118 
Net Amount$15,537 $18,775 $303 $348