KBS Strategic Opportunity REIT Proposes Continuous Offerings and NAV REIT Conversion

October 18, 2017

KBS Strategic Opportunity REIT Proposes Continuous Offerings and NAV REIT Conversion

October 17, 2017 | James Sprow | Blue Vault

NAV - Net Asset Value. US Dollar texture.

KBS Strategic Opportunity REIT Inc. plans to convert to a non-listed perpetual-life net-asset-value real estate investment trust and is proposing to remove Section 5.11 from its charter.

The company said the proposed NAV REIT conversion is the best option for it to maximize shareholder return and boost liquidity. Under the proposed strategy, the company will offer and sell new common shares continuously in ongoing public offerings, and expand its current share redemption program and periodic self-tender offers.

The REIT is asking shareholders to approve the removal of Section 5.11 from the Company’s charter. That section requires KBS to seek shareholder approval of a liquidation plan if it does not list its common shares on a national securities exchange by July 31, 2019; provided that a decision on such a plan will be postponed if it is deemed to be not in the best interest of stockholders. Section 5.11 is inconsistent with the company’s NAV REIT conversion plan and removing it should avoid confusion among investors regarding its long-term strategy, according to a filing.

The proposed Section 5.11 deletion is contingent on the approval of a proposal to accelerate the payment of incentive fee to the company’s external adviser, KBS Capital Advisors LLC, in the form of restricted stock units.

Regarding the acceleration of the payment of incentive compensation, the Company states in its Proxy Statement:

“The triggering events for the incentive fee structure currently in effect with our advisor are generally .expected to occur, if ever, upon a listing of our shares of stock on a national securities exchange or a significant distribution of cash in connection with a sale of all or a substantial amount of our assets. These triggering events are inconsistent with a perpetual-life NAV REIT that intends to provide liquidity to its stockholders through a share redemption program and/or periodic self-tender offers. Therefore, in order to properly align our advisor’s incentive fee compensation structure with our proposed perpetual-life strategy, we intend to revise the incentive fee structure. Commencing with the launch of our first public offering as a perpetual-life NAV REIT, we intend to implement an annual incentive fee formula that would require us to pay our advisor an incentive fee for any given year if certain performance thresholds were met for that year.

We expect this acceleration payment would be made in the form of restricted stock units (“RSUs”) with terms that are still under consideration, but are currently expected to be structured as follows:

Each RSU awarded would represent the right to receive one share of our common stock.

The RSUs would be awarded on or near the launch of a public offering as an NAV REIT.”

The proposals will be up for consideration at the company’s 2017 annual shareholder meeting.



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Gil Armour, CFP
February 3, 2016

I have been using Blue Vault Partners for the past five years.  I have found them to be a valuable, unbiased resource when it comes to evaluating and comparing non-traded REITs.  The reports help me analyze which sponsors are doing a responsible job of managing their offerings.  This allows me to limit my REIT recommendations to only the most competitive products, and then track those REITs throughout their life cycle.