KBS GROWTH & INCOME REIT, INC. The following discussion and analysis should be read in conjunction with the
accompanying financial statements of
Forward-Looking Statements Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations ofKBS Growth & Income REIT, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law. Moreover, you should interpret many of the risks identified in this report, as well as the risks set forth below, as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic. The following are some of the risks and uncertainties, although not all of the risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements: •The COVID-19 pandemic, together with the resulting measures imposed to contain the virus, has had a negative impact on the economy and business activity globally. The extent to which the COVID-19 pandemic impacts our operations and those of our tenants remains uncertain and cannot be predicted with confidence, and will depend on the ultimate scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. •We depend on our advisor and its affiliates to conduct our operations. We pay fees to our advisor and its affiliates in connection with the management of our investments that are based on the cost of the investment, not on the quality of the investment or services rendered to us. These fees decrease the amount of cash available for distribution to our stockholders. •All of our executive officers, our affiliated director and other key real estate and debt finance professionals are also officers, directors, managers, key professionals and/or holders of a direct or indirect controlling interest in our advisor, and/or other KBS-affiliated entities. As a result, our executive officers, our affiliated director, some of our key real estate and debt finance professionals, our advisor and its affiliates face conflicts of interest, including significant conflicts created by our advisor's and its affiliates' compensation arrangements with us and other KBS-sponsored programs and KBS-advised investors and conflicts in allocating time among us and these other programs and investors. Although we have adopted corporate governance measures to ameliorate some of the risks posed by these conflicts, these conflicts could result in action or inaction that is not in the best interests of our stockholders. •As ofJune 30, 2021 , we had a limited portfolio of four real estate investments, which may cause the value of an investment in us to vary more widely with the performance of specific assets in our portfolio and cause our general and administrative expenses to constitute a greater percentage of our revenue. •We may fund distributions from any source, including, without limitation, offering proceeds or borrowings. Distributions paid throughJune 30, 2021 have been funded in part with debt financing, including advances from our advisor, and cash resulting from a waiver of asset management fees by our advisor. Distributions funded from sources other than our cash flow from operations will result in dilution to subsequent investors, reduce funds available for investment in assets and may reduce the overall return to our stockholders. •Our advisor waived its asset management fee for the second and third quarters of 2017 and deferred its asset management fee related to the periods fromOctober 2017 throughJune 2021 . If our advisor determines to no longer waive or defer certain fees owed to them, our ability to fund our operations and distributions may be adversely affected. 25 -------------------------------------------------------------------------------- Table of Contents PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) •Our policies do not limit us from incurring debt until our aggregate borrowings would exceed 75% of the cost (before deducting depreciation or other non-cash reserves) of our tangible assets, and we may exceed this limit with the approval of the conflicts committee of our board of directors. High debt levels could limit the amount of cash we have available to distribute and could result in a decline in the value of our stockholders' investment. •We have debt obligations with variable interest rates. The interest and related payments will vary with the movement of LIBOR or other indexes. Increases in the indexes could increase the amount of our debt payments and limit our ability to pay distributions to our stockholders. •We depend on tenants for the revenue generated by our real estate investments and, accordingly, the revenue generated by our real estate investments is dependent upon the success and economic viability of our tenants. Revenues from our properties could decrease due to a reduction in occupancy and/or lower rental rates, making it more difficult for us to meet any debt service obligations we have incurred and limiting our ability to pay distributions to our stockholders. •Our real estate investments may be affected by unfavorable real estate market and general economic conditions, which could decrease the value of those assets and reduce the investment return to our stockholders. These events could make it more difficult for us to meet debt service obligations and limit our ability to pay distributions to our stockholders. •Our share redemption program only provides for redemptions sought upon a stockholder's death, "qualifying disability" or "determination of incompetence" (each as defined in the share redemption program, and collectively "special redemptions"). The dollar amounts available for such redemptions are determined by the board of directors and may be adjusted from time to time. The dollar amount limitation for such redemptions for the calendar year 2021 was$250,000 in the aggregate, of which$67,000 was used for such special redemptions from January throughJuly 2021 . Our share redemption program does not provide for ordinary redemptions and can provide no assurances, when, if ever, we will provide for redemptions other than special redemptions. •InAugust 2021 , our board of directors, including all of the independent directors, determined to resume development of a formal plan of liquidation. Although we are actively developing a formal plan of liquidation, there can be no assurance of the ultimate timing of our liquidation. All forward-looking statements should be read in light of the risks identified herein and in Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2020 and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period endedMarch 31, 2021 , each as filed with theSecurities and Exchange Commission (the "SEC").
Overview
We were formed onJanuary 12, 2015 as aMaryland corporation that elected to be taxed as a real estate investment trust ("REIT") beginning with the taxable year endedDecember 31, 2015 and we intend to continue to operate in such a manner. Substantially all of our business is conducted through ourOperating Partnership , of which we are the sole general partner. Subject to certain restrictions and limitations, our business is externally managed by our advisor pursuant to an advisory agreement.KBS Capital Advisors manages our operations and our portfolio of core real estate properties.KBS Capital Advisors also provides asset-management, marketing, investor-relations and other administrative services on our behalf. Our advisor acquired 20,000 shares of our Class A common stock for an initial investment of$200,000 . We have no paid employees. We commenced a private placement offering exempt from registration pursuant to Rule 506(b) of Regulation D of the Securities Act of 1933, as amended (the "Securities Act"), onJune 11, 2015 , pursuant to which we offered a maximum of$105,000,000 of shares of our Class A common stock for sale to accredited investors, of which$5,000,000 of Class A shares were offered pursuant to our distribution reinvestment plan. We ceased offering shares in the primary portion of our private offering onApril 27, 2016 and processed subscriptions for the primary portion of the private offering dated on or prior toApril 27, 2016 throughMay 30, 2016 .KBS Capital Markets Group LLC , an affiliate of our advisor, served as the dealer manager of the offering pursuant to a dealer manager agreement. We sold 8,548,972 shares of our Class A common stock for gross offering proceeds of$76.8 million in our initial private offering, including 74,744 shares of our Class A common stock under our distribution reinvestment plan for gross offering proceeds of$0.7 million . 26 -------------------------------------------------------------------------------- Table of Contents PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) OnFebruary 4, 2015 , we filed a registration statement on Form S-11 with theSEC to register an initial public offering to offer a maximum of$1,500,000,000 in shares of common stock for sale to the public in the primary offering, consisting of two classes of shares: Class A and Class T and a maximum of$800,000,000 in both classes of shares of our common stock pursuant to our distribution reinvestment plan. TheSEC declared our registration statement effective onApril 28, 2016 and we retainedKBS Capital Markets Group LLC to serve as the dealer manager of the initial public offering. We terminated our primary initial public offering effectiveJune 30, 2017 . We terminated our distribution reinvestment plan offering effectiveAugust 20, 2020 . We sold 122,721 and 270,415 shares of Class A and Class T common stock in the initial primary public offering, respectively, for aggregate gross offering proceeds of$3.9 million . We sold 883,256 and 41,030 shares of Class A and Class T common stock under our distribution reinvestment plan, respectively, for aggregate gross offering proceeds of$8.5 million . OnOctober 3, 2017 , we launched a second private placement offering exempt from registration pursuant to Rule 506(c) of Regulation D of the Securities Act pursuant to which offered a maximum of$1,000,000,000 in shares of our Class A common stock to accredited investors. Prior to the launch of the second private placement offering, onSeptember 29, 2017 , we entered into a dealer manager agreement (the "NCPS Dealer Agreement") withKBS Capital Advisors andNorth Capital Private Securities Corporation ("NCPS") in connection with the second private placement offering. InDecember 2019 , in connection with its consideration of strategic alternatives for us, our board of directors determined to suspend the second private offering and terminated the second private offering onAugust 5, 2020 . We sold 612,272 shares of Class A common stock in the second private offering for aggregate gross offering proceeds of$5.5 million . As ofJune 30, 2021 , we had redeemed 460,441 and 2,245 Class A and Class T shares, respectively, for$3.8 million . We have used substantially all of the net proceeds from our offerings to invest in a portfolio of core real estate properties. We consider core properties to be existing properties with at least 80% occupancy. As ofJune 30, 2021 , we owned four office buildings. InAugust 2020 , the special committee directedKBS Capital Advisors , with the assistance of the independent financial advisor of the special committee, to develop a plan of liquidation for approval by our board of directors and submission to our stockholders. We initially expected to present a plan of liquidation for a vote of our stockholders within six months from our determination to pursue a liquidation strategy. However, as a result of the adverse market conditions caused by the civil unrest and disruption in Portland and Chicago, where several of our properties are located, and the uncertainty and business disruptions related to the COVID-19 pandemic, inNovember 2020 , our board of directors determined to delay any proposal to liquidate until market conditions improve. InAugust 2021 , our board of directors, including all of the independent directors, determined to resume development of a formal plan of liquidation. Although we are actively developing a formal plan of liquidation, there can be no assurance of the ultimate timing of our liquidation. We elected to be taxed as a REIT under the Internal Revenue Code, beginning with the taxable year endedDecember 31, 2015 . If we meet the REIT qualification requirements, we generally will not be subject to federal income tax on the income that we distribute to our stockholders each year. If we fail to qualify for taxation as a REIT in any year after electing REIT status, our income will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as a REIT for the four-year period following our failure to qualify. Such an event could materially and adversely affect our net income and cash available for distribution to our stockholders. However, we are organized and will operate in a manner that will enable us to qualify for treatment as a REIT for federal income tax purposes beginning with our taxable year endedDecember 31, 2015 , and we will continue to operate so as to remain qualified as a REIT for federal income tax purposes thereafter. 27 -------------------------------------------------------------------------------- Table of Contents PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Market Outlook - Real Estate and Real Estate Finance Markets Volatility in global financial markets, changing political environments and civil unrest can cause fluctuations in the performance of theU.S. commercial real estate markets. Possible future declines in rental rates, slower or potentially negative net absorption of leased space and expectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal or to attract new tenants, may result in decreases in cash flows from investment properties. Further, revenues from our properties could decrease due to a reduction in occupancy (caused by factors including, but not limited to, tenant defaults, tenant insolvency, early termination of tenant leases and non-renewal of existing tenant leases), rent deferrals or abatements, tenants being unable to pay their rent and/or lower rental rates. To the extent there are increases in the cost of financing due to higher interest rates, this may cause difficulty in refinancing debt obligations at terms as favorable as the terms of existing indebtedness. Market conditions can change quickly, potentially negatively impacting the value of real estate investments. Management continuously reviews our investment and debt financing strategies to optimize our portfolio and the cost of our debt exposure. Most recently, the outbreak of COVID-19 has had a negative impact on the real estate market as discussed below. COVID-19 Pandemic and Portfolio Outlook As ofJune 30, 2021 , the novel coronavirus, or COVID-19, pandemic is ongoing. During 2020, the COVID-19 pandemic created disruption in theU.S. and global economies, adversely impacting many industries, including theU.S. office real estate industry and the industries of our tenants, directly or indirectly. In 2021, the global economy has, with certain setbacks, begun reopening and wider distribution of vaccines will likely encourage greater economic activity. Nonetheless, the recovery could remain uneven, particularly given uncertainty with respect to the distribution and acceptance of the vaccines and their effectiveness with respect to new variants of the virus. The outbreak of COVID-19 and its impact on the current financial, economic, capital markets and real estate market environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition, results of operations, liquidity, and ability to pay distributions. Although a recovery is partially underway, it continues to be gradual, uneven and characterized by meaningful dispersion across sectors and regions, and could be hindered by persistent or resurgent infection rates. The most recent round ofU.S. fiscal stimulus could provide meaningful support, along with continued accommodative monetary policy and wider distribution of vaccines. Issues with respect to the distribution and acceptance of vaccines or the spread of new variants of the virus could adversely impact the recovery. Overall, there remains significant uncertainty regarding the timing and duration of the economic recovery, which precludes any prediction as to the ultimate adverse impact COVID-19 may have on our business. During the year endedDecember 31, 2020 and the six months endedJune 30, 2021 , we did not experience significant disruptions in our operations from the COVID-19 pandemic. Many of our tenants have suffered reductions in revenue sinceMarch 2020 . Rent collections for the quarter endedJune 30, 2021 were approximately 98%. We have 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 on our consolidated balance sheet as ofJune 30, 2021 or consolidated statement of operations for the three and six months endedJune 30, 2021 . As ofJune 30, 2021 , we had entered into lease amendments related to the effects of the COVID-19 pandemic, granting approximately$0.2 million of rent deferrals for the period fromApril 2020 throughApril 2021 and granting approximately$0.7 million in rental abatements. As ofJune 30, 2021 , eleven tenants were granted rental deferrals, rental abatements and/or rent restructures, of which six of these tenants have begun to pay rent in accordance with their lease agreements subsequent to the deferral and/or abatement period and two of these tenant leases were modified at lower rental rates. One of the eleven tenants continue to be in the rental abatement periods as granted in accordance with their agreements. In addition to the direct impact on our rental income, we may also need to recognize additional impairment charges at our properties to the extent rental projections continue to decline at our properties. In response to a decrease in cash flow projections as a result of changes in leasing projections due in part to the impact of COVID-19 on our leasing efforts and perceived ability to collect rent from tenants, during the six months endedJune 30, 2020 , we recognized impairment charges of$5.8 million at the Institute Property and$0.4 million of equity in loss of unconsolidated joint venture, which included a$0.5 million impairment charge related to the 210 W. Chicago property then-owned by the joint venture. 28 -------------------------------------------------------------------------------- Table of Contents PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) The extent to which the COVID-19 pandemic or any other pandemic, epidemic or disease impacts our operations and those of our tenants remains uncertain and cannot be predicted with confidence and will depend on the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Nevertheless, the COVID-19 pandemic (or a future pandemic, epidemic or disease) presents material uncertainty and risk with respect to our business, financial condition, results of operations and cash flows. In response to the uncertainty caused by the ongoing COVID-19 pandemic and its uncertain impact on our operations and those of our tenants, our board of directors adjusted our distribution policy commencing with the fourth quarter of 2020 and expects to consider and declare quarterly distributions based on a single quarterly record date. Our business, like all businesses, is being impacted by the uncertainty regarding the COVID-19 pandemic, the effectiveness of policies introduced to neutralize the disease, and the impact of those policies on economic activity. We believe the current challenging economic circumstances will be a difficult environment in which to continue to create value in our portfolio consistent with our core-plus investment strategy. The properties in our portfolio were acquired to provide an opportunity for us to achieve more significant capital appreciation by increasing occupancy, negotiating new leases with higher rental rates and/or executing enhancement projects, all of which we believe will be more difficult as a result of the impacts of COVID-19 on the economy. While the majority of our tenants have continued to pay rent, the weakening macroeconomic conditions have negatively impacted many of our tenants. As ofJune 30, 2021 , our portfolio was 82.1% occupied with a weighted-average lease term of 3.4 years. As ofJune 30, 2021 , three tenants at ourCommonwealth Building , or 14% of the rentable square footage at the property, have given notice of non-renewal of their leases and two tenants at the Institute Property, or 3% of the rentable square footage at the property, early terminated their leases. Due to the impact of COVID-19, we believe the leasing environment will be challenged in the short-term and the time to lease up and stabilize a property will be extended. More specifically, our office properties inChicago will likely take more time to stabilize than previously anticipated. In addition, the timing in which we may be able to implement a liquidation strategy will be affected. Liquidity and Capital Resources Our principal demands for funds during the short and long-term are and will be for operating expenses, capital expenditures and general and administrative expenses; payments under debt obligations; redemptions of common stock; capital commitments; and payments of distributions to stockholders. Our primary sources of capital for meeting our cash requirements are as follows: •Cash flow generated by our real estate investments; •Debt financings (including amounts currently available under an existing term loan); and •Proceeds from the sale of our real estate properties. Our investments in real estate generate cash flow in the form of rental revenues and tenant reimbursements, which are reduced by operating expenditures, capital expenditures, debt service payments, the payment of asset management fees and corporate general and administrative expenses. Cash flow from operations from real estate investments will be primarily dependent upon the occupancy level of our portfolio, the net effective rental rates on our leases, the collectibility of rent and operating recoveries from our tenants and how well we manage our expenditures. Our advisor advanced funds to us, which are non-interest bearing, for distribution record dates through the period endedMay 31, 2016 . We are only obligated to repay our advisor for its advance if and to the extent that: (i)Our modified funds from operations ("MFFO"), as such term is defined by theInstitute for Portfolio Alternatives and interpreted by us, for the immediately preceding quarter exceeds the amount of distributions declared for record dates of such prior quarter (an "MFFO Surplus"), and we will pay our advisor the amount of the MFFO Surplus to reduce the principal amount outstanding under the advance, provided that such payments shall only be made if management in its sole discretion expects an MFFO Surplus to be recurring for at least the next two calendar quarters, determined on a quarterly basis; (ii)Excess proceeds from third-party financings are available ("Excess Proceeds"), provided that the amount of any such Excess Proceeds that may be used to repay the principal amount outstanding under the advance shall be determined by the conflicts committee in its sole discretion; or (iii)Net sales proceeds from the sale of our real estate portfolio are available. 29 -------------------------------------------------------------------------------- Table of Contents PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) In determining whether Excess Proceeds are available to repay the advance, our conflicts committee will consider whether cash on hand could have been used to reduce the amount of third-party financing provided to us. If such cash could have been used instead of third-party financing, the third-party financing proceeds will be available to repay the advance. Our advisor may defer repayment of the advance notwithstanding that we would otherwise be obligated to repay the advance. We expect that our debt financing and other liabilities will be between 45% and 65% of the cost of our tangible assets (before deducting depreciation and other non-cash reserves). Though this is our target leverage, our charter does not limit us from incurring debt until our aggregate borrowings would exceed 300% of our net assets (before deducting depreciation and other non-cash reserves), which is effectively 75% of the cost of our tangible assets (before deducting depreciation and other non-cash reserves), though we may exceed this limit under certain circumstances. To the extent financing in excess of this limit is available at attractive terms, the conflicts committee may approve debt in excess of this limit. As ofJune 30, 2021 , we had mortgage debt obligations in the aggregate principal amount of$99.0 million and our aggregate borrowings were approximately 61% of our net assets before deducting depreciation and other non-cash reserves. As ofJune 30, 2021 , we had$2.7 million of revolving debt available for immediate future disbursement, subject to certain conditions set forth in the loan agreements. As ofJune 30, 2021 , we had$49.6 million of debt maturing during the 12 months endingJune 30, 2022 , all of which is under our term loan and may be extended beyond such time subject to certain terms and conditions set forth in the loan agreement. Reductions in property values related to the impact of the COVID-19 pandemic have reduced our availability to draw on the revolving commitment and may limit our ability to exercise our extension option under our term loan due to covenants described in the loan agreement. In addition to making investments in accordance with our investment objectives, we have used a portion of our capital resources to make certain payments to our advisor, the affiliated dealer manager of our initial private offering and initial public offering and our affiliated property manager. These payments include payments to our dealer manager for selling commissions, the dealer manager fee and the stockholder servicing fee, and payments to the dealer manager and our advisor for reimbursement of certain organization and other offering expenses. See "-Organization and Offering Costs" below. We make payments to our advisor in connection with the management of our assets and costs incurred by our advisor in providing certain services to us. The asset management fee is a monthly fee payable to our advisor in an amount equal to one-twelfth of 1.0% of the cost of our investments including the portion of the investment that is debt financed. The cost of our real property investments is calculated as the amount paid or allocated to acquire the real property, plus budgeted capital improvement costs for the development, construction or improvements to the property once such funds are disbursed pursuant to a final approved budget and fees and expenses related to the acquisition, but excluding acquisition fees paid or payable to our advisor. In the case of investments made through joint ventures, the asset management fee is determined based on our proportionate share of the underlying investment. Our advisor waived asset management fees for the second and third quarters of 2017 and deferred payment of asset management fees related to the periods fromOctober 2017 throughJune 30, 2021 . Our advisor's waiver and deferral of its asset management fees resulted in additional cash being available to fund our operations. If our advisor chooses to no longer waive or defer such fees, our ability to fund our operations may be adversely affected. We also pay fees toKBS Management Group, LLC (the "Co-Manager"), an affiliate of our advisor, pursuant to property management agreements with the Co-Manager, for certain property management services at our properties. We elected to be taxed as a REIT and to operate as a REIT beginning with our taxable year endedDecember 31, 2015 . To maintain our qualification as a REIT, we will be required to make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (computed without regard to the dividends-paid deduction and excluding net capital gain). Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant. Provided we have sufficient available cash flow, we intend to authorize and declare cash distributions based on quarterly record dates and pay cash distributions on a quarterly basis. We have not established a minimum distribution level. Under our charter, we are required to limit our total operating expenses to the greater of 2% of our average invested assets or 25% of our net income for the four most recently completed fiscal quarters, as these terms are defined in our charter, unless the conflicts committee has determined that such excess expenses were justified based on unusual and non-recurring factors. Operating expenses for the four fiscal quarters endedJune 30, 2021 exceeded the charter-imposed limitation; however, the conflicts committee determined that the relationship of our operating expenses to our average invested assets was justified given that our board of directors and the conflicts committee consider us to be in our liquidation stage. 30 -------------------------------------------------------------------------------- Table of Contents PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Cash Flows from Operating Activities As ofJune 30, 2021 , we owned four office properties. During the six months endedJune 30, 2021 and 2020, net cash provided by operating activities was$0.6 million and$0.8 million , respectively . We expect cash flows provided by operating activities to decrease in future periods to the extent our tenants are impacted by COVID-19 and defer rent payments or are unable to pay rent or to the extent we are unable to re-lease space vacated by our current tenants. Cash Flows from Investing Activities During the six months endedJune 30, 2021 , net cash used in investing activities was$0.4 million due to improvements to real estate. Cash Flows from Financing Activities During the six months endedJune 30, 2021 , net cash provided by financing activities was$1.0 million and primarily consisted of the following: •$2.0 million of proceeds from notes payable; offset by •$0.9 million of net cash distributions; and •$0.1 million of payments to redeem common stock. Contractual Obligations The following is a summary of our contractual obligations as ofJune 30, 2021 (in thousands).
Payments Due During the Years Ending
Total Remainder of 2021 2022-2023 2024-2025
Outstanding debt obligations (1) $ 98,994 $ 49,652 $ 46,102 $ 3,240
Interest payments on outstanding debt
obligations (2) $ 3,474 $ 1,605 $ 1,826 $ 43
_____________________
(1) Amounts include principal payments only.
(2) Projected interest payments are based on the outstanding principal amount,
maturity date and contractual interest rate in effect as of June 30, 2021
(consisting of the contractual interest rate and the effect of interest rate
swaps). We incurred interest expense of $2.0 million , excluding amortization of
deferred financing costs totaling $0.1 million and unrealized gains on
derivative instruments of $0.9 million during the six months ended June 30,
2021 .
31
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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations
Overview
As of June 30, 2020 , we owned three office properties and an investment in an
unconsolidated joint venture. Subsequent to June 30, 2020 , we purchased the
joint venture partner's 50% equity interest and consolidated 210 W. Chicago. As
a result, as of June 30, 2021 , we owned four office properties. The following
table provides summary information about our results of operations for the three
and six months ended June 30, 2021 and 2020 (dollar amounts in thousands):
Comparison of the three months ended June 30, 2021 versus the three months ended
June 30, 2020
$ Change Due
to Properties
Held
For the Three Months Ended $ Change Throughout
June 30, Increase Due to JV Both Periods
2021 2020 (Decrease) Percentage Change Consolidation (1) (2)
Rental income $ 4,081 $ 4,624 $ (543) (12) % $ 179 $ (722)
Other operating income 48 44 4 9 % 3 1
Operating, maintenance and management costs 935 908 27 3 % 25
2
Property management fees and expenses to affiliate 28 35 (7) (20) % -
(7)
Real estate taxes and insurance 728 706 22 3 % 39
(17)
Asset management fees to affiliate 434 426 8 2 % 12
(4)
General and administrative expenses 445 660 (215) (33) % n/a
n/a
Depreciation and amortization 1,896 1,990 (94) (5) % 55 (149) Interest expense 608 849 (241) (28) % 26 (267) Interest and other income - 1 (1) (100) % n/a n/a Equity in income of unconsolidated joint venture - 34 (34) (100) % (34) - _____________________ (1) Represents the dollar amount increase (decrease) for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 related to real estate acquired through joint venture consolidation on or afterApril 1, 2020 . (2) Represents the dollar amount increase (decrease) for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 related to real estate investments owned by us throughout both periods presented. Rental income decreased from$4.6 million for the three months endedJune 30, 2020 to$4.1 million for the three months endedJune 30, 2021 , primarily due to a decrease in occupancy rate as a result of lease expirations and a decrease in operating and property tax recoveries at properties held throughout both periods, partially offset by the consolidation of 210 W. Chicago. We expect rental income to fluctuate based on the occupancy at our existing properties and uncertainty and business disruptions as a result of the COVID-19 pandemic. See "Market Outlook - Real Estate and Real Estate Finance Markets - COVID-19 Pandemic and Portfolio Outlook" for a discussion on the impact of the COVID-19 pandemic on our business. Operating, maintenance, and management costs remained consistent at$0.9 million for the three months endedJune 30, 2020 and 2021. We expect operating, maintenance, and management costs to increase in future periods as a result of general inflation and as physical occupancy increases as employees return to the office. Real estate taxes and insurance remained consistent at$0.7 million for the three months endedJune 30, 2020 and 2021. We expect real estate taxes and insurance to increase in future periods as a result of general inflation and general increases due to future property tax reassessments. Asset management fees to affiliate remained consistent at$0.4 million for the three months endedJune 30, 2021 and 2020. We expect asset management fees to increase in future periods as a result of any improvements we make to our properties. As ofJune 30, 2021 , we had accrued and deferred payment of$6.8 million of asset management fees related to the periods fromOctober 2017 throughJune 30, 2021 . General and administrative expenses decreased from$0.7 million for the three months endedJune 30, 2020 to$0.4 million for the three months endedJune 30, 2021 , primarily due to pre-development costs which did not meet the criteria for capitalization for a real estate project and were expensed during three months endedJune 30, 2020 . General and administrative costs consisted primarily of portfolio legal fees, printer costs, internal audit compensation expense, errors and omissions insurance and board of directors fees. 32 -------------------------------------------------------------------------------- Table of Contents PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Depreciation and amortization decreased slightly from$2.0 million for the three months endedJune 30, 2020 to$1.9 million for the three months endedJune 30, 2021 , primarily due to lease expirations and early lease terminations related to properties held throughout both periods, partially offset by an increase in depreciation and amortization as a result of the consolidation of 210 W. Chicago. We expect depreciation and amortization to increase in future periods as a result of additional capital improvements, offset by a decrease in amortization related to fully amortized tenant origination and absorption costs. Interest expense decreased from$0.8 million for the three months endedJune 30, 2020 to$0.6 million for the three months endedJune 30, 2021 . Included in interest expense is the amortization of deferred financing costs of$0.1 million and$0.1 million for the three months endedJune 30, 2021 and 2020, respectively. During the three months endedJune 30, 2021 and 2020, interest expense (including gains and losses) incurred as a result of our derivative instruments, increased interest expense by$28,000 and$0.2 million , respectively. The decrease in interest expense is primarily due to a decrease in one-month LIBOR and its impact on interest expense related to our variable rate debt and a decrease in interest expense due to changes in fair values with respect to our interest rate swaps that are not accounted for as cash flow hedges, offset by an increase in interest expense related to a mortgage loan assumed in connection with the consolidation of 210 W. Chicago. In general, we expect interest expense to vary based on fluctuations in one-month LIBOR (for our unhedged variable rate debt) and our level of future borrowings, which will depend on the availability and cost of debt financing, draws on our debt and any debt repayments we make. Comparison of the six months endedJune 30, 2021 versus the six months endedJune 30, 2020 $ Change Due to Properties Held For the Six Months Ended June $ Change Due to Throughout 30, Increase Dispositions/JV Both Periods 2021 2020 (Decrease) Percentage Change Consolidation (1) (2) Rental income$ 8,375 $ 9,207 $ (832) (9) % $ 241$ (1,073) Other operating income 69 78 (9) (12) % 6
(15)
Operating, maintenance and management costs 1,765 1,862 (97) (5) % 2
(99)
Property management fees and expenses to affiliate 59 70 (11) (16) % (1)
(10)
Real estate taxes and insurance 1,494 1,439 55 4 % 62
(7)
Asset management fees to affiliate 862 861 1 - % 14
(13)
General and administrative expenses 922 1,133 (211) (19) % n/a n/a Depreciation and amortization 3,878 4,156 (278) (7) % 101 (379) Interest expense 1,181 3,737 (2,556) (68) % 18 (2,574) Impairment charges on real estate - 5,750 (5,750) (100) % -
(5,750)
Interest and other income - 13 (13) (100) % n/a
n/a
Gain on sale of real estate, net - 5,245 (5,245) (100) % (5,245)
-
Equity in loss of unconsolidated joint venture - (435) 435 (100) % 435
-
Loss from extinguishment of debt - (29) 29 (100) % 29 - _____________________ (1) Represents the dollar amount increase (decrease) for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 related to real estate investments disposed of and real estate acquired through joint venture consolidation on or afterJanuary 1, 2020 . (2) Represents the dollar amount increase (decrease) for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 related to real estate investments owned by us throughout both periods presented. Rental income decreased from$9.2 million for the six months endedJune 30, 2020 to$8.4 million for the six months endedJune 30, 2021 , primarily due to a decrease in occupancy rate as a result of lease expirations and a decrease in operating and property tax recoveries at properties held throughout both periods, partially offset by the consolidation of 210 W. Chicago. We expect rental income to fluctuate based on the occupancy at our existing properties and uncertainty and business disruptions as a result of the outbreak of COVID-19. See "Market Outlook - Real Estate and Real Estate Finance Markets - COVID-19 Pandemic and Portfolio Outlook" for a discussion on the impact of the COVID-19 pandemic on our business. 33 -------------------------------------------------------------------------------- Table of Contents PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Operating, maintenance, and management costs decreased slightly from$1.9 million for the six months endedJune 30, 2020 to$1.8 million for the six months endedJune 30, 2021 , primarily due to the sale ofVon Karman onJanuary 17, 2020 and a decrease in certain repair and maintenance costs at properties held throughout both periods, partially offset by the consolidation of 210 W. Chicago. We expect operating, maintenance, and management costs to increase in future periods as a result of general inflation and as physical occupancy increases as employees return to the office. Real estate taxes and insurance increased slightly from$1.4 million for the six months endedJune 30, 2020 to$1.5 million for the six months endedJune 30, 2021 , primarily due the consolidation of 210 W. Chicago. We expect real estate taxes and insurance to increase in future periods as a result of general inflation and general increases due to future property tax reassessments. Asset management fees to affiliate remained consistent at$0.9 million for the six months endedJune 30, 2020 and 2021. We expect asset management fees to increase in future periods as a result of any improvements we make to our properties. As ofJune 30, 2021 , we had accrued and deferred payment of$6.8 million of asset management fees related toOctober 2017 throughJune 30, 2021 . General and administrative expenses decreased from$1.1 million for the six months endedJune 30, 2020 to$0.9 million for the six months endedJune 30, 2021 , primarily due to pre-development costs which did not meet the criteria for capitalization for a real estate project and were expensed during the six months endedJune 30, 2020 . General and administrative costs consisted primarily of portfolio legal fees, printer costs, internal audit compensation expense, errors and omissions insurance and board of directors fees. Depreciation and amortization decreased from$4.2 million for the six months endedJune 30, 2020 to$3.9 million for the six months endedJune 30, 2021 , primarily due to lease expirations and early lease terminations related to properties held throughout both periods, partially offset by an increase in depreciation and amortization as a result of the consolidation of 210 W. Chicago. We expect depreciation and amortization to increase in future periods as a result of additional capital improvements, offset by a decrease in amortization related to fully amortized tenant origination and absorption costs. Interest expense decreased from$3.7 million for the six months endedJune 30, 2020 to$1.2 million for the six months endedJune 30, 2021 . Included in interest expense is the amortization of deferred financing costs of$0.1 million and$0.2 million for the six months endedJune 30, 2021 and 2020, respectively. During the six months endedJune 30, 2021 and 2020, interest expense (including gains and losses) incurred as a result of our derivative instruments, increased interest expense by$31,000 and$2.1 million , respectively. The decrease in interest expense is primarily due to a decrease in one-month LIBOR and its impact on interest expense related to our variable rate debt and a decrease in interest expense due to changes in fair values with respect to our interest rate swaps that are not accounted for as cash flow hedges, offset by an increase in interest expense related to a mortgage loan assumed in connection with the consolidation of 210 W. Chicago. In general, we expect interest expense to vary based on fluctuations in one-month LIBOR (for our unhedged variable rate debt) and our level of future borrowings, which will depend on the availability and cost of debt financing, draws on our debts and any debt repayments we make. During the six months endedJune 30, 2020 , we recorded non-cash impairment charges of$5.8 million to write down the carrying value of the Institute Property, an office property located inChicago, Illinois , to its estimated fair value as a result of changes in cash flow estimates including a change in leasing projections, which triggered the future estimated undiscounted cash flows to be lower than the net carrying value of the property. The decrease in cash flow projections was primarily due to reduced demand for the office space at the property resulting in longer lease-up periods and a decrease in projected rental rates and was further impacted by the COVID-19 pandemic which we believe will result in additional challenges to release the vacant space. We did not record any impairment charges on our real estate properties during the six months endedJune 30, 2021 . We recognized a gain on sale of real estate of$5.2 million related to disposition of Von Karman Tech Center during the six months endedJune 30, 2020 . We did not recognize any gain on sale of real estate during the six months endedJune 30, 2021 . During the six months endedJune 30, 2020 , we recognized$0.4 million of equity in loss of unconsolidated joint venture, which included a$0.5 million of impairment charge related to the 210 W. Chicago property then-owned by the joint venture. The impairment was a result of the decline in fair value of the underlying 210 W. Chicago property due to changes in cash flow estimates including a change in leasing projections, which triggered future estimated undiscounted cash flows to be lower than the net carrying value of the property. The decrease in cash flow projections was primarily due to reduced demand for the office space at the property resulting in a decrease in projected rental rates as leases mature. 34 -------------------------------------------------------------------------------- Table of Contents PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Funds from Operations and Modified Funds from Operations We believe that funds from operations ("FFO") is a beneficial indicator of the performance of an equity REIT. We compute FFO in accordance with the currentNational Association of Real Estate Investment Trusts ("NAREIT") definition. FFO represents net income, excluding gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), gains and losses from change in control, impairment losses on real estate assets, depreciation and amortization of real estate assets, and adjustments for unconsolidated partnerships and joint ventures. We believe FFO facilitates comparisons of operating performance between periods and among other REITs. However, our computation of FFO may not be comparable to other REITs that do not define FFO in accordance with the NAREIT definition or that interpret the current NAREIT definition differently than we do. Our management believes that historical cost accounting for real estate assets in accordance withU.S. generally accepted accounting principles ("GAAP") implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. As a result, we believe that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance relative to our competitors and provides a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. Changes in accounting rules have resulted in a substantial increase in the number of non-operating and non-cash items included in the calculation of FFO. As a result, our management also uses MFFO as an indicator of our ongoing performance as well as our dividend sustainability. MFFO excludes from FFO: acquisition fees and expenses (to the extent that such fees and expenses have been recorded as operating expenses); adjustments related to contingent purchase price obligations; amounts relating to straight-line rents and amortization of above and below market intangible lease assets and liabilities; accretion of discounts and amortization of premiums on debt investments; amortization of closing costs relating to debt investments; impairments of real estate-related investments; mark-to-market adjustments included in net income; and gains or losses included in net income for the extinguishment or sale of debt or hedges. We compute MFFO in accordance with the definition of MFFO included in the practice guideline issued by the IPA inNovember 2010 as interpreted by management. Our computation of MFFO may not be comparable to other REITs that do not compute MFFO in accordance with the current IPA definition or that interpret the current IPA definition differently than we do. We believe that MFFO is helpful as a measure of ongoing operating performance because it excludes costs that management considers more reflective of investing activities and other non-operating items included in FFO. Management believes that, by excluding acquisition costs (to the extent such costs have been recorded as operating expenses) as well as non-cash items such as straight line rental revenue, MFFO provides investors with supplemental performance information that is consistent with the performance indicators and analysis used by management, in addition to net income and cash flows from operating activities as defined by GAAP, to evaluate the sustainability of our operating performance. MFFO provides comparability in evaluating the operating performance of our portfolio with other non-traded REITs which typically have limited lives with short and defined acquisition periods and targeted exit strategies. MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and we believe often used by analysts and investors for comparison purposes. FFO and MFFO are non-GAAP financial measures and do not represent net income as defined by GAAP. Net income as defined by GAAP is the most relevant measure in determining our operating performance because FFO and MFFO include adjustments that investors may deem subjective, such as adding back expenses such as depreciation and amortization and the other items described above. Accordingly, FFO and MFFO should not be considered as alternatives to net income as an indicator of our current and historical operating performance. In addition, FFO and MFFO do not represent cash flows from operating activities determined in accordance with GAAP and should not be considered an indication of our liquidity. We believe FFO and MFFO, in addition to net income and cash flows from operating activities as defined by GAAP, are meaningful supplemental performance measures. 35 -------------------------------------------------------------------------------- Table of Contents PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Although MFFO includes other adjustments, the exclusion of adjustments for straight-line rent, the amortization of above- and below-market leases, unrealized (gains) losses on derivative instruments and loss from extinguishment of debt are the most significant adjustments for the periods presented. We have excluded these items based on the following economic considerations: •Adjustments for straight-line rent. These are adjustments to rental revenue as required by GAAP to recognize contractual lease payments on a straight-line basis over the life of the respective lease. We have excluded these adjustments in our calculation of MFFO to more appropriately reflect the current economic impact of our in-place leases, while also providing investors with a useful supplemental metric that addresses core operating performance by removing rent we expect to receive in a future period or rent that was received in a prior period; •Amortization of above- and below-market leases. Similar to depreciation and amortization of real estate assets and lease related costs that are excluded from FFO, GAAP implicitly assumes that the value of intangible lease assets and liabilities diminishes predictably over time and requires that these charges be recognized currently in revenue. Since market lease rates in the aggregate have historically risen or fallen with local market conditions, management believes that by excluding these charges, MFFO provides useful supplemental information on the realized economics of the real estate; •Unrealized (gains) losses on derivative instruments. These adjustments include unrealized (gains) losses from mark-to-market adjustments on interest rate swaps. The change in fair value of interest rate swaps not designated as a hedge are non-cash adjustments recognized directly in earnings and are included in interest expense. We have excluded these adjustments in our calculation of MFFO to more appropriately reflect the economic impact of our interest rate swap agreements; and •Loss from extinguishment of debt. A loss from extinguishment of debt, which includes prepayment fees related to the extinguishment of debt, represents the difference between the carrying value of any consideration transferred to the lender in return for the extinguishment of a debt and the net carrying value of the debt at the time of settlement. We have excluded the loss from extinguishment of debt in our calculation of MFFO because these losses do not impact the current operating performance of our investments and do not provide an indication of future operating performance. Our calculation of FFO, which we believe is consistent with the calculation of FFO as defined by NAREIT, is presented in the following table, along with our calculation of MFFO, for the three and six months endedJune 30, 2021 and 2020, respectively (in thousands). No conclusions or comparisons should be made from the presentation of these periods. For the Three Months Ended June 30, For the Six Months Ended June 30, 2021 2020 2021 2020 Net loss$ (945) $ (871) $ (1,717) $ (4,929) Depreciation of real estate assets 1,141 1,096 2,309 2,241 Amortization of lease-related costs 755 894 1,569 1,915 Impairment charges on real estate - - - 5,750 Gain on sale of real estate, net - - - (5,245) Adjustment for investment in unconsolidated joint venture (1) - 28 - 594 FFO 951 1,147 2,161 326 Straight-line rent and amortization of above- and below-market leases, net (133) (336) (216) (423) Unrealized (gain) loss on derivative instruments (417) (185) (850) 1,581 Loss from extinguishment of debt - - - 29 Adjustment for investment in unconsolidated joint venture (1) - (4) - (8) MFFO$ 401 $ 622 $ 1,095 $ 1,505 _____________________ (1) Reflects adjustments to add back our noncontrolling interest share of the adjustments to convert our net loss attributable to common stockholders to FFO and MFFO for our equity investment in unconsolidated joint venture for the three and six months endedJune 30, 2020 . InOctober 2020 , we purchased our joint venture partner's membership interest and consolidated the entity that owns 210W. Chicago . 36 -------------------------------------------------------------------------------- Table of Contents PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) FFO and MFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO and MFFO, such as tenant improvements, building improvements and deferred leasing costs. Organization and Offering Costs Offering costs include all expenses incurred in connection with our offerings of securities. Organization costs include all expenses incurred in connection with our formation, including but not limited to legal fees and other costs to incorporate. The Advisor or its affiliates have paid some of the offering costs related to our distribution reinvestment plan offering (the "DRP"), including, but not limited to, our legal, accounting, printing, mailing and filing fees. We were responsible for reimbursing the Advisor for these costs. No reimbursements made by us to the Advisor may cause total organization and offering expenses incurred by us to exceed 15% of the aggregate gross offering proceeds of the DRP as of the date of reimbursement. Subject to the limitations described above, we were also responsible for reimbursing the Dealer Manager or its affiliates for organization and offering expenses that they incurred on our behalf. OnAugust 5, 2020 , our board of directors approved the termination of the DRP effectiveAugust 20, 2020 . FromJanuary 1, 2020 throughAugust 20, 2020 , with respect to the DRP, neither the Advisor nor the Dealer Manager incurred any organization and offering expenses on our behalf. The Advisor agreed to pay all organization and offering expenses related to the Second Private Offering, including selling commissions, directly on our behalf without reimbursement by us. From the inception of the Second Private Offering throughAugust 5, 2020 , the Advisor incurred approximately$5.5 million of organization and offering expenses related to the Second Private Offering on our behalf. OnAugust 5, 2020 , our board of directors terminated the Second Private Offering.
Distributions
During our offering stage, and from time to time during our operational stage,
we may not pay distributions solely from our cash flows from operations, in
which case distributions may be paid in whole or in part from debt financing,
including advances from our advisor, if necessary. Distributions declared,
distributions paid and cash flows from operations were as follows for the first
and second quarters of 2021 (in thousands, except per share amounts):
Cash Flows
Distribution Declared Distribution Declared provided by
Distributions Per Class A Share (1) Per Class T Share (1) Distributions Operating
Period Declared (1) (2) (2) Paid Activities
First Quarter 2021 $ 437 $ 0.043 $ 0.043 $ 437 $ (469)
Second Quarter 2021 436 0.043 0.043 436 1,050
$ 873 $ 0.086 $ 0.086 $ 873 $ 581
_____________________
(1) Distributions for the period from January 1, 2021 through June 30, 2021 were
calculated at a quarterly rate of $0.04287500 per share based on a single
quarterly record date.
(2) Assumes Class A and Class T shares were issued and outstanding each day that
was a record date for distributions during the period presented.
For the six months ended June 30, 2021 , we paid aggregate distributions of
$0.9 million , all of which were paid in cash. Our net loss for the six months
ended June 30, 2021 was $1.7 million . FFO for the six months ended June 30, 2021
was $2.2 million and cash flows provided by operations for the six months ended
June 30, 2021 was $0.6 million . See the reconciliation of FFO to net loss above.
We funded our total distributions paid with $0.5 million of cash flow from
current operating activities and $0.4 million of cash flows from operations in
excess of distributions paid from prior periods. In addition, our advisor waived
and deferred certain of its asset management fees which resulted in more cash
being available for distribution. To the extent that we pay distributions from
sources other than our cash flows from operations, the overall return to our
stockholders may be reduced.
Cash distributions will be determined by our board of directors based on our
financial condition and such other factors as our board of directors deems
relevant. Our board of directors has not pre-established a percentage rate of
return for cash distributions to stockholders. We have not established a minimum
distribution level, and our charter does not require that we make distributions
to our stockholders. Commencing with the fourth quarter of 2020, our board of
directors adjusted our distribution policy in response to the ongoing
uncertainty caused by the COVID-19 pandemic and its uncertain impact on our
operations and those of our tenants. Our board of directors expects to consider
and declare quarterly distributions based on a single quarterly record date. We
expect any such distributions for a quarter to be authorized by the end of the
following quarter.
37
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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Our operating performance cannot be accurately predicted and may deteriorate in
the future due to numerous factors, including those discussed under Part II,
Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020
and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period
ended March 31, 2021 , each as filed with the SEC . Those factors include: the
future operating performance of our current real estate investments in the
existing real estate and financial environment; the success and economic
viability of our tenants; our ability to refinance existing indebtedness at
comparable terms; and changes in interest rates on any variable rate debt
obligations we incur. In the event our FFO and/or cash flow from operations
decrease in the future, the level of our distributions may also decrease. In
addition, future distributions declared and paid may exceed FFO and/or cash flow
from operations.
Critical Accounting Policies
Our consolidated interim financial statements and condensed notes thereto have
been prepared in accordance with GAAP and in conjunction with the rules and
regulations of the SEC . The preparation of our financial statements requires
significant management judgments, assumptions and estimates about matters that
are inherently uncertain. These judgments affect the reported amounts of assets
and liabilities and our disclosure of contingent assets and liabilities as of
the dates of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. With different estimates or assumptions,
materially different amounts could be reported in our financial statements.
Additionally, other companies may utilize different estimates that may impact
the comparability of our results of operations to those of companies in similar
businesses. A discussion of the accounting policies that management considers
critical in that they involve significant management judgments, assumptions and
estimates is included in our Annual Report on Form 10-K for the year ended
December 31, 2020 filed with the SEC . There have been no significant changes to
our accounting policies during 2021.
Subsequent Events
We evaluate subsequent events up until the date the consolidated financial
statements are issued.
Distributions Authorized
On August 11, 2021 our board of directors authorized a quarterly distribution in
the amount of $0.04287500 per share of common stock to stockholders of record as
of the close of business on September 3, 2021 , which we expect to pay in
September 2021 .
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Table of Contents PART I. FINANCIAL INFORMATION (CONTINUED)
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