KBS REAL ESTATE INVESTMENT TRUST II: MANAGEMENT REPORT AND ANALYSIS OF THE FINANCIAL POSITION AND RESULTS OF (Kind 10-Okay)

OPERATIONS
The next dialogue and evaluation needs to be learn along with the "Chosen Monetary Knowledge" above and our accompanying consolidated monetary statements and the notes thereto. Additionally see "Ahead-Trying Statements" and "Abstract Danger Components" previous Half I and Half I, Merchandise 1A, "Danger Components." Overview We had been fashioned onJuly 12, 2007 as aMaryland company that elected to be taxed as an actual property funding belief ("REIT") starting with the taxable yr endedDecember 31, 2008 and we intend to proceed to function in such a fashion. We conduct our enterprise primarily by way of ourWorking Partnership , of which we are the only basic associate. Topic to sure restrictions and limitations, our enterprise is managed by our advisor,KBS Capital Advisors LLC , pursuant to an advisory settlement.KBS Capital Advisors conducts our operations and manages our portfolio of actual property investments. Our advisor owns 20,000 shares of our widespread inventory. We've got no paid staff. As ofDecember 31, 2020 , we owned 4 workplace properties and an workplace constructing that's a part of an workplace campus. As ofDecember 31, 2020 , we had 184,299,500 shares of widespread inventory issued and excellent. OnNovember 13, 2019 , in reference to a overview of potential strategic alternate options out there to us, a particular committee composed of all of our unbiased administrators (the "Particular Committee") and our board of administrators unanimously accepted the sale of all of our property and our dissolution pursuant to the phrases of the plan of full liquidation and dissolution (the "Plan of Liquidation"). The principal goal of the Plan of Liquidation is to offer liquidity to our stockholders by promoting our property, paying our money owed and distributing the web proceeds from liquidation to our stockholders. OnMarch 5, 2020 , our stockholders accepted the Plan of Liquidation. The Plan of Liquidation is included as an exhibit to this Annual Report on Kind 10-Okay. Plan of Liquidation In accordance with the Plan of Liquidation, our goals are to pursue an orderly liquidation of our firm by promoting all of our remaining property, paying our money owed and our recognized liabilities, offering for the cost of unknown or contingent liabilities, distributing the web proceeds from liquidation to our stockholders and winding up our operations and dissolving our firm. Whereas pursuing our liquidation pursuant to the Plan of Liquidation, we intend to proceed to handle our portfolio of property to take care of and, if attainable, enhance the standard and income-producing potential of our properties to reinforce property stability and higher place our remaining property on the market. We count on to distribute considerably the entire web proceeds from liquidation to our stockholders inside 24 months fromMarch 5, 2020 . Pursuant to the Plan of Liquidation, onMarch 5, 2020 , our board of administrators approved the Preliminary Liquidating Distribution within the quantity of$0.75 per share of widespread inventory to stockholders of report as of the shut of enterprise onMarch 5, 2020 . OnJuly 31, 2020 , our board of administrators approved the Second Liquidating Distribution in the quantity of$0.25 per share of widespread inventory to stockholders of report as of the shut of enterprise onAugust 3, 2020 , and onDecember 24, 2020 , our board of administrators approved the Third Liquidating Distribution within the quantity of$0.40 per share of widespread inventory to stockholders of report as of the shut of enterprise onDecember 24, 2020 . We count on to proceed to pay liquidating distribution funds to our stockholders by way of the completion of our liquidation course of. Nevertheless, if we can't promote our property and pay our money owed inside 24 months fromMarch 5, 2020 , or if the board of administrators and the Particular Committee decide that it's in any other case advisable to take action, pursuant to the Plan of Liquidation, we might switch and assign our remaining property to a liquidating belief. Upon such switch and task, our stockholders will obtain helpful pursuits in the liquidating belief. 51 -------------------------------------------------------------------------------- Desk of Contents Our expectations in regards to the implementation of the Plan of Liquidation and the quantity of any extra liquidating distributions that we are going to pay to our stockholders and after we pays them are topic to dangers and uncertainties and are primarily based on sure estimates and assumptions, a number of of which can show to be incorrect. In consequence, the precise quantity of any extra liquidating distributions we pay to stockholders could also be kind of than we estimate and the liquidating distributions could also be paid later than we predict. There are numerous elements which will have an effect on the quantity of liquidating distributions we'll in the end pay to our stockholders. If we underestimate our current obligations and liabilities or the quantity of taxes, transaction charges and bills referring to the liquidation and dissolution, or if unanticipated or contingent liabilities come up, the quantity of liquidating distributions in the end paid to our stockholders might be lower than estimated. Furthermore, the liquidation worth will fluctuate over time in response to developments associated to particular person property in our portfolio and the administration of these property, in response to the actual property and finance markets, primarily based on the precise liquidation timing and the quantity of web proceeds acquired from the disposition of the remaining property and because of different elements. Given the uncertainty and present enterprise disruptions as a results of the outbreak of COVID-19, our implementation of the Plan of Liquidation could also be materially and adversely impacted and this may occasionally have a materials impact on the last word quantity and timing of liquidating distributions acquired by our stockholders. Whereas we've thought of the influence from COVID-19 in our web property in liquidation introduced on the Consolidated Assertion of Web Property as ofDecember 31, 2020 , the extent to which our enterprise could also be affected by COVID-19 depends upon future developments with respect to the continued unfold and therapy of the virus, the actions taken to include the pandemic or mitigate its influence, and the direct and oblique financial results of the pandemic and containment measures. Any long-term influence of this example, even after an financial rebound, stays unclear. See " - Market Outlook - Actual Property and Actual Property Finance Markets - COVID-19 Pandemic and Portfolio Outlook" for a dialogue of the influence of the outbreak of COVID-19 on our enterprise and our liquidation. We can provide no assurance concerning the timing of asset tendencies in reference to the implementation of the Plan of Liquidation, the sale costs we'll obtain for our property, and the quantity or timing of liquidating distributions to be acquired by our stockholders. Market Outlook - Actual Property and Actual Property Finance Markets Volatility in world monetary markets and altering political environments can trigger fluctuations within the efficiency of theU.S. business actual property markets. Doable future declines in rental charges, slower or probably destructive web absorption of leased house and expectations of future rental concessions, together with free hire to resume tenants early, to retain tenants who are up for renewal or to draw new tenants, might lead to decreases in money flows from our properties. Additional, revenues from our properties may lower because of a discount in occupancy (attributable to elements together with, however not restricted to, tenant defaults, tenant insolvency, early termination of tenant leases and non-renewal of current tenant leases), hire deferrals or abatements, tenants being unable to pay their hire and/or decrease rental charges. Reductions in revenues from our properties would adversely influence the timing of asset gross sales and/or the gross sales worth we'll obtain for our properties. To the extent there are will increase in the price of financing because of greater rates of interest, this may occasionally trigger issue in refinancing debt obligations at phrases as favorable because the phrases of current indebtedness. Additional, will increase in rates of interest would improve the quantity of our debt funds on our variable charge debt. Administration repeatedly evaluations our debt financing methods to optimize our portfolio and the price of our debt publicity. Market situations can change shortly, probably negatively impacting the worth of actual property investments. Most not too long ago, the outbreak of COVID-19 has had a destructive influence on the true property market as mentioned beneath. COVID-19 Pandemic and Portfolio Outlook Since initially being reported inDecember 2019 , COVID-19 has unfold across the world, together with to each state inthe US . OnMarch 11, 2020 , theWorld Well being Group declared COVID-19 a pandemic, and onMarch 13, 2020 ,the US declared a nationwide emergency with respect to COVID-19. The COVID-19 pandemic has severely impacted world financial exercise and induced important volatility and destructive stress in monetary markets. The worldwide influence of the pandemic continues to evolve and plenty of nations, states and localities, together with states and localities inthe US , have reacted by imposing measures to assist management the unfold of the virus, together with instituting quarantines, "shelter-in-place" and "stay-at-home" orders, journey restrictions, restrictions on companies and college closures. In consequence, the COVID-19 pandemic is negatively impacting virtually each business, together with theU.S. workplace actual property business and the industries of our tenants, straight or not directly. As ofDecember 31, 2020 , tenants within the mining and oil and gasoline extraction business represented roughly 18% of our base hire. Tenants in this sector have been adversely impacted by the lowered demand for oil as a results of the slowdown in financial exercise ensuing from the pandemic unfold of COVID-19 and the collapse in oil costs. The fluidity of the COVID-19 pandemic continues to preclude any prediction as to the last word hostile influence the pandemic might have on our enterprise, monetary situation, outcomes of operations, money flows and liquidation. 52 -------------------------------------------------------------------------------- Desk of Contents Through the yr endedDecember 31, 2020 , we didn't expertise important influence to rental earnings collections from the COVID-19 pandemic. Lease collections for the quarter endedDecember 31, 2020 had been roughly 99%. Lots of our tenants have suffered reductions in income. As ofDecember 31, 2020 , we had entered into lease amendments associated to the consequences of the COVID-19 pandemic, granting$0.2 million of hire deferrals for the interval fromMarch 2020 by way ofDecember 31, 2020 and granting$0.2 million in rental abatements throughout this interval. FromMarch 2020 by way ofDecember 31, 2020 , eight tenants had been granted rental deferrals or rental abatements on account of the pandemic, of which three tenants have begun to pay hire in accordance with their lease agreements subsequent to the deferral or abatement interval. 4 of the eight tenants proceed to have hire abated by way ofMarch 2021 . Relying upon the length of the pandemic, the assorted measures imposed to assist management the unfold of the virus and the corresponding financial slowdown, these tenants or extra tenants might search hire deferrals or abatements in future durations or turn into unable to pay their hire. We are going to proceed to judge any extra short-term hire aid requests from tenants on a person foundation. Any future hire aid preparations are anticipated to be structured as short-term short-term deferrals of base hire that can be paid again over time. Not all tenant requests will in the end lead to modified agreements, nor are we forgoing our contractual rights below our lease agreements. Most often, it's in our greatest curiosity to assist our tenants stay in enterprise and reopen when restrictions are lifted. If tenants default on their hire and vacate, the power to re-lease this house is more likely to be harder if the financial slowdown continues and any long run influence of this example, even after an financial rebound, stays unclear. Subsequent toDecember 31, 2020 , we've not seen a fabric influence on our hire collections. Nevertheless, present collections and hire aid requests to-date might not be indicative of collections or requests in any future interval. The influence of the COVID-19 pandemic on our rental income for the primary quarter of 2021 and thereafter can't be decided at current. Though we didn't expertise important disruptions in rental earnings, throughout the yr endedDecember 31, 2020 , we lowered the estimated liquidation worth of our actual property portfolio by$90.2 million because of adjustments in leasing projections throughout our portfolio leading to decrease projected money movement and projected gross sales costs attributable to the influence of the COVID-19 pandemic. See "- Modifications in Web Property in Liquidation" for a dialogue of the change in liquidation worth of actual property properties. We may have to acknowledge extra decreases within the values of our actual property properties to the extent leasing projections and projected gross sales costs proceed to say no at our properties. As ofDecember 31, 2020 , we had$48.4 million of revolving debt out there for rapid future disbursement below our portfolio mortgage facility, topic to sure situations set forth within the mortgage agreements. Important reductions in rental income sooner or later might restrict our potential to attract on our portfolio mortgage facility because of covenants described in our mortgage agreements. Nevertheless, we consider that our money readily available, proceeds from asset gross sales and proceeds out there below our portfolio mortgage facility and mortgage mortgage can be adequate to satisfy our liquidity wants throughout our liquidation. The COVID-19 pandemic or a future pandemic, epidemic or outbreak of infectious illness affecting states or areas wherein we or our tenants function may have materials and hostile results on our enterprise, monetary situation, outcomes of operations, money flows and our liquidation because of, amongst different elements: well being or different authorities authorities requiring the closure of workplaces or different companies or instituting quarantines of personnel as the results of, or so as to keep away from, publicity to a contagious illness; disruption in provide and supply chains; a basic decline in enterprise exercise and demand for actual property, particularly workplace properties; lowered financial exercise, basic financial decline or recession, which can influence our tenants' companies, monetary situation and liquidity and should trigger tenants to be unable to make hire funds to us well timed, or in any respect, or to in any other case search modifications of lease obligations; issue accessing debt and fairness capital on enticing phrases, or in any respect, and a extreme disruption and instability within the world monetary markets or deteriorations in credit score and financing situations, which can have an effect on our entry to capital essential to fund enterprise operations or deal with maturing liabilities on a well timed foundation and should lead to fewer patrons searching for to amass business actual property; and the potential destructive influence on the well being of personnel of our advisor, notably if a major variety of our advisor's staff are impacted, which might lead to a deterioration in our potential to guarantee enterprise continuity throughout a disruption. The extent to which the COVID-19 pandemic or every other pandemic, epidemic or illness impacts our operations and people of our tenants and our potential to implement our Plan of Liquidation depends upon future developments, that are extremely unsure and can't be predicted with confidence, together with the scope, severity and length of the pandemic, the actions taken to include the pandemic or mitigate its influence, and the direct and oblique financial results of the pandemic and containment measures, amongst others. However, the COVID-19 pandemic (or a future pandemic, epidemic or illness) presents materials uncertainty and danger with respect to our enterprise, monetary situation, outcomes of operations, money flows and our liquidation. Our enterprise, like all companies, is being impacted by the uncertainty concerning the COVID-19 pandemic, the effectiveness of insurance policies launched to neutralize the illness, and the influence of these insurance policies on financial exercise. Given the uncertainty and present enterprise disruptions on account of the outbreak of COVID-19, our implementation of the Plan of Liquidation could also be materially and adversely impacted and this may occasionally have a fabric impact on the final quantity and timing of liquidating distributions acquired by our stockholders. 53 -------------------------------------------------------------------------------- Desk of Contents Liquidity and Capital Sources As described above below "- Overview - Plan of Liquidation," onMarch 5, 2020 , our stockholders accepted the sale of all of our property and our dissolution pursuant to the phrases of the Plan of Liquidation. We count on to promote all of our property, pay all of our recognized liabilities, present for unknown liabilities and distribute the web proceeds from liquidation to our stockholders. Our principal calls for for funds throughout our liquidation are and can be for: the cost of working bills, capital expenditures and basic and administrative bills, together with bills in reference to the Plan of Liquidation; funds below debt obligations; Particular Redemptions of widespread inventory pursuant to our share redemption program; and funds of distributions to stockholders pursuant to the Plan of Liquidation. Throughout our liquidation, we intend to make use of our money readily available and proceeds from the sale of actual property properties as our major sources of liquidity. To the extent out there, we additionally intend to make use of money movement generated by our actual property investments and proceeds from debt financing; nonetheless, asset gross sales will additional scale back money flows from these sources throughout the implementation of the Plan of Liquidation. Our share redemption program gives just for Particular Redemptions. Throughout every calendar yr, such Particular Redemptions are restricted to an annual greenback quantity decided by the board of administrators, which can be reviewed throughout the yr and elevated or decreased upon ten enterprise days' discover to our stockholders. We do not count on to make peculiar redemptions sooner or later. OnDecember 24, 2020 , our board of administrators accepted an annual greenback limitation of$10.0 million within the combination for the calendar yr 2021 for Particular Redemptions (topic to overview and adjustment throughout the yr by the board of administrators), and additional topic to the restrictions described within the share redemption program. Our investments in actual property generate money movement within the type of rental revenues and tenant reimbursements, that are lowered by working expenditures, debt service funds, the cost of asset administration charges and company basic and administrative bills. Money movement from operations from our actual property investments is primarily dependent upon the occupancy degree of our portfolio, the web efficient rental charges on our leases, the collectibility of hire and working recoveries from our tenants and the way properly we handle our expenditures, all of which can be adversely affected by the influence of the COVID-19 pandemic as mentioned above. As ofDecember 31, 2020 , our actual property properties had been 73% occupied. For the yr endedDecember 31, 2020 , our money wants for capital expenditures and the cost of debt obligations had been met with money readily available and proceeds from asset gross sales. Working money wants throughout the identical interval had been met with money movement generated by our actual property. We consider that our money readily available, proceeds from the gross sales of actual property properties and, to the extent out there, our money movement from operations and proceeds out there below our portfolio mortgage facility and mortgage mortgage can be adequate to satisfy our liquidity wants throughout our liquidation. As mentioned above, asset gross sales will additional scale back money flows from operations and proceeds out there from debt financing throughout the implementation of the Plan of Liquidation. OnMarch 5, 2020 , our board of administrators approved the Preliminary Liquidating Distribution within the quantity of$0.75 per share of widespread inventory to our stockholders of report as of the shut of enterprise onMarch 5, 2020 . This Preliminary Liquidating Distribution was paid onMarch 10, 2020 and was funded from proceeds from the sale of the Campus Drive Buildings. OnJuly 31, 2020 , our board of administrators approved the Second Liquidating Distribution within the quantity of$0.25 per share of widespread inventory to our stockholders of report as of the shut of enterprise onAugust 3, 2020 . This Second Liquidating Distribution was paid onAugust 7, 2020 and was funded from proceeds from the sale of two workplace buildings in Company Expertise Centre - 100 Headquarters and 200 Holger. OnDecember 24, 2020 , our board of administrators approved the Third Liquidating Distribution within the quantity of$0.40 per share of widespread inventory to our stockholders of report as of the shut of enterprise onDecember 24, 2020 . This Third Liquidating Distribution was paid onDecember 30, 2020 and was funded from the proceeds from the sale of two workplace buildings in Company Expertise Centre - 250 Holger and 350 Holger. We don't count on to pay common month-to-month distributions throughout the liquidating course of. Through the liquidating course of, we intend to take care of satisfactory money reserves for liquidity, capital expenditures, debt repayments, future Particular Redemptions below our share redemption program and different future capital wants. We count on to proceed to pay liquidating distribution funds to our stockholders by way of the completion of our liquidation course of and to pay the remaining liquidating distribution after we promote all of our property, pay all of our recognized liabilities and supply for unknown liabilities. We count on to considerably full these actions inside 24 months fromMarch 5, 2020 , the day our stockholders accepted the Plan of Liquidation. Nevertheless, our expectations in regards to the quantity of liquidating distributions that we are going to pay and after we will pay them are primarily based on many estimates and assumptions, a number of of which can show to be incorrect. In consequence, the precise quantity of liquidating distributions we pay to our stockholders could also be kind of than we estimate and the liquidating distributions could also be paid later than we predict. See "- Overview - Plan of Liquidation" and "-Market Outlook - Actual Property and Actual Property Finance Markets - COVID-19 Pandemic and Portfolio Outlook" for a dialogue of the influence of the outbreak of COVID-19 on our enterprise and our liquidation. 54 -------------------------------------------------------------------------------- Desk of Contents Money Flows from Working Actions Through the month endedJanuary 31, 2020 , web money utilized in working actions was$7.4 million . Money Flows from Investing Actions Web money offered by investing actions was$299.3 million for the month endedJanuary 31, 2020 and consisted of the next: •$302.0 million of web proceeds from the sale of the Campus Drive Buildings; and •$2.7 million used for enhancements to actual property. Money Flows from Financing Actions Through the month endedJanuary 31, 2020 , web money utilized in financing actions was$177.0 million and consisted of the next: •$176.7 million of principal funds on notes payable; and •$0.3 million of money used for redemptions of widespread inventory. Along with utilizing our capital assets to satisfy our debt service obligations, for capital expenditures and for working prices, we use our capital assets to make sure funds to our advisor. We paid our advisor charges in connection with the acquisition and origination of our property and pay our advisor charges in reference to the administration and disposition of our property and for sure prices incurred by our advisor in offering providers to us. Among the many charges payable to our advisor is an asset administration price. With respect to investments in actual property, we pay our advisor a month-to-month asset administration price equal to one-twelfth of 0.75% of the quantity paid or allotted to amass the funding, plus the price of any subsequent improvement, development or enhancements to the property. This quantity contains any portion of the funding that was debt financed and is inclusive of acquisition charges and bills associated thereto. We additionally proceed to reimburse our advisor and our supplier supervisor for sure stockholder providers. Through the interval fromFebruary 1, 2020 toDecember 31, 2020 , money and money equivalents decreased by$139.7 million primarily on account of the funds of the$138.9 million Preliminary Liquidating Distribution, the$46.2 million Second Liquidating Distribution, the$73.7 million Third Liquidating Distribution and$50.8 million of capital expenditure funds offset by$152.9 million of web proceeds from the sale of 4 buildings in Company Expertise Centre and$20.6 million of web money flows from operations. With a view to execute our funding technique, we primarily utilized secured debt to finance a portion of our funding portfolio. Administration stays vigilant in monitoring the dangers inherent with using debt in our portfolio and is taking actions to make sure that these dangers, together with refinance and rate of interest dangers, are correctly balanced with the advantage of utilizing leverage. We restrict our complete liabilities to 75% of the associated fee (earlier than deducting depreciation and different noncash reserves) of our tangible property; nonetheless, we might exceed that restrict if nearly all of the conflicts committee approves every borrowing in extra of such limitation and we disclose such borrowings to our stockholders in our subsequent quarterly report with a proof from the conflicts committee of the justification for the surplus borrowing. As ofDecember 31, 2020 , our borrowings and different liabilities had been roughly 37% of each the associated fee (earlier than deducting depreciation and different noncash reserves) and e-book worth (earlier than deducting depreciation) of our tangible property, respectively. Pursuant to our stockholders' approval of the Plan of Liquidation, we adopted the liquidation foundation of accounting as ofFebruary 1, 2020 (because the approval of the Plan of Liquidation by our stockholders grew to become imminent throughout the first week ofFebruary 2020 primarily based on the outcomes of our solicitation of proxies from our stockholders for his or her approval of the Plan of Liquidation) and for the durations subsequent toFebruary 1, 2020 in accordance with GAAP. Accordingly, onFebruary 1, 2020 , property had been adjusted to their estimated web realizable worth, or liquidation worth, which represents the estimated amount of money that we are going to gather by way of the disposal of our property as we supply out our Plan of Liquidation. The liquidation values of our working properties are introduced on an undiscounted foundation. Estimated prices to eliminate property and estimated capital expenditures by way of the anticipated disposition date of the properties have been introduced individually from the associated property. Liabilities are carried at their contractual quantities due or estimated settlement quantities. 55 -------------------------------------------------------------------------------- Desk of Contents Contractual Obligations The next is a abstract of our contractual obligations as ofDecember 31, 2020 (in hundreds):
Funds due in years ending
Complete 2021 2022 2023 2024 Excellent debt obligations (1)$ 240,520 $ 145,170 $ 5,175 $ 90,175 $ - Curiosity funds on excellent debt obligations (2)$ 5,170 $ 2,282 $ 1,685 $ 1,203 $ - _____________________ (1) Quantities embrace principal funds solely primarily based on maturity dates as ofDecember 31, 2020 ; topic to sure situations, the maturity dates of sure loans could also be prolonged past what's proven above. (2) Projected curiosity funds are primarily based on the excellent principal quantities, maturity dates and rates of interest in impact as ofDecember 31, 2020 (consisting of the contractual rate of interest). We incurred curiosity expense of$1.1 million , excluding amortization of deferred financing prices of$0.1 million throughout the month endedJanuary 31, 2020 . Through the 11 months endedDecember 31, 2020 , we incurred curiosity expense of$4.7 million . Modifications in Web Property in Liquidation Interval fromFebruary 1, 2020 by way ofDecember 31, 2020 Web property in liquidation decreased by roughly$322.9 million from$704.4 million onFebruary 1, 2020 to$381.5 million onDecember 31, 2020 . Pursuant to the Plan of Liquidation, onMarch 5, 2020 , our board of administrators approved the Preliminary Liquidating Distribution within the quantity of$0.75 per share of widespread inventory to our stockholders of report as of the shut of enterprise onMarch 5, 2020 , for an combination money distribution of roughly$138.9 million . The Preliminary Liquidating Distribution was paid onMarch 10, 2020 and was funded with proceeds from the sale of the Campus Drive Buildings. OnJuly 31, 2020 , our board of administrators approved the Second Liquidating Distribution within the quantity of$0.25 per share of widespread inventory to our stockholders of report as of the shut of enterprise onAugust 3, 2020 , for an combination money distribution of roughly$46.2 million . The Second Liquidating Distribution was paid onAugust 7, 2020 and was funded with proceeds from the sale of two workplace buildings in Company Expertise Centre - 100 Headquarters and 200 Holger. OnDecember 24, 2020 , our board of administrators approved the Third Liquidating Distribution within the quantity of$0.40 per share of widespread inventory to our stockholders of report as of the shut of enterprise onDecember 24, 2020 , for an combination money distribution of roughly$73.7 million . The Third Liquidating Distribution was paid onDecember 30, 2020 and was funded with proceeds from the sale of two workplace buildings in Company Expertise Centre - 250 Holger and 350 Holger. These liquidating distributions had been the biggest part of the decline in web property in liquidation. The estimated web realizable worth of actual property decreased by$90.2 million throughout the 11 months endedDecember 31, 2020 , which was primarily pushed by our funding in an workplace constructing situated inLos Angeles, California (the "Union Financial institution Plaza ") and an workplace property situated inDenver, Colorado ("Granite Tower "), as follows: •UnionFinancial institution Plaza -The estimated web proceeds from the sale of theUnion Financial institution Plaza decreased by roughly$57.5 million primarily because of adjustments in leasing projections and associated capital investments to account for an extended lease-up interval and decrease projected rental charges attributable to COVID-19. As ofDecember 31, 2020 , theUnion Financial institution Plaza was 72% leased and as a result of quantity of emptiness, its valuation or projected gross sales worth is extra delicate to the disruption attributable to COVID-19 as in comparison with a totally stabilized property. Moreover, the valuation or projected gross sales worth was adjusted to extend the terminal capitalization charges and low cost charge to account for the elevated danger and uncertainty within the present surroundings. •Granite Tower - The estimated web proceeds from the sale ofGranite Tower decreased by roughly$24.3 million because of adjustments in leasing projections and associated capital investments to account for an extended lease-up interval and decrease projected rental charges attributable to COVID-19.Granite Tower is additional impacted by the deteriorating oil and gasoline business as its anchor tenant that occupies roughly 50% of the constructing sq. footage as ofDecember 31, 2020 is engaged within the exploration and manufacturing of oil and gasoline. The valuation or projected gross sales worth was adjusted to extend the terminal capitalization charges and low cost charge to account for the elevated danger and uncertainty within the present surroundings attributable to COVID-19 and the deteriorating oil and gasoline business. As ofDecember 31, 2020 ,Granite Tower was 82% leased. •Different Properties - The estimated web proceeds from the gross sales of our different actual property properties had been adjusted to extend the terminal capitalization charges and low cost charges to account for the elevated danger and uncertainty attributable to COVID-19 leading to a web discount within the combination estimated web proceeds from gross sales of$8.4 million . 56
-------------------------------------------------------------------------------- Desk of Contents Outcomes of Operations In mild of the adoption of liquidation foundation accounting as ofFebruary 1, 2020 , the outcomes of operations for the present yr interval aren't corresponding to the prior yr interval. The sale of property below the Plan of Liquidation could have a important influence on our operations. Modifications in liquidation values of our property are mentioned above below "- Modifications in Web Property in Liquidation." See "- Overview - Plan of Liquidation" and "- Market Outlook - Actual Property and Actual Property Finance Markets - COVID-19 Pandemic and Portfolio Outlook" for a dialogue of the influence of the outbreak of COVID-19 on our enterprise and our liquidation. For a dialogue of the yr endedDecember 31, 2019 in comparison with the yr ended December 31, 2018, please consult with Merchandise 7 of Half II, "Administration's Dialogue and Evaluation of Monetary Situation and Outcomes of Operations " in our Annual Report on Kind 10-Okay for the fiscal yr endedDecember 31, 2019 , which was filed with theSEC onMarch 6, 2020 and which particular dialogue is integrated herein by reference. Because of the adoption of the Plan of Liquidation, we're not reporting funds from operations and modified funds from operations as we not think about these to be key efficiency measures. Important Accounting Insurance policies Beneath is a dialogue of the accounting insurance policies that administration considers essential in that they contain important administration judgments and assumptions, require estimates about issues which might be inherently unsure and since they are essential for understanding and evaluating our reported monetary outcomes. These judgments have an effect on the reported quantities of property and liabilities and our disclosure of contingent property and liabilities as of the dates of the monetary statements and the reported quantities of income and bills throughout the reporting durations. With completely different estimates or assumptions, materially completely different quantities might be reported in our monetary statements. Moreover, different corporations might make the most of completely different estimates which will influence the comparability of our outcomes of operations to these of corporations in related companies. Subsequent to the adoption of the liquidation foundation of accounting, we're required to estimate all prices and earnings we count on to incur and earn by way of the top of liquidation together with the estimated amount of money we count on to gather by way of the disposal of our property and the estimated prices to eliminate our property. Pursuant to our stockholders' approval of the Plan of Liquidation, we adopted the liquidation foundation of accounting as of and for the durations subsequent toFebruary 1, 2020 (as approval of the Plan of Liquidation grew to become imminent inside the primary week ofFebruary 2020 primarily based on the outcomes of our solicitation of proxies from our stockholders for his or her approval of the Plan of Liquidation). Accordingly, onFebruary 1, 2020 , property had been adjusted to their estimated web realizable worth, or liquidation worth, which represents the estimated quantity of money that we are going to gather by way of the disposal of our property as we supply out our Plan of Liquidation. The liquidation values of our remaining actual property properties are introduced on an undiscounted foundation. Estimated prices to eliminate property and estimated capital expenditures by way of the anticipated disposition date of the properties have been introduced individually from the associated property. Liabilities are carried at their contractual quantities due or estimated settlement quantities. We accrue prices and earnings that we count on to incur and earn by way of the completion of our liquidation, together with the estimated amount of money we count on to gather by way of the disposal of our property and the estimated prices to dispose of our property, to the extent we've an affordable foundation for estimation. These quantities are labeled as a legal responsibility for estimated prices in extra of estimated receipts throughout liquidation on the Consolidated Assertion of Web Property. Precise prices and earnings might differ from quantities mirrored within the monetary statements due to the inherent uncertainty in estimating future occasions. These variations could also be materials. See Observe 2, "Plan of Liquidation" and Observe 4, "Liabilities for Estimated Prices in Extra of Estimated Receipts Throughout Liquidation" for additional dialogue. Precise prices incurred however unpaid as ofDecember 31, 2020 are included in accounts payable and accrued liabilities, due to affiliate and different liabilities on the Consolidated Assertion of Web Property. Income Recognition - Working Leases Liquidation Foundation of Accounting Beneath the liquidation foundation of accounting, we've accrued all earnings that we count on to earn by way of the completion of our liquidation to the extent we've a cheap foundation for estimation. Income from tenants is estimated primarily based on the contractual in-place leases and projected leases by way of the anticipated disposition date of the property. These quantities are labeled in liabilities for estimated prices in extra of estimated receipts throughout liquidation on the Consolidated Assertion of Web Property. 57 -------------------------------------------------------------------------------- Desk of Contents Going Concern Foundation Actual Property OnJanuary 1, 2019 , we adopted the lease accounting requirements below Subject 842 together with the bundle of sensible expedients for all leases that commenced earlier than the efficient date ofJanuary 1, 2019 . Accordingly, we (i) didn't reassess whether or not any expired or current contracts are or include leases, (ii) didn't reassess the lease classification for any expired or current lease, and (iii) didn't reassess preliminary direct prices for any current leases. We didn't elect the sensible expedient associated to utilizing hindsight to reevaluate the lease time period. As well as, we adopted the sensible expedient for land easements and did not assess whether or not current or expired land easements that weren't beforehand accounted for as leases below the lease accounting requirements of Subject 840 are or include a lease below Subject 842. As well as, Subject 842 gives an non-obligatory transition technique to permit entities to use the brand new lease accounting requirements on the adoption date and acknowledge a cumulative-effect adjustment to the opening stability of retained earnings. We adopted this transition technique upon our adoption of the lease accounting requirements of Subject 842, which didn't lead to a cumulative impact adjustment to the opening stability of retained earnings onJanuary 1, 2019 . Our comparative durations introduced within the monetary statements had been reported below the lease accounting requirements of Subject 840 till our adoption of the liquidation foundation of accounting as of and for the durations subsequent toFebruary 1, 2020 . In accordance with Subject 842, tenant reimbursements for property taxes and insurance coverage had been included within the single lease part of the lease contract (the proper of the lessee to make use of the leased house) and due to this fact had been accounted for as variable lease funds and had been recorded as rental earnings on our assertion of operations startingJanuary 1, 2019 till our adoption of the liquidation foundation of accounting as of and for the durations subsequent toFebruary 1, 2020 . In addition, we adopted the sensible expedient out there below Subject 842 to not separate nonlease parts from the related lease part and as an alternative to account for these parts as a single part if the nonlease parts in any other case can be accounted for below the brand new income recognition customary (Subject 606) and if sure situations are met, particularly associated to tenant reimbursements for widespread space upkeep which might in any other case be accounted for below the income recognition customary. We consider the 2 situations have been met for tenant reimbursements for widespread space upkeep as (i) the timing and sample of switch of the nonlease parts and related lease parts are the identical and (ii) the lease part can be labeled as an working lease. Accordingly, tenant reimbursements for widespread space upkeep had been additionally accounted for as variable lease funds and recorded as rental earnings on our assertion of operations startingJanuary 1, 2019 till our adoption of the liquidation foundation of accounting as of and for the durations subsequent toFebruary 1, 2020 . Till our adoption of the liquidation foundation of accounting as of and for the durations subsequent toFebruary 1, 2020 , we acknowledged minimal hire, together with rental abatements, lease incentives and contractual mounted will increase attributable to working leases, on a straight-line foundation over the time period of the associated leases when collectibility was possible and recorded quantities anticipated to be acquired in later years as deferred hire receivable. If the lease offered for tenant enhancements, we decided whether or not the tenant enhancements, for accounting functions, had been owned by the tenant or us. Once we had been the proprietor of the tenant enhancements, the tenant was not thought of to have taken bodily possession or have management of the bodily use of the leased asset till the tenant enhancements had been considerably accomplished. When the tenant was the proprietor of the tenant enhancements, any tenant enchancment allowance (together with quantities that may be taken within the type of money or a credit score towards the tenant's hire) that was funded was handled as a lease incentive and amortized as a discount of rental income over the lease time period. Tenant enchancment possession is decided primarily based on numerous elements together with, however not restricted to: •whether or not the lease stipulates how a tenant enchancment allowance could also be spent; •whether or not the lessee or lessor supervises the development and bears the chance of value overruns; •whether or not the quantity of a tenant enchancment allowance is in extra of market charges; •whether or not the tenant or landlord retains authorized title to the enhancements on the finish of the lease time period; •whether or not the tenant enhancements are distinctive to the tenant or basic goal in nature; and •whether or not the tenant enhancements are anticipated to have any residual worth on the finish of the lease. In accordance with Subject 842, we made a willpower of whether or not the collectibility of the lease funds in an working lease was possible. If we decided the lease funds weren't possible of assortment, we absolutely reserved for any contractual lease funds, deferred hire receivable, and variable lease funds and acknowledged rental earnings provided that money was acquired. StartingJanuary 1, 2019 , these adjustments to our collectibility evaluation had been mirrored as an adjustment to rental earnings. Previous toJanuary 1, 2019 , dangerous debt expense associated to uncollectible accounts receivable and deferred hire receivable was included in working, upkeep, and administration expense within the assertion of operations. Any subsequent adjustments to the collectibility of the allowance for uncertain accounts as ofDecember 31, 2018 , which was recorded previous to the adoption of Subject 842, had been recorded in working, upkeep, and administration expense within the assertion of operations. 58 -------------------------------------------------------------------------------- Desk of Contents StartingJanuary 1, 2019 , we, as a lessor, recorded prices to barter or organize a lease that might have been incurred no matter whether or not the lease was obtained, reminiscent of authorized prices incurred to barter an working lease, as an expense and labeled such prices as working, upkeep, and administration expense on our consolidated assertion of operations, as these prices had been no longer capitalizable below the definition of preliminary direct prices below Subject 842. Gross sales of Actual Property EfficientJanuary 1, 2018 , we adopted the steerage of ASC 610-20, Different Earnings - Features and Losses from the Derecognition of Nonfinancial Property ("ASC 610-20"), which applies to gross sales or transfers to noncustomers of nonfinancial property or in substance nonfinancial property that don't meet the definition of a enterprise. Usually, our gross sales of actual property can be thought of a sale of a nonfinancial asset as outlined by ASC 610-20. ASC 610-20 refers back to the income recognition rules below ASU No. 2014-09, Income from Contracts with Prospects (Subject 606). Beneath ASC 610-20, if we decided we didn't have a controlling monetary curiosity within the entity that held the asset and the association met the standards to be accounted for as a contract, we derecognized the asset and acknowledged a achieve or loss on the sale of the true property when management of the underlying asset transferred to the client. Actual Property Liquidation Foundation of Accounting As ofFebruary 1, 2020 , our investments in actual property had been adjusted to their estimated web realizable worth, or liquidation worth, to mirror the change to the liquidation foundation of accounting. The liquidation worth represents the estimated amount of money that we are going to gather by way of the disposal of our property, together with any residual worth attributable to lease intangibles, as we perform the Plan of Liquidation. As ofDecember 31, 2020 , we estimated the liquidation worth of our actual property investments primarily based on inner valuation methodologies utilizing a mix of the direct capitalization strategy, gross sales comparability strategy and discounted money movement analyses and relied totally on discounted money movement analyses for the estimated liquidation worth for every of the 4 workplace properties and relied on a gross sales comparability strategy for the workplace constructing that's a part of an workplace campus, which was vacant. The liquidation values of our investments in actual property are introduced on an undiscounted foundation and investments in actual property are not depreciated. Estimated prices to dispose of those investments are carried at their contractual quantities due or estimated settlement quantities and are introduced individually from the associated property. Subsequent toFebruary 1, 2020 , all adjustments within the estimated liquidation worth of the investments in actual property are mirrored as a change to our web property in liquidation. Going Concern Foundation Depreciation and Amortization Actual property prices associated to the acquisition and enchancment of properties are capitalized and amortized over the anticipated helpful lifetime of the asset on a straight-line foundation. Restore and upkeep prices are charged to expense as incurred and important replacements and betterments are capitalized. Restore and upkeep prices embrace all prices that don't prolong the helpful lifetime of the true property asset. We thought of the interval of future good thing about an asset to decide its applicable helpful life. Expenditures for tenant enhancements are capitalized and amortized over the shorter of the tenant's lease time period or anticipated helpful life. We estimated helpful lives of our property by class to be typically as follows: Land N/A Buildings 25-40 years Constructing enhancements 10-25 years Tenant enhancements Shorter of lease time period or
anticipated helpful life Tenant creation and absorption prices Remaining time period of associated leases, together with
below-market renewal durations Impairment of Actual Property and Associated Intangible Property and Liabilities We frequently monitored occasions and adjustments in circumstances that would point out that the carrying quantities of our actual property and associated intangible property and liabilities is probably not recoverable or realized. When indicators of potential impairment steered that the carrying worth of actual property and associated intangible property and liabilities is probably not recoverable, we assessed the recoverability by estimating whether or not we might get better the carrying worth of the actual property and associated intangible property and liabilities by way of its undiscounted future money flows and its eventual disposition. If, primarily based on this evaluation, we didn't consider that we might be capable of get better the carrying worth of the true property and associated intangible property and liabilities, we recorded an impairment loss to the extent that the carrying worth exceeded the estimated honest worth of the true property and associated intangible property and liabilities. 59 -------------------------------------------------------------------------------- Desk of Contents Projecting future money flows entails estimating anticipated future working earnings and bills associated to the true property and its associated intangible property and liabilities in addition to market and different tendencies. Utilizing inappropriate assumptions to estimate money flows or the anticipated maintain interval till the eventual disposition may lead to incorrect conclusions on recoverability and incorrect honest values of the true property and its associated intangible property and liabilities and will consequence within the overstatement of the carrying values of our actual property and associated intangible property and liabilities and an overstatement of our web earnings. Rents and Different Receivables Liquidation Foundation of Accounting In accordance with the liquidation foundation of accounting, as ofFebruary 1, 2020 , rents and different receivables had been adjusted to their web realizable worth. We periodically consider the collectibility of quantities due from tenants. Any adjustments within the collectibility of the receivables are mirrored as a change to our web property in liquidation. Going Concern Foundation We made a willpower of whether or not the collectibility of the lease funds in our working leases was possible. If we decided the lease funds weren't possible of assortment, we absolutely reserved for any excellent hire receivables associated to contractual lease funds and variable leases funds, wrote-off any deferred hire receivable and acknowledged rental earnings provided that money was acquired. We exercised judgment in assessing collectibility and thought of cost historical past, present credit score standing, the tenant's monetary situation, safety deposits, letters of credit score, lease ensures and present market situations which will influence the tenant's potential to make funds in accordance with its lease agreements in making the willpower. Accrued Liquidation Prices We accrue for sure estimated liquidation prices to the extent we've a cheap foundation for estimation. These encompass authorized charges, dissolution prices, remaining audit/tax prices, insurance coverage, and distribution processing prices. Earnings Taxes We've got elected to be taxed as a REIT below the Inner Income Code. To proceed to qualify as a REIT, we should meet sure organizational and operational necessities, together with a requirement to distribute at the least 90% of our annual REIT taxable earnings to stockholders (which is computed with out regard to the dividends-paid deduction or web capital achieve and which doesn't essentially equal web earnings as calculated in accordance with GAAP). As a REIT, we typically is not going to be topic to federal earnings tax on earnings that we distribute as dividends to our stockholders. If we fail to qualify as a REIT in any taxable yr, we can be topic to federal earnings tax on our taxable earnings at common company earnings tax charges and usually is not going to be permitted to qualify for therapy as a REIT for federal earnings tax functions for the 4 taxable years following the yr throughout which qualification is misplaced, until the Inner Income Service grants us aid below sure statutory provisions. Such an occasion may materially and adversely have an effect on our web earnings and web money out there for distribution to stockholders. Nevertheless, we consider that we're organized and function in such a fashion as to qualify for therapy as a REIT. Subsequent Occasions We consider subsequent occasions up till the date the consolidated monetary statements are issued. Up to date Estimated Worth Per Share OnMarch 11, 2021 , our board of administrators accepted an estimated worth per share of our widespread inventory of$2.07 primarily based on our web property in liquidation, divided by the variety of shares excellent, all as ofDecember 31, 2020 . For an outline of the methodologies and assumptions used within the willpower of the estimated worth per share, see Half II, Merchandise 5, "Marketplace for Registrant's Frequent Fairness, Associated Stockholder Issues and Issuer Purchases ofFairness Securities - Market Data" on this Annual Report on Kind 10-Okay. Share Redemption Program Our share redemption program gives just for redemptions that qualify as Particular Redemptions. In accordance with our share redemption program, these Particular Redemptions are made at a worth per share equal to our most up-to-date estimated worth per share as of the relevant redemption date, offered that if our board of administrators has declared liquidating distributions on such share with a report date previous to the relevant redemption date for such share and the most up-to-date estimated worth per share has not been up to date to mirror the discount for such liquidating distributions, then the redemption worth per share can be lowered to mirror the quantity of such liquidating distributions. The redemption worth per share of our widespread inventory eligible for redemption on theMarch 31, 2021 redemption date will equal$2.07 . We are going to report future redemption costs in a Present Report on Kind 8-Okay or in our annual or quarterly reviews, all publicly filed with theSEC . 60
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