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Investors Soak It In – All $859 Million Of It

It’s pay day for investors in a certain California-based non-traded REIT. After selling properties all summer long, yesterday KBS Real Estate Investment Trust II (KBS REIT II) paid its stockholders special distributions in the aggregate amount of $858.6 million or $4.50 per share of common stock.

The REIT, declared effective in 2008 in the midst of the Great Recession, was able to strategically buy income producing properties destined for short-term appreciation. Investors have benefited from monthly distributions and as a result of recent asset sales, earned additional profits from increased property values.

KBS REIT II early investors have received in aggregate $8.50 per share, which includes this special distribution. Shares originally sold for $10.

“We have been very pleased with the performance to-date of KBS REIT II,” said Chuck Schreiber, Chief Executive Officer and Co-Founder of KBS. “Recent strategic asset sales at a time when market demand is high have allowed us to make this special distribution to our shareholders.”

The non-traded REIT uses a “hybrid” real estate investment strategy, acting as both an owner of real property and a lender. It has a diversified portfolio in major metropolitan markets in addition to real estate-related loans.

KBS REIT II used proceeds from the sale of nine properties sold between May 2014 and August 2014 to fund the recent distribution, as well as cash on hand from the repayment or sale of five real estate loans receivable during 2013 and 2014. 

According to a stockholder presentation, the cost basis for the nine properties was about $1.15 billion while the disposition of the assets resulted in a net sale price of approximately $1.4 billion. 

The REIT estimates that the special distribution will consist of approximately $1.15 to $1.25 of long-term capital gains and approximately $0.45 to $0.55 of depreciation recapture while the rest will be treated as a return of capital.

Current Value

Prior to this special distribution, the REIT’s estimated value per share was $10.55. 

On September 22, 2014 the company’s board of directors approved an estimated value per share of the company’s common stock of $6.05, which takes into account the sale of the properties and the special distribution.

In determining its value, KBS REIT II adhered to the IPA’s Valuation Guidelines, which means an independent third party appraised its remaining 19 properties, among other guidelines. 

The company will announce a new estimated value per share in December 2014.

Total Distributions Paid

From August 2008 to September 2014, KBS REIT II has paid $8.50 per share in total distributions via 74 monthly payments and two special distribution payments.

Monthly distributions have been declared for September and October as well.

Investors have done well, according to an investor presentation filed through the SEC’s Edgar site.

Those who invested at escrow break in 2008 have a sum of $14.55 per share from the September 22, 2014 estimated value per share of $6.05 and cumulative cash distributions of $8.50 received.

Those who invested at the close of the REIT’s IPO in 2010 have a per share value of $12.99, which is the sum of the estimated value per share and cumulative cash distributions of $6.94 received.

Both figures are higher for DRIP investors.

Still Liquidating

There’s potentially more to come for shareholders.

KBS REIT II aims to continue strategically selling assets in its portfolio and return stockholder equity through distributions.

With large numbers of non-traded REITs providing liquidity to shareholders, many through listings, mergers or portfolio block sales, KBS REIT II’s strategy of selling individual properties may prove to maximize investor return. In one-off property sales, buyers are all in. They are buying desired properties and potentially will pay a premium.

The REIT raised $1.8 billion in its initial public offering and as of September 22, 2014, holds 19 properties in its remaining portfolio.