KBS Legacy Partners Apartment REIT 10-Q 2014 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________

FORM 10-Q

______________________________________________________

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the quarterly period ended March 31, 2014

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-54673

______________________________________________________

KBS LEGACY PARTNERS APARTMENT REIT, INC.

(Exact Name of Registrant as Specified in Its Charter)

______________________________________________________

Maryland	27-0668930
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
620 Newport Center Drive, Suite 1300 Newport Beach, California	92660
(Address of Principal Executive Offices)	(Zip Code)

(949) 417-6500

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  xNo  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer	¨	Accelerated Filer	¨
Non-Accelerated Filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    

Yes  ¨  No  x

As of May 6, 2014, there were 19,917,629 outstanding shares of common stock of KBS Legacy Partners Apartment REIT, Inc.

KBS LEGACY PARTNERS APARTMENT REIT, INC.

FORM 10-Q

March 31, 2014

INDEX

PART I.	FINANCIAL INFORMATION		2
	Item 1.	Financial Statements	2
		Consolidated Balance Sheets as of March 31, 2014 (unaudited) and December 31, 2013	2
		Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 2014 and 2013	3
		Consolidated Statements of Stockholders’ Equity for the Year Ended December 31, 2013 and the Three Months Ended March 31, 2014 (unaudited)	4
		Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2014 and 2013	5
		Condensed Notes to Consolidated Financial Statements as of March 31, 2014 (unaudited)	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29
	Item 4.	Controls and Procedures	29
PART II.	OTHER INFORMATION		30
	Item 1.	Legal Proceedings	30
	Item 1A.	Risk Factors	30
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
	Item 3.	Defaults upon Senior Securities	32
	Item 4.	Mine Safety Disclosures	32
	Item 5.	Other Information	32
	Item 6.	Exhibits	33
SIGNATURES			35

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	March 31, 2014			December 31, 2013
	(unaudited)
Assets
Real estate:
Land	$	46,828		$	42,363
Buildings and improvements	360,371			301,022
Tenant origination and absorption costs	1,052			249
Total real estate, cost	408,251			343,634
Less accumulated depreciation and amortization	(16,096		)	(13,317		)
Total real estate, net	392,155			330,317
Cash and cash equivalents	24,796			36,698
Restricted cash	4,067			4,454
Due from affiliates	865			—
Deferred financing costs, prepaid expenses and other assets	7,870			6,697
Total assets	$	429,753		$	378,166
Liabilities and stockholders��� equity
Notes payable	$	294,557		$	242,856
Accounts payable and accrued liabilities	3,982			5,040
Due to affiliates	3,071			2,670
Distributions payable	1,089			1,054
Other liabilities	889			725
Total liabilities	303,588			252,345
Commitments and contingencies (Note 9)
Redeemable common stock	2,955			4,761
Stockholders’ equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares issued and outstanding	—			—
Common stock, $.01 par value; 1,000,000,000 shares authorized, 19,789,521 and 19,196,501 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively	198			192
Additional paid-in capital	168,429			161,328
Cumulative distributions and net losses	(45,417		)	(40,460		)
Total stockholders’ equity	123,210			121,060
Total liabilities and stockholders’ equity	$	429,753		$	378,166

See accompanying condensed notes to consolidated financial statements.

2

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share amounts)

	Three Months Ended March 31,
	2014			2013
Revenues:
Rental income	$	9,617		$	6,730
Total revenues	9,617			6,730
Expenses:
Operating, maintenance, and management	2,393			1,651
Real estate taxes and insurance	1,393			927
Asset management fees to affiliate	595			659
Property management fees to affiliate	62			45
Real estate acquisition fees to affiliate	701			389
Real estate acquisition fees and expenses	252			202
General and administrative expenses	680			530
Depreciation and amortization	3,080			2,811
Interest expense	2,298			1,691
Total expenses	11,454			8,905
Other income:
Interest income	6			8
Net loss	$	(1,831	)	$	(2,167	)
Net loss per common share, basic and diluted	$	(0.09	)	$	(0.14	)
Weighted-average number of common shares outstanding, basic and diluted	19,506,585			15,061,420

See accompanying condensed notes to consolidated financial statements.

3

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Year Ended December 31, 2013 and the Three Months Ended March 31, 2014 (unaudited)

(dollars in thousands)

						Additional Paid-in Capital			Cumulative Distributions and Net Loss			Total Stockholders’ Equity
	Common Stock
	Shares		Amounts
Balance, December 31, 2012	12,866,456		$	129		$	107,685		$	(21,242	)	$	86,572
Issuance of common stock	6,538,502		65			65,074			—			65,139
Redemptions of common stock	(208,457	)	(2		)	(1,976		)	—			(1,978		)
Transfers to redeemable common stock	—		—			(2,532		)	—			(2,532		)
Distributions declared	—		—			—			(11,473		)	(11,473		)
Commissions on stock sales and related dealer manager fees to affiliates	—		—			(4,898		)	—			(4,898		)
Other offering costs	—		—			(2,025		)	—			(2,025		)
Net loss	—		—			—			(7,745		)	(7,745		)
Balance, December 31, 2013	19,196,501		192			161,328			(40,460		)	121,060
Issuance of common stock	634,056		7			6,689			—			6,696
Redemptions of common stock	(41,036	)	(1		)	(388		)	—			(389		)
Transfers from redeemable common stock	—		—			1,806			—			1,806
Distributions declared	—		—			—			(3,126		)	(3,126		)
Commissions on stock sales and related dealer manager fees to affiliate	—		—			(496		)	—			(496		)
Other offering costs	—		—			(510		)	—			(510		)
Net loss	—		—			—			(1,831		)	(1,831		)
Balance, March 31, 2014	19,789,521		$	198		$	168,429		$	(45,417	)	$	123,210

See accompanying condensed notes to consolidated financial statements.

4

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	Three Months Ended March 31,
	2014			2013
Cash Flows from Operating Activities:
Net loss	$	(1,831	)	$	(2,167	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	3,080			2,811
Bad debt expense	45			47
Loss due to property damages	307			—
Amortization of discount on notes payable	15			—
Amortization of deferred financing costs	103			76
Changes in operating assets and liabilities:
Restricted cash for operational expenditures	89			408
Prepaid expenses and other assets	(920		)	(210		)
Accounts payable and accrued liabilities	(1,010		)	(671		)
Due to affiliates	420			447
Other liabilities	164			12
Net cash provided by operating activities	462			753
Cash Flows from Investing Activities:
Acquisitions of real estate	(13,141		)	(36,375		)
Improvements to real estate	(1,301		)	(543		)
Restricted cash for capital expenditures	298			—
Net cash used in investing activities	(14,144		)	(36,918		)
Cash Flows from Financing Activities:
Proceeds from notes payable	—			25,000
Principal payments on mortgage note payable	(582		)	(164		)
Payments of deferred financing costs	(79		)	(237		)
Proceeds from issuance of common stock	5,352			50,346
Payments to redeem common stock	(389		)	(338		)
Payments of commissions on stock sales and related dealer manager fees	(496		)	(4,053		)
Payments of other offering costs	(279		)	(823		)
Distributions paid	(1,747		)	(1,221		)
Net cash provided by financing activities	1,780			68,510
Net increase in cash and cash equivalents	(11,902		)	32,345
Cash and cash equivalents, beginning of period	36,698			31,849
Cash and cash equivalents, end of period	$	24,796		$	64,194
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	2,014		$	1,581
Supplemental Disclosure of Noncash Transactions:
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan	$	1,344		$	925
Mortgage debt assumed in connection with real estate acquisitions at fair value	$	52,268		$	—
Application of escrow deposits to purchase real estate	$	1,500		$	2,000
Increase in other offering costs payable	$	43		$	164
Decrease in other offering costs due to affiliates	$	—		$	(25	)
Increase in distributions payable	$	35		$	270

See accompanying condensed notes to consolidated financial statements.

5

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014

(unaudited)

1. ORGANIZATION

KBS Legacy Partners Apartment REIT, Inc. (the “Company”) was formed on July 31, 2009 as a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2010. Substantially all of the Company’s business is conducted through KBS Legacy Partners Limited Partnership (the “Operating Partnership”), a Delaware limited partnership formed on August 4, 2009. The Company is the sole general partner of and owns a 0.1% partnership interest in the Operating Partnership. KBS Legacy Partners Holdings LLC (“REIT Holdings”), a Delaware limited liability company formed on August 4, 2009, owns the remaining 99.9% interest in the Operating Partnership and is its sole limited partner. The Company is the sole member and manager of REIT Holdings.

Subject to certain restrictions and limitations, the business of the Company is externally managed by KBS Capital Advisors LLC (the “Advisor”), an affiliate of the Company, pursuant to an advisory agreement the Company originally entered into with the Advisor on January 25, 2010, amended on January 8, 2013 and further amended on August 14, 2013, and renewed for an additional one-year term on January 25, 2014 (the “Advisory Agreement”).

On August 7, 2009, the Company issued 20,000 shares of its common stock to KBS-Legacy Apartment Community REIT Venture, LLC (the “Sub-Advisor”), an affiliate of the Company, at a purchase price of $10.00 per share. As of March 31, 2014, the Sub-Advisor owns 20,000 shares of common stock of the Company.

The Company invests in and manages a portfolio of high quality apartment communities located throughout the United States. The Company’s portfolio includes “core” apartment buildings that are already well positioned and producing rental income. As of March 31, 2014, the Company owned 11 apartment complexes.

On August 19, 2009, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to offer a minimum of 250,000 shares and a maximum of 280,000,000 shares of common stock for sale to the public (the “Initial Offering”), of which 80,000,000 shares would be offered pursuant to the Company’s dividend reinvestment plan.

The SEC declared the Company’s registration statement for the Initial Offering effective on March 12, 2010, and the Company retained KBS Capital Markets Group LLC (the “Dealer Manager”), an affiliate of the Company, to serve as the dealer manager for the Initial Offering pursuant to a dealer manager agreement dated March 12, 2010 (the “Initial Dealer Manager Agreement”). Under the Initial Dealer Manager Agreement, the Dealer Manager was responsible for marketing the Company’s shares being offered pursuant to the Initial Offering.

On May 31, 2012, the Company filed a registration statement on Form S-11 with the SEC to register a follow-on public offering (the “Follow-on Offering” and together with the Initial Offering, the “Offerings”). Pursuant to the registration statement, as amended, the Company registered up to an additional $2,000,000,000 of shares of common stock for sale to the public and up to an additional $760,000,000 of shares of common stock pursuant to the dividend reinvestment plan. The SEC declared the Company’s registration statement for the Follow-on Offering effective on March 8, 2013.

The Company retained the Dealer Manager to serve as the dealer manager for the Follow-on Offering pursuant to a dealer manager agreement dated March 8, 2013 (the “Follow-on Dealer Manager Agreement” and together with the Initial Dealer Manager Agreement, the “Dealer Manager Agreements”). On March 12, 2013, the Company ceased offering shares pursuant to the Initial Offering and on March 13, 2013, the Company commenced offering shares to the public pursuant to the Follow-on Offering.

From the inception of the Initial Offering through its completion on March 12, 2013, the Company sold 18,088,084 shares of common stock for gross offering proceeds of $179.2 million, including 368,872 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $3.5 million.

6

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2014

(unaudited)

As of March 31, 2014, the Company had sold an aggregate of 20,054,861 shares of common stock in the Offerings for gross offering proceeds of $199.7 million, including an aggregate of 879,244 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $8.7 million. Also, as of March 31, 2014, the Company had redeemed 285,340 shares sold in the Offerings for $2.7 million. The Company ceased offering shares of common stock in the primary portion of the Follow-on Offering on March 31, 2014, but continues to offer shares of common stock under the dividend reinvestment plan.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2013. During the three months ended March 31, 2014, the Company adopted ASU No. 2014-08 (defined below), which impacts the Company’s reporting of discontinued operations. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K filed with the SEC.

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

The consolidated financial statements include the accounts of the Company, REIT Holdings, the Operating Partnership and their direct and indirect wholly owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.

Reclassifications

Certain amounts in the Company’s prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods. 

Segments

The Company has invested in 11 apartment complexes as of March 31, 2014. Substantially all of the Company’s revenue and net loss is from real estate, and therefore, the Company currently operates in one reportable segment.

7

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2014

(unaudited)

Per Share Data

Basic net income (loss) per share of common stock is calculated by dividing net income (loss) by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no potentially dilutive securities outstanding during the three months ended March 31, 2014 and 2013.

Distributions declared per common share was $0.160 and $0.160 for the three months ended March 31, 2014 and 2013, respectively. Distributions declared per common share assumes each share was issued and outstanding each day during the three months ended March 31, 2014 and 2013. For the three months ended March 31, 2014 and 2013, distributions were based on daily record dates and calculated at a rate of $0.00178082 per share per day. Each day during the period from January 1, 2013 through March 31, 2013 and January 1, 2014 through March 31, 2014 was a record date for distributions.

Recently Issued Accounting Standards Update

In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360):  Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU No. 2014-08”).  ASU No. 2014-08 limits discontinued operations reporting to disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when any of the following occurs: a) the component of an entity or group of components of an entity meets the criteria to be classified as held for sale; b) the component of an entity or group of components of an entity is disposed of by sale; and c) the component of an entity or group of components of an entity is disposed of other than by sale.  ASU No. 2014-08 also requires additional disclosures about discontinued operations.  ASU No. 2014-08 is effective for reporting periods beginning after December 15, 2014.  Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The Company early adopted ASU No. 2014-08 for the reporting period beginning January 1, 2014.  As a result of the adoption of ASU No. 2014-08, results of operations for properties that are classified as held for sale in the ordinary course of business on or subsequent to January 1, 2014 would generally be included in continuing operations on the Company’s consolidated statements of operations, to the extent such disposals did not meet the criteria for classification as a discontinued operation. Additionally, any gain or loss on sale of real estate that do not meet the criteria for classification as a discontinued operation would be presented, on the consolidated statements of operations, below income from continuing operations. As there are no properties currently classified as held for sale, ASU No. 2014-08 did not have an impact on the presentation of the Company’s financial statements.

8

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2014

(unaudited)

3. RECENT ACQUISITIONS OF REAL ESTATE

During the three months ended March 31, 2014, the Company acquired the following properties (dollars in thousands):

Property Name	City	State	Acquisition Date	Land		Building and Improvements		Tenant Origination and Absorption Costs		Other Intangible Assets			Total Purchase Price
Legacy Grand at Concord	Concord	NC	02/18/2014	$	1,465	$	25,960	$	542	$	—		$	27,967
Lofts at the Highlands (1)	St. Louis	MO	02/25/2014	3,000		32,486		510		2,946		(2)	38,942
				$	4,465	$	58,446	$	1,052	$	2,946		$	66,909

_____________________

⁽¹⁾ In connection with the acquisition of Lofts at the Highlands, the Company assumed the Lofts at the Highlands Mortgage Loan. The Company recorded the mortgage debt assumed with an outstanding principal balance of $32.0 million at an estimated fair value of $29.1 million, which is net of a discount on note payable of $2.9 million due to below-market interest rate. The discount on note payable is amortized over the remaining life of the loan of 38.5 years.

⁽²⁾ The property is subject to certain property tax abatement through 2031. The estimated fair value of the property tax abatement of $2.9 million is recorded as deferred financing costs, prepaid expenses and other assets on the Company's consolidated balance sheet as of the acquisition date and amortized over the tax abatement period of 17.9 years.

The in-place leases acquired in connection with these acquisitions have a total weighted-average amortization period of 6 months as of the date of acquisition.

The Company recorded each acquisition as a business combination and expensed $1.0 million of acquisition costs related to these properties for the three months ended March 31, 2014. During the three months ended March 31, 2014, the Company recognized $0.6 million of total revenues and $0.5 million of operating expenses from these properties.

9

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2014

(unaudited)

4. REAL ESTATE

As of March 31, 2014, the Company owned 11 apartment complexes, containing 3,039 units and encompassing 3.1 million rentable square feet, which were 93% occupied. The following table provides summary information regarding the properties owned by the Company as of March 31, 2014 (dollars in thousands):

Property Name	Date Acquired	Location	Total Real Estate, Cost		Accumulated Depreciation and Amortization			Total Real Estate, Net
Legacy at Valley Ranch	10/26/2010	Irving, TX	$	36,284	$	(3,136	)	$	33,148
Poplar Creek	02/09/2012	Schaumburg, IL	26,944		(1,267		)	25,677
The Residence at Waterstone	04/06/2012	Pikesville, MD	64,378		(3,141		)	61,237
Legacy Crescent Park	05/03/2012	Greer, SC	20,496		(1,149		)	19,347
Legacy at Martin’s Point	05/31/2012	Lombard, IL	36,345		(1,930		)	34,415
Wesley Village	11/06/2012	Charlotte, NC	44,098		(1,635		)	42,463
Watertower Apartments	01/15/2013	Eden Prairie, MN	37,844		(1,245		)	36,599
Crystal Park at Waterford	05/08/2013	Frederick, MD	44,896		(1,145		)	43,751
Millennium Apartment Homes	06/07/2013	Greenville, SC	32,978		(819		)	32,159
Legacy Grand at Concord	02/18/2014	Concord, NC	27,992		(309		)	27,683
Lofts at the Highlands	02/25/2014	St. Louis, MO	35,996		(320		)	35,676
			$	408,251	$	(16,096	)	$	392,155

Additionally, as of March 31, 2014 and December 31, 2013, the Company had recorded unamortized tax abatement intangible assets, which are included in deferred financing costs, prepaid expenses and other assets in the accompanying balance sheets, of $3.6 million and $0.7 million, respectively.  During the three months ended March 31, 2014 and 2013, the Company recorded amortization expense of $52,000 and $24,000, respectively, related to tax abatement intangible assets. 

Property Damage

During the first quarter of 2014, one of the Company’s apartment complexes suffered physical damage due to winter storms.  The Company’s insurance policy provides coverage for property damage and business interruption subject to a deductible of up to $25,000 per incident.  Based on management’s estimates, the Company recognized an estimated aggregate loss due to damages of $0.3 million during the three months ended March 31, 2014, which was reduced by $0.3 million of estimated insurance recoveries related to such damages, which the Company determined were probable of collection. The net loss due to damages of $37,500 during the three months ended March 31, 2014 was classified as operating, maintenance and management expenses on the accompanying consolidated statements of operations and relates to the Company’s insurance deductible.  As of March 31, 2014, the total estimated insurance recovery to be collected related to this loss of $0.3 million, was classified as deferred financing costs, prepaid expenses and other assets on the accompanying consolidated balance sheets. 

10

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2014

(unaudited)

5. NOTES PAYABLE

As of March 31, 2014 and December 31, 2013, the Company’s notes payable consisted of the following (dollars in thousands):

	Principal as of March 31, 2014			Principal as of December 31, 2013		Contractual Interest Rate as of March 31, 2014	Payment Type		Maturity Date
Legacy at Valley Ranch Mortgage Loan	$	32,500		$	32,500	3.9%	Principal & Interest	(1)	04/01/2019
Poplar Creek Mortgage Loan	20,400			20,400		4.0%	Principal & Interest	(1)	03/01/2019
The Residence at Waterstone Mortgage Loan	47,905			47,905		3.8%	Principal & Interest	(1)	05/01/2019
Legacy Crescent Park Mortgage Loan	14,355			14,425		3.5%	Principal & Interest	(2)	06/01/2019
Legacy at Martin’s Point Mortgage Loan	23,000			23,000		3.3%	Principal & Interest	(1)	06/01/2019
Wesley Village Mortgage Loan	28,754			28,923		2.6%	Principal & Interest	(3)	12/01/2017
Watertower Mortgage Loan	25,000			25,000		2.5%	Principal & Interest	(1)	02/10/2018
Crystal Park Mortgage Loan	28,888			29,055		2.5%	Principal & Interest	(3)	06/01/2018
Millennium Mortgage Loan	21,529			21,648		2.7%	Principal & Interest	(3)	07/01/2018
Legacy Grand at Concord Mortgage Loan (4)	23,190			—		4.1%	Principal & Interest		12/01/2050
Lofts at the Highlands Mortgage Loan (5)	31,917			—		3.4%	Principal & Interest		08/01/2052
Total notes payable principal outstanding	$	297,438		$	242,856
Discount on note payable, net (6)	(2,881		)	—
Total notes payable, net	$	294,557		$	242,856

_____________________

⁽¹⁾ Monthly payments are interest-only during the first two years of the loan. Beginning with the third year of the loan, monthly payments include principal and interest with principal payments calculated using an amortization schedule of 30 years.

⁽²⁾ Monthly payments are interest-only during the first year of the loan. Beginning with the second year of the loan, monthly payments include principal and interest with principal payments calculated using an amortization schedule of 30 years.

⁽³⁾ Monthly payments include principal and interest with principal payments calculated using an amortization schedule of 30 years.

⁽⁴⁾ See “—Recent Financings — Legacy Grand at Concord Mortgage Loan.”

⁽⁵⁾ See “—Recent Financings — Lofts at the Highlands Mortgage Loan.”

⁽⁶⁾ Represents the unamortized discount on Lofts at the Highlands Mortgage Loan due to the below-market interest rate when the loan was assumed. The discount is amortized over the remaining life of the loan.

As of March 31, 2014 and December 31, 2013, the Company’s deferred financing costs were $1.9 million and $2.0 million, respectively, net of amortization, and are included in deferred financing costs, prepaid expenses and other assets on the accompanying consolidated balance sheets.

During the three months ended March 31, 2014 and 2013, the Company incurred $2.3 million and $1.7 million of interest expense, respectively. Included in interest expense for the three months ended March 31, 2014 and 2013 were $0.1 million and $0.1 million of amortization of deferred financing costs, respectively. As of March 31, 2014 and December 31, 2013, the Company recorded interest payable of $0.8 million and $0.7 million, respectively.

11

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2014

(unaudited)

The following is a schedule of maturities, including principal payments, for the Company’s notes payable outstanding as of March 31, 2014 (in thousands):

April 1, 2014 through December 31, 2014	$	3,407
2015	5,582
2016	5,844
2017	32,196
2018	72,958
Thereafter	177,451
	$	297,438

Recent Financings

Legacy Grand at Concord Mortgage Loan

On February 18, 2014, in connection with the acquisition of Legacy Grand at Concord, the Company, through an indirect wholly owned subsidiary, assumed a U.S. Housing and Urban Development Section 221d(4) loan with an outstanding principal balance of $23.2 million (the “Legacy Grand at Concord Mortgage Loan”). The Legacy Grand at Concord Mortgage Loan matures on December 1, 2050 and bears interest at a fixed rate of 4.05%. Monthly payments include principal and interest in the sum of $101,159.  The Company has the right to repay the loan in whole or in part subject to certain conditions and a fixed percentage prepayment premium which declines over time. The loan is fully assumable by a subsequent purchaser of Legacy Grand at Concord, subject to certain conditions contained in the loan documents.

Lofts at the Highlands Mortgage Loan

On February 25, 2014, in connection with the acquisition of the Lofts at the Highlands, the Company, through an indirect wholly owned subsidiary, assumed a U.S. Housing and Urban Development Section 221d(4) loan with an outstanding principal balance of $32.0 million (the “Lofts at the Highlands Mortgage Loan”). At acquisition, the Company recorded the Lofts at the Highlands Mortgage Loan at an estimated fair value of $29.1 million, which includes a discount on note payable due to below-market interest rate of $2.9 million. The Lofts at the Highlands Mortgage Loan matures on August 1, 2052 and bears interest at a fixed rate of 3.4%. Monthly payments include principal and interest in the sum of $124,111.  The Company has the right to repay the loan in whole or in part subject to certain conditions and a fixed percentage prepayment premium which declines over time. The loan is fully assumable by a subsequent purchaser of the Lofts at the Highlands, subject to certain conditions in the loan documents.

12

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2014

(unaudited)

6. FAIR VALUE DISCLOSURES

Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:

• Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

• Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

• Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.

The fair value for certain financial instruments is derived using valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summary of the methods and assumptions used by management in estimating the fair value of each class of financial instruments for which it is practicable to estimate the fair value:

Cash and cash equivalents, restricted cash, and accounts payable and accrued liabilities: These balances approximate their fair values due to the short maturities of these items.

Notes payable: The fair value of the Company’s notes payable is estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach. The Company classifies these inputs as Level 3 inputs.

The following were the carrying amounts and fair values of the Company’s financial instruments as of March 31, 2014 and December 31, 2013 (dollars in thousands):

	March 31, 2014						December 31, 2013
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial liabilities:
Notes payable	$	297,438	$	294,557	$	292,685	$	242,856	$	242,856	$	237,728

Disclosure of the fair value of financial instruments is based on pertinent information available to the Company as of the period end and requires a significant amount of judgment. Despite increased capital market and credit market activity, transaction volume for certain financial instruments remains relatively low. This has made the estimation of fair values difficult and, therefore, both the actual results and the Company’s estimate of value at a future date could be materially different.

13

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2014

(unaudited)

7. RELATED PARTY TRANSACTIONS

The Company has entered into the Advisory Agreement with the Advisor and the Dealer Manager Agreements with the Dealer Manager. These agreements entitle the Advisor and the Dealer Manager to specified fees upon the provision of certain services with regard to the Offerings and the investment of proceeds from the Offerings in real estate related investments, among other services, as well as reimbursement of organization and offering costs incurred by the Advisor and the Dealer Manager on behalf of the Company and certain costs incurred by the Advisor in providing services to the Company. The Company has also entered into a fee reimbursement agreement (the “AIP Reimbursement Agreement”) with the Dealer Manager pursuant to which the Company agreed to reimburse the Dealer Manager for certain fees and expenses it incurs for administering the Company’s participation in the Depository Trust & Clearing Corporation (“DTCC”) Alternative Investment Product Platform with respect to certain accounts of the Company’s investors serviced through the platform. The Advisor and Dealer Manager also serve as the advisor and dealer manager, respectively, for KBS Real Estate Investment Trust, Inc., KBS Real Estate Investment Trust II, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT, Inc and KBS Strategic Opportunity REIT II, Inc. During the three months ended March 31, 2014 and 2013, no transactions occurred between the Company and these other KBS-sponsored programs.

On January 6, 2014, the Company, together with KBS Real Estate Investment Trust, Inc., KBS Real Estate Investment Trust II, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT, Inc., KBS Strategic Opportunity REIT II, Inc., the Dealer Manager, the Advisor and other KBS-affiliated entities, entered into an errors and omissions and directors and officers liability insurance program where the lower tiers of coverage are shared. The cost of these lower tiers is allocated by the Advisor and its insurance broker among each of the various entities covered by the plan, and is billed directly to each entity. The allocation of these shared coverage costs is proportionate to the pricing by the insurance marketplace for the first tiers of directors and officers liability coverage purchased individually by each REIT. The Advisor’s and the Dealer Manager’s portion of the shared lower tiers’ cost is proportionate to the respective entities’ prior cost for the errors and omissions insurance.

During the three months ended March 31, 2014 and 2013, no other transactions occurred between the Company and KBS Real Estate Investment Trust, Inc., KBS Real Estate Investment Trust II, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT, Inc. and KBS Strategic Opportunity REIT II, Inc.

14

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2014

(unaudited)

Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three months ended March 31, 2014 and 2013, respectively, and any related amounts payable as of March 31, 2014 and December 31, 2013 (in thousands):

	Incurred				Receivable as of				Payable as of
	Three Months Ended March 31,				March 31,		December 31,		March 31,		December 31,
	2014		2013		2014		2013		2014		2013
Expensed
Asset management fees (1)	$	595	$	659	$	—	$	—	$	3,048	$	2,454
Reimbursable operating expenses (2)	214		103		—		—		23		63
Acquisition fees on real properties	701		389		—		—		—		—
Property management fees (3)	62		45		—		—		—		—
Capitalized
Construction management fees	—		—		—		—		—		134
Additional Paid-in Capital
Selling commissions	336		2,557		—		—		—		—
Dealer manager fees	160		1,496		—		—		—		—
Reimbursable other offering costs (4)	58		315		865		—		—		19
	$	2,126	$	5,564	$	865	$	—	$	3,071	$	2,670

____________________

⁽¹⁾ See “Amendments to the Advisory Agreement” below.

⁽²⁾ Reimbursable operating expenses primarily consists of marketing research costs and property pursuit costs incurred by the Sub-Advisor. In addition, the Advisor may seek reimbursement for employee costs under the Advisory Agreement. Beginning July 1, 2010, the Company has reimbursed the Advisor for the Company’s allocable portion of the salaries, benefits and overhead of internal audit department personnel providing services to the Company. These amounts totaled $23,000 and $15,000 for the three months ended March 31, 2014 and 2013, respectively, and were the only employee costs reimbursable under the Advisory Agreement through March 31, 2014. The Company will not reimburse for employee costs in connection with services for which the Advisor earns acquisition or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries or benefits the Advisor or its affiliates may pay to the Company’s executive officers.

⁽³⁾ See “— Property Management — Account Services Agreements.”

⁽⁴⁾ See “— Other Offering Costs.”

Other Offering Costs

From inception of the Follow-on Offering through March 31, 2014, the Company has recognized and paid $1.3 million in selling commissions and dealer manager fees related to the Follow-on Offering. Additionally, the Company has incurred $2.7 million of other organization and offering costs related to the Follow-on Offering. As of March 31, 2014, the selling commissions, dealer manager fees, and organization and other offering costs related to the Follow-on Offering exceeded 15% of the gross offering proceeds. Through March 31, 2014, including shares issued through the Company’s dividend reinvestment plan, the Company had sold 1,966,777 shares in the Follow-on Offering for gross offering proceeds of $20.6 million. Pursuant to the Advisory Agreement, the Advisor is obligated to reimburse the Company to the extent selling commissions, dealer manager fees and other organization and offering costs incurred by the Company in each of the Offerings exceed 15% of the gross offering proceeds of the respective Offering. Due to this limitation, the Company recorded $3.1 million of selling commissions, dealer manager fees and other organization and offering costs as additional paid-in capital and $0.9 million of amounts due from affiliates.

15

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2014

(unaudited)

Amendments to the Advisory Agreement

On January 8, 2013, the Company entered into an amendment to the advisory agreement with the Advisor, which defers the Company’s obligation to pay asset management fees, without interest, accruing from February 1, 2013 through July 31, 2013. The Company will only be obligated to pay the Advisor such deferred amounts if and to the extent that the Company’s funds from operations, as such term is defined by the National Association of Real Estate Investment Trusts and interpreted by the Company, as adjusted for the effects of straight-line rents and acquisition costs and expenses (“AFFO”) for the immediately preceding month exceeds the amount of distributions declared for record dates of such prior month (an “AFFO Surplus”). The amount of any AFFO Surplus in a given month shall be applied first to pay to the Advisor asset management fees currently due with respect to such month (including any that would otherwise have been deferred for that month in accordance with this amendment) and then to pay asset management fees previously deferred by the Advisor in accordance with this amendment that remain unpaid. As of March 31, 2014, the Company had accrued and deferred payment of $1.5 million of asset management fees for February through July 2013 under this amendment, as the Company believes the payment of this amount to the Advisor is probable. These fees will be reimbursed in accordance with the terms noted above.

On August 14, 2013, the Company and the Advisor entered into an amendment to the advisory agreement between the parties. The amendment reduces the asset management fee payable by the Company to the Advisor with respect to investments in real estate to a monthly fee equal to the lesser of one-twelfth of (i) 1.0% of the amount paid or allocated to fund the acquisition, development, construction or improvement of the property (whether at or subsequent to acquisition), including acquisition expenses and budgeted capital improvement costs (regardless of the level of debt used to finance the investment), and (ii) 2.0% of the amount paid or allocated to fund the acquisition, development, construction or improvement of the property, including acquisition expenses and budgeted capital improvement costs, less any debt used to finance the investment. In addition, the amendment defers without interest under certain circumstances, the Company’s obligation to pay asset management fees accruing from August 1, 2013. Specifically, the amendment defers the Company’s obligation to pay an asset management fee for any month in which the Company’s modified funds from operations (“MFFO”), as such term is defined in the practice guideline issued by the Investment Program Association (“IPA”) in November 2010 and interpreted by the Company, excluding asset management fees, does not exceed the amount of distributions declared for record dates of the corresponding month.  The Company remains obligated to pay the Advisor an asset management fee in any month in which the MFFO, excluding asset management fees, for such month exceeds the amount of distributions declared for the record dates of that month (such excess amount, an “MFFO Surplus”), but any amount of the asset management fee for such month in excess of the MFFO Surplus will also be deferred under the amendment.  If the MFFO Surplus for any month exceeds the amount of the asset management fee payable for such month, any remaining MFFO Surplus will not be applied to pay asset management fee amounts previously deferred by the Advisor in accordance with this amendment. However, notwithstanding the foregoing, any and all deferred asset management fees shall be immediately due and payable at such time as the stockholders have received, together as a collective group, aggregate distributions (including distributions that may constitute a return of capital for federal income tax purposes) sufficient to provide (i) a return of their net invested capital, or the amount calculated by multiplying the total number of shares purchased by stockholders by the issue price, reduced by any amounts to repurchase shares pursuant to the Company’s share redemption plan, and (ii) an 8.0% per year cumulative, non-compounded return on such net invested capital (the “Stockholders’ 8% Return”). The Stockholders’ 8% Return is not based on the return provided to any individual stockholder. Accordingly, it is not necessary for each of the Company’s stockholders to have received any minimum return in order for the Advisor to receive deferred asset management fees. As of March 31, 2014, the Company accrued and deferred payment of $1.5 million of asset management fees for August 2013 through March 2014 under this amendment, as the Company believes the payment of this amount to the Advisor is probable. These fees will be reimbursed in accordance with the terms noted above.

16

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2014

(unaudited)

Property Management — Account Services Agreements

In connection with each of its acquisitions of Poplar Creek, The Residence at Waterstone, Legacy Crescent Park, Legacy at Martin’s Point, Wesley Village, Millennium Apartment Homes, Legacy Grand at Concord and Lofts at the Highlands, the Company, through an indirect wholly owned subsidiary, entered into a separate Property Management — Account Services Agreement (collectively, the “Services Agreement”) with Legacy Partners Residential L.P. (“LPR”), an affiliate of the Sub-Advisor, pursuant to which LPR will provide certain account maintenance and bookkeeping services related to these properties. Under each Services Agreement, the Company pays LPR a monthly fee in an amount equal to 1% of each property’s gross monthly collections. Unless otherwise provided for in an approved operating budget for a property, LPR will be responsible for all expenses that it incurs in rendering services pursuant to each Services Agreement. Each Services Agreement has an initial term of one year and will continue thereafter on a month-to-month basis unless either party gives 30 days’ prior written notice of its desire to terminate the Services Agreement. Notwithstanding the foregoing, the Company may terminate each Services Agreement at any time without cause upon 30 days’ prior written notice to LPR. The Company may also terminate each Services Agreement with cause immediately upon notice to LPR and the expiration of any applicable cure period. LPR may terminate each Services Agreement at any time without cause upon 90 days’ prior written notice to the Company.

8. PRO FORMA FINANCIAL INFORMATION

The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company for the three months ended March 31, 2014 and 2013. The Company acquired two apartment complexes during the three months ended March 31, 2014, both of which were accounted for as business combinations. The following unaudited pro forma information for the three months ended March 31, 2014 and 2013 has been prepared to give effect to the acquisition of Lofts at the Highlands as if the acquisition occurred on January 1, 2013. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had this acquisition occurred on January 1, 2013, nor do they purport to predict the results of operations for future periods (in thousands, except share and per share amounts).

	For the Three Months Ended March 31,
	2014			2013
Revenues	$	10,494		$	7,315
Depreciation and amortization	$	3,347		$	3,240
Net loss	$	(1,869	)	$	(1,887	)
Net loss per common share, basic and diluted	$	(0.09	)	$	(0.12	)
Weighted-average number of common shares outstanding, basic and diluted	19,789,521			16,195,950

The unaudited pro forma information for the three months ended March 31, 2014 was adjusted to exclude $0.6 million of acquisition costs incurred in 2014 related to Lofts at the Highlands.

9. COMMITMENTS AND CONTINGENCIES

Economic Dependency

The Company is dependent on the Advisor, the Sub-Advisor and the Dealer Manager for certain services that are essential to the Company, including the sale of the Company’s shares in its Offerings; the identification, evaluation, negotiation, origination, acquisition and disposition of investments; management of the daily operations of the Company’s investment portfolio; and other general and administrative responsibilities. In the event that these companies are unable to provide the respective services, the Company will be required to obtain such services from other sources.

17

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2014

(unaudited)

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Although there can be no assurance, the Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s property, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the property could result in future environmental liabilities.

Legal Matters

From time to time, the Company may become party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on the Company’s results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

10. SUBSEQUENT EVENTS

The Company evaluates subsequent events up until the date the consolidated financial statements are issued.

Status of Offerings

The Company ceased offering shares pursuant to the Initial Offering on March 12, 2013 and commenced offering shares to the public pursuant to the Follow-on Offering on March 13, 2013. The Company ceased offering shares pursuant to the Follow-on Offering on March 31, 2014 and completed subscription processing procedures on April 30, 2014. As of May 6, 2014, the Company had sold an aggregate of 20,184,399 shares of common stock in the Offerings for gross offering proceeds of $201.1 million, including an aggregate of 968,989 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $9.6 million. Also as of May 6, 2014, the Company had redeemed 286,770 shares sold in the Offerings for $2.7 million. The Company may continue to offer shares under the dividend reinvestment plan until it has sold $760,000,000 of shares through the reinvestment of distributions.

Distributions Paid

On April 1, 2014, the Company paid distributions of $1.1 million, which related to distributions declared for each day in the period from March 1, 2014 through March 31, 2014. On May 1, 2014, the Company paid distributions of $1.1 million, which related to distributions declared for each day in the period from April 1, 2014 through April 30, 2014.

Distributions Declared

On May 8, 2014, the Company’s board of directors declared distributions based on daily record dates for the period from June 1, 2014 through June 30, 2014, which the Company expects to pay in July 2014, and distributions based on daily record dates for the period from July 1, 2014 through July 31, 2014, which the Company expects to pay in August 2014. Investors may choose to receive cash distributions or purchase additional shares through the Company’s dividend reinvestment plan.

Distributions for these periods will be calculated based on stockholders of record each day during these periods at a rate of $0.00178082  per share per day and if paid each day for a 365-day period, would equal a 6.5% annualized rate based on a purchase price of $10.00 per share or a 5.93% annualized rate based on the most recent offering price of $10.96 per share (which became effective March 11, 2014).

18

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying financial statements of KBS Legacy Partners Apartment REIT, Inc. and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to KBS Legacy Partners Apartment REIT, Inc., a Maryland corporation, and, as required by context, KBS Legacy Partners Limited Partnership, a Delaware limited partnership, which we refer to as the “Operating Partnership,” and to their subsidiaries.

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 of KBS Legacy Partners Apartment 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.

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:

• We are dependent on our advisor and sub-advisor to identify suitable investments and to manage our investments.

• All of our executive officers, some of our directors and other key real estate professionals are also officers, managers, directors, key professionals and/or holders of a controlling interest in our advisor, the sub-advisor, our dealer manager and other sponsor-affiliated entities. As a result, they face conflicts of interest, including significant conflicts created by our advisor’s compensation arrangements with us and other programs and investors advised by our sponsors. Fees paid to our advisor in connection with transactions involving the acquisition and management of our properties are based on the cost of the property, not on the quality of the investment or services rendered to us. This arrangement could influence our advisor to recommend riskier transactions to us.

• We did not raise the maximum offering amount in our public offerings. Because we raised substantially less than the maximum offering amount, we will not be able to invest in as diverse a portfolio of real estate properties as we otherwise would and the value of an investment will vary more widely with the performance of specific assets. There is a greater risk that stockholders will lose money in their investment in us if we have less diversity in our portfolio.

• We pay substantial fees to and expenses of our advisor, affiliates and broker-dealers, which payments increase the risk that our stockholders will not earn a profit on their investment in us. These fees increase our stockholders’ risk of loss.

• From time to time during our operational stage, we expect to use proceeds from financings to fund distributions. Our organizational documents permit us to pay distributions from any source, including offering proceeds, which may constitute a return of capital. We have not established a limit on the amount of distributions that we may fund from sources other than from cash flows from operations.

• We may incur debt causing our total liabilities to exceed 75% of the cost of our tangible assets with the approval of the conflicts committee. During the early stages of our public offerings, we expect that our conflicts committee may approve debt in excess of this limit. Higher debt levels increase the risk of our stockholders’ investment.

• Continued disruptions in the financial markets and uncertain economic conditions could adversely affect our ability to implement our business strategy and generate returns to stockholders.

• We depend on tenants for our revenue and, accordingly, our revenue is dependent upon the success and economic viability of our tenants. Revenues from our real property investments could decrease due to a reduction in tenants (caused by factors including, but not limited to, tenant defaults, tenant insolvency, early termination of tenant leases and non-renewal of existing tenant leases) and/or lower rental rates, limiting our ability to pay distributions to our stockholders.

19

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

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 ended December 31, 2013 and in Part II, Item 1A of this Quarterly Report on From 10-Q, all filed with the Securities and Exchange Commission (the “SEC”).

Overview

We were formed on July 31, 2009 as a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ending December 31, 2010 and intend to operate in such a manner. We conduct our business primarily through our Operating Partnership, of which we are the sole general partner.

We have invested in and manage a portfolio of high quality apartment communities located throughout the United States. Our portfolio includes “core” apartment buildings that are already well positioned and producing rental income. As of March 31, 2014, we owned 11 apartment complexes.

KBS Capital Advisors LLC (“KBS Capital Advisors”) is our advisor. As our advisor, KBS Capital Advisors is responsible for managing our day-to-day operations and our portfolio of real estate assets. Subject to the terms of the advisory agreement between KBS Capital Advisors and us, KBS Capital Advisors delegates certain advisory duties to a sub-advisor, KBS-Legacy Apartment Community REIT Venture, LLC (the “Sub-Advisor”), which is a joint venture among KBS Capital Advisors and Legacy Partners Residential Realty LLC. Notwithstanding such delegation to the Sub-Advisor, KBS Capital Advisors retains ultimate responsibility for the performance of all the matters entrusted to it under the advisory agreement. KBS Capital Advisors makes recommendations on all investments to our board of directors. A majority of our board of directors, including a majority of our independent directors acting through the conflicts committee, approves our property and real estate-related investments. KBS Capital Advisors, either directly or through the Sub-Advisor, also provides asset-management, marketing, investor-relations and other administrative services on our behalf. Our Sub-Advisor owns 20,000 shares of our common stock. We have no paid employees.

On March 12, 2010, we commenced our initial public offering of 280,000,000 shares of common stock for sale to the public, of which 80,000,000 shares would be offered pursuant to our dividend reinvestment plan (the “Initial Offering”). We retained KBS Capital Markets Group LLC (“KBS Capital Markets Group”), an affiliate of our advisor, to serve as the dealer manager for the Initial Offering pursuant to a dealer manager agreement dated March 12, 2010 (the “Initial Dealer Manager Agreement”).

On May 31, 2012, we filed a registration statement on Form S-11 with the SEC to register a follow-on public offering (the “Follow-on Offering” and together with the Initial Offering, the “Offerings”). Pursuant to the registration statement, as amended, we registered up to an additional $2,000,000,000 of shares of common stock for sale to the public and up to an additional $760,000,000 of shares pursuant to our dividend reinvestment plan. The SEC declared our registration statement for the Follow-on Offering effective on March 8, 2013.

We retained the KBS Capital Markets Group to serve as the dealer manager for the Follow-on Offering pursuant to a dealer manager agreement dated March 8, 2013 (the “Follow-on Dealer Manager Agreement” and together with the Initial Dealer Manager Agreement, the “Dealer Manager Agreements”). On March 12, 2013, we ceased offering shares pursuant to the Initial Offering and on March 13, 2013, we commenced offering shares to the public pursuant to the Follow-on Offering. We ceased offering shares of common stock in the primary portion of the Follow-on Offering on March 31, 2014, but continue to offer shares under the dividend reinvestment plan.

From the inception of the Initial Offering through its completion on March 12, 2013, we sold 18,088,084 shares of common stock for gross offering proceeds of $179.2 million, including 368,872 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $3.5 million.

As of March 31, 2014, we had sold an aggregate of 20,054,861 shares of common stock in the Offerings for gross offering proceeds of $199.7 million, including an aggregate of 879,244 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $8.7 million. Also, as of March 31, 2014, we had redeemed 285,340 shares sold in the Offerings for $2.7 million. We have used substantially all of the net proceeds from the Offerings to invest in and manage a portfolio of high quality apartment communities located throughout the United States as described above.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Market Outlook ─ Multi-Family Real Estate and Finance Markets

The Great Recession of 2008 - 2009 resulted in significant job losses, which had an adverse effect on multifamily real estate. Vacancies increased to record highs and rents decreased as owners sought to retain existing residents and attract new residents. Rising capitalization rates, in addition to declining rents, caused values to decline. In contrast, 2010 exhibited positive signs that multifamily real estate had begun a solid recovery. Vacancy declined, rents increased, and capitalization rates decreased. These positive trends continued throughout 2011 and into 2012. Since the second quarter of 2012, vacancy has stabilized at approximately its equilibrium rate; however, while rent growth moderated during 2013, it remained at an above average rate.

According to the U.S. Bureau of Labor Statistics (BLS), approximately 8.7 million jobs were lost in the U.S. from December 2007 through December 2009 as a result of the Great Recession. Since 2009, employment has increased by over 8.2 million jobs (through March 2014). The BLS also reported that the unemployment rate peaked in 2009 at 10.0% and was down to 6.7% by the end of 2013. During the first quarter of 2014, the unemployment rate remained at 6.7%.

Witten Advisors reported that apartment vacancies in the U.S. were 7.8% at the end of 2009 (“U.S. Apartment Markets Forecast,” Fourth Quarter 2013). Apartment vacancies declined steadily throughout 2010 and 2011, stabilizing at 5%, the approximate equilibrium vacancy rate, in the second half of 2012. As of the end of the third quarter of 2013, Witten Advisors reported that U.S. apartment vacancies were 4.7%. Witten Advisors also reported that effective rents for U.S. apartments were up by 2.0% and 4.2% in 2010 and 2011, respectively, in contrast to the decline in effective rents of 4.4% in 2009. Effective rents continued to grow in 2012 at 3.9%, as compared to the long-term average growth rate of 2.7%, and were 3.5% for the twelve months ending September 2013.

Class A multifamily capitalization rates in the U.S. averaged 4.68% in the fourth quarter of 2007 (Witten Advisors: “U.S. Apartment Markets Forecast,” Fourth Quarter 2013). Capitalization rates increased to 5.79% by the fourth quarter of 2009, reflecting the decline in Class A multifamily property values as a result of the Great Recession. By the first quarter of 2011, the average Class A capitalization rate had declined to approximately 5.0%, where it has remained since that time.

In the medium- and long-term, we believe the prospects for multifamily real estate investment are promising. We expect several positive demographic trends, as noted below, will drive the demand for multifamily housing throughout this decade.

• U.S. population growth - The U.S. Census Bureau projects that the U.S. population will increase by approximately 37 million (12%) between 2008 and 2020, predominantly in the West and South.

• Immigration - Foreign-born renters represented 18.9% of all renters in 2010 (U.S. Census Bureau, “2010 American Community Survey”). According to the U.S. Census Bureau, immigration is expected to add about 1.4 million individuals per year to the U.S. population. This immigration-driven increase in population, when combined with the natural U.S. population increase, will increase the demand for all types of housing, including apartments, over the next decade.

• Echo Boom - The children of the Baby Boom generation, dubbed the Echo Boomers, will increase the prime rental age group, 20 to 34 year olds, by 4 million, to 68 million and it will remain at that elevated level through 2020 according to the U.S. Census Bureau.

• Baby Boom - The population of people aged 50 to 64 is expected to increase by nearly 8.4 million between 2008 and 2018 (U.S. Census Bureau Population Forecast). These Baby Boomers generally have enough income to purchase a home but are increasingly choosing to downsize. Those Baby Boomers who choose to downsize generally prefer the conveniences of apartments, particularly those in urban infill locations.

• Housing Shift - More people are choosing to rent, as opposed to own, their home. According to the U.S. Census Bureau, the percentage of people that rent their housing in the United States has increased from 31.0% in fourth quarter 2005, to 34.8% at the end of the 2013. This equates to approximately 4.2 million additional renter households in the U.S., according to Witten Advisors, over that time period.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Other positive factors for multifamily real estate investment include:

• Diminished supply - According to Witten Advisors (“U.S. Apartment Markets Forecast,” Fourth Quarter 2013), multifamily rental construction starts in the U.S. averaged approximately 300,000 units per year for the decade ending December 2005. In comparison, starts were 104,200 units in 2010, a small increase over the 50-year low mark of 97,600 units started in 2009. In 2011 and 2012, rental construction starts in the U.S. increased to 147,000 units and 204,000 units, respectively. Multifamily rental construction starts are expected to average approximately 250,000 units per year from 2014 through 2016.

• Availability of Debt Capital - Although there was a tightening of lending standards for multifamily real estate following the Great Recession, capital has remained readily available for the multifamily sector, which is in stark contrast to other commercial real estate sectors. This is in part due to the lower risk of multifamily investments as compared to the other primary property types and the continued support of government sponsored entities such as Fannie Mae, Freddie Mac, and the Federal Housing Administration.

• Maturing loans - More than $400 billion of multifamily loans are expected to mature from 2012 through 2016 (Marcus & Millichap Research Services, April 2012). We believe these loan maturities will provide opportunities to purchase properties from sellers in need of liquidity or those faced with repayment deadlines.

Liquidity and Capital Resources

Our principal demand for funds during the short and long-term is and will be for the payment of operating expenses, capital expenditures and general and administrative expenses; payments under debt obligations; redemptions of common stock; and payments of distributions to stockholders. To date, we have had four primary sources of capital for meeting our cash requirements:

• Proceeds from the primary portion of our initial public offering and follow-on public offering; 

• Proceeds from our dividend reinvestment plan;

• Debt financings; and

• Cash flow generated by our real estate investments.

As of March 31, 2014, we had sold an aggregate of 20,054,861 shares of common stock in the Offerings for gross offering proceeds of $199.7 million, including an aggregate of 879,244 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $8.7 million. Also as of March 31, 2014, we had redeemed 285,340 shares sold in the Offerings for $2.7 million. To date, we have invested a significant amount of the proceeds from the primary portion of the Offerings in real estate and do not anticipate making additional real estate acquisitions due to the early termination of the Follow-on Offering on March 31, 2014. We intend to use our cash on hand, cash flow generated by our real estate operations and proceeds from our dividend reinvestment plan as our primary sources of immediate and long-term liquidity.

As of March 31, 2014, we owned 11 apartment complexes. Our operating cash needs were met through cash flow generated by our real estate investments. Our investment in real estate generates cash flow in the form of rental revenues and tenant reimbursements, which are reduced by operating expenditures and corporate general and administrative expenses. Cash flow from operations from our real estate investments is primarily dependent upon the occupancy level of our properties, 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. As of March 31, 2014, our real estate property investments were 93% occupied.

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 expense reimbursements for the four fiscal quarters ended March 31, 2014 did not exceed the charter imposed limitation.

As of March 31, 2014, our total debt outstanding was $297.4 million. Our charter limits our total liabilities to 75% of the cost (before deducting depreciation or other non-cash reserves) of all our assets; however, we may exceed that limit if a majority of the conflicts committee approves each borrowing in excess of our charter limitation and we disclose such borrowing to our stockholders in our next quarterly report with an explanation from the conflicts committee of the justification for the excess borrowing. As of March 31, 2014, our borrowings and other liabilities were approximately 68% of the cost (before depreciation or other noncash reserves) of our tangible assets.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

For the three months ended March 31, 2014, our cash needs for acquisitions, capital expenditures and debt servicing were met with proceeds from the Offerings and debt financing. Operating cash needs during the same period were met through cash flow generated by our real estate investments.

Cash Flows from Operating Activities

We commenced operations with the acquisition of our first apartment complex on October 26, 2010. As of March 31, 2014, we owned 11 apartment complexes. During the three months ended March 31, 2014, net cash provided by operating activities was $0.5 million. We expect that our cash flows from operating activities to vary over time but will generally increase in future years as a result of owning the assets acquired in 2014 for an entire period. We do not anticipate marking additional real estate acquisitions due to the early termination of the Follow-On Offering on March 31, 2014.

Cash Flows from Investing Activities

Net cash used in investing activities was $14.1 million for the three months ended March 31, 2014 and consisted of the following:

• $13.1 million used for the acquisitions of two apartment complexes;

• $1.3 million of improvements to real estate; and

• $0.3 million decrease in restricted cash for capital expenditures.

Cash Flows from Financing Activities

Net cash provided by financing activities was $1.8 million for the three months ended March 31, 2014 and consisted primarily of the following:

• $0.6 million of principal payments on our mortgage note payable and payments of deferred financing costs of $0.1 million;

• $4.6 million of cash provided by offering proceeds related to our Offerings, net of payments of commissions, dealer manager fees and other organization and offering expenses of $0.8 million;

• $1.8 million of net cash distributions, after giving effect to dividends reinvested by stockholders of $1.3 million; and

• $0.4 million of cash used for redemptions of common stock.

Contractual Commitments and Contingencies

The following is a summary of our contractual obligations as of March 31, 2014 (in thousands):

			Payments Due During the Years Ending December 31,
Contractual Obligations	Total		Remainder of 2014		2015-2016		2017-2018		Thereafter
Outstanding debt obligations (1)	$	297,438	$	3,407	$	11,426	$	105,154	$	177,451
Interest payments on outstanding debt obligations (2)	82,949		7,463		19,369		16,877		39,240

_____________________

⁽¹⁾ Amounts include principal payments only.

⁽²⁾ Projected interest payments are based on the outstanding principal amounts and interest rates in effect at March 31, 2014. We incurred interest expense of $2.2 million, excluding amortization of deferred financing costs and discount on notes payable of $0.1 million, for the three months ended March 31, 2014.

Results of Operations

Our results of operations for the three months ended March 31, 2014 are not necessarily indicative of those expected in future periods. We ceased offering shares of common stock in the primary portion of the Follow-on Offering on March 31, 2014, but continue to offer shares under the dividend reinvestment plan. As of March 31, 2013, we owned seven apartment complexes and as of March 31, 2014, we owned 11 apartment complexes. As a result, the results of operations for the three months ended March 31, 2014 and 2013 are not directly comparable as we were still investing the proceeds from the Offerings during those periods. We do not anticipate making additional real estate investments due to the early termination of the primary portion of the Follow-on Offering on March 31, 2014. In general, we expect that our income and expenses related to our portfolio will increase in future periods as a result of owning the investments acquired in 2014 for an entire period.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Comparison of the three months ended March 31, 2014 versus the three months ended March 31, 2013

The following table provides summary information about our results of operations for the three months ended March 31, 2014 and 2013 (dollar amounts in thousands):

	Three Months Ended March 31,				Increase (Decrease)			Percentage     Change		$ Change Due to Acquisitions (1)		$ Change Due to Property Held Throughout Both Periods (2)
	2014		2013
Rental income	$	9,617	$	6,730	$	2,887		43	%	$	2,710	$	177
Operating, maintenance, and management costs	2,393		1,651		742			45	%	663		79
Real estate taxes and insurance	1,393		927		466			50	%	381		85
Asset management fees to affiliate	595		659		(64		)	(10	)%	168		(232		)
Property management fees to affiliate	62		45		17			38	%	15		2
Real estate acquisition fees and expenses to affiliate	701		389		312			80	%	312		—
Real estate acquisition fees and expenses	252		202		50			25	%	61		(11		)
General and administrative expenses	680		530		150			28	%	n/a		n/a
Depreciation and amortization expense	3,080		2,811		269			10	%	844		(575		)
Interest expense	2,298		1,691		607			36	%	613		(6		)

_____________________

⁽¹⁾ Represents the dollar amount increase (decrease) for the three months ended March 31, 2014 compared to the three months ended March 31, 2013 related to real estate investments acquired on or after January 1, 2013.

⁽²⁾ Represents dollar amount increase (decrease) for the three months ended March 31, 2014 compared to the three months ended March 31, 2013 with respect to real estate investments owned by us during both periods.

Rental income increased from $6.7 million for the three months ended March 31, 2013 to $9.6 million for the three months ended March 31, 2014, primarily as a result of the growth in our real estate portfolio. We expect that our rental income will increase in future periods as a result of owning the assets acquired in 2014 for an entire period.

Property operating costs and real estate taxes and insurance increased from $2.6 million for the three months ended March 31, 2013 to $3.8 million for the three months ended March 31, 2014. The increase in property operating costs and real estate taxes and insurance was due to the growth in our real estate portfolio. We expect that our property operating costs and real estate taxes and insurance will increase in future periods as a result of owning the assets acquired in 2014 for an entire period.

Asset management fees with respect to our real estate investments decreased from $0.7 million for the three months ended March 31, 2013 to $0.6 million for the three months ended March 31, 2014, as a result of a $0.2 million decrease from properties held throughout both periods due to a change in our asset management fee calculation beginning August 1, 2013 in accordance with an amendment to our advisory agreement, offset by a $0.1 million increase due to the growth in our real estate portfolio. On January 8, 2013, we entered into an amendment to the advisory agreement with our advisor to defer our obligation to pay asset management fees, without interest, accruing from February 1, 2013 through July 31, 2013. In addition, on August 14, 2013, we entered into another amendment to the advisory agreement with our advisor to reduce the asset management fee payable by us to our advisor with respect to investments in real estate to a monthly fee equal to the lesser of one-twelfth of (i) 1.0% of the amount paid or allocated to fund the acquisition, development, construction or improvement of the property (whether at or subsequent to acquisition), including acquisition expenses and budgeted capital improvement costs (regardless of the level of debt used to finance the investment), and (ii) 2.0% of the amount paid or allocated to fund the acquisition, development, construction or improvement of the property, including acquisition expenses and budgeted capital improvement costs, less any debt used to finance the investment. In addition, the amendment defers without interest under certain circumstances, our obligation to pay asset management fees accruing from August 1, 2013. However, notwithstanding the foregoing, any and all deferred asset management fees shall be immediately due and payable at such time as our stockholders have received, together as a collective group, aggregate distributions (including distributions that may constitute a return of capital for federal income tax purposes) sufficient to provide (i) a return of their net invested capital, or the amount calculated by multiplying the total number of shares purchased by our stockholders by the issue price, reduced by any amounts to repurchase shares pursuant to our share redemption plan, and (ii) an 8.0% per year cumulative, non-compounded return on such net invested capital. As of March 31, 2014, we had deferred the payment of $3.0 million in asset management fees incurred from February 2013 through March 2014 and recorded a liability for this amount. We expect that our asset management fees will increase in future periods as a result of owning the assets acquired in 2014 for an entire period.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Real estate acquisition fees and expenses to affiliate and non-affiliate increased from $0.6 million for the three months ended March 31, 2013 to $1.0 million for the three months ended March 31, 2014. The increase is primarily due to the difference in the total acquisition price for real estate property acquired during the three months ended March 31, 2013 of $38.4 million compared to the total acquisition price for real estate properties acquired during the three months ended March 31, 2014 for $69.8 million. We do not expect to incur significant amounts of real estate acquisition fees and expenses in the future.

General and administrative expenses increased from $0.5 million for the three months ended March 31, 2013 to $0.7 million for the three months ended March 31, 2014. These general and administrative costs consisted primarily of insurance premiums, professional fees, independent director fees and dividend processing costs.

Depreciation and amortization expense increased from $2.8 million for the three months ended March 31, 2013 to $3.1 million for the three months ended March 31, 2014. Depreciation and amortization expenses increased by $0.9 million due to the growth in our real estate portfolio. This increase was offset by a $0.6 million decrease in depreciation and amortization from the property held throughout both periods due to a decrease in amortization of tenant origination costs related to in-place leases that were fully amortized subsequent to March 31, 2013. We expect that our depreciation and amortization expenses will increase in future periods as a result of owning the assets acquired in 2014 for an entire period, offset by a decrease in amortization of tenant origination costs related to lease expirations.

Interest expense increased from $1.7 million for the three months ended March 31, 2013 to $2.3 million for the three months ended March 31, 2014. The increase in interest expense was primarily due to the growth in our real estate portfolio resulting in increased borrowings during the three months ended March 31, 2014 compared to the three months ended March 31, 2013. We expect interest expense to increase in future periods a a result of owning the assets acquired in 2014 for an entire period.

Organization and Offering Costs

Our organization and offering costs (other than selling commissions and dealer manager fees) may be paid by our advisor, the dealer manager or their affiliates on our behalf. Other offering costs include all expenses to be incurred by us in connection with our Offerings. Organization costs include all expenses incurred by us in connection with our formation, including but not limited to legal fees and other costs to incorporate. Organization and offering costs, which include selling commissions and dealer manager fees, are charged as incurred as a reduction to stockholders’ equity.

Pursuant to the advisory agreement and the Dealer Manager Agreements, we are obligated to reimburse our advisor, the dealer manager or their affiliates, as applicable, for organization and other offering costs paid by them on our behalf. However, at the termination of each of our Offerings and at the termination of the offering under our dividend reinvestment plan, our advisor has agreed to reimburse us to the extent that selling commissions, dealer manager fees and other organization and offering expenses incurred by us exceed 15% of the gross offering proceeds of the respective offering. Further we are only liable to reimburse organization and offering costs incurred by our advisor up to an amount that, when combined with selling commissions, dealer manager fees and all other amounts spent by us on organization and offering expenses, does not exceed 15% of the gross proceeds of the respective offering as of the date of reimbursement. The following tables summarizes the selling commissions, dealer manager fees and other organization and offering costs related to our Offerings as of March 31, 2014 (dollars in thousands):

Type of Expense Amount	Initial Offering			Follow-on Offering
Selling commissions	$	10,001		$	882
Dealer manager fees	5,242			463
Other organization and offering costs	7,312			1,747
Total expenses	$	22,555		$	3,092
Total offering proceeds	$	179,137		$	20,611
Percentage of offering proceeds used to pay for organization and offering costs	12.6		%	15.0		%

As of March 31, 2014, we have incurred $4.0 million of selling commissions, dealer manager fees and other organization and offering costs related to the Follow-on Offering. Such costs only become our liability when they do not exceed 15% of the gross proceeds of the Follow-on Offering. Due to this limitation, we recognized $3.1 million as a reduction to additional paid-in capital and $0.9 million of amounts due from affiliates relating to other organization and offering costs exceeding this 15% limitation.

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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 current National Association of Real Estate Investment Trust (“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), 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 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 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. Items such as acquisition fees and expenses which had previously been capitalized prior to 2009, are currently expensed and accounted for as operating expenses. 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. 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 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 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.

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 excluding acquisition costs from MFFO provides investors with supplemental performance information that is consistent with management’s analysis of the operating performance of the portfolio over time, including periods after our acquisition stage.  MFFO also excludes non-cash items such as straight-line rental revenue.  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 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.  However, MFFO has limitations as a performance measure during the offering stage for non-traded REITs where the price of a share of common stock is a stated value and the net asset value is not established during the offering stage and for a period thereafter. As a result, MFFO should not be used as a metric to determine or evaluate the net asset value. 

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.

26

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 acquisition fees and expenses is the most significant adjustment for the periods presented.  We have excluded this item based on the following economic considerations:

• Acquisition fees and expenses.  Acquisition costs related to the acquisition of real estate are expensed.  Although these amounts reduce net income, we exclude them from MFFO to more appropriately present the ongoing operating performance of our real estate investments on a comparative basis.  Additionally, acquisition costs to date have been funded from the proceeds from our Offerings and debt financings and not from our operations.  We believe this exclusion is useful to investors as it allows investors to more accurately evaluate the sustainability of our 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 months ended March 31, 2014 and 2013 (in thousands). No conclusions or comparisons should be made from the presentation of these periods.

	For the Three Months Ended March 31,
	2014			2013
Net loss	$	(1,831	)	$	(2,167	)
Depreciation of real estate assets	2,650			1,722
Amortization of lease-related costs	430			1,089
FFO	1,249			644
Real estate acquisition fees and expenses to affiliate	701			389
Real estate acquisition fees and expenses	252			202
Amortization of discount on note payable	15			—
MFFO	$	2,217		$	1,235

FFO and MFFO may also 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.

Distributions

From time to time during our operational stage, we may not be able to pay distributions solely from our cash flow from operating activities or FFO, in which case distributions may be paid in whole or in part from debt financing and/or proceeds from our Offerings. Distributions declared, distributions paid and cash flows from (used in) operating activities were as follows for the first quarter of 2014 (in thousands, except per share amounts):

	Distributions Declared (1)		Distribution Declared Per Share (1) (2)		Distributions Paid (3)						Cash Flows Provided by Operating Activities
Period					Cash		Reinvested		Total
First Quarter 2014	$	3,126	$	0.160	$	1,747	$	1,344	$	3,091	$	462

_____________________

⁽¹⁾ Distributions for the period from January 1, 2014 through March 31, 2014 are based on daily record dates and are calculated at a rate of $0.00178082 per share per day.

⁽²⁾ Assumes shares were issued and outstanding each day during the periods presented.

⁽³⁾ Distributions are paid on a monthly basis. Distributions for all record dates of a given month are paid on or about the first business day of the following month.

For the three months ended March 31, 2014, we paid aggregate distributions of $3.1 million, including $1.8 million of distributions paid in cash and $1.3 million of distributions reinvested through our dividend reinvestment plan. FFO for the three months ended March 31, 2014 was $1.2 million and cash flows provided by operations was $0.5 million. We funded our total distributions paid with $0.5 million of cash flows from operations and $2.6 million of debt financing. For the purposes of determining the source of our distributions paid, we assume first that we use cash flows from operations from the relevant periods to fund distribution payments. All non-operating expenses (including general and administrative expenses to the extent not covered by cash flows from operations), debt service and other obligations are assumed to be paid from gross offering proceeds as permitted by our offering documents and loan agreement. See the reconciliation of FFO to net loss above.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

From inception through March 31, 2014, we paid aggregate distributions of $20.4 million, including net cash distributions and dividends reinvested by stockholders, and our cumulative net loss for the same period was $24.0 million. To the extent that we pay distributions from sources other than our cash flow from operations, we will have less funds available for investment in properties and other assets, the overall return to our stockholders may be reduced and subsequent investors will experience dilution.

Over the long-term, we expect that a greater percentage of our distributions will be paid from cash flow from operations and FFO (except with respect to distributions related to sales of our assets). However, our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including those discussed under “Forward — Looking Statements,” “Market Outlook — Multi-Family Real Estate and Finance Markets” and “Results of Operations” herein, and the risks discussed herein and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC. Those factors include: the future operating performance of our investments in the existing real estate and financial environment; our ability to identify investments that are suitable to execute our investment objectives; the success and economic viability of our tenants; changes in interest rates on our variable rate debt obligations; and the level of participation in our dividend reinvestment plan. 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 at 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, 2013 filed with the SEC. There have been no significant changes to our policies during 2014.

Subsequent Events

We evaluate subsequent events up until the date the consolidated financial statements are issued.

Status of Offerings

We ceased offering shares pursuant to our Initial Offering on March 12, 2013 and commenced offering shares to the public pursuant to the Follow-on Offering on March 13, 2013. We ceased offering shares pursuant to the primary portion of the Follow-on Offering on March 31, 2014 and completed subscription processing procedures on April 30, 2014. As of May 6, 2014, we had sold an aggregate of 20,184,399 shares of common stock in our Offerings for gross offering proceeds of $201.1 million, including an aggregate of 968,989 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $9.6 million. Also as of May 6, 2014, we had redeemed 286,770 shares sold in our Offerings for $2.7 million. We continue to offer shares under our dividend reinvestment plan until we have sold $760,000,000 of shares through the reinvestment of distributions.

Distributions Paid

On April 1, 2014, we paid distributions of $1.1 million, which related to distributions declared for each day in the period from March 1, 2014 through March 31, 2014. On May 1, 2014, we paid distributions of $1.1 million, which related to distributions declared for each day in the period from April 1, 2014 through April 30, 2014.

Distributions Declared

On May 8, 2014 our board of directors declared distributions based on daily record dates for the period from June 1, 2014 through June 30, 2014, which we expect to pay in July 2014, and distributions based on daily record dates for the period from July 1, 2014 through July 31, 2014, which we expect to pay in August 2014. Investors may choose to receive cash distributions or purchase additional shares through our dividend reinvestment plan.

Distributions for these periods will be calculated based on stockholders of record each day during these periods at a rate of $0.00178082 per share per day and if paid each day for a 365-day period, would equal a 6.5% annualized rate based on a purchase price of $10.00 per share or a 5.93% annualized rate based on the most recent offering price of $10.96 per share (which became effective March 11, 2014).

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and to fund the acquisition, expansion and refinancing of our real estate investment portfolio and operations. Our profitability and the value of our investment portfolio may be adversely affected during any period as a result of interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs. We have managed and will continue to manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that floating rate exposure is kept at an acceptable level. In addition, we may utilize a variety of financial instruments, including interest rate caps, floors, and swap agreements, in order to limit the effects of changes in interest rates on our operations. When we use these types of derivatives to hedge the risk of interest-earning assets or interest-bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for payments to holders of our common stock and that the losses may exceed the amount we invested in the instruments.

We intend to borrow funds at a combination of fixed and variable rates. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. At March 31, 2014, the fair value estimate of our fixed rate debt was $292.7 million and the carrying value of our fixed rate debt was $294.6 million. The fair value estimate of our fixed rate debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated at March 31, 2014. As we expect to hold our fixed rate instrument to maturity and the amounts due under such instrument would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our operations.

Conversely, movements in interest rates on variable rate debt would change our future earnings and cash flows, but, generally, not significantly affect the fair value of those instruments. However, changes in required risk premiums would result in changes in the fair value of floating rate instruments. At March 31, 2014, we did not have any variable rate debt outstanding.

The weighted-average interest rate of our fixed rate debt at March 31, 2014 was 3.3%. The weighted-average interest rate represents the actual interest rate in effect at March 31, 2014.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this report, management, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our chief executive officer and chief financial officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Please see the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013.

The following risk factor supplements these previously disclosed risks.

We have paid distributions from financings and expect that in the future we may not pay distributions solely from our cash flow from operations. To the extent that we pay distributions from sources other than our cash flow from operations, we will have less funds available for investment in properties and other assets, the overall return to our stockholders may be reduced and subsequent investors will experience dilution.

Our organizational documents permit us to pay distributions from any source, including offering proceeds or borrowings (both of which may constitute a return of capital). We have paid distributions from financings and expect that in the future we may not pay distributions solely from our cash flow from operations, in which case distributions may be paid in whole or in part from debt financing. We may also fund such distributions from the sale of assets. To the extent that we pay distributions from sources other than our cash flow from operations, we will have fewer funds available for investment in real estate properties and other real estate-related investments, the overall return to our stockholders may be reduced and subsequent investors will experience dilution. We expect to have little, if any, cash flow from operations available for distribution until we make substantial investments. In addition, to the extent distributions exceed cash flow from operations, a stockholder’s basis in our stock will be reduced and, to the extent distributions exceed a stockholder’s basis, the stockholder may recognize capital gain. There is no limit on the amount of distributions we may fund from sources other than from cash flow from operations.

For the year ended December 31, 2013, we paid aggregate distributions of $11.1 million, including $6.3 million of distributions paid in cash and $4.8 million of distributions reinvested through our dividend reinvestment plan. FFO for the year ended December 31, 2013 was $4.6 million and cash flow provided by operations was $8.2 million. We funded our total distributions paid, which includes cash distributions and dividends reinvested by stockholders, with $8.2 million of cash flows from operations (74%) and $2.9 million of debt financing (26%). For the year ended December 31, 2013, funds from operations represented 42% of total distributions paid.

For the three months ended March 31, 2014, we paid aggregate distributions of $3.1 million, including $1.8 million of distributions paid in cash and $1.3 million of distributions reinvested through our dividend reinvestment plan. FFO for the three months ended March 31, 2014 was $1.2 million and cash flows provided by operations was $0.5 million. We funded our total distributions paid for the three months ended March 31, 2014 with $0.5 million of cash flows from operations (15%) and $2.6 million of debt financing (85%). For the three months ended March 31, 2014, funds from operations represented 40% of total distributions paid.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

a) During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933.

b) On March 12, 2010, our Registration Statement on Form S-11 (File No. 333-161449), covering a public offering of up to 200,000,000 shares of common stock in our primary offering and 80,000,000 shares of common stock under our dividend reinvestment plan, was declared effective under the Securities Act of 1933. We commenced our initial public offering on March 12, 2010 upon retaining KBS Capital Markets Group LLC, an affiliate of our advisor, as the dealer manager of our offering. Our Initial Offering terminated on March 12, 2013 and from inception through March 12, 2013, we sold 18,088,084 shares of common stock in our Initial Offering for gross offering proceeds of $179.2 million, including 368,872 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $3.5 million.

30

PART II. OTHER INFORMATION (CONTINUED)

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds (continued)

As of March 31, 2014, we had incurred selling commissions, dealer manager fees and other organization and offering costs from our initial public offering in the amounts set forth below. We pay selling commissions and dealer manager fees to our dealer manager, and our dealer manager reimburses all of the selling commissions and a portion of the dealer manager fees to participating broker-dealers. In addition, we reimburse our advisors and our dealer manager for certain offering expenses as described in our prospectus, as amended and supplemented:

Type of Expense Amount	Initial Offering			Estimated/Actual
	(in thousands)
Selling commissions and dealer manager fees	$	15,243		Actual
Other underwriting compensation	1,986			Actual
Other organization and offering costs (excluding underwriting compensation)	5,326			Actual
Total expenses	$	22,555
Total offering proceeds	$	179,137		Actual
Percentage of offering proceeds used to pay for organization and offering costs	12.6		%	Actual

From the commencement of our initial public offering through its completion on March 12, 2013, the net offering proceeds to us, after deducting the total expenses incurred as described above, were approximately $156.6 million.

We expect to use substantially all of the net proceeds from our initial public offering to invest in and manage a diverse portfolio of high quality apartment communities located throughout the United States. We may use the net proceeds from the sale of shares under our dividend reinvestment plan for general corporate purposes, including, but not limited to, the redemption of shares under our share redemption program; development costs; capital expenditures; tenant improvement costs and other funding obligations. As of March 31, 2014, we have used the net proceeds from our initial public offering and debt financing to acquire $424.0 million in real estate, including $7.3 million of acquisition fees and expenses.

c) We have adopted a share redemption program that may enable stockholders to sell their shares to us in limited circumstances.

Pursuant to the share redemption program, as amended to date, there are several limitations on our ability to redeem shares:

• Unless the shares are being redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence” (each as defined under the share redemption program), we may not redeem shares until the stockholder has held his or her shares for one year.

• During each calendar year, the share redemption program limits the number of shares we may redeem to those that we could purchase with the amount of the net proceeds from the issuance of shares under the dividend reinvestment plan during the prior calendar year.

• During any calendar year, we may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year.

• We have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.

On January 24, 2014, our board of directors approved a fourth amended and restated share redemption program (the “Fourth Amended Share Redemption Program”). The Fourth Amended Share Redemption Program is effective for redemptions under the program on or after February 27, 2014. Under the Fourth Amended Share Redemption Program, we may redeem only the number of shares that we could purchase with the amount of the net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year; provided that we may not redeem more than $2.0 million of shares in the aggregate during any calendar year. Furthermore, during any calendar year, once we have redeemed $1.5 million of shares under the Fourth Amended Share Redemption Program, including redemptions in connection with a stockholder’s death, qualifying disability or determination of incompetence, the remaining $0.5 million of the $2.0 million annual limit shall be reserved exclusively for shares being redeemed in connection with a stockholder’s death, qualifying disability or determination of incompetence. In establishing the $2.0 million limitation, our board of directors considered the $2.0 million of redemptions processed during the 2013 calendar year and the cash requirements necessary to effectively manage our assets.

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PART II. OTHER INFORMATION (CONTINUED)

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds (continued)

There were no other changes to the Fourth Amended Share Redemption Program.

We may amend, suspend or terminate the program upon 30 days’ notice to our stockholders. We may provide this notice by including such information in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC, or by a separate mailing to our stockholders.

During the three months ended March 31, 2014, we funded redemptions under our share redemption program with the net proceeds from our dividend reinvestment plan and redeemed shares pursuant to our share redemption program as follows:

Month	Total Number of Shares Redeemed (1)	Average Price Paid Per Share (2)		Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program
January 2014	400	$	9.25	(3)
February 2014	10,762	9.38		(3)
March 2014	29,874	9.52		(3)
Total	41,036

_____________________

⁽¹⁾ We announced the adoption and commencement of the program on March 12, 2010. We announced an amendment to the program on January 18, 2013 (which amendment became effective on February 17, 2013), on February 25, 2013 (which amendment became effective on March 28, 2013) and on January 24, 2014 (which amendment became effective on February 27, 2014).

⁽²⁾ Pursuant to the program, as amended, we currently redeem shares at prices determined as follows:

• 92.5% of the price paid to acquire the shares from us for stockholders who have held their shares for at least one year;

• 95.0% of the price paid to acquire the shares from us for stockholders who have held their shares for at least two years;

• 97.5% of the price paid to acquire the shares from us for stockholders who have held their shares for at least three years; and

• 100% of the price paid to acquire the shares from us for stockholders who have held their shares for at least four years.

Notwithstanding the above, upon the death, “qualifying disability” or “determination of incompetence” of a stockholder, the redemption price would be the amount paid to acquire the shares from us. Furthermore, once we establish an estimated value per share of the common stock for a purpose other than to set the price to acquire a share in one of the public offerings after the completion of our offering stage, the redemption price per share for all stockholders would be equal to the estimated value per share, as determined by our advisor and/or an independent valuation firm. “Public equity offering” for this purpose does not include offerings on behalf of selling stockholders or offerings related to a dividend reinvestment plan, employee benefit plan or the redemption of interests in our Operating Partnership.

⁽³⁾ We limit the dollar value of shares that may be redeemed under the program as described above. During the three months ended March 31, 2014, we redeemed $0.4 million of common stock, which represented all redemption requests received in good order and eligible for redemption through the March 31, 2014 redemption date. Effective February 27, 2014, the redemption limitation for 2014 was reduced to $2.0 million. Based on the $2.0 million limitation for 2014 and redemptions through March 31, 2014, we may redeem up to $1.6 million of shares for the remainder of 2014.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None

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PART II. OTHER INFORMATION (CONTINUED)

Item 6. Exhibits

Ex.	Description
3.1	Articles of Amendment and Restatement as adopted on January 8, 2010, incorporated by reference to Exhibit 3.1 to Pre-Effective Amendment No. 4 to the Company’s Registration Statement on Form S-11, Commission File No. 333-161449, filed January 12, 2010
3.2	Amended and Restated Bylaws, incorporated by reference to Exhibit 3.2 to Pre-Effective Amendment No. 4 to the Company’s Registration Statement on Form S-11, Commission File No. 333-161449, filed January 12, 2010
4.1	Form of Subscription Agreement, included as Appendix A to the prospectus included in Pre-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11, Commission File No. 333-181777, filed March 5, 2013
4.2	Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates), incorporated by reference to Exhibit 4.2 to Pre-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-161449, filed October 2, 2009
4.3	Third Amended and Restated Dividend Reinvestment Plan, incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2013, filed May 10, 2013
10.1	Advisory Agreement dated January 25, 2014, incorporated by reference to Exhibit 10.94 to Pre-Effective Amendment No. 1 to Post-Effective Amendment No. 3 to the Company’s Registration Statement on Form S-11 Commission File No. 333-181777, filed January 31, 2014
10.2	Fourth Amendment to Purchase and Sale Agreement dated as of February 25, 2014 by and between Highlands Lofts, LLC and KBS Legacy Partners Lofts, LLC, incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, filed March 10, 2014
10.3	Modification/Release and Assumption Agreement dated as of February 25, 2014 by and between KBS Legacy Partners Lofts, LLC; Highlands Lofts, LLC; Gershman Investment Corp. and Secretary of Housing and Urban Development, incorporated by reference to Exhibit 10.38 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, filed March 10, 2014
10.4	Allonge to Note (Multistate) dated as of February 2014 by and between KBS Legacy Partners Lofts, LLC; Highlands Lofts, LLC; Gershman Investment Corp. and Secretary of Housing and Urban Development, incorporated by reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, filed March 10, 2014
10.5	Property Management Agreement dated as of February 25, 2014 by and between Mills Properties Lofts, Inc. and KBS Legacy Partners Lofts, LLC, incorporated by reference to Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, filed March 10, 2014
10.6	Property Management - Accounting Services Agreement dated as of February 25, 2014 by and between Legacy Partners Residential L.P. and KBS Legacy Partners Lofts, LLC, incorporated by reference to Exhibit 10.41 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, filed March 10, 2014
10.7	Deed of Trust Note (Multistate) dated as of July 1, 2012 by and between Legacy Partners Residential L.P. and KBS Legacy Partners Lofts, LLC, incorporated by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, filed March 10, 2014

33

PART II. OTHER INFORMATION (CONTINUED)

Item 6. Exhibits (continued)

Ex.	Description
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
99.1	Fourth Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed January 27, 2014
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

34

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		KBS LEGACY PARTNERS APARTMENT REIT, INC.
Date:	May 12, 2014	By:	/s/ W. DEAN HENRY
			W. Dean Henry
			Chief Executive Officer
			(principal executive officer)
Date:	May 12, 2014	By:	/s/ DAVID E. SNYDER
			David E. Snyder
			Chief Financial Officer, Treasurer and Secretary
			(principal financial officer)

35