UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 31, 2010
KBS REAL ESTATE INVESTMENT TRUST, INC.
(Exact name of registrant specified in its charter)
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| Maryland | | 000-52606 | | 20-2985918 |
(State or other jurisdiction of incorporation or organization) | | (Commission File Number) | | (IRS Employer Identification No.) |
620 Newport Center Drive, Suite 1300
Newport Beach, California 92660
(Address of principal executive offices)
Registrant’s telephone number, including area code:(949) 417-6500
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
ITEM 7.01 REGULATION FD DISCLOSURE
As used herein, the terms “we,” “our” and “us” refer to KBS Real Estate Investment Trust, Inc. and as required by context, to its subsidiaries.
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. Because FFO calculations exclude such items as depreciation and amortization of real estate assets and 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), they facilitate comparisons of operating performance between periods and among other REITs. Our management believes that historical cost accounting for real estate assets in accordance with U.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 a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. We compute FFO in accordance with the current NAREIT definition. 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.
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 modified funds from operations (“MFFO”) as an indicator of our ongoing performance as well as our dividend sustainability. We believe that MFFO is helpful as a measure of ongoing operating performance because it excludes non-operating items included in FFO. Additionally, we believe that MFFO provides investors with supplemental performance information that is consistent with the performance indicators and analysis used by management, in addition to net income (loss) and cash flows from operating activities as defined by GAAP, to evaluate the sustainability of our operating performance. MFFO excludes from FFO: acquisition fees and 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; impairments of real estate and 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 Investment Program Association (“IPA”) in November 2010. 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.
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, MFFO does 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 (loss) and cash flows from operating activities as defined by GAAP, are meaningful supplemental performance measures and are useful in understanding how our management evaluates our ongoing operating performance.
1
Our calculation of FFO and MFFO is presented in the table below for the three months ended March 31, 2011 and the year ended December 31, 2010, respectively (in thousands). No conclusions or comparisons should be made from the presentation of these two periods.
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| | | For the Three Months Ended
March 31, 2011 | | | For the Year Ended
December 31, 2010 | |
Net income (loss) attributable to common stockholders | | $ | 941 | | | $ | (90,352 | ) |
Depreciation of real estate assets(1) | | | 10,961 | | | | 43,136 | |
Amortization of lease-related costs(1) | | | 7,280 | | | | 37,537 | |
Gain on sales of foreclosed real estate held for sale | | | (51 | ) | | | (2,011 | ) |
Gain on sale of real estate, net | | | - | | | | (5,646 | ) |
Adjustments for noncontrolling interest - consolidated entity(2) | | | (497 | ) | | | (3,008 | ) |
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FFO | | | 18,634 | | | | (20,344 | ) |
| | |
Impairment charge on real estate and real estate loans | | | (155 | ) | | | 134,499 | |
Straight-line rent and amortization of above- and below-market leases | | | (2,639 | ) | | | (8,912 | ) |
Amortization of discounts and closing costs | | | (739 | ) | | | (3,563 | ) |
Adjustments for noncontrolling interest - consolidated entity(2) | | | 24 | | | | (24,669 | ) |
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MFFO | | $ | 15,125 | | | $ | 77,011 | |
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| (1) | Amounts include depreciation and amortization from discontinued operations. |
| (2) | Relates to the noncontrolling interest holder’s share of our consolidated joint venture for the FFO and MFFO adjustments noted above. |
FFO and MFFO may 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.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| | | | KBS REAL ESTATE INVESTMENT TRUST, INC. |
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| Dated: May 13, 2011 | | | | BY: | | /s/ Charles J. Schreiber, Jr. |
| | | | | | Charles J. Schreiber, Jr. |
| | | | | | Chairman of the Board, |
| | | | | | Chief Executive Officer and Director |
