##### Table of Contents

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, 2009

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 000-53649

KBS REAL ESTATE INVESTMENT TRUST II, INC.

(Exact Name of Registrant as Specified in Its Charter)





|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                       |  | 26-0658752                          
|(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  ̈    No  ̈

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 7, 2009, there were 54,901,800 outstanding shares of common stock of KBS Real Estate Investment Trust II, Inc.



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##### Table of Contents

KBS REAL ESTATE INVESTMENT TRUST II, INC.

FORM 10-Q

March 31, 2009

INDEX



|           |  |                       |  |                                                                                                                                       |  |   
|---------- |  | --------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I.    |  | FINANCIAL INFORMATION |  | 2                                                                                                                                    
|           |  |                       | 
|           |  | Item 1.               |  | Financial Statements                                                                                                                  |  | 2 
|           |  |                       | 
|           |  |                       |  | Consolidated Balance Sheets as of March 31, 2009 (unaudited) and December 31, 2008                                                    |  | 2 
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Operations for the Three Months EndedMarch 31, 2009 and 2008 (unaudited)                                   |  | 3 
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Stockholders Equity for the Year Ended December 31, 2008 andThree Months Ended March 31, 2009 (unaudited) |  | 4 
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and2008 (unaudited)                                   |  | 5 
|           |  |                       | 
|           |  |                       |  | Condensed Notes to Consolidated Financial Statements as of March 31, 2009 (unaudited)                                                 |  | 6 
|           |  |                       | 
|           |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                 |  | 34
|           |  |                       | 
|           |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                                                                            |  | 47
|           |  |                       | 
|           |  | Item 4.               |  | Controls and Procedures                                                                                                               |  | 47
|           |  |                      
|PART II.   |  | OTHER INFORMATION     |  | 48                                                                                                                                   
|           |  |                       | 
|           |  | Item 1.               |  | Legal Proceedings                                                                                                                     |  | 48
|           |  |                       | 
|           |  | Item 1A.              |  | Risk Factors                                                                                                                          |  | 48
|           |  |                       | 
|           |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                           |  | 48
|           |  |                       | 
|           |  | Item 3.               |  | Defaults upon Senior Securities                                                                                                       |  | 49
|           |  |                       | 
|           |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                                   |  | 49
|           |  |                       | 
|           |  | Item 5.               |  | Other Information                                                                                                                     |  | 49
|           |  |                       | 
|           |  | Item 6.               |  | Exhibits                                                                                                                              |  | 50
|           | 
|SIGNATURES |  | 52                   



1



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION
|------- | ---------------------



|Item 1. | Financial Statements
|------- | --------------------

KBS REAL ESTATE INVESTMENT
TRUST II, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)



|                                                                                                                                                                              |  |                    |          |                   |   |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | -------- | ----------------- | - | -------
|                                                                                                                                                                              |  | March 31,     2009 |          | December 31, 2008
|                                                                                                                                                                              |  | (unaudited)        |          |                  
|Assets                                                                                                                                                                        |  |                    |          |                   |   |        
|Real estate:                                                                                                                                                                  |  |                    |          |                   |   |        
|Land                                                                                                                                                                          |  | $                  | 35,307   |                   | $ | 35,307 
|Buildings and improvements                                                                                                                                                    |  |                    | 379,432  |                   |   | 379,076
|Tenant origination and absorption costs                                                                                                                                       |  |                    | 46,268   |                   |   | 46,396 
|                                                                                                                                                                              |  |                    |          |                   |   |        
|Total real estate, at cost                                                                                                                                                    |  |                    | 461,007  |                   |   | 460,779
|Less accumulated depreciation and amortization                                                                                                                                |  |                    | (12,508) |                   |   | (6,436)
|                                                                                                                                                                              |  |                    |          |                   |   |        
|Total real estate, net                                                                                                                                                        |  |                    | 448,499  |                   |   | 454,343
|                                                                                                                                                                              |  |                   
|Real estate loans receivable, net                                                                                                                                             |  |                    | 126,578  |                   |   | 58,152 
|                                                                                                                                                                              |  |                    |          |                   |   |        
|Total real estate and real estate-related investments, net                                                                                                                    |  |                    | 575,077  |                   |   | 512,495
|Cash and cash equivalents                                                                                                                                                     |  |                    | 104,351  |                   |   | 56,609 
|Rents and other receivables, net                                                                                                                                              |  |                    | 3,497    |                   |   | 2,250  
|Above-market leases, net                                                                                                                                                      |  |                    | 233      |                   |   | 248    
|Deferred financing costs, prepaid expenses and other assets                                                                                                                   |  |                    | 1,964    |                   |   | 1,260  
|                                                                                                                                                                              |  |                    |          |                   |   |        
|Total assets                                                                                                                                                                  |  | $                  | 685,122  |                   | $ | 572,862
|                                                                                                                                                                              |  |                    |          |                   |   |        
|                                                                                                                                                                              |  |                   
|Liabilities and stockholders equity                                                                                                                                          |  |                    |          |                   |   |        
|Notes payable                                                                                                                                                                 |  | $                  | 254,460  |                   | $ | 271,446
|Accounts payable and accrued liabilities                                                                                                                                      |  |                    | 3,828    |                   |   | 3,253  
|Due to affiliates                                                                                                                                                             |  |                    | 161      |                   |   | 413    
|Distributions payable                                                                                                                                                         |  |                    | 2,391    |                   |   | 1,621  
|Below-market leases, net                                                                                                                                                      |  |                    | 20,968   |                   |   | 22,364 
|Other liabilities                                                                                                                                                             |  |                    | 1,188    |                   |   | 1,460  
|                                                                                                                                                                              |  |                    |          |                   |   |        
|Total liabilities                                                                                                                                                             |  |                    | 282,996  |                   |   | 300,557
|                                                                                                                                                                              |  |                    |          |                   |   |        
|Commitments and contingencies (Note 13)                                                                                                                                       |  |                    |          |                   |   |        
|Redeemable common stock                                                                                                                                                       |  |                    | 5,010    |                   |   | 1,921  
|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,46,581,659 and 31,515,364 shares issued and outstandingas of
March 31, 2009 and December 31, 2008, respectively |  |                    | 466      |                   |   | 315    
|Additional paid-in capital                                                                                                                                                    |  |                    | 409,085  |                   |   | 277,592
|Cumulative distributions and net losses                                                                                                                                       |  |                    | (12,435) |                   |   | (7,523)
|                                                                                                                                                                              |  |                    |          |                   |   |        
|Total stockholders equity                                                                                                                                                    |  |                    | 397,116  |                   |   | 270,384
|                                                                                                                                                                              |  |                    |          |                   |   |        
|Total liabilities and stockholders equity                                                                                                                                    |  | $                  | 685,122  |                   | $ | 572,862
|                                                                                                                                                                              |  |                    |          |                   |   |        

See accompanying notes.



2



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and
per share amounts)



|                                                                        |  |                             |            |      |   |       
|----------------------------------------------------------------------- |  | --------------------------- | ---------- | ---- | - | ------
|                                                                        |  | Three Months EndedMarch 31,
|                                                                        |  | 2009                        |            | 2008
|                                                                        |  |                            
|Revenues:                                                               |  |                             |            |      |   |       
|                                                                        |  |                            
|Rental income                                                           |  | $                           | 10,885     |      | $ | -     
|                                                                        |  |                            
|Tenant reimbursements                                                   |  |                             | 2,298      |      |   | -     
|                                                                        |  |                            
|Interest income from real estate loans receivable                       |  |                             | 3,225      |      |   | -     
|                                                                        |  |                            
|Other interest income                                                   |  |                             | 153        |      |   | 4     
|                                                                        |  |                             |            |      |   |       
|                                                                        |  |                            
|Total revenues                                                          |  |                             | 16,561     |      |   | 4     
|                                                                        |  |                             |            |      |   |       
|                                                                        |  |                            
|Expenses:                                                               |  |                             |            |      |   |       
|                                                                        |  |                            
|Operating, maintenance, and management                                  |  |                             | 3,132      |      |   | -     
|                                                                        |  |                            
|Real estate taxes and insurance                                         |  |                             | 957        |      |   | -     
|                                                                        |  |                            
|Asset management fees to affiliate                                      |  |                             | 985        |      |   | -     
|                                                                        |  |                            
|General and administrative expenses                                     |  |                             | 510        |      |   | 25    
|                                                                        |  |                            
|Depreciation and amortization                                           |  |                             | 6,207      |      |   | -     
|                                                                        |  |                            
|Interest expense                                                        |  |                             | 3,565      |      |   | -     
|                                                                        |  |                             |            |      |   |       
|                                                                        |  |                            
|Total expenses                                                          |  |                             | 15,356     |      |   | 25    
|                                                                        |  |                             |            |      |   |       
|Net income (loss)                                                       |  |                             | 1,205      |      |   | (21)  
|                                                                        |  |                             |            |      |   |       
|Net income (loss) per common share, basic and diluted                   |  | $                           | 0.03       |      | $ | (1.08)
|                                                                        |  |                             |            |      |   |       
|Weighted-average number of common shares outstanding, basic and diluted |  |                             | 38,149,952 |      |   | 20,000
|                                                                        |  |                             |            |      |   |       
|Distributions declared per common share                                 |  | $                           | 0.16       |      | $ | -     
|                                                                        |  |                             |            |      |   |       

See accompanying notes.



3



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

For the Year Ended December 31, 2008 and Three Months Ended March 31, 2009 (unaudited)

(dollars in thousands)



|                                                          |  |              |  |            |     |                   |   |                   |  |        |          |  |   |         
|--------------------------------------------------------- |  | ------------ |  | ---------- | --- | ----------------- | - | ----------------- |  | ------ | -------- |  | - | --------
|                                                          |  |              |  |            |     |                   |   | Cumulative        |  | Total 
|                                                          |  | Common Stock |  | Additional |     | Distributions and |   | Stockholders    
|                                                          |  | Shares       |  | Amounts    |     | Paid-in Capital   |   | Net Income (Loss) |  | Equity
|Balance, December 31, 2007                                |  | 20,000       |  | $          | 1   |                   | $ | 199               |  | $      | -        |  | $ | 200     
|Issuance ofcommon stock                                   |  | 31,495,364   |  |            | 314 |                   |   | 313,903           |  |        | -        |  |   | 314,217 
|Additions to redeemablecommon stock                       |  | -            |  |            | -   |                   |   | (1,921)           |  |        | -        |  |   | (1,921) 
|Distributions declared                                    |  | -            |  |            | -   |                   |   | -                 |  |        | (4,941)  |  |   | (4,941) 
|Commissions on stock sales andrelated dealer manager fees |  | -            |  |            | -   |                   |   | (29,084)          |  |        | -        |  |   | (29,084)
|Other offering costs                                      |  | -            |  |            | -   |                   |   | (5,505)           |  |        | -        |  |   | (5,505) 
|Net loss                                                  |  | -            |  |            | -   |                   |   | -                 |  |        | (2,582)  |  |   | (2,582) 
|                                                          |  |              |  |            |     |                   |   |                   |  |        |          |  |   |         
|Balance, December 31, 2008                                |  | 31,515,364   |  |            | 315 |                   |   | 277,592           |  |        | (7,523)  |  |   | 270,384 
|Issuance ofcommon stock                                   |  | 15,066,295   |  |            | 151 |                   |   | 150,057           |  |        | -        |  |   | 150,208 
|Additions to redeemablecommon stock                       |  | -            |  |            | -   |                   |   | (3,089)           |  |        | -        |  |   | (3,089) 
|Distributions declared                                    |  | -            |  |            | -   |                   |   | -                 |  |        | (6,117)  |  |   | (6,117) 
|Commissions on stock sales andrelated dealer manager fees |  | -            |  |            | -   |                   |   | (13,714)          |  |        | -        |  |   | (13,714)
|Other offering costs                                      |  | -            |  |            | -   |                   |   | (1,761)           |  |        | -        |  |   | (1,761) 
|Net income                                                |  | -            |  |            | -   |                   |   | -                 |  |        | 1,205    |  |   | 1,205   
|                                                          |  |              |  |            |     |                   |   |                   |  |        |          |  |   |         
|Balance, March 31, 2009                                   |  | 46,581,659   |  | $          | 466 |                   | $ | 409,085           |  | $      | (12,435) |  | $ | 397,116 
|                                                          |  |              |  |            |     |                   |   |                   |  |        |          |  |   |         

See accompanying notes.



4



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)



|                                                                                         |  |                              |          |      |   |      
|---------------------------------------------------------------------------------------- |  | ---------------------------- | -------- | ---- | - | -----
|                                                                                         |  | Three Months Ended March 31,
|                                                                                         |  | 2009                         |          | 2008
|Cash Flows from Operating Activities:                                                    |  |                              |          |      |   |      
|Net income (loss)                                                                        |  | $                            | 1,205    |      | $ | (21) 
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                              |          |      |   |      
|Depreciation and amortization                                                            |  |                              | 6,207    |      |   | -    
|Interest accretion on real estate loans receivable, net                                  |  |                              | (960)    |      |   | -    
|Deferred rent                                                                            |  |                              | (523)    |      |   | -    
|Allowance for doubtful accounts                                                          |  |                              | 11       |      |   | -    
|Amortization of above- and below-market leases, net                                      |  |                              | (1,381)  |      |   | -    
|Amortization of deferred financing costs                                                 |  |                              | 441      |      |   | -    
|Changes in operating assets and liabilities:                                             |  |                              |          |      |   |      
|Rents and other receivables                                                              |  |                              | (735)    |      |   | -    
|Prepaid expenses and other assets                                                        |  |                              | (831)    |      |   | (103)
|Accounts payable and accrued liabilities                                                 |  |                              | 265      |      |   | 15   
|Due to affiliates                                                                        |  |                              | -        |      |   | 112  
|Other liabilities                                                                        |  |                              | (272)    |      |   | -    
|                                                                                         |  |                              |          |      |   |      
|Net cash provided by operating
activities                                                |  |                              | 3,427    |      |   | 3    
|                                                                                         |  |                              |          |      |   |      
|Cash Flows from Investing Activities:                                                    |  |                              |          |      |   |      
|Additions to real estate                                                                 |  |                              | (223)    |      |   | -    
|Investment in real estate loan receivable                                                |  |                              | (67,611) |      |   | -    
|                                                                                         |  |                              |          |      |   |      
|Net cash used in investing
activities                                                    |  |                              | (67,834) |      |   | -    
|                                                                                         |  |                              |          |      |   |      
|Cash Flows from Financing Activities:                                                    |  |                              |          |      |   |      
|Proceeds from notes payable                                                              |  |                              | 11,540   |      |   | -    
|Principal payments on notes payable                                                      |  |                              | (28,526) |      |   | -    
|Payments of deferred financing costs                                                     |  |                              | (314)    |      |   | -    
|Proceeds from issuance of common stock                                                   |  |                              | 147,119  |      |   | -    
|Payments of commissions on stock sales and related dealer manager fees                   |  |                              | (13,714) |      |   | -    
|Payments of other offering costs                                                         |  |                              | (1,698)  |      |   | -    
|Distributions paid to common stockholders                                                |  |                              | (2,258)  |      |   | -    
|                                                                                         |  |                              |          |      |   |      
|Net cash provided by financing
activities                                                |  |                              | 112,149  |      |   | -    
|                                                                                         |  |                              |          |      |   |      
|Net increase in cash and cash equivalents                                                |  |                              | 47,742   |      |   | 3    
|Cash and cash equivalents, beginning of period                                           |  |                              | 56,609   |      |   | 200  
|                                                                                         |  |                              |          |      |   |      
|Cash and cash equivalents, end of period                                                 |  | $                            | 104,351  |      | $ | 203  
|                                                                                         |  |                              |          |      |   |      
|                                                                                         |  |                             
|Supplemental Disclosure of Cash Flow Information:                                        |  |                              |          |      |   |      
|Interest paid                                                                            |  | $                            | 3,157    |      | $ | -    
|                                                                                         |  |                              |          |      |   |      
|                                                                                         |  |                             
|Supplemental Disclosure of Non-Cash Transactions:                                        |  |                              |          |      |   |      
|Increase in distributions payable                                                        |  | $                            | 770      |      | $ | -    
|                                                                                         |  |                              |          |      |   |      
|Distributions paid to common stockholders through common stock issuances                 |  | $                            | 3,089    |      | $ | -    
|                                                                                         |  |                              |          |      |   |      
|Increase in redeemable common stock                                                      |  | $                            | 3,089    |      | $ | -    
|                                                                                         |  |                              |          |      |   |      

See accompanying notes.



5



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

(unaudited)





|1. | ORGANIZATION
|-- | ------------

KBS Real Estate Investment Trust II,
Inc. (the Company) was formed on July 12, 2007 as a Maryland corporation that intends to qualify as a real estate investment trust (REIT) beginning with the taxable year ended December 31, 2008 upon filing
its 2008 tax return in September 2009. The Company conducts its business primarily through KBS Limited Partnership II, a Delaware limited partnership formed on August 23, 2007 (the Operating Partnership), and its
subsidiaries. The Company is the sole general partner of and directly owns a 0.1% partnership interest in the Operating Partnership. The Companys wholly-owned subsidiary, KBS REIT Holdings II LLC, a Delaware limited liability company formed on
August 23, 2007 (KBS REIT Holdings II), owns the remaining 99.9% partnership interest in the Operating Partnership and is its sole limited partner.

The Company intends to invest in a diverse portfolio of real estate and real estate-related investments. The primary types of real estate the Company expects to invest in include office and industrial properties
located throughout the United States. All such real estate properties may be acquired directly by the Company or the Operating Partnership, though the Company may invest in other entities that make similar investments. The primary types of real
estate-related investments the Company expects to invest in include mortgage, mezzanine, bridge and other loans; debt and derivative securities related to real estate assets, including mortgage-backed securities; and the equity securities of other
REITs and real estate companies. As of March 31, 2009, the Company owned four real estate properties consisting of three office properties and one office/flex property encompassing approximately 1.4 million rentable square feet. In
addition, as of March 31, 2009, the Company owned two real estate loans.

Subject to certain restrictions and limitations, the
business of the Company is managed by KBS Capital Advisors LLC (the Advisor), an affiliate of the Company, pursuant to an advisory agreement the Company entered into with the Advisor on March 20, 2008, which was amended and
restated on May 21, 2008 (as amended and restated, the Advisory Agreement). The Advisory Agreement may be renewed for an unlimited number of one-year periods upon the mutual consent of the Advisor and the
Company. Either party may terminate the Advisory Agreement upon 60 days written notice. The Advisor owns 20,000 shares of the Companys common stock.

On September 27, 2007, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission (the SEC) to offer a maximum of 280,000,000 shares of common stock for
sale to the public (the Offering), of which 200,000,000 shares were registered in the Companys primary offering and 80,000,000 shares were registered under the Companys dividend reinvestment plan. The SEC declared the
Companys registration statement effective on April 22, 2008, and the Company retained KBS Capital Markets Group LLC (the Dealer Manager), an affiliate of the Advisor, to serve as the dealer manager of the Offering. The
Dealer Manager is responsible for marketing the Companys shares in the Offering. The Company intends to use substantially all of the net proceeds from the Offering to invest in a diverse portfolio of real estate and real estate-related
investments as described above.

As of June 24, 2008, the Companys escrow agent had received sufficient gross offering
proceeds to satisfy the minimum number of shares requirement to break escrow in the Offering. From commencement of the Offering through March 31, 2009, the Company had sold 46,034,262 shares of common stock in the primary offering for
gross offering proceeds of $459.4 million and 527,397 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $5.0 million.



6



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)





|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------

Principles of
Consolidation and Basis of Presentation

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

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles
(GAAP) for interim financial statements 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 complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. For further information, refer to the Companys
consolidated financial statements and notes thereto for the year ended December 31, 2008 included in the Companys Annual Report on Form 10-K filed with the SEC.

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.

Real Estate

Depreciation and Amortization

Real estate costs related to the acquisition and improvement of properties are capitalized. Repair and maintenance costs are charged to expense as
incurred and significant replacements and betterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. The Company considers the period of future benefit of an asset to
determine its appropriate useful life. Expenditures for tenant improvements and construction allowances related to a tenants space are capitalized and amortized over the shorter of the tenants lease term or expected useful life. The
Company anticipates the estimated useful lives of its assets by class to be generally as follows:



|                                        |  |                                              
|--------------------------------------- |  | ---------------------------------------------
|Buildings                               |  | 25-40 years                                  
|Building improvements                   |  | 10-25 years                                  
|Tenant improvements                     |  | Shorter of lease term or expected useful life
|Tenant origination and absorption costs |  | Remaining term of related lease              



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|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



Real Estate Acquisition Valuation

Prior to January 1, 2009, real estate, consisting of land, buildings and improvements, was recorded at cost. The Company allocated the cost of
an acquisition to the acquired tangible assets, identifiable intangibles and assumed liabilities based on their estimated fair values in accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting
Standards (SFAS) No. 141, Business Combinations. On January 1, 2009, the Company adopted SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS 141R expands the definition of a
business combination and requires the acquirer to measure all assets acquired and liabilities assumed in a business combination at their acquisition-date fair values. In addition, SFAS 141R requires that acquisition costs generally be expensed as
incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recorded to
income tax expense. During the three months ended March 31, 2009, the Company did not acquire any assets that were within the scope of SFAS 141R and did not expense any acquisition costs in accordance with SFAS 141R.

The Company assesses the acquisition-date fair values of all tangible assets, identifiable intangibles and assumed liabilities using methods similar to
those used by independent appraisers (e.g., discounted cash flow analysis) and that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including
historical operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it was vacant.

The Company records above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate that
reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) managements estimate of fair market lease rates for the corresponding
in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The Company amortizes any recorded above-market or below-market lease values as a reduction or increase, respectively, to rental income over the
remaining non-cancelable terms of the respective lease. Upon termination of a lease, the unamortized portion of the above-market or below-market lease intangible associated with the vacating tenants lease would be charged to rental income in
that period.

The Company also measures the aggregate value of other intangible assets related to acquired in-place leases, including tenant
origination and absorption costs and customer relationship intangibles.

The Company estimates the value of tenant origination and
absorption costs by considering the estimated carrying costs during hypothetical expected lease-up periods, considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate
taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. Management also estimates costs to execute similar leases, including leasing commissions and legal and other related
expenses, to the extent that such costs have not already been incurred in connection with a new lease origination as part of the transaction.

The Company estimates the value of customer relationship intangible values, if any, based on managements evaluation of the specific characteristics of each tenants lease and the Companys overall relationship with that
respective tenant. Characteristics considered by management in allocating these values include the nature and extent of the Companys existing business relationships with the tenant, growth prospects for developing new business with the tenant,
the tenants credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.

The Company amortizes the value of in-place leases to depreciation and amortization expense over the initial term of the respective leases. The value of customer relationship intangibles is amortized to expense over
the initial term and any renewal periods in the respective leases, but in no event will the amortization periods for the intangible assets exceed the remaining depreciable life of the building.



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|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



Upon termination of a lease, the unamortized portion of the in-place lease value and customer
relationship intangibles associated with the vacating tenants lease would be charged to expense in that period.

Estimates of the fair
values of the tangible assets, identifiable intangibles and assumed liabilities require the Company to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and
the number of years the property will be held for investment. The use of inappropriate estimates would result in an incorrect valuation of the Companys acquired tangible assets, identifiable intangibles and assumed liabilities, which would
impact the amount of the Companys net income.

Impairment of Real Estate and Related Intangible Assets and Liabilities

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related
intangible assets and liabilities may not be recoverable or realized. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, the Company assesses
the recoverability by estimating whether the Company will recover the carrying value of the real estate and related intangible assets and liabilities through its undiscounted future cash flows and its eventual disposition. If, based on this
analysis, the Company does not believe that it will be able to recover the carrying value of the real estate and related intangible assets and liabilities, the Company would record an impairment loss to the extent that the carrying value exceeds the
estimated fair value of the real estate and related intangible assets and liabilities as defined by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. There were no impairment losses related to real estate and
related intangible assets and liabilities recorded by the Company during the three months ended March 31, 2009.

Real Estate Loans Receivable

The Companys real estate loans receivable are recorded at amortized cost, net of loan loss reserves (if any), and evaluated for
impairment at each balance sheet date under SFAS No. 114, Accounting by Creditors for Impairment of a Loan, an amendment of FASB Statements No. 5 and 15 (SFAS 114) and SFAS No. 5, Accounting for Contingencies
(SFAS 5). The amortized cost of a real estate loan receivable is the outstanding unpaid principal balance, net of unamortized acquisition premiums or discounts and unamortized costs and fees directly associated with the origination or
acquisition of the loan.

As of March 31, 2009, there was no loan loss reserve and there were no impairment losses related to the
real estate loans receivable recorded by the Company during the three months ended March 31, 2009. However, in the future, especially given the current market instability, the Company may experience losses from its investments in loans
receivable requiring the Company to record loan loss reserves. Realized losses on individual loans could be material and significantly exceed any recorded reserves.

The reserve for loan losses is a valuation allowance that reflects managements estimate of loan losses inherent in the loan portfolio as of the balance sheet date. The reserve is increased through a charge to
Provision for loan losses on the Companys consolidated statements of operations and is decreased by charge-offs when losses are confirmed. The reserve for loan losses includes a portfolio-based component and an asset-specific
component.

The asset-specific reserve component relates to reserves for losses on loans considered impaired and measured pursuant to
SFAS 114. In accordance with SFAS 114, the Company considers a loan to be impaired when, based upon current information and events, it believes that it is probable that the Company will be unable to collect all amounts due under the
contractual terms of the loan agreement. A reserve is established when the present value of payments expected to be received, observable market prices, or the estimated fair value of the collateral (for loans that are dependent on the collateral for
repayment) of an impaired loan is lower than the carrying value of that loan.



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|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



The portfolio-based reserve component covers the pool of loans that do not have asset-specific
reserves. A provision for loan losses is recorded when available information as of each balance sheet date indicates that it is probable that the pool of loans will recognize a loss and the amount of the loss can be reasonably estimated in
accordance with SFAS 5. Required reserve balances for this pool of loans are derived from estimated probabilities of default and estimated loss severities assuming a default occurs. On a quarterly basis, the Companys management assigns
estimated probabilities of default and loss severities to each loan in the portfolio based on factors such as the debt service coverage of the underlying collateral, the estimated fair value of the collateral, the significance of the borrowers
investment in the collateral, the financial condition of the borrower and/or its sponsors, the likelihood that the borrower and/or its sponsors allows the loan to default, the Companys willingness and ability to step in as owner in the event
of default, and other pertinent factors.

The Company may purchase real estate loans at a discount to face value where at the acquisition
date the Company expects to collect less than the contractual amounts due under the terms of the loan based, at least in part, on the Companys assessment of the credit quality of the borrower. The Company will consider such real estate loans
to be impaired when it becomes probable, based on current information, that the Company will be unable to collect all amounts the Company estimated would be collected at the time of acquisition. The amount of impairment, if any, will be measured by
comparing the recorded amount of the loan to the present value of the expected cash flows or the fair value of the collateral.

The Company
will record real estate loans held for sale at the lower of amortized cost or fair value. The Company will determine the fair value of loans held for sale by using current secondary market information for loans with similar terms and credit quality.
If fair value is lower than the amortized cost basis of the loan, the Company will record a valuation allowance and a provision for loan losses to write the loan down to fair value.

Failure to recognize impairments would result in the overstatement of earnings and the carrying value of the Companys real estate loans held for
investment. Actual losses, if any, could differ significantly from estimated amounts.

Cash and Cash Equivalents

The Company considers all short-term (with an original maturity of three months or less), highly-liquid investments utilized as part of the Companys
cash-management activities to be cash equivalents. Cash equivalents may include cash and short-term investments. Short-term investments are stated at cost, which approximates fair value.

The Companys cash and cash equivalents balance exceeds federally insurable limits as of March 31, 2009. The Company monitors the cash
balances in its operating accounts and adjusts the cash balances as appropriate; however, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To
date, the Company has experienced no loss or lack of access to cash in its operating accounts. The Company has a corporate banking relationship with Wells Fargo Bank, N.A. in which it deposits all funds. There are no restrictions on the use of the
Companys cash as of March 31, 2009.

Rents and Other Receivables

The Company periodically evaluates the collectibility of amounts due from tenants and maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of tenants to make required payments under lease agreements. In addition, the Company maintains an allowance for deferred rent receivable that arises from the straight-lining of rents. The Company exercises judgment in
establishing these allowances and considers payment history and current credit status of its tenants in developing these estimates.



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|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



Deferred Financing Costs

Deferred financing costs represent commitment fees, loan fees, legal fees and other costs associated with obtaining financing. These costs are amortized over the terms of the respective financing agreements using the
interest method. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financings that do not close are expensed in the period in which it is determined that the
financing will not close.

Redeemable Common Stock

The Company has adopted a share redemption program that may enable stockholders to sell their shares to the Company in limited circumstances.

There are several limitations on the Companys ability to redeem shares under the share redemption program:



| |  |  | Unless the shares are being redeemed in connection with a stockholders death or qualifying disability (as defined under the share redemption
program), the Company may not redeem shares until the stockholder has held his or her shares for one year.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The share redemption program limits the number of shares the Company may redeem to those that the Company could purchase with the net proceeds from the issuance of
shares under the dividend reinvestment plan during the prior calendar year.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | The Company has 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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pursuant to the program, the Company will
initially redeem shares as follows:



| |  |  | The lower of $9.25 or 92.5% of the price paid to acquire the shares from the Company for stockholders who have held their shares for at least one year;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The lower of $9.50 or 95.0% of the price paid to acquire the shares from the Company for stockholders who have held their shares for at least two years;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The lower of $9.75 or 97.5% of the price paid to acquire the shares from the Company for stockholders who have held their shares for at least three years;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The lower of $10.00 or 100% of the price paid to acquire the shares from the Company for stockholders who have held their shares for at least four years; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Notwithstanding the above, until the Company establishes an estimated value per share, the redemption price for shares being redeemed upon a stockholders
death or qualifying disability will be the amount paid to acquire the shares from the Company.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



Notwithstanding the above, once the Company establishes an estimated value per share of common stock,
the redemption price per share for all stockholders will be equal to the estimated value per share, as determined by the Advisor or another firm chosen for that purpose. The Company currently expects to establish an estimated value per share no
later than three years after the completion of its offering stage; however, the time frame before which the Company establishes an estimated value per share may be sooner if required by any regulatory bodies or if necessary to assist broker-dealers
who sell shares in the Offering. The Company will consider its offering stage complete when it is no longer publicly offering equity securities  whether through the Offering or follow-on public offerings  and has not done so for one
year.

The Companys board of directors may amend, suspend or terminate the share redemption program with 30 days notice to its
stockholders. The Company may provide this notice by including such information in its annual or quarterly reports publicly filed with the SEC, or by a separate mailing to its stockholders.

As the use of the proceeds from the dividend reinvestment plan for redemptions is outside the Companys control, the net proceeds from the current
year and prior year dividend reinvestment plan are considered to be temporary equity under Accounting Series Release No. 268, Presentation in Financial Statements of Redeemable Preferred Stock, and are, therefore, presented as redeemable
common stock in the accompanying consolidated balance sheets.

The Company has adopted SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity(SFAS 150), which requires, among other things, that financial instruments that represent a mandatory obligation of the Company to repurchase shares be
classified as liabilities and reported at settlement value. The Companys redeemable common shares are contingently redeemable at the option of the holder. Under SFAS 150, when the Company determines it has a mandatory obligation to
repurchase shares under the share redemption program, it will reclassify such obligations from temporary equity to a liability based upon their respective settlement values.

During the three months ended March 31, 2009, no shares had been tendered for redemption or redeemed by the Company.

Organization and Offering Costs

Organization and
offering costs (other than selling commissions and dealer manager fees) of the Company may be paid by the Advisor, the Dealer Manager or their affiliates on behalf of the Company. Other offering costs include all expenses to be incurred by the
Company in connection with the Offering, including but not limited to (i) legal, accounting, printing, mailing and filing fees; (ii) charges of the escrow holder and transfer agent; (iii) charges of the Advisor for administrative
services related to the issuance of shares in the Offering; (iv) reimbursement of the Dealer Manager for amounts it may pay to reimburse the bona fide diligence expenses of broker-dealers; (v) reimbursement to the Advisor for costs in
connection with preparing supplemental sales materials; (vi) the cost of bona fide training and education meetings held by the Company (primarily the travel, meal and lodging costs of registered representatives of broker-dealers);
(vii) reimbursement to the Dealer Manager for attendance and sponsorship fees and cost reimbursements for employees of the Dealer Manager to attend retail seminars conducted by broker-dealers; and (viii) in special cases, reimbursement to
participating broker-dealers for technology costs associated with the Offering, costs and expenses related to such technology costs, and costs and expenses associated with the facilitation of the marketing of the shares in the Offering and the
ownership of the shares by such broker-dealers customers. Organization costs include all expenses to be incurred by the Company in connection with the formation of the Company, including but not limited to legal fees and other costs to
incorporate the Company.



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|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



Pursuant to the Advisory Agreement and the Dealer Manager Agreement, the Company is obligated to
reimburse the Advisor, the Dealer Manager or their affiliates, as applicable, for organization and other offering costs paid by them on behalf of the Company, provided that the Advisor would be obligated to reimburse the Company to the extent
selling commissions, dealer manager fees and organization and other offering costs incurred by the Company in the Offering exceed 15% of gross offering proceeds. As a result, these costs are only a liability of the Company to the extent selling
commissions, dealer manager fees and organization and other offering costs incurred by the Company do not exceed 15% of the gross proceeds of the Offering. As of March 31, 2009, the Companys selling commissions, dealer manager fees,
and organization and other offering costs did not exceed 15% of the gross offering proceeds. Through March 31, 2009, including shares issued through the Companys dividend reinvestment plan, the Company had issued 46,561,659 shares in
the Offering for gross offering proceeds of $464.4 million and recorded organization and other offering costs of $7.3 million and selling commissions and dealer manager fees of $42.8 million. Organization costs are expensed as
incurred and offering costs, which include selling commissions and dealer manager fees, are charged as incurred as a reduction to stockholders equity.

Revenue Recognition

The Company recognizes minimum rent, including rental abatements and contractual fixed increases
attributable to operating leases, on a straight-line basis over the term of the related leases and records amounts expected to be received in later years as deferred rent. During the three months ended March 31, 2009, $0.5 million of
deferred rent was recognized. The Company records property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred.

The Company makes estimates of the collectibility of its tenant receivables related to base rents, including straight-line rentals, expense reimbursements
and other revenue or income. Management specifically analyzes accounts receivable and historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for
doubtful accounts. In addition, with respect to tenants in bankruptcy, management makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectibility of the related receivable. In some cases,
the ultimate resolution of these claims can exceed one year. These estimates have a direct impact on the Companys net income because a higher bad debt reserve results in lower earnings.

The Company will recognize gains on sales of real estate pursuant to the provisions of SFAS No. 66, Accounting for Sales of Real Estate
(SFAS 66). The specific timing of a sale will be measured against various criteria in SFAS 66 related to the terms of the transaction and any continuing involvement associated with the property. If the criteria for profit recognition
under the full-accrual method are not met, the Company will defer gain recognition and account for the continued operations of the property by applying the percentage-of-completion, reduced profit, deposit, installment or cost recovery method, as
appropriate, until the appropriate criteria are met.

Interest income on the Companys real estate loans receivable is recognized on an
accrual basis over the life of the investment using the interest method. Direct loan origination fees and origination or acquisition costs, as well as acquisition premiums or discounts, are amortized over the term of the loan as an adjustment to
interest income. The Company will place loans on nonaccrual status when any portion of principal or interest is 90 days past due, or earlier when concern exists as to the ultimate collection of principal or interest. When a loan is placed on
nonaccrual status, the Company will reserve the accrual for unpaid interest and will not recognize subsequent interest income until the cash is received, or the loan returns to accrual status.



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|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



If the Company purchases a real estate loan receivable at a discount to face value where the Company
expects to collect less than the contractual amounts due under the loan and when that expectation is due, at least in part, to the credit quality of the borrower, the Company will recognize interest income in accordance with American Institute of
Certified Public Accountants Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3). Under SOP 03-3, income is recognized at an interest rate equivalent to the estimated
yield on the loan, as calculated using the carrying value of the loan and the expected cash flows. Changes in estimated cash flows are recognized through an adjustment to the yield on the loan on a prospective basis. Projecting cash flows for these
types of loans requires a significant amount of assumptions and judgment, which may have a significant impact on the amount and timing of revenue recognized on these investments.

Other interest income includes interest earned on the Companys cash and cash equivalents and is recognized as it is earned.

General and Administrative Expenses and Asset Management Fees

General and administrative expenses, totaling $0.5 million for the three months ended March 31, 2009, consisted primarily of amortization of insurance premiums, independent director fees, and legal, audit, and other
professional fees. In addition, asset management fees to affiliate totaled $1.0 million for the three months ended March 31, 2009. To the extent included in the definition of total operating expenses (as set forth in Note 11), general
and administrative expenses, including asset management fees due to affiliates, are an operating expense of the Company that is subject to the operating expense reimbursement obligation of the Advisor (as discussed in Note 11). Pursuant to the
operating expense reimbursement obligation, commencing upon the earlier to occur of four fiscal quarters after (i) the acquisition of the Companys first real estate asset or (ii) October 22, 2008 (which is six months after
commencement of the Companys Offering), the Advisor will reimburse the Company at the end of any fiscal quarter for total operating expenses that in the four consecutive fiscal quarters then ended exceed the greater of 2% of its average
invested assets or 25% of its net income, unless the conflicts committee of the Companys board of directors determines that such excess expenses are justified based on unusual and non-recurring factors. The Company acquired its first real
estate asset on July 30, 2008. The Companys charter-imposed limitation on total operating expenses will commence with the fiscal quarter ending September 30, 2009.

Income Taxes

The Company intends to elect to be taxed
as a REIT under the Internal Revenue Code of 1986, as amended (the Code), beginning with the taxable year ended December 31, 2008 upon filing its 2008 tax return in September 2009. To qualify as a REIT, the Company must meet
certain organizational and operational requirements, including a requirement to distribute at least 90% of the Companys annual REIT taxable income to stockholders (which is computed without regard to the dividends-paid deduction or net capital
gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax on income that it distributes as dividends to its stockholders. If the Company
fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax
purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially adversely affect the
Companys net income and net cash available for distribution to stockholders. However, the Company intends to organize and operate in such a manner as to qualify for treatment as a REIT.

The Company adopted FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), upon its
inception on July 12, 2007. Based on its evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements, nor has the Company or its subsidiaries been assessed
interest or penalties by any major tax jurisdictions. The Companys evaluations were performed for the tax years ending December 31, 2008 and 2007. As of March 31, 2009, the return for the calendar year 2007 remains subject
to examination by major tax jurisdictions.



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|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(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, 2009 and 2008.

Distributions declared per common share assumes each share was issued and outstanding each day during the three months ended March 31, 2009 and
is based on daily record dates for distributions for the period of $0.00178082 per share per day. Each day during the period from January 1, 2009 through March 31, 2009 was a record date for distributions. No day during the
period from January 1, 2008 through March 31, 2008 was a record date for distributions.

Industry Segments

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for the way that public entities
report information about operating segments in their financial statements. The Companys segments are based on the Companys method of internal reporting which classifies its operations by investment type: real estate and real
estate-related. For financial data by segment, see Note 12, Segment Information.

Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(SFAS 157). SFAS 157 defines fair value and establishes a
framework for measuring fair value under GAAP. The Company adopted SFAS 157 on January 1, 2008. In February 2008, the FASB issued FASB Staff Position (FSP) SFAS No. 157-2, Effective Date of FASB Statement
No. 157 (FSP SFAS 157-2). FSP SFAS 157-2 delayed the effective date of SFAS 157 by one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a
nonrecurring basis. FSP SFAS 157-2 became effective for the Company on January 1, 2009. The adoption of SFAS 157 for the Companys financial assets and liabilities and the adoption of FSP SFAS 157-2 for the Companys nonfinancial
assets and liabilities did not have a material impact on its consolidated financial statements.

In October 2008, the FASB issued FSP SFAS
No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active(FSP SFAS 157-3). FSP SFAS 157-3 clarifies the application of SFAS 157 for financial assets in a market that is not
active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP SFAS157-3 was effective upon issuance. The adoption of FSP SFAS 157-3
did not have a material impact on the Companys consolidated financial statements.

In April 2009, the FASB issued FSP SFAS
No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, (FSP SFAS 157-4). FSP SFAS 157-4 provides
additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for an asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a
transaction is not orderly and emphasizes that even if there has been a significant decrease in the volume and level of activity for an asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement
remains the same. Fair value is the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date
under current market conditions. Furthermore, this FSP requires additional disclosures regarding the inputs and valuation technique(s) used in estimating the fair value of assets and liabilities as well as any changes in such valuation technique(s).
This FSP is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. This FSP does not require
disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption. Revisions resulting from a change in
valuation technique or its application shall be accounted for as a change in accounting estimate. The Company did not adopt this FSP early and does not expect it will have a material impact on its consolidated financial statements.



15



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



In April 2008, the FASB issued FSP SFAS No. 142-3, Determination of the Useful Life of
Intangible Assets (FSP SFAS 142-3). FSP SFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS
No. 142, Goodwill and Other Intangible Assets(SFAS 142). The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used
to measure the fair value of the asset under GAAP, including SFAS 141R. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption
of FSP SFAS No. 142-3 by the Company did not have a material impact on the consolidated financial statements.

In April 2008, the
FASB issued FSP SFAS No. 141R-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies (FSP SFAS 141R-1). FSP SFAS 141R-1 amends and clarifies SFAS 141R to address
application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business
combination. FSP SFAS 141R-1 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
December 31, 2008. The adoption of FSP SFAS 141R-1 by the Company did not have a material impact on the consolidated financial statements.

In April 2009, the FASB issued FSP SFAS No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP SFAS 107-1 and APB 28-1). FSP SFAS 107-1 and APB 28-1 amends SFAS No. 107,
Disclosures about Fair Value of Financial Instruments(SFAS 107), and Accounting Principles Board (APB) Opinion No. 28, Interim Financial Reporting(APB 28),to require public companies to
comply with the disclosure requirements in SFAS 107 related to the fair value of financial instruments in interim financial statements. Prior to the issuance of FSP SFAS 107-1 and APB 28-1, these disclosures were only required in annual financial
statements. This FSP is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. This FSP does not require disclosures for earlier periods
presented for comparative purposes at initial adoption. In periods after initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption. The Company did not adopt this FSP early and does not expect it will
have a material impact on its consolidated financial statements.



|3. | REAL ESTATE
|-- | -----------

As of March 31, 2009, the
Companys real estate portfolio was composed of three office properties and one office/flex property encompassing approximately 1.4 million rentable square feet and was 99% leased. The following table provides summary information regarding
the properties owned by the Company as of March 31, 2009 (in thousands):



|                                 |  |                  |  |               |  |       |  |                    |  |                               |         |                                              |   |                           |  |   |        
|-------------------------------- |  | ---------------- |  | ------------- |  | ----- |  | ------------------ |  | ----------------------------- | ------- | -------------------------------------------- | - | ------------------------- |  | - | -------
|Property                         |  | Date    Acquired |  | City          |  | State |  | Property      Type |  | TotalReal Estate      at Cost |         | AccumulatedDepreciationand      Amortization |   | TotalReal Estate,     Net
|Mountain View Corporate Center   |  | 07/30/2008       |  | Basking Ridge |  | NJ    |  | Office             |  | $                             | 30,767  |                                              | $ | (1,105)                   |  | $ | 29,662 
|                                 |  |                  |  |               |  |       | 
|Campus Drive Buildings           |  |                  |  |               |  |       |  |                    |  |                               |         |                                              |   |                           |  |   |        
|100 & 200 Campus Drive Buildings |  | 09/09/2008       |  | Florham Park  |  | NJ    |  | Office             |  |                               | 198,650 |                                              |   | (6,694)                   |  |   | 191,956
|300-600 Campus Drive Buildings   |  | 10/10/2008       |  | Florham Park  |  | NJ    |  | Office             |  |                               | 195,475 |                                              |   | (4,382)                   |  |   | 191,093
|                                 |  |                  |  |               |  |       |  |                    |  |                               |         |                                              |   |                           |  |   |        
|Total Campus Drive Buildings     |  |                  |  |               |  |       |  |                    |  |                               | 394,125 |                                              |   | (11,076)                  |  |   | 383,049
|                                 |  |                  |  |               |  |       | 
|350 E. Plumeria Building         |  | 12/18/2008       |  | San Jose      |  | CA    |  | Office/Flex        |  |                               | 36,115  |                                              |   | (327)                     |  |   | 35,788 
|                                 |  |                  |  |               |  |       |  |                    |  |                               |         |                                              |   |                           |  |   |        
|                                 |  |                  |  |               |  |       |  |                    |  | $                             | 461,007 |                                              | $ | (12,508)                  |  | $ | 448,499
|                                 |  |                  |  |               |  |       |  |                    |  |                               |         |                                              |   |                           |  |   |        



16



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



Operating Leases

The Companys real estate properties are leased to tenants under operating leases for which the terms and expirations vary. As of March 31, 2009, the leases have remaining terms of up to 10.3 years with
a weighted-average remaining term of 5.2 years. The leases may have provisions to extend the lease agreements, options for early termination after paying a specified penalty, rights of first refusal to purchase the property at competitive
market rates, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires
security deposits from tenants either in the form of a cash deposit and/or a letter of credit. Amounts required as security deposits vary depending upon the terms of the respective leases and the creditworthiness of the tenant, but generally are not
significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to tenant leases are included in other liabilities in
the accompanying consolidated balance sheets. (See Note 10, Other Liabilities)

As of March 31, 2009, the future
minimum rental income from the Companys properties under non-cancelable operating leases is as follows (in thousands):



|                                        |  |   |        
|--------------------------------------- |  | - | -------
|April 1, 2009 through December 31, 2009 |  | $ | 27,042 
|2010                                    |  |   | 33,894 
|2011                                    |  |   | 29,972 
|2012                                    |  |   | 27,861 
|2013                                    |  |   | 24,891 
|Thereafter                              |  |   | 55,662 
|                                        |  |   |        
|                                        |  | $ | 199,322
|                                        |  |   |        

As of March 31, 2009, the Companys highest tenant industry concentrations were as
follows:



|                      |  |                    |  |                                      |        |                                       |      
|--------------------- |  | ------------------ |  | ------------------------------------ | ------ | ------------------------------------- | -----
|Industry              |  | Number of  Tenants |  | AnnualizedBase Rent(1)(in thousands) |        | Percentage of     AnnualizedBase Rent
|Manufacturing         |  | 3                  |  | $                                    | 9,549  |                                       | 25.1%
|Finance               |  | 8                  |  |                                      | 6,997  |                                       | 18.4%
|Legal Services        |  | 3                  |  |                                      | 6,442  |                                       | 16.9%
|Professional Services |  | 7                  |  |                                      | 5,921  |                                       | 15.5%
|Accounting Services   |  | 2                  |  |                                      | 4,578  |                                       | 12.0%
|                      |  |                    |  |                                      |        |                                       |      
|                      |  |                    |  | $                                    | 33,487 |                                       | 87.9%
|                      |  |                    |  |                                      |        |                                       |      

____________________

(1) Annualized base rent represents annualized contractual base rental income, adjusted to straight-line
any contractual rent increases or decreases from the leases inception through the balance of the lease term.

No other tenant
industries accounted for more than 10% of annualized based rent. No material tenant credit issues have been identified at this time.



17



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



As of March 31, 2009, the Company had a concentration of credit risk related to the
following two tenant leases that represent more than 10% of the Companys annualized base rent:



|                           |  |                  |  |                     |  |                      |  |                                 |  |                                       |        |                                   |       |                                    |   |                      |  |           
|-------------------------- |  | ---------------- |  | ------------------- |  | -------------------- |  | ------------------------------- |  | ------------------------------------- | ------ | --------------------------------- | ----- | ---------------------------------- | - | -------------------- |  | ----------
|                           |  |                  |  |                     |  | Net Rentable Sq. Ft. |  | Annualized Base Rent Statistics |  |                                      
|Tenant                     |  | Property         |  | Tenant Industry     |  | Square      Feet     |  | % of    Portfolio               |  | AnnualizedBase Rent (1)(in thousands) |        | % of PortfolioAnnualizedBase Rent |       | AnnualizedBase Rent perSquare Feet |   | LeaseExpirations (2)
|BASF Americas Corporation  |  | 100 & 200 Campus |  |                     |  |                      |  |                                 |  |                                       |        |                                   |       |                                    |   |                      |  |           
|                           |  | Drive Buildings  |  | Manufacturing       |  | 199,024              |  | 14.2%                           |  | $                                     | 6,415  |                                   | 16.8% |                                    | $ | 32.23                |  | 11/30/2016
|PricewaterhouseCoopers LLP |  | 300-600 Campus   |  |                     |  |                      |  |                                 |  |                                       |        |                                   |       |                                    |   |                      |  |           
|                           |  | Drive Buildings  |  | Accounting Services |  | 195,499              |  | 14.0%                           |  |                                       | 4,338  |                                   | 11.4% |                                    |   | 22.19                |  | 09/30/2015
|                           |  |                  |  |                     |  |                      |  |                                 |  |                                       |        |                                   |       |                                    |   |                      |  |           
|                           |  |                  |  |                     |  | 394,523              |  | 28.2%                           |  | $                                     | 10,753 |                                   | 28.2% |                                    | $ | 27.26                |  |           
|                           |  |                  |  |                     |  |                      |  |                                 |  |                                       |        |                                   |       |                                    |   |                      |  |           



(1) Annualized base rent represents annualized contractual base rental income, adjusted to straight-line
any contractual rent increases or decreases from the leases inception through the balance of the lease term.

(2) Represents the expiration date of the lease at March 31, 2009 and does not take into account any tenant renewal options.



|4. | TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES
|-- | -----------------------------------------------------------------------------------------------------

As of March 31, 2009 and December 31, 2008, the Companys tenant origination and absorption costs, above-market lease assets and
below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) are as follows (in thousands):



|                         |  |                                        |         |                          |   |                               |  |                  |      |                  |   |                  |  |   |         |  |   |        
|------------------------ |  | -------------------------------------- | ------- | ------------------------ | - | ----------------------------- |  | ---------------- | ---- | ---------------- | - | ---------------- |  | - | ------- |  | - | -------
|                         |  | Tenant Origination andAbsorption Costs |         | Above-MarketLease Assets |   | Below-MarketLease Liabilities
|                         |  | March 31,   2009                       |         | December 31,2008         |   | March 31,   2009              |  | December 31,2008 |      | March 31,   2009 |   | December 31,2008
|                         |  |                                        |         |                          |   |                              
|Cost                     |  | $                                      | 46,268  |                          | $ | 46,396                        |  | $                | 273  |                  | $ | 273              |  | $ | 23,829  |  | $ | 23,835 
|                         |  |                                        |         |                          |   |                              
|Accumulated Amortization |  |                                        | (5,779) |                          |   | (3,043)                       |  |                  | (40) |                  |   | (25)             |  |   | (2,861) |  |   | (1,471)
|                         |  |                                        |         |                          |   |                               |  |                  |      |                  |   |                  |  |   |         |  |   |        
|                         |  |                                        |         |                          |   |                              
|Net Amount               |  | $                                      | 40,489  |                          | $ | 43,353                        |  | $                | 233  |                  | $ | 248              |  | $ | 20,968  |  | $ | 22,364 
|                         |  |                                        |         |                          |   |                               |  |                  |      |                  |   |                  |  |   |         |  |   |        

Increases (decreases) in net income as a result of amortization of the Companys tenant
origination and absorption costs, above-market lease assets and below-market lease liabilities for the three months ended March 31, 2009 are as follows (in thousands):



|             |  |                                        |         |                          |   |                                |  |   |      
|------------ |  | -------------------------------------- | ------- | ------------------------ | - | ------------------------------ |  | - | -----
|             |  | TenantOrigination and Absorption Costs |         | Above-MarketLease
Assets |   | Below-Market Lease Liabilities
|Amortization |  | $                                      | (2,864) |                          | $ | (15)                           |  | $ | 1,396
|             |  |                                        |         |                          |   |                                |  |   |      



18



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



The remaining unamortized balance for these outstanding intangible assets and liabilities as of
March 31, 2009 is expected to be amortized as an increase (decrease) to income as follows (dollars in thousands):



|                                              |  |                                           |           |                                |   |                                    |  |   |          
|--------------------------------------------- |  | ----------------------------------------- | --------- | ------------------------------ | - | ---------------------------------- |  | - | ---------
|                                              |  | TenantOrigination and    Absorption Costs |           | Above-Market      Lease Assets |   | Below-Market     Lease Liabilities
|April 1, 2009 through December 31, 2009       |  | $                                         | (8,352)   |                                | $ | (45)                               |  | $ | 4,171    
|2010                                          |  |                                           | (8,881)   |                                |   | (60)                               |  |   | 4,414    
|2011                                          |  |                                           | (6,011)   |                                |   | (60)                               |  |   | 2,764    
|2012                                          |  |                                           | (5,051)   |                                |   | (57)                               |  |   | 2,471    
|2013                                          |  |                                           | (4,156)   |                                |   | (7)                                |  |   | 2,307    
|Thereafter                                    |  |                                           | (8,038)   |                                |   | (4)                                |  |   | 4,841    
|                                              |  |                                           |           |                                |   |                                    |  |   |          
|                                              |  | $                                         | (40,489)  |                                | $ | (233)                              |  | $ | 20,968   
|                                              |  |                                           |           |                                |   |                                    |  |   |          
|                                              |  |                                           |          
|Weighted-Average RemainingAmortization Period |  |                                           | 5.4 years |                                |   | 4.0 years                          |  |   | 5.7 years



|5. | REAL ESTATE LOANS RECEIVABLE
|-- | ----------------------------

As of
March 31, 2009 and December 31, 2008, the Company, through wholly owned subsidiaries, had invested in real estate loans receivable as follows (dollars in thousands):



|                                                     |  |               |  |               |  |           |  |                                    |         |                                       |   |                               |  |                                                    |  |                   |  |           
|---------------------------------------------------- |  | ------------- |  | ------------- |  | --------- |  | ---------------------------------- | ------- | ------------------------------------- | - | ----------------------------- |  | -------------------------------------------------- |  | ----------------- |  | ----------
|Loan Name Location of Related Property or Collateral |  | Date Acquired |  | Property Type |  | Loan Type |  | Book Valueas
of March 31, 2009 (1) |         | Book Valueas
of December 31, 2008 (1) |   | Contractual Interest Rate (2) |  | AnnualEffectiveInterest Rate at March 31, 2009 (2) |  | Maturity  Date(2)
|Northern Trust Building A-NoteSan Diego, California  |  | 12/31/2008    |  | Office        |  | A-Note    |  | $                                  | 58,715  |                                       | $ | 58,152                        |  | 5.60%                                              |  | 12.9%             |  | 10/01/2017
|One Liberty Plaza Notes (3)New York, New York        |  | 02/11/2009    |  | Office        |  | Mortgage  |  |                                    | 67,863  |                                       |   | -                             |  | 6.14%                                              |  | 14.8%             |  | 08/06/2017
|                                                     |  |               |  |               |  |           |  |                                    |         |                                       |   |                               |  |                                                    |  |                   |  |           
|                                                     |  |               |  |               |  |           |  | $                                  | 126,578 |                                       | $ | 58,152                        |  |                                                    |  |                   |  |           
|                                                     |  |               |  |               |  |           |  |                                    |         |                                       |   |                               |  |                                                    |  |                   |  |           





(1) Book value of real estate loans receivable represents unpaid principal balance net of unamortized
acquisition discounts, origination fees, and direct origination and acquisition costs.

(2) Contractual interest rates are the stated interest rates on the face of the loans. Annual effective interest rates are calculated as the actual interest income recognized in 2009, using the interest method, divided by the
average amortized cost basis of the investment. The annual effective interest rates and contractual interest rates presented are for the three months ended March 31, 2009. Maturity dates are as of March 31, 2009.

(3) Monthly installments on the One Liberty Plaza Notes are interest only until August 2011. For the
final six years on the notes, principal on the loan amortizes on a 30-year amortization schedule, with the remaining principal balance due at maturity.



19



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



The following summarizes the activity related to real estate loans receivable for the three months
ended March 31, 2009 (in thousands):



|                                                                           |  |   |         
|-------------------------------------------------------------------------- |  | - | --------
|Real estate loan receivable - December 31, 2008                            |  | $ | 58,152  
|Face value of real estate loan receivable acquired                         |  |   | 115,000 
|Discount on purchase of real estate loan receivable                        |  |   | (48,300)
|Accretion of discounts on purchases of real estate loans receivable        |  |   | 978     
|Closing costs on purchase of real estate loan receivable                   |  |   | 766     
|Amortization of closing costs on purchases of real estate loans receivable |  |   | (18)    
|                                                                           |  |   |         
|Real estate loans receivable - March 31, 2009                              |  | $ | 126,578 
|                                                                           |  |   |         

The following summarizes the Companys investments in real estate loans receivable as of
March 31, 2009 (in thousands):



|                                                                                      |  |   |         
|------------------------------------------------------------------------------------- |  | - | --------
|Face value of real estate loans receivable                                            |  | $ | 209,500 
|Discounts on real estate loans receivable                                             |  |   | (85,372)
|Accumulated accretion of discounts on purchases ofreal estate loans receivable        |  |   | 984     
|Closing costs on purchases of real estate loans receivable                            |  |   | 1,484   
|Accumulated amortization of closing costs on purchasesof real estate loans receivable |  |   | (18)    
|                                                                                      |  |   |         
|Real estate loans receivable - March 31, 2009                                         |  | $ | 126,578 
|                                                                                      |  |   |         

For the three months ended March 31, 2009, interest income from real estate loans
receivable consists of the following (in thousands):



|                                                                           |  |   |      
|-------------------------------------------------------------------------- |  | - | -----
|Contractual interest income                                                |  | $ | 2,265
|Accretion of purchase discounts                                            |  |   | 978  
|Amortization of closing costs on purchases                                 |  |   | (18) 
|                                                                           |  |   |      
|Interest income from real estate loans receivable                          |  | $ | 3,225
|                                                                           |  |   |      
|Interest receivable from real estate loans receivable at end of the period |  | $ | 966  
|                                                                           |  |   |      

The Companys two investments in real estate loans receivable both mature in 2017.



20



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



Recent Acquisitions

Investment in One Liberty Plaza Notes

On February 11, 2009, the Company, through an indirect wholly owned
subsidiary, purchased, at a discount, two promissory notes secured by a first lien mortgage (the One Liberty Plaza Notes) from a seller unaffiliated with the Company or the Advisor for $66.7 million plus closing costs. The One
Liberty Plaza Notes are two of six pari-passu participation interests created in connection with a first mortgage loan obtained by the borrower. The property securing the loan is a 53-story, Class A office building located in lower Manhattan.
The office building contains 2,186,163 rentable square feet, including 17,305 square feet of retail space, and is approximately 99% leased.

The initial maturity date of the One Liberty Plaza Notes is August 6, 2017. The One Liberty Plaza Notes may be defeased after August 2010 and may be prepaid in whole but not in part during the four months prior to the
maturity date.



|6. | RENTS AND OTHER RECEIVABLES
|-- | ---------------------------

As of
March 31, 2009 and December 31, 2008, rents and other receivables consist of the following (in thousands):



|                                                                                                                                    |  |               |       |                  |   |      
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----- | ---------------- | - | -----
|                                                                                                                                    |  | March 31,2009 |       | December 31,2008
|Tenant receivables, net of allowance for doubtful accounts of $30 and $19  as of March 31, 2009 and December 31, 2008,
respectively |  | $             | 1,412 |                  | $ | 1,193
|Deferred rent                                                                                                                       |  |               | 1,119 |                  |   | 596  
|Interest receivable                                                                                                                 |  |               | 966   |                  |   | 461  
|                                                                                                                                    |  |               |       |                  |   |      
|                                                                                                                                    |  | $             | 3,497 |                  | $ | 2,250
|                                                                                                                                    |  |               |       |                  |   |      



|7. | DEFERRED FINANCING COSTS, PREPAID EXPENSES AND OTHER ASSETS
|-- | -----------------------------------------------------------

As of March 31, 2009 and December 31, 2008, deferred financing costs, prepaid expenses and other assets consist of the following (in thousands):



|                                                                                                                                     |  |               |       |                  |   |      
|------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ----- | ---------------- | - | -----
|                                                                                                                                     |  | March 31,2009 |       | December 31,2008
|Lease commissions                                                                                                                    |  | $             | 605   |                  | $ | 306  
|Prepaid insurance                                                                                                                    |  |               | 492   |                  |   | 25   
|Deferred financing costs, net of accumulated amortization of $561 and $541  as of March 31, 2009 and December 31,
2008, respectively |  |               | 409   |                  |   | 536  
|Utility deposits                                                                                                                     |  |               | 326   |                  |   | 326  
|Other assets and prepaid expenses                                                                                                    |  |               | 132   |                  |   | 67   
|                                                                                                                                     |  |               |       |                  |   |      
|                                                                                                                                     |  | $             | 1,964 |                  | $ | 1,260
|                                                                                                                                     |  |               |       |                  |   |      



21



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)





|8. | NOTES PAYABLE
|-- | -------------

As of March 31, 2009 and
December 31, 2008, the Companys notes payable, all of which are interest-only loans during the terms of the loans with principal payable upon maturity, consist of the following (dollars in thousands):



|                                                 |  |                                   |         |                                   |   |                             |  |                          |  |                         |  |              
|------------------------------------------------ |  | --------------------------------- | ------- | --------------------------------- | - | --------------------------- |  | ------------------------ |  | ----------------------- |  | -------------
|                                                 |  | Principal as of    March 31, 2009 |         | Principal as of December 31, 2008 |   | Average    Interest Rate(1) |  | ContractualInterest Rate |  | MaturityDate (2)       
|Mountain View Corporate Center Mortgage Loan (3) |  | $                                 | 13,500  |                                   | $ | 12,270                      |  | 4.10%                    |  | LIBOR + 2.75% (4)       |  | 07/30/2009   
|                                                 |  |                                   |         |                                   |  
|Campus Drive Buildings                           |  |                                   |         |                                   |   |                             |  |                          |  |                         |  |              
|100 & 200 Campus Drive Buildings                 |  |                                   |         |                                   |   |                             |  |                          |  |                         |  |              
|100 & 200 Campus Drive Mortgage Loan             |  |                                   | 89,800  |                                   |   | 89,800                      |  | 4.06%                    |  | One-month LIBOR + 3.50% |  | 06/09/2009   
|100 & 200 Campus Drive Mezzanine Loan (5)        |  |                                   | -       |                                   |   | 28,526                      |  | (5)                      |  | (5)                     |  | (5)          
|                                                 |  |                                   |         |                                   |   |                             |  |                          |  |                         |  |              
|Total 100 & 200 Campus Drive Buildings           |  |                                   | 89,800  |                                   |   | 118,326                     |  |                          |  |                         |  |              
|                                                 |  |                                   |         |                                   |  
|300-600 Campus Drive Buildings                   |  |                                   |         |                                   |   |                             |  |                          |  |                         |  |              
|300-600 Campus Drive Mortgage Loan               |  |                                   | 93,850  |                                   |   | 93,850                      |  | 5.90%                    |  | 5.90%                   |  | 04/10/2014   
|300-600 Campus Drive Mezzanine Loan (6)          |  |                                   | 47,000  |                                   |   | 47,000                      |  | 6.20%                    |  | 6.80% (7)               |  | 07/10/2009(6)
|                                                 |  |                                   |         |                                   |   |                             |  |                          |  |                         |  |              
|Total 300-600 Campus Drive Buildings             |  |                                   | 140,850 |                                   |   | 140,850                     |  |                          |  |                         |  |              
|                                                 |  |                                   |         |                                   |  
|350 E. Plumeria Building Mortgage Loan(3)        |  |                                   | 10,310  |                                   |   | -                           |  | 4.10%                    |  | LIBOR + 2.75% (4)       |  | 07/30/2009   
|                                                 |  |                                   |         |                                   |   |                             |  |                          |  |                         |  |              
|                                                 |  | $                                 | 254,460 |                                   | $ | 271,446                     |  |                          |  |                         |  |              
|                                                 |  |                                   |         |                                   |   |                             |  |                          |  |                         |  |              





(1) Average interest rate is calculated as the weighted-average interest rate for the current year to
date; however, if the loan was refinanced or modified during the year, the weighted-average interest rate is calculated from the effective date of the refinancing or modification to March 31, 2009.

(2) Represents the initial maturity date or the maturity date as extended as of
March 31, 2009; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown.

(3) The Mountain View Corporate Center Mortgage Loan is cross-collateralized and cross-defaulted with the 350 E. Plumeria Building Mortgage Loan.

(4) The interest rate under this loan is calculated at a variable rate of 275 basis points over
one-month or three-month LIBOR at the Companys election, but at no point shall the interest rate be less than 4.10%.

(5) On March 11, 2009, the Company repaid the remaining principal and accrued interest on the 100 & 200 Campus Drive Mezzanine Loan.

(6) On April 3, 2009, the Company repaid in full the principal and accrued interest on the
$47.0 million 300-600 Campus Drive Mezzanine Loan.

(7) This loan bore interest at a fixed
rate of 5.8% per annum until February 10, 2009, after which the interest rate increases on a monthly basis by 0.5% per annum through the loans maturity.

During the three months ended March 31, 2009, the Company incurred $3.6 million of interest expense. Of this amount, $0.9 million was payable
at March 31, 2009. Included in interest expense for the three months ended March 31, 2009 was $0.4 million of amortization of deferred financing costs.



22



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)





The following is a schedule of maturities for all notes payable outstanding as of
March 31, 2009 (in thousands):



|                                        |  |   |        
|--------------------------------------- |  | - | -------
|April 1, 2009 through December 31, 2009 |  | $ | 160,610
|2010                                    |  |   | -      
|2011                                    |  |   | -      
|2012                                    |  |   | -      
|2013                                    |  |   | -      
|Thereafter                              |  |   | 93,850 
|                                        |  |   |        
|                                        |  | $ | 254,460
|                                        |  |   |        

During the three months ended March 31, 2009, the Company entered into the following
financings related to its real property portfolio:

350 E. Plumeria Financing and Modification to the Mountain View Corporate Center Loan

On February 6, 2009, the Company closed a $14.3 million six month bridge loan facility secured by the
350 E. Plumeria Building (the 350 E. Plumeria Building Mortgage Loan) and modified the terms of the Mountain View Corporate Center Mortgage Loan. The 350 E. Plumeria Building Mortgage Loan is cross collateralized and cross
defaulted with the Mountain View Corporate Center Mortgage Loan. The initial maturity date of these loans is July 30, 2009, with an option to extend the maturity date to October 30, 2009, subject to certain terms and conditions.
Monthly installments on these loans will be interest only and the entire principal amount is due on the maturity date, assuming no prior prepayment. The 350 E. Plumeria Building Mortgage Loan may be prepaid in whole or in part at any time. No exit
fee is payable if the 350 E. Plumeria Building Mortgage Loan is prepaid on or after April 30, 2009. As of March 31, 2009, $10.3 million has been funded under the 350 E. Plumeria Building Mortgage Loan and an
additional $4.0 million is available for future disbursement for the Companys general cash management requirements, subject to certain conditions set forth in the loan agreement.

100 & 200 Campus Drive Extension

On March 17, 2009, the Company entered
into a loan modification agreement dated March 11, 2009 with the lender to extend the maturity date of the 100 & 200 Campus Drive Mortgage Loan to June 9, 2009. As a condition of the extension, the loan will bear
interest at a variable rate of 350 basis points over one-month LIBOR, as reset daily, with the option to request a fixed rate equal to 350 basis points over one-month LIBOR by entering into a corresponding one-month LIBOR contract during the
extension period. The Company currently intends to refinance the loan balance on a long-term basis upon the expiration of the extension period.



23



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)





|9. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|-- | ----------------------------------------

As of
March 31, 2009 and December 31, 2008, accounts payable and accrued liabilities consist of the following (in thousands):



|                                               |  |                |       |                   |   |      
|---------------------------------------------- |  | -------------- | ----- | ----------------- | - | -----
|                                               |  | March 31, 2009 |       | December 31, 2008
|Accounts payable and other accrued liabilities |  | $              | 2,888 |                   | $ | 2,330
|Accrued interest expense                       |  |                | 890   |                   |   | 923  
|Real estate taxes payable                      |  |                | 50    |                   |   | -    
|                                               |  |                |       |                   |   |      
|                                               |  | $              | 3,828 |                   | $ | 3,253
|                                               |  |                |       |                   |   |      



|10. | OTHER LIABILITIES
|--- | -----------------

As of March 31, 2009
and December 31, 2008, other liabilities consist of the following (in thousands):



|                         |  |                |       |                   |   |      
|------------------------ |  | -------------- | ----- | ----------------- | - | -----
|                         |  | March 31, 2009 |       | December 31, 2008
|Tenant security deposits |  | $              | 632   |                   | $ | 637  
|Prepaid rent             |  |                | 206   |                   |   | 823  
|Other                    |  |                | 350   |                   |   | -    
|                         |  |                |       |                   |   |      
|                         |  | $              | 1,188 |                   | $ | 1,460
|                         |  |                |       |                   |   |      



24



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)





|11. | RELATED PARTY TRANSACTIONS
|--- | --------------------------

The Company has
entered into an Advisory Agreement with the Advisor and a Dealer Manager Agreement 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
Offering and the investment of funds in real estate and 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 (as
discussed in Note 2) and certain costs incurred by the Advisor in providing services to the Company.

Pursuant to the terms of the
agreements described above, summarized below are the related-party costs incurred by the Company for the three months ended March 31, 2009 and 2008, and any related amounts payable as of March 31, 2009 and
December 31, 2008 (in thousands):



|                                         |      |                              |        |               |      |              |      |   |     |  |   |    
|---------------------------------------- | ---- | ---------------------------- | ------ | ------------- | ---- | ------------ | ---- | - | --- |  | - | ---
|                                         |      | Incurred                     |        | Payable as of
|                                         |      | Three Months Ended March 31, |        | March 31,     |      | December 31,
|                                         | 2009 |                              | 2008   |               | 2009 |              | 2008
|Expensed                                 |      |                              |        |               |      |              |      |   |     |  |   |    
|Asset management fees                    |      | $                            | 985    |               | $    | -            |      | $ | -   |  | $ | -  
|Reimbursable insurance premiums(1)       |      |                              | -      |               |      | 112          |      |   | -   |  |   | -  
|                                         |      |                              |        |              
|Additional Paid-in Capital               |      |                              |        |               |      |              |      |   |     |  |   |    
|Selling commissions(2)                   |      |                              | 8,565  |               |      | -            |      |   | -   |  |   | -  
|Dealer manager fees(2)                   |      |                              | 5,149  |               |      | -            |      |   | -   |  |   | -  
|Reimbursable other offering costs(2) (3) |      |                              | 652    |               |      | -            |      |   | 161 |  |   | 268
|                                         |      |                              |        |              
|Capitalized                              |      |                              |        |               |      |              |      |   |     |  |   |    
|Acquisition and origination fees(4)      |      |                              | 668    |               |      | -            |      |   | -   |  |   | 145
|                                         |      |                              |        |               |      |              |      |   |     |  |   |    
|                                         |      | $                            | 16,019 |               | $    | 112          |      | $ | 161 |  | $ | 413
|                                         |      |                              |        |               |      |              |      |   |     |  |   |    



(1) During the three months ended March 31, 2008, the Advisor had incurred $0.1 million for
directors and officers insurance premiums for the Companys directors and officers covering the period from February 29, 2008 through February 28, 2009. Insurance premiums are capitalized to prepaid expenses and amortized to
general and administrative expenses in the period to which the expenditures relate.

(2)
Selling commissions, dealer manager fees and reimbursable other offering costs are charged as incurred against stockholders equity in the accompanying consolidated financial statements.

(3) Reimbursable other offering costs represent the portion of the Companys other offering costs
incurred by the Advisor and its affiliates on behalf of the Company and subsequently reimbursed or reimbursable by the Company. The Company has recorded other offering costs related to the Offering of $1.8 million for the three months
ended March 31, 2009, including both other offering costs incurred directly by the Company and those costs incurred by the Advisor and its affiliates on behalf of the Company. Of the total other offering costs recorded by the Company
during the three months ended March 31, 2009, $0.7 million was incurred by the Advisor and its affiliates as reimbursable other offering costs and $1.1 million was incurred directly by the Company.

(4) Represents acquisition and origination fees related to purchases of real estate and real
estate-related investments during the three months ended March 31, 2009.



25



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



The Company did not incur any disposition fees, subordinated participation in net cash flows, or
subordinated incentive listing fees during the three months ended March 31, 2009.

The fees and reimbursement obligations under
the Advisory Agreement and Dealer Manager Agreement are as follows:



|                                                          |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--------------------------------------------------------- |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Form of Compensation                                      |  |  |  | Amount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Selling Commission                                        |  |  |  | The Company pays the Dealer Manager up to 6% of the gross offering proceeds before reallowance of commissions earned by
participating broker-dealers. The Dealer Manager reallows 100% of commissions earned to participating broker-dealers. No sales commission is paid on shares issued through the dividend reinvestment plan. A reduced sales commission is paid with
respect to certain volume discount sales.  Assuming all shares in
the primary offering are sold at the highest possible selling commissions (with no discounts to any categories of purchasers), estimated selling commissions are approximately $120.0 million if the Company sells the maximum of 200,000,000 shares
in the primary offering.
|                                                          |  | 
|Dealer Manager Fee                                        |  |  |  | The Company pays the Dealer Manager 3.5% of gross offering proceeds. No dealer manager fee is paid on shares issued under the
dividend reinvestment plan. The Dealer Manager may reallow to any participating broker-dealer up to 1% of the gross offering proceeds attributable to that participating broker-dealer as a marketing fee and in special cases the Dealer Manager may
increase the reallowance. A reduced dealer manager fee is paid with respect to certain volume discount sales.  The estimated dealer manager fee is approximately $70.0 million if the Company sells the maximum of 200,000,000 shares in the primary offering.                                                                        
|                                                          |  | 
|Reimbursement of Organization
and Other Offering Expenses |  |  |  | The Company reimburses the Advisor or its affiliates for organization and other offering expenses (as discussed in Note 2)
incurred by the Advisor or its affiliates on behalf of the Company to the extent that reimbursement would not cause selling commissions, dealer manager fees and organization and other offering expenses borne by the Company to exceed 15% of gross
offering proceeds as of the date of reimbursement.  The Company
estimates organization and offering costs will total approximately $24.6 million if the Company sells the maximum of 280,000,000 shares.                                                                                                                                 
|                                                          |  | 
|Acquisition Fee                                           |  |  |  | The Company pays the Advisor an acquisition fee equal to 0.75% of the cost of investments acquired, including acquisition expenses and any debt attributable to
such investments. With respect to investments in and originations of loans, the Company pays an origination fee to the Advisor in lieu of an acquisition fee.                                                                                                                                                                                                                                                                                                                                                                                             



26



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



|                                       |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-------------------------------------- |  |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Form of Compensation                   |  |  |  | Amount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Origination Fee                        |  |  |  | The Company pays the Advisor or its wholly owned subsidiary an origination fee equal to 1.0% of the amount funded by the Company to acquire or originate
mortgage, mezzanine, bridge or other loans, including any expenses related to such investments and any debt the Company uses to fund the acquisition or origination of the loans. The Company does not pay an acquisition fee with respect to such loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                       |  | 
|Asset Management Fee(1)                |  |  |  | The Company pays the Advisor a monthly asset management fee equal to one-twelfth of 0.75% of the sum of the cost of all real estate investments made by the
Company and of the Companys investments in joint ventures, including acquisition fees, origination fees, acquisition and origination expenses and any debt attributable to such investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                       |  | 
|Reimbursement of Operating
Expenses(1) |  |  |  | The Company reimburses the expenses incurred by the Advisor or its affiliates in connection with their provision of services to the Company, including the
Companys allocable share of the Advisors overhead, such as insurance, rent, personnel costs, utilities and IT costs. Though the Advisor may seek reimbursement for personnel and other overhead costs under the Advisory Agreement, the
Advisor does not intend to do so at this time. If the Advisor does decide to seek reimbursement for personnel and other overhead costs, such costs may include the Companys proportionate share of the salaries of persons involved in the
preparation of documents to meet SEC reporting requirements. The Company will not reimburse the Advisor or its affiliates for personnel and other overhead costs in connection with services for which the Advisor or its affiliates receive acquisition
fees, origination fees or disposition fees or for the salaries and benefits the Advisor or its affiliates may pay to the Companys executive officers.                                                                                                                                                                                            
|                                       |  | 
|Disposition Fee(1)                     |  |  |  | For substantial assistance in connection with the sale of properties or other investments, the Company will pay the Advisor or
its affiliate a disposition fee of 1% of the contract sales price of the properties or other investments sold. However, in no event may the disposition fees (including real estate commissions) paid to the Advisor, its affiliates and unaffiliated
third parties exceed 6% of the contract sales price of the properties or other investments sold. To the extent the disposition fee is paid upon the sale of any assets other than real property, it will count against the limit on total operating
expenses described below.  The Company does not intend to sell
properties or other assets to affiliates. However, if the Company does sell an asset to an affiliate, its organizational documents would not prohibit it from paying the Advisor a disposition fee. Before the Company sells an asset to an affiliate,
the Companys Articles of Incorporation would require that the Companys conflicts committee conclude, by a majority vote, that the transaction is fair and reasonable to the Company and on terms and conditions no less favorable to the
Company than those available from third parties.



27



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



|                                                |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----------------------------------------------- |  |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Form of Compensation                            |  |  |  | Amount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Subordinated Participation in
Net Cash Flows(1) |  |  |  | After investors receive a return of their net capital contributions and an 8% per year cumulative, noncompounded return, the Advisor is entitled to receive 15%
of the net cash flows produced by the Company, whether from continuing operations, net sale proceeds or otherwise. The 8% per year cumulative, noncompounded return is calculated based on the amount of capital invested in the Offering. In making this
calculation, an investors net capital contribution is reduced to the extent distributions in excess of a cumulative, noncompounded, annual return of 8% are paid (from whatever source), except to the extent such distributions would be required
to supplement prior distributions paid in order to achieve a cumulative, noncompounded, annual return of 8%.
|                                                |  | 
|Subordinated Incentive Listing
Fee              |  |  |  | Upon listing the Companys common stock on a national securities exchange, the Advisor or its affiliates will receive 15% of the amount by which (1) the
market value of the Companys outstanding stock plus distributions paid by the Company prior to listing exceeds (2) the sum of invested capital and the amount of cash flow necessary to generate an 8% per year cumulative, noncompounded return to
stockholders.                                                                                                                                                                                                                                                                                                                                                               

_________________

(1)Commencing
with the fiscal quarter ended September 30, 2009, the Advisor will reimburse the Company at the end of any fiscal quarter for total operating expenses that in the four consecutive fiscal quarters then ended exceed the greater of 2% of its
average invested assets or 25% of its net income, unless the conflicts committee of the Companys board of directors has determined that such excess expenses were justified based on unusual and non-recurring factors.

Average invested assets means the average monthly book value of the Companys assets during the 12-month period before deducting depreciation, bad debts
or other noncash reserves.

Total operating expenses means all expenses paid or incurred by the Company, as determined under GAAP, that are in
any way related to the Companys operation, including advisory fees, but excluding (a) the expenses of raising capital such as organization and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration and
other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, registration and stock exchange listing of the Companys stock; (b) interest payments; (c) taxes;
(d) noncash expenditures such as depreciation, amortization and bad debt reserves; (e) reasonable incentive fees based on the gain on the sale of the Companys assets; and (f) acquisition fees, origination fees, acquisition and
origination expenses (including expenses relating to potential investments that the Company does not close), disposition fees on the resale of property and other expenses connected with the acquisition, origination, disposition and ownership of real
estate interests, loans or other property (including the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property). To the extent the Advisor receives the fee described above at Subordinated
Participation in Net Cash Flows and such fee is derived from cash flows other than net sales proceeds, that fee will count against the limit on total operating expenses. To the extent the Advisor receives the fee described above as
Disposition Fee and such fee is paid upon the sale of any assets other than real property, it will count against the limit on total operating expenses.

The Advisory Agreement has a one-year term. The Company may terminate the Advisory Agreement on 60 days written notice.



28



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)





|12. | SEGMENT INFORMATION
|--- | -------------------

The Company presently
operates in two business segments based on its investment types: real estate and real estate-related. Under the real estate segment, the Company has invested in office and office/flex properties. Under the real estate-related segment, the Company
has invested in a mortgage loan and an A-Note. All revenues earned from the Companys two operating segments were from external customers and there were no intersegment sales or transfers. The Company does not allocate corporate-level accounts
to its operating segments. Corporate-level accounts include corporate general and administrative expenses, non-operating interest income, non-operating interest expense and other corporate-level expenses. The accounting policies of the segments are
consistent with those described in the summary of significant accounting policies (see Note 2).

The Company evaluates the performance of
its segments based upon net operating income (NOI), which is a non-GAAP supplemental financial measure. The Company defines NOI for its real estate segment as operating revenues (rental income, tenant reimbursements, interest and other
income) less property and related expenses (property operating expenses, real estate taxes, insurance, asset management fees and provision for bad debt) less interest expense. The Company defines NOI for its real estate-related segment as interest
income less loan servicing costs and asset management fees. NOI excludes certain items that are not considered to be controllable in connection with the management of an asset such as non-property income and expenses, depreciation and amortization,
and corporate general and administrative expenses. The Company uses NOI to evaluate the operating performance of the Companys real estate and real estate-related investments and to make decisions about resource allocations. The Company
believes that net income is the GAAP measure that is most directly comparable to NOI; however, NOI should not be considered as an alternative to net income as the primary indicator of operating performance as it excludes the items described above.
Additionally, NOI as defined above may not be comparable to other REITs or companies as their definitions of NOI may differ from the Companys definition.



29



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



The following tables summarize total revenues and NOI for each reportable segment for the three
months ended March 31, 2009 and 2008, and total assets and total liabilities for each reportable segment as of March 31, 2009 and December 31, 2008 (in thousands):



|                               |  |                                      |         |                        |   |        
|------------------------------ |  | ------------------------------------ | ------- | ---------------------- | - | -------
|                               |  | For the Three Months Ended March 31,
|                               |  | 2009                                 |         | 2008                  
|Revenues:                      |  |                                      |         |                        |   |        
|Real estate segment            |  | $                                    | 13,190  |                        | $ | -      
|Real estate-related segment    |  |                                      | 3,225   |                        |   | -      
|                               |  |                                      |         |                        |   |        
|Total segment revenues         |  |                                      | 16,415  |                        |   | -      
|Corporate-level                |  |                                      | 146     |                        |   | -      
|                               |  |                                      |         |                        |   |        
|Total revenues                 |  | $                                    | 16,561  |                        | $ | -      
|                               |  |                                      |         |                        |   |        
|                               |  |                                     
|Interest Expense:              |  |                                      |         |                        |   |        
|Real estate segment            |  | $                                    | 3,529   |                        | $ | -      
|Real estate-related segment    |  |                                      | -       |                        |   | -      
|                               |  |                                      |         |                        |   |        
|Total segment interest expense |  |                                      | 3,529   |                        |   | -      
|Corporate-level                |  |                                      | 36      |                        |   | -      
|                               |  |                                      |         |                        |   |        
|Total interest expense         |  | $                                    | 3,565   |                        | $ | -      
|                               |  |                                      |         |                        |   |        
|                               |  |                                     
|NOI:                           |  |                                      |         |                        |   |        
|Real estate segment            |  | $                                    | 4,768   |                        | $ | -      
|Real estate-related            |  |                                      | 3,044   |                        |   | -      
|                               |  |                                      |         |                        |   |        
|Total NOI                      |  | $                                    | 7,812   |                        | $ | -      
|                               |  |                                      |         |                        |   |        
|                               |  |                                     
|                               |  | As ofMarch 31, 2009                  |         | As ofDecember 31, 2008
|Assets:                        |  |                                      |         |                        |   |        
|Real estate segment            |  | $                                    | 455,468 |                        | $ | 461,043
|Real estate-related segment    |  |                                      | 127,545 |                        |   | 58,608 
|                               |  |                                      |         |                        |   |        
|Total segment assets           |  |                                      | 583,013 |                        |   | 519,651
|Corporate-level(1)             |  |                                      | 102,109 |                        |   | 53,211 
|                               |  |                                      |         |                        |   |        
|Total assets                   |  | $                                    | 685,122 |                        | $ | 572,862
|                               |  |                                      |         |                        |   |        
|                               |  |                                     
|Liabilities:                   |  |                                      |         |                        |   |        
|Real estate segment            |  | $                                    | 279,919 |                        | $ | 298,184
|Real estate-related segment    |  |                                      | 2       |                        |   | 4      
|                               |  |                                      |         |                        |   |        
|Total segment liabilities      |  |                                      | 279,921 |                        |   | 298,188
|Corporate-level(2)             |  |                                      | 3,075   |                        |   | 2,369  
|                               |  |                                      |         |                        |   |        
|Total liabilities              |  | $                                    | 282,996 |                        | $ | 300,557
|                               |  |                                      |         |                        |   |        

____________________

(1) Total corporate-level assets consisted primarily of proceeds from the Offering being held in the
form of cash and cash equivalents totaling approximately $101.9 million and $53.2 million as of March 31, 2009 and December 31, 2008, respectively.

(2) As of March 31, 2009 and December 31, 2008, corporate-level liabilities
consisted primarily of distributions payable.



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|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



The following table reconciles the Companys net income (loss) to its net operating income for
the three months ended March 31, 2009 and 2008 (in thousands):



|                                    |  |                                      |       |      |   |     
|----------------------------------- |  | ------------------------------------ | ----- | ---- | - | ----
|                                    |  | For the Three Months Ended March 31,
|                                    |  | 2009                                 |       | 2008
|Net income (loss)                   |  | $                                    | 1,205 |      | $ | (21)
|Corporate-level interest income     |  |                                      | (146) |      |   | (4) 
|General and administrative expenses |  |                                      | 510   |      |   | 25  
|Depreciation and amortization       |  |                                      | 6,207 |      |   | -   
|Corporate-level interest expense    |  |                                      | 36    |      |   | -   
|                                    |  |                                      |       |      |   |     
|Net operating income                |  | $                                    | 7,812 |      | $ | -   
|                                    |  |                                      |       |      |   |     



|13. | COMMITMENTS AND CONTINGENCIES
|--- | -----------------------------

Economic Dependency

The Company is dependent on the Advisor and the Dealer Manager for certain services that are essential to the Company, including the
sale of the Companys shares of common and preferred stock available for issue; the identification, evaluation, negotiation, purchase, and disposition of real estate and real estate-related investments; management of the daily operations of the
Companys real estate and real estate-related 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.

Concentration of Credit Risk

The Company has two investments in real estate loans receivable, the Northern Trust Building A-Note and the One Liberty Plaza Notes, that, as of and for the three months ended March 31, 2009, comprised
9% and 10% of the Companys total assets, respectively, and provided 11% and 8% of the Companys revenues, respectively. The borrowers under these loans depend on the cash flows generated by the properties securing these loans to cover the
borrowers periodic debt service obligations. To the extent that these properties do not provide sufficient cash flows to cover debt service obligations, the borrowers would rely on their sponsors to fund the remaining debt service obligations.
The Company believes the sponsors of the borrowers under these loans are sufficiently capitalized to fund any of the borrowers debt service shortfalls. If the borrowers sponsors were to experience a substantial deterioration in financial
condition and no longer possessed the ability to fund the borrowers debt service shortfalls, the borrowers might default on the loans. Under such a scenario, the Company may incur losses to the extent that the value of the collateral is less
than its recorded basis in the note.



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|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Compliance with existing environmental laws is not expected to have a material adverse effect
on the Companys financial condition and results of operations as of March 31, 2009.

Legal Matters

From time to time, the Company is 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 reasonably likely to have a material adverse effect on its results of operations or financial condition.



|14. | SUBSEQUENT EVENTS
|--- | -----------------

Status of Offering

The Company commenced its Offering on April 22, 2008. As of May 7, 2009, the Company had sold 54,215,782 shares of common stock in the
primary offering for gross offering proceeds of $541.1 million and 671,421 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $6.4 million.

Distributions Paid

On April 15, 2009, the
Company paid distributions of $2.4 million, which related to distributions declared for each day in the period from March 1, 2009 through March 31, 2009.

Distributions Declared

On March 25, 2009, the Companys board of directors declared
distributions based on daily record dates for the period from April 1, 2009 through April 30, 2009, which the Company expects to pay in May 2009, and distributions based on daily record dates for the period from
May 1, 2009 through May 31, 2009, which the Company expects to pay in June 2009. On May 8, 2009, the Companys board of directors declared distributions based on daily record dates for the period from
June 1, 2009 through June 30, 2009, which the Company expects to pay in July 2009, and distributions based on daily record dates for the period from July 1, 2009 through July 31, 2009, which the Company
expects to pay in August 2009. Investors may choose to receive cash distributions or purchase additional shares through the Companys dividend reinvestment plan.

Distributions are calculated based on stockholders of record each day during these periods at a rate of $0.00178082 per share per day and equal a daily amount that, 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.



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|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE
INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2009

(unaudited)



Amended and Restated Share Redemption Program

On May 8, 2009, the Companys board of directors approved an amended and restated share redemption program. The terms of the amended and
restated share redemption program are identical to the prior program except that the amended and restated share redemption program provides that:



| |  |  | Redemptions sought upon a stockholders determination of incompetence are treated the same as redemptions sought upon a stockholders death or
qualifying disability. In order for a determination of incompetence or incapacitation to entitle a stockholder to the special redemption terms, a state or federal court located in the United States must declare, determine or find the stockholder to
be (i) mentally incompetent to enter into a contract, to prepare a will or to make medical decisions or (ii) mentally incapacitated. In both cases such determination must be made by the court after the date the stockholder acquired the
shares to be redeemed. A determination of incompetence or incapacitation by any other person or entity, or for any purpose other than those listed above, will not entitle a stockholder to the special redemption terms. Redemption requests following a
determination of incompetence must be accompanied by the court order, determination or certificate declaring the stockholder incompetent or incapacitated.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company may provide notice of any amendment, suspension or termination of the share redemption program by including such information in a Current Report on Form
8-K or in the Companys annual or quarterly reports, all publicly filed with the SEC, or by a separate mailing to its stockholders. The Company may amend, suspend or terminate the program upon 30 days notice to its stockholders.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The amended and restated share redemption program will become effective on June 12, 2009.



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|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 Real Estate Investment Trust II, Inc. and the notes thereto. As used herein, the terms we, our and us refer to KBS Real Estate Investment Trust II, Inc., a Maryland corporation, and, as required
by context, KBS Limited Partnership II, 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 Real Estate Investment Trust II, 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 risks and uncertainties, that could cause our actual results to differ materially
from those presented in our forward-looking statements:



| |  |  | Both we and our advisor have limited operating histories. This inexperience makes our future performance difficult to predict.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | All of our executive officers, some of our directors and other key real estate professionals are also officers, directors, managers, key professionals and/or
holders of a direct or indirect controlling interest in our advisor, our dealer manager and other KBS-affiliated entities. As a result, they face conflicts of interest, including significant conflicts created by our advisors compensation
arrangements with us and other KBS-advised programs and investors and conflicts in allocating time among us and these other programs and investors. These conflicts could result in unanticipated actions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Because investment opportunities that are suitable for us may also be suitable for other KBS-advised programs or investors, our advisor and its affiliates face
conflicts of interest relating to the purchase of properties and other investments and such conflicts may not be resolved in our favor, meaning that we could invest in less attractive assets, which could reduce the investment return to our
stockholders.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If we raise substantially less than the maximum offering, we may not be able to invest in a diverse portfolio of real estate assets and the value of an investment
in us may vary more widely with the performance of specific assets.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If we are unable to locate investments with attractive yields while we are investing the proceeds of our ongoing initial public offering, our distributions and the
long-term returns of our investors may be lower than they otherwise would.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 properties
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, making it
more difficult for us to meet our debt service obligations and limiting our ability to pay distributions to our stockholders.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our current and future investments in real estate, mortgage loans, mezzanine loans, bridge loans, mortgage-backed securities, collateralized debt obligations and
other debt may be affected by unfavorable real estate market and general economic conditions, which could decrease the value of those assets and reduce the investment return to our stockholders. Revenues from the properties and other assets directly
securing our loan investments could decrease, making it more difficult for the borrower to meet its payment obligations to us, which could in turn make it more difficult for us to meet our debt service obligations and limit our ability to pay
distributions to our stockholders.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



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



| |  |  | The current credit market disruptions have caused the spreads on prospective debt financing to increase. This could cause the costs and terms of new financings to
be less attractive than the terms of our current indebtedness and increase the cost of our variable rate debt. In addition, we may not be able to refinance our existing indebtedness or to obtain additional debt financing on attractive terms. As
such, we may be forced to use a greater proportion of our offering proceeds to finance our acquisitions, reducing the number of acquisitions we would otherwise make, and/or dispose of some of our assets.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Continued disruptions in the financial markets and deteriorating economic conditions could adversely affect the value of our investments.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Certain of our debt obligations have variable interest rates with interest and related payments that vary with the movement of LIBOR or other indexes. Increases in
the indexes could increase the amount of our debt payments and limit our ability to pay distributions to our stockholders.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We cannot predict with any certainty how much, if any, of our dividend reinvestment plan proceeds will be available for general corporate purposes, including but
not limited to the repurchase of shares under our share redemption program, the funding of capital expenditures on our real estate investments, or the repayment of debt. If such funds are not available from the dividend reinvestment plan offering,
then we may have to use a greater proportion of our cash flow from operations to meet these cash requirements, which would reduce cash available for distributions and could limit our ability to redeem shares under our share redemption program.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

All forward-looking statements should be read in light of the risks identified in Part I, Item IA of our annual report
on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission (the SEC) and the risks identified in Part II, Item 1A of this quarterly report.

Overview

We are a recently organized Maryland
corporation that intends to qualify as a real estate investment trust (REIT) beginning with the taxable year that ended December 31, 2008 upon filing our 2008 tax return in September 2009. On September 27, 2007, we
filed a registration statement on Form S-11 with 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, of which 80,000,000 shares are being offered pursuant to our dividend
reinvestment plan. The SEC declared our registration statement effective on April 22, 2008 and we broke escrow in our ongoing initial public offering on June 24, 2008. We expect to sell the 200,000,000 shares offered in our
primary offering over a two-year period. If we have not sold all of the shares within two years, we may continue the offering beyond that date. As of March 31, 2009, we had sold 46,034,262 shares of common stock in the primary offering for
gross offering proceeds of $459.4 million and 527,397 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $5.0 million.

We intend to acquire and manage a diverse portfolio of real estate and real estate-related investments. We plan to diversify our portfolio by investment type, investment size and investment risk with the goal of
attaining a portfolio of income-producing real estate and real estate-related investments that provide attractive and stable returns to our investors. We intend to allocate between 60% and 70% of our portfolio to investments in core properties and
allocate between 30% and 40% of our portfolio to real estate-related investments such as mortgage, mezzanine, bridge and other loans; debt and derivative securities related to real estate assets, including mortgage-backed securities; and the equity
securities of other REITs and real estate companies. We do not expect our non-controlling equity investments in other public companies to exceed 5% of the proceeds of our ongoing initial public offering, assuming we sell the maximum offering amount,
or to represent a substantial portion of our assets at any one time. Although this is our current target portfolio, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities. We will not
forego a real estate or real estate-related investment opportunity because it does not precisely fit our expected portfolio composition. Thus, to the extent that our advisor presents us with investment opportunities that allow us to meet the REIT
requirements under the Internal Revenue Code of 1986, as amended (the Code), and maintain our exemption from registering as an investment company under the Investment Company Act of 1940, as amended, our portfolio composition may vary
significantly from what we initially expect.



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|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



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



KBS Capital Advisors LLC (KBS Capital Advisors) is our advisor. As our advisor, KBS
Capital Advisors manages our day-to-day operations and our portfolio of real estate and real estate-related investments. KBS Capital Advisors makes recommendations on all investments to our board of directors. KBS Capital Advisors also provides
asset-management, marketing, investor-relations and other administrative services on our behalf. We have no paid employees.

If we qualify
as a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year after electing REIT status, we will be subject to
federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is
denied. Such an event could materially and adversely affect our net income and cash available for distribution. However, we believe that we are organized and operate in a manner that will enable us to qualify for treatment as a REIT for federal
income tax purposes beginning with our taxable year ended December 31, 2008 upon filing our 2008 tax return in September 2009, and we intend to continue to operate so as to remain qualified as a REIT for federal income tax purposes
thereafter.

Market Outlook - Real Estate and Real Estate Finance Markets

In the second half of 2007 the residential mortgage and capital markets began showing signs of stress, primarily in the form of escalating default rates
on sub-prime mortgages, declining home values and increasing inventory nationwide. In 2008, the credit crisis spread to the broader commercial credit and financial markets resulting in illiquidity and volatility in the markets for
corporate bonds, asset-backed securities and commercial real estate bonds and loans; we cannot foresee when these markets will stabilize. The United States economy is currently in a recession which has negatively affected all businesses, including
ours.

These disruptions in the financial markets and deteriorating economic conditions have increased the cost of credit in the commercial
real estate sector, and therefore, could adversely affect the values of our investments. Turmoil in the capital markets has constrained equity and debt capital available for investment in commercial real estate, resulting in fewer real estate
transactions, increased capitalization rates and lower property values. Furthermore, these deteriorating economic conditions have negatively impacted and may continue to negatively impact commercial real estate fundamentals and may result in lower
occupancy, lower rental rates and declining values in our real estate portfolio, in the collateral securing our loan investments and in any future real estate or real estate-related investments we may make.

Over the short-term, management expects continued volatility in the capital markets and with that, continued volatility in the commercial real estate, the
real estate finance and the structured finance markets. These circumstances have materially impacted the cash and availability of credit to borrowers. This may present a short-term opportunity to acquire real estate investments, real estate loans
and other real estate-related investments that are undervalued. However, the opportunity may be hampered by the decreased availability and the increased cost of capital and uncertainty as to when credit markets and the general economy will
stabilize.

Liquidity and Capital Resources

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



| |  |  | Proceeds from our ongoing initial public offering;
| | - |  | --------------------------------------------------



| |  |  | Proceeds from common stock issued under our dividend reinvestment plan;
| | - |  | -----------------------------------------------------------------------



| |  |  | Debt financings; and
| | - |  | --------------------



| |  |  | Cash flow generated by our real estate operations and real estate-related investments.
| | - |  | --------------------------------------------------------------------------------------



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



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



For the three months ended March 31, 2009, our cash needs for acquisitions, capital
expenditures and payment of debt obligations were met with the proceeds from our ongoing initial public offering, including our dividend reinvestment plan. Operating cash needs during the same period were met through cash flow generated by our real
estate and real estate-related investments. We made distributions to our stockholders during the three months ended March 31, 2009 using a combination of cash flows from operations and debt financing. In addition, as of
March 31, 2009, we had $4.0 million available for future disbursements under a six-month bridge loan facility for general cash management requirements. We believe that our cash on hand, proceeds from our ongoing initial public offering,
cash flow from operations and anticipated financing activities are sufficient to meet our liquidity needs for the upcoming year.

Cash Flows from
Operating Activities

We commenced real estate operations with the acquisition of our first real estate investment on
July 30, 2008. As of March 31, 2009, we owned four real estate properties and two real estate loans receivable, one of which was acquired during the three months ended March 31, 2009. We generated $3.4 million in
net cash flows from operating activities for the three months ended March 31, 2009 primarily from the cash flow generated from these investments. We expect that our cash flows from operating activities will increase in future periods as a
result of owning the investment acquired during the three months ended March 31, 2009 for a full quarter and as a result of anticipated future acquisitions of real estate and real estate-related investments.

For the three months ended March 31, 2008, we had not commenced real estate operations and, accordingly, had insignificant operating cash flows.

Cash Flows from Investing Activities

Net cash used in investing activities was $67.8 million for the three months ended March 31, 2009. This was primarily related to the acquisition of one real estate loan receivable for $67.6 million during the three
months ended March 31, 2009. There was no cash used in or provided by investing activities for the three months ended March 31, 2008.

Cash Flows from Financing Activities

Net cash provided by financing activities was $112.1 million for the three
months ended March 31, 2009 and consisted of the following:

Primary Public Offering and Payment of Offering and Other Costs and Expenses



| |  |  | Net primary offering proceeds of $131.7 million related to our ongoing initial public offering (excluding proceeds from our dividend reinvestment plan of
$3.1 million and after payment of selling commissions, dealer manager fees and other organization and offering expenses of $15.4 million).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Debt Financings



| |  |  | Net proceeds from notes payable of $11.5 million related to (i) borrowings totaling $10.3 million related to the financing of the 350 E. Plumeria
Building and (ii) loan draws of $1.2 million used to fund general cash management requirements.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Principal paydowns of notes payable of $28.5 million.
| | - |  | -----------------------------------------------------



| |  |  | Payments of deferred financing costs related to the financing of real estate of $0.3 million.
| | - |  | ---------------------------------------------------------------------------------------------

Distributions Paid to Common Stockholders



| |  |  | We declared aggregate distributions of $6.1 million and paid net cash distributions of $2.3 million after giving effect to dividends reinvested by
stockholders of $3.1 million for the three months ended March 31, 2009.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

There was no cash used or provided by
financing activities for the three months ended March 31, 2008.



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



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



As of March 31, 2009, our liabilities totaled $283.0 million and consisted primarily
of a long-term note payable and short-term mortgage loans and mezzanine debt. The long-term note payable is a $93.9 million mortgage loan with a fixed interest rate of 5.9%. Short-term notes payable consisted of $113.6 million of variable
rate mortgage and mezzanine loans with a weighted-average interest rate of 4.1% and a $47.0 million mezzanine loan with a fixed interest rate of 6.8% at March 31, 2009.

Contractual Commitments and Contingencies

As discussed above, throughout 2008 and the first quarter
of 2009, the global capital markets have experienced significant dislocations and liquidity disruptions that have caused the credit spreads of debt to widen considerably and caused significant volatility in interest rates, including LIBOR. These
circumstances have materially impacted the cost and availability of debt to borrowers. Our investment strategy is to utilize primarily secured and possibly unsecured debt to finance our investment portfolio; however, given the current debt market
environment, we may elect to forego the use of debt on some or all of our future real estate acquisitions. Management remains vigilant in monitoring the risks inherent in our portfolio and is taking actions to ensure that we are positioned to take
advantage of the current conditions in the capital markets. We may elect to obtain financing subsequent to the acquisition date on future real estate acquisitions and initially acquire investments without debt financing. Once we have fully invested
the proceeds of our ongoing initial public offering, we expect our debt financing to be between 50% and 65% of the cost of our tangible assets (before deducting depreciation or other noncash reserves). Our charter limits our borrowings to 75% of the
cost (before deducting depreciation or other noncash reserves) of our tangible assets; however, we may exceed that limit if the majority of the conflicts committee approves each borrowing in excess of our charter limitation and we disclose such
borrowings to our stockholders in our next quarterly report with an explanation from the conflicts committee of the justification for the excess borrowing. During the early stages of our ongoing initial public offering, and to the extent financing
in excess of this limit is available at attractive terms, the conflicts committee may approve debt in excess of this limit. From time to time, our debt financing may be below 50% of the cost of our tangible assets due to the lack of availability of
debt financing. As of March 31, 2009, our borrowings were approximately 37% of the cost of all our tangible assets (before depreciation or other noncash reserves).

In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to make certain payments to our
advisor and the dealer manager. During our organization and offering stage, these payments will include payments to the dealer manager for selling commissions and dealer manager fees and payments to the dealer manager and our advisor for
reimbursement of certain organization and other offering expenses. However, our advisor has agreed to reimburse us to the extent that selling commissions, dealer manager fees and organization and other offering expenses incurred by us exceed 15% of
our gross offering proceeds. During our acquisition and development stage, we expect to make payments to our advisor in connection with the selection and origination or purchase of real estate and real estate-related investments, the management of
our assets and costs incurred by our advisor in providing services to us. The advisory agreement has a one-year term but may be renewed for an unlimited number of successive one-year periods upon the mutual consent of KBS Capital Advisors and our
conflicts committee.

The following is a summary of our contractual obligations as of March 31, 2009 (in thousands):



|                                                         |  |       |         |                                                   |   |           |  |           |        |            |   |        |  |   |       
|-------------------------------------------------------- |  | ----- | ------- | ------------------------------------------------- | - | --------- |  | --------- | ------ | ---------- | - | ------ |  | - | ------
|                                                         |  |       |         | Payments Due During the Years Ending December 31,
|Contractual Obligations                                  |  | Total |         | Remainder of 2009                                 |   | 2010-2011 |  | 2012-2013 |        | Thereafter
|Outstanding debt obligations (1) (2)                     |  | $     | 254,460 |                                                   | $ | 160,610   |  | $         | -      |            | $ | -      |  | $ | 93,850
|Interest payments on outstanding debt obligations(2) (3) |  | $     | 29,861  |                                                   | $ | 6,196     |  | $         | 11,074 |            | $ | 11,074 |  | $ | 1,517 



(1) Amounts include principal payments only.

(2) On April 3, 2009, we repaid in full the principal balance on the $47.0 million
300-600 Campus Drive Mezzanine Loan; however, amounts related to this loan are included in this table.

(3) Projected interest payments are based on the outstanding principal amounts and weighted-average interest rates at March 31, 2009. We incurred interest expense of $3.2 million, excluding amortization of deferred
financing costs totaling $0.4 million, during the three months ended March 31, 2009.



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



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



Results of Operations

Our results of operations for the three months ended March 31, 2009 are not indicative of those expected in future periods as we broke escrow in our ongoing initial public offering on June 24, 2008
and commenced real estate operations on July 30, 2008 in connection with the acquisition of our first investment. We have not yet invested all of the proceeds from our offering received to date and expect to continue to raise additional
capital and make future acquisitions, which would have a significant impact on our future results of operations. As of March 31, 2009, we owned three office properties, one office/flex property and two real estate loans receivable, one of
which was acquired during the three months ended March 31, 2009. In general, we expect that our income and expenses related to our portfolio will increase in future periods as a result of owning the real estate loan receivable acquired
during the three months ended March 31, 2009 for a full quarter and as a result of anticipated future acquisitions of real estate and real estate-related investments. During the three months ended March 31, 2008, we had been
formed but had not yet commenced operations, as we had not yet begun our initial public offering. As a result, we had no material results of operations for that period.

Rental income from our four real estate properties totaled $10.9 million and tenant reimbursements totaled $2.3 million for the three months ended March 31, 2009. We expect rental income and tenant
reimbursements to increase in future periods as a result of anticipated future acquisitions of real estate.

Interest income from our real
estate loans receivable, calculated using the interest method, was $3.2 million for the three months ended March 31, 2009. Interest income included $1.0 million in accretion of purchase price discounts, net of amortization of
closing costs. We acquired one of our real estate loans receivable on February 11, 2009, and as a result, our operations do not reflect a full three months of interest from this real estate loan receivable. We expect that interest income
will be higher in future periods as a result of owning the real estate loan receivable acquired during the three months ended March 31, 2009 for a full quarter and anticipated future acquisitions of real estate-related investments.

Other interest income for the three months ended March 31, 2009 was $0.2 million and consisted of interest earned on our
deposit accounts. Other interest income in future periods will vary based on the level of cash on hand, which will depend in part on how quickly we raise funds in our ongoing initial public offering and how quickly we invest those funds.

Property operating costs related to our four real estate properties were $3.1 million for the three months ended March 31, 2009. Real
estate taxes and insurance were $1.0 million for the three months ended March 31, 2009. We expect these amounts to increase in future periods as a result of anticipated future acquisitions of real estate.

Asset management fees with respect to our real estate and real estate-related investments totaled $1.0 million for the three months ended
March 31, 2009. All asset management fees incurred as of March 31, 2009 have been paid. We expect asset management fees to increase in future periods as a result of owning the real estate loan receivable acquired during the three
months ended March 31, 2009 for a full quarter and as a result of anticipated future acquisitions of real estate and real estate-related investments.

General and administrative expenses for the three months ended March 31, 2009 totaled $0.5 million. These general and administrative costs consisted primarily of insurance premiums, independent director
fees and professional fees. We expect general and administrative costs to increase in future periods as we acquire additional real estate and real estate-related investments but to decrease as a percentage of total revenue.

Depreciation and amortization expenses for the three months ended March 31, 2009 were $6.2 million. We expect these amounts to increase in
future periods as a result of anticipated future acquisitions of real estate.

During the three months ended March 31, 2009, we
incurred interest expense of $3.6 million including amortization of deferred financing costs of $0.4 million. As of March 31, 2009, we had $254.5 million in debt outstanding. Our interest expense in future periods will vary
based on our level of future borrowings, which will depend on the amount of proceeds raised in our ongoing initial public offering, the cost of borrowings and the opportunity to acquire real estate and real estate-related investments meeting our
investment objectives.

For the three months ended March 31, 2009, we had net income of $1.2 million. Total revenues were
$16.6 million while total expenses were $15.4 million.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
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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 ongoing initial public offering, including but not limited to (i) legal, accounting, printing, mailing and filing fees; (ii) charges of the escrow holder and transfer agent; (iii) charges of
our advisor for administrative services related to the issuance of shares in the offering; (iv) reimbursement of the dealer manager for amounts it may pay to reimburse the bona fide diligence expenses of broker-dealers; (v) reimbursement
to our advisor for costs in connection with preparing supplemental sales materials; (vi) the cost of bona fide training and education meetings held by us (primarily the travel, meal and lodging costs of registered representatives of
broker-dealers); (vii) reimbursement to the dealer manager for attendance and sponsorship fees and cost reimbursements for employees of the dealer manager to attend retail seminars conducted by broker-dealers; and (viii) in special cases,
reimbursement to participating broker-dealers for technology costs associated with the offering, costs and expenses related to such technology costs, and costs and expenses associated with the facilitation of the marketing of the shares in the
offering and the ownership of the shares by such broker-dealers customers. Organization costs include all expenses to be incurred by us in connection with our formation, including but not limited to legal fees and other incorporation costs.

Pursuant to the advisory agreement and the dealer manager agreement, 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, provided that our advisor is obligated to reimburse us to the extent selling commissions, dealer manager fees and organization and other offering costs
incurred by us exceed 15% of gross proceeds from our ongoing initial public offering. Through March 31, 2009 our advisor, dealer manager, and their affiliates have incurred on our behalf organization and other offering costs of
$6.0 million, of which $0.2 million was payable at March 31, 2009. These costs become a liability to us only to the extent selling commissions, dealer manager fees and organization and other offering costs incurred by us do not exceed
15% of the gross proceeds from our ongoing initial public offering. As of March 31, 2009, selling commissions, dealer manager fees, and organization and other offering costs did not exceed 15% of the gross offering proceeds. Through
March 31, 2009, including shares issued through our dividend reinvestment plan, we had issued 46,561,659 shares in our ongoing initial public offering for gross offering proceeds of approximately $464.4 million and recorded
organization and other offering costs of $7.3 million and selling commissions and dealer manager fees of $42.8 million. Organization costs are expensed as incurred and offering costs, which include selling commissions and dealer manager
fees, are charged as incurred as a reduction to stockholders equity.

Funds from Operations

We believe that funds from operations (FFO) is a beneficial indicator of the performance of any equity REIT. Because FFO calculations exclude
such items as depreciation and amortization of real estate assets and gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and
useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs. Our management believes that historical cost accounting for real estate assets in accordance with U.S. generally accepted
accounting principles (GAAP) implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and
analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. As a result, we believe that the use of FFO, together with the required GAAP
presentations, provides a more complete understanding of our performance relative to our competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. Other REITs may not
define FFO in accordance with the current National Association of Real Estate Investment Trusts (NAREIT) definition or may interpret the current NAREIT definition differently than we do.

FFO is a non-GAAP financial measure and does 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 includes adjustments that investors may deem subjective, such as adding back expenses such as depreciation and amortization. Accordingly, FFO should not be considered as an alternative to net income
as an indicator of our operating performance.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
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Our calculation of FFO, which we believe is consistent with the calculation of FFO as defined by
NAREIT, is presented in the following table for the three months ended March 31, 2009 and 2008, respectively (in thousands):



|                                    |  |                                      |       |      |   |     
|----------------------------------- |  | ------------------------------------ | ----- | ---- | - | ----
|                                    |  | For the Three Months Ended March 31,
|                                    |  | 2009                                 |       | 2008
|Net income (loss)                   |  | $                                    | 1,205 |      | $ | (21)
|Add:                                |  |                                      |       |      |   |     
|Depreciation of real estate assets  |  |                                      | 2,303 |      |   | -   
|Amortization of lease-related costs |  |                                      | 3,904 |      |   | -   
|                                    |  |                                      |       |      |   |     
|FFO                                 |  | $                                    | 7,412 |      | $ | (21)
|                                    |  |                                      |       |      |   |     

Set forth below is additional information related to certain noncash items included in net income
(loss) above, which may be helpful in assessing our operating results. Please see the accompanying consolidated statements of cash flows for details of our operating, investing, and financing cash activities.

Significant Noncash Items Included in Net Income:



| |  |  | Revenues in excess of actual cash received as a result of straight-line rent of $0.5 million for the three months ended March 31, 2009;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Revenues in excess of actual cash received as a result of amortization of above-market/below-market in-place leases of approximately $1.4 million for the three
months ended March 31, 2009;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest income from the accretion of discounts on real estate loans receivable, net of amortization of closing costs, of $1.0 million for the three months
ended March 31, 2009; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest expense from the amortization of deferred financing costs related to notes payable of approximately $0.4 million for the three months ended
March 31, 2009.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

Operating cash flow and FFO may also be used to fund all or a portion of certain capitalizable
items that are excluded from FFO, such as tenant improvements, building improvements and deferred leasing costs.

Distributions

During our offering stage, when we may raise capital in our ongoing initial public offering more quickly than we acquire income-producing assets, and for
some period after our offering stage, we may not be able to pay distributions solely from our cash flow from operations or FFO, in which case distributions may be paid in part from debt financing. For the three months ended March 31, 2009,
we paid aggregate distributions of $5.4 million, including $2.3 million of distributions paid in cash and $3.1 million of distributions reinvested through our dividend reinvestment plan. FFO for the three months ended
March 31, 2009 was $7.4 million and our cash flow from operations was $3.4 million. We funded our total distributions paid, which includes net cash distributions and dividends reinvested by stockholders, with $3.4 million of
current period operating cash flows, $0.8 million of operating cash reserves from prior periods and $1.2 million of debt financing. See the reconciliation of FFO to net income (loss) above.

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 and distributions related to the repayment of principal under investments we make in mortgage, mezzanine and other loans). 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 and Results of Operations, herein, and the risks discussed in Part I, Item 1A of our annual report on Form
10-K for the year ended December 31, 2008 filed with the SEC and the risks identified in Part II, Item 1A of this quarterly report. Those factors include: the future operating performance of our investments in the existing real estate
and financial environment; the success and economic viability of our tenants; the ability of our borrowers and their sponsors to continue to make their debt service payments and/or to repay their loans upon maturity; our ability to refinance
existing indebtedness at comparable terms; changes in interest rates on our variable rate debt obligations or loans receivable; 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.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
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Critical Accounting Policies

Below is a discussion of the accounting policies that management considers critical in that they involve significant management judgments and assumptions, require estimates about matters that are inherently uncertain
and because they are important for understanding and evaluating our reported financial results. 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.

Real
Estate

Depreciation and Amortization

We have to make subjective assessments as to the useful lives of our depreciable assets. These assessments have a direct impact on our net income, because, if we were to shorten the expected useful lives of our investments in real estate,
we would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis throughout the expected useful lives of these investments. We consider the period of future benefit of an asset to
determine its appropriate useful life. Expenditures for tenant improvements and construction allowances related to a tenants space are capitalized and amortized over the shorter of the tenants lease term or expected useful life. We
anticipate the estimated useful lives of our assets by class to be generally as follows:



|                                        |  |                                              
|--------------------------------------- |  | ---------------------------------------------
|Buildings                               |  | 25-40 years                                  
|Building improvements                   |  | 10-25 years                                  
|Tenant improvements                     |  | Shorter of lease term or expected useful life
|Tenant origination and absorption costs |  | Remaining term of related lease              

Real Estate Acquisition Valuation

Prior to January 1, 2009 real estate, consisting of land, buildings and improvements, was recorded at cost. We allocated the cost of an
acquisition to the acquired tangible assets, identifiable intangibles and assumed liabilities based on their estimated fair values in accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations. On January 1, 2009, we adopted SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS 141R expands the definition of a business
combination and requires the acquirer to measure all assets acquired and liabilities assumed in a business combination at their acquisition-date fair values. In addition, SFAS 141R requires that acquisition costs generally be expensed as
incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recorded to
income tax expense. During the three months ended March 31, 2009, we did not acquire any assets that were within the scope of SFAS 141R and did not expense any acquisition costs in accordance with SFAS 141R.

We assess the acquisition-date fair values of all tangible assets, identifiable intangibles and assumed liabilities using methods similar to those used by
independent appraisers (e.g., discounted cash flow analysis) and that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical
operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it was vacant.

We record above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate that reflects the
risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) managements estimate of fair market lease rates for the corresponding in-place
leases, measured over a period equal to the remaining non-cancelable term of the lease. We amortize any recorded above-market or below-market lease values as a reduction or increase, respectively, to rental income over the remaining non-cancelable
terms of the respective lease. Upon termination of a lease, the unamortized portion of the above-market or below-market lease intangible associated with the vacating tenants lease would be charged to rental income in that period.

We also measure the aggregate value of other intangible assets related to acquired in-place leases, including tenant origination and absorption costs
and customer relationship intangibles.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
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We estimate the value of tenant origination and absorption costs by considering the estimated
carrying costs during hypothetical expected lease-up periods, considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and
estimates of lost rentals at market rates during the expected lease-up periods. Management also estimates costs to execute similar leases, including leasing commissions and legal and other related expenses, to the extent that such costs have not
already been incurred in connection with a new lease origination as part of the transaction.

We estimate the value of customer relationship
intangible values, if any, based on managements evaluation of the specific characteristics of each tenants lease and our overall relationship with that respective tenant. Characteristics considered by management in allocating these
values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenants credit quality and expectations of lease renewals (including those existing
under the terms of the lease agreement), among other factors.

We amortize the value of in-place leases to depreciation and amortization
expense over the initial term of the respective leases. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event will the amortization periods for
the intangible assets exceed the remaining depreciable life of the building.

Upon termination of a lease, the unamortized portion of the
in-place lease value and customer relationship intangibles associated with the vacating tenants lease would be charged to expense in that period.

Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require us to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods,
discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate estimates would result in an incorrect valuation of our acquired tangible assets, identifiable intangibles and
assumed liabilities, which would impact the amount of our net income.

Impairment of Real Estate and Related Intangible Assets and Liabilities

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate and related
intangible assets and liabilities may not be recoverable or realized. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, we assess the
recoverability by estimating whether we will recover the carrying value of the real estate and related intangible assets and liabilities through its undiscounted future cash flows and its eventual disposition. If, based on this analysis, we do not
believe that we will be able to recover the carrying value of the real estate and related intangible assets and liabilities, we would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate
and related intangible assets and liabilities as defined by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. We did not record any impairment losses on our real estate and related intangible assets and
liabilities during the three months ended March 31, 2009.

Projections of future cash flows require us to estimate the expected
future operating income and expenses related to the real estate and its related intangible assets and liabilities as well as market and other trends. The use of inappropriate assumptions in our future cash flows analyses would result in an incorrect
assessment of future cash flows and fair values of the real estate and its related intangible assets and liabilities and could result in the overstatement of the carrying values of our real estate and related intangible assets and liabilities and an
overstatement of our net income.

Real Estate Loans Receivable

Our real estate loans receivable are recorded at amortized cost, net of loan loss reserves (if any), and evaluated for impairment at each balance sheet date under SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, an amendment of FASB Statements No. 5 and 15 (SFAS 114), and SFAS No. 5, Accounting for Contingencies (SFAS 5). The amortized cost of a real estate loan receivable is the outstanding
unpaid principal balance, net of unamortized acquisition premiums or discounts and unamortized costs and fees directly associated with the origination or acquisition of the loan.

As of March 31, 2009, we did not have a loan loss reserve and we recorded no impairment losses related to our real estate loans receivable
during the three months ended March 31, 2009. However, in the future, especially given the current market instability, we may experience a loss from our investments in loans receivable requiring us to record loan loss reserves. Realized
losses on individual loans could be material and significantly exceed any recorded reserves.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
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The reserve for loan losses is a valuation allowance that reflects managements estimate of loan
losses inherent in the loan portfolio as of the balance sheet date. The reserve is increased through a charge to Provision for loan losses on our consolidated statements of operations and is decreased by charge-offs when losses are
confirmed. The reserve for loan losses includes a portfolio-based component and an asset-specific component.

The asset-specific reserve
component relates to reserves for losses on loans considered impaired and measured pursuant to SFAS 114. In accordance with SFAS 114, we consider a loan to be impaired when, based upon current information and events, we believe that it is
probable that we will be unable to collect all amounts due under the contractual terms of the loan agreement. A reserve is established when the present value of payments expected to be received, observable market prices, or the estimated fair value
of the collateral (for loans that are dependent on the collateral for repayment) of an impaired loan is lower than the carrying value of that loan.

The portfolio-based reserve component covers the pool of loans that do not have asset-specific reserves. A provision for loan losses is recorded when available information as of each balance sheet date indicates that it is probable that the
pool of loans will recognize a loss and the amount of the loss can be reasonably estimated in accordance with SFAS 5. Required reserve balances for this pool of loans are derived from estimated probabilities of default and estimated loss
severities assuming a default occurs. On a quarterly basis, our management assigns estimated probabilities of default and loss severities to each loan in the portfolio based on factors such as the debt service coverage of the underlying collateral,
the estimated fair value of the collateral, the significance of the borrowers investment in the collateral, the financial condition of the borrower and/or its sponsors, the likelihood that the borrower and/or its sponsors allows the loan to
default, our willingness and ability to step in as owner in the event of default, and other pertinent factors.

We may purchase real estate
loans at a discount to face value where at the acquisition date we expect to collect less than the contractual amounts due under the terms of the loan based, at least in part, on our assessment of the credit quality of the borrower. We will consider
such real estate loans to be impaired when it becomes probable, based on current information, that we will be unable to collect all amounts we estimated would be collected at the time of acquisition. The amount of impairment, if any, will be
measured by comparing the recorded amount of the loan to the present value of the expected cash flows or the fair value of the collateral.

We will record real estate loans held for sale at the lower of amortized cost or fair value. We will determine the fair value of loans held for sale by using current secondary market information for loans with similar terms and credit
quality. If fair value is lower than the amortized cost basis of the loan, we will record a valuation allowance and a provision for loan losses to write the loan down to fair value.

Failure to recognize impairments would result in the overstatement of earnings and the carrying value of our real estate loans held for investment. Actual
losses, if any, could differ significantly from estimated amounts.

Revenue Recognition

We recognize minimum rent, including rental abatements and contractual fixed increases attributable to operating leases, on a straight-line basis over the
term of the related leases and we record amounts expected to be received in later years as deferred rent. During the three months ended March 31, 2009, we recognized $0.5 million of deferred rent. We record property operating expense
reimbursements due from tenants for common area maintenance, real estate taxes and other recoverable costs in the period the related expenses are incurred.

We make estimates of the collectibility of our tenant receivables related to base rents, including straight-line rentals, expense reimbursements and other revenue or income. We specifically analyze accounts receivable
and historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy, we make
estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectibility of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. These estimates have a
direct impact on our net income because a higher bad debt reserve results in lower earnings.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
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We will recognize gains on sales of real estate pursuant to the provisions of SFAS No. 66,
Accounting for Sales of Real Estate (SFAS 66). The specific timing of a sale will be measured against various criteria in SFAS 66 related to the terms of the transaction and any continuing involvement associated with the property.
If the criteria for profit recognition under the full-accrual method are not met, we will defer gain recognition and account for the continued operations of the property by applying the percentage-of-completion, reduced profit, deposit, installment
or cost recovery methods, as appropriate, until the appropriate criteria are met.

Interest income on our real estate loans receivable is
recognized on an accrual basis over the life of the investment using the interest method. Direct loan origination fees and origination or acquisition costs, as well as acquisition premiums or discounts, are amortized over the term of the loan as an
adjustment to interest income. We will place loans on nonaccrual status when any portion of principal or interest is 90 days past due, or earlier when concern exists as to the ultimate collection of principal or interest. When a loan is placed
on nonaccrual status, we will reserve the accrual for unpaid interest and will not recognize subsequent interest income until the cash is received, or the loan returns to accrual status.

If we purchase a real estate loan receivable at a discount to face value where we expect to collect less than the contractual amounts due under the loan
and when that expectation is due, at least in part, to the credit quality of the borrower, we will recognize interest income in accordance with American Institute of Certified Public Accountants Statement of Position 03-3, Accounting for Certain
Loans or Debt Securities Acquired in a Transfer (SOP 03-3). Under SOP 03-3, income is recognized at an interest rate equivalent to the estimated yield on the loan, as calculated using the carrying value of the loan and the expected
cash flows. Changes in estimated cash flows are recognized through an adjustment to the yield on the loan on a prospective basis. Projecting cash flows for these types of loans requires a significant amount of assumptions and judgment, which may
have a significant impact on the amount and timing of revenue recognized on these investments.

Other interest income includes interest
earned on our cash and cash equivalents and is recognized as it is earned.

Income Taxes

We intend to elect to be taxed as a REIT under the Code for the taxable year ended December 31, 2008 upon filing our 2008 tax return in
September 2009. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to our stockholders (which is computed without regard to the
dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income tax on income that we distribute as dividends to our
stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for
federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our
net income and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT.

We adopted FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), upon our inception
on July 12, 2007. Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition on our financial statements, nor have we or our subsidiaries been assessed interest or penalties by
any major tax jurisdictions. Our evaluations were performed for the tax years ending December 31, 2008 and 2007. As of March 31, 2009, our return for the calendar year 2007 remains subject to examination by major tax
jurisdictions.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
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Subsequent Events

Status of Offering

We commenced our ongoing initial public offering of 280,000,000 shares of common stock on
April 22, 2008. As of May 7, 2009, we had sold 54,215,782 shares of common stock in the primary offering for gross offering proceeds of $541.1 million and 671,421 shares of common stock under the dividend reinvestment plan
for gross offering proceeds of $6.4 million.

Distributions Declared

On March 25, 2009, our board of directors declared distributions based on daily record dates for the period from April 1, 2009 through
April 30, 2009, which we expect to pay in May 2009, and distributions based on daily record dates for the period from May 1, 2009 through May 31, 2009, which we expect to pay in June 2009. On
May 8, 2009, our board of directors declared distributions based on daily record dates for the period from June 1, 2009 through June 30, 2009, which we expect to pay in July 2009, and distributions based on daily
record dates for the period from July 1, 2009 through July 31, 2009, which we expect to pay in August 2009. Investors may choose to receive cash distributions or purchase additional shares through our dividend reinvestment
plan.

Distributions are calculated based on stockholders of record each day during these periods at a rate of $0.00178082 per share per day
and will equal a daily amount that, 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.

Amended and Restated Share Redemption Program

On May 8, 2009, our board of directors approved an amended
and restated share redemption program. The terms of the amended and restated share redemption program are identical to the prior program except that the amended and restated share redemption program provides that:



| |  |  | Redemptions sought upon a stockholders determination of incompetence are treated the same as redemptions sought upon a stockholders death or
qualifying disability. In order for a determination of incompetence or incapacitation to entitle a stockholder to the special redemption terms, a state or federal court located in the United States must declare, determine or find the stockholder to
be (i) mentally incompetent to enter into a contract, to prepare a will or to make medical decisions or (ii) mentally incapacitated. In both cases such determination must be made by the court after the date the stockholder acquired the
shares to be redeemed. A determination of incompetence or incapacitation by any other person or entity, or for any purpose other than those listed above, will not entitle a stockholder to the special redemption terms. Redemption requests following a
determination of incompetence must be accompanied by the court order, determination or certificate declaring the stockholder incompetent or incapacitated.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We may provide notice of any amendment, suspension or termination of the share redemption program 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. We may amend, suspend or terminate the program upon 30 days notice to our stockholders.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The amended and restated share redemption program will become effective on June 12, 2009. The share redemption program plan document is filed
as an exhibit to this Quarterly Report, which is available at the SECs website at http://www.sec.gov.



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##### Table of Contents

|PART I. | FINANCIAL INFORMATION (CONTINUED)
|------- | ---------------------------------



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

Our primary market risk exposure is interest rate risk. We are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and fund the acquisition, expansion and refinancing of our real estate
investment portfolio and operations. We are also exposed to the effects of changes in interest rates as a result of the acquisition and origination of mortgage, mezzanine, bridge and other loans. 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 do not enter into derivative or interest rate transactions for speculative purposes.

We borrow funds and make
investments 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 or fixed rate real estate loans receivable unless such instruments mature or are
otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. Conversely, movements in interest rates on variable rate debt and loans receivable would change our future earnings and cash flows, but
not significantly affect the fair value of those instruments. As we expect to hold our fixed rate instruments to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid
interest, we do not expect that fluctuations in interest rates would have a significant impact on our fixed rate instruments.

At
March 31, 2009, we were exposed to market risks related to fluctuations in interest rates on $113.6 million of variable rate debt outstanding. If the weighted-average interest rate on our variable rate debt outstanding at
March 31, 2009 were 100 basis points higher or lower during the 12 months ended March 31, 2010, our interest expense would be increased or decreased by approximately $1.1 million.



|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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##### Table of Contents

PART II.   OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

None.



|Item 1A. | Risk Factors
|-------- | ------------

The following risks should be read
together with the risk factors disclosed under Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2008.

If funds are not available from the dividend reinvestment plan offering for general corporate purposes, then we may have to use a greater proportion of our cash flow from operations to meet our general cash requirements, which would
reduce cash available for distributions and could limit our ability to redeem shares under the share redemption program.

We depend
on the proceeds from our dividend reinvestment plan for general corporate purposes, including capital expenditures on our real estate investments, tenant improvement costs and leasing costs related to our investments in real estate properties;
reserves required by financings of our investments in real estate properties; the repayment of debt; and the repurchase of shares under our share redemption program. We cannot predict with any certainty how much, if any, dividend reinvestment plan
proceeds will be available for general corporate purposes. If such funds are not available from the dividend reinvestment plan offering, then we may have to use a greater proportion of our cash flow from operations to meet our general cash
requirements, which would reduce cash available for distributions and could limit our ability to redeem shares under the share redemption program.



|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 April 22, 2008, our Registration Statement on Form S-11 (File No. 333-146341), covering a public offering of up to 280,000,000 shares of common stock, was declared
effective under the Securities Act of 1933. We commenced our initial public offering on April 22, 2008 upon retaining KBS Capital Markets Group LLC, an affiliate of our advisor, as the dealer manager of our offering. We are offering
200,000,000 shares of common stock in our primary offering at an aggregate offering price of up to $2.0 billion, or $10.00 per share with discounts available to certain categories of purchasers. The 80,000,000 shares offered under our dividend
reinvestment plan are initially being offered at an aggregate offering price of $760 million, or $9.50 per share. We expect to sell the shares registered in our primary offering over a two-year period. Under rules promulgated by the SEC, in some
instances we may extend the primary offering beyond that date. We may sell shares under the dividend reinvestment plan beyond the termination of the primary offering until we have sold all the shares under the plan.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of March 31, 2009, we had sold 46,034,262 shares of common stock in the primary offering for gross offering proceeds of $459.4 million
and 527,397 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $5.0 million. As of March 31, 2009, we had incurred selling commissions, dealer manager fees and organization and other offering
costs in the amounts set forth below (in thousands). The dealer manager reallowed all of the selling commissions and a portion of the dealer manager fees to participating broker-dealers.



|                                            |  |        |        |                  |       
|------------------------------------------- |  | ------ | ------ | ---------------- | ------
|Type of Expense Amount                      |  | Amount |        | Estimated/Actual
|Selling commissions and dealer manager fees |  | $      | 42,798 |                  | Actual
|Finders fees                               |  |        | -      |                  |       
|Expenses paid to or for underwriters        |  |        | -      |                  |       
|Other organization and offering costs       |  |        | 7,266  |                  | Actual
|                                            |  |        |        |                  |       
|Total expenses                              |  | $      | 50,064 |                  |       
|                                            |  |        |        |                  |       



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##### Table of Contents

PART II.   OTHER INFORMATION (CONTINUED)



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

From the commencement of our ongoing initial public offering through March 31, 2009, the net offering proceeds to us, after deducting the total expenses incurred as described above, were approximately
$414.3 million, including net offering proceeds from our dividend reinvestment plan of $5.0 million.

We expect to use
substantially all of the net proceeds from our ongoing initial public offering to invest in and manage a diverse portfolio of real estate and real estate-related investments. 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 repurchase of shares under our share redemption program; capital expenditures; tenant improvement costs and other funding obligations. As of
March 31, 2009, we have used the net proceeds from our ongoing primary public offering and debt financing to purchase $563.0 million in real estate and real estate-related investments, including $10.8 million of acquisition and
origination fees and expenses.



| | c) | During the period covered by this Form 10-Q, we did not repurchase any of our securities pursuant to our share redemption program, and no shares had been tendered for redemption.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 3. | Defaults upon Senior Securities
|------- | -------------------------------

None.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

No matters were submitted to a vote of our stockholders during the first quarter of 2009.



|Item 5. | Other Information
|------- | -----------------

None.



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##### Table of Contents

PART II.   OTHER INFORMATION (CONTINUED)



|Item 6. | Exhibits
|------- | --------



Ex.

Description3.1

Second Amended and Restated Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for the period ended
March 31, 20083.2

Second Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.2 to Pre-Effective Amendment No. 2 to the Companys Registration Statement on Form S-11,
Commission File No. 333-1463414.1

Form of Subscription Agreement, incorporated by reference to Appendix A to the prospectus dated April 30, 2009, Commission File No. 333-1463414.2

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. 333-1463414.3

Dividend Reinvestment Plan, incorporated by reference to Appendix B to the prospectus dated April 30, 2009, Commission File No. 333-1463414.4

Amended and Restated Share Redemption Program4.5

Amended and Restated Escrow Agreement, dated June 2, 2008 by and between KBS Real Estate Investment Trust II, Inc., KBS Capital Markets Group LLC and First Republic Trust Company,
incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed June 6, 200810.1

Assignment and Assumption Agreement (related to the acquisition of the One Liberty Plaza Notes) by and between Goldman Sachs Mortgage Company and KBS Debt Holdings II X, LLC, dated as of
February 11, 2009, incorporated by reference to Exhibit 10.32 to the Companys Annual Report on Form 10-K for the year ended December 31, 200810.2

Amended, Restated and Consolidated Note A-2-B-2-B (related to the acquisition of the One Liberty Plaza Notes) between BROOKFIELD PROPERTIES OLP CO. LLC (f/k/a BFP ONE LIBERTY PLAZA CO. LLC)
and Goldman Sachs Mortgage Company, dated as of August 8, 2007, incorporated by reference to Exhibit 10.33 to the Companys Annual Report on Form 10-K for the year ended December 31, 200810.3

Amended, Restated and Consolidated Note A-2-B-2-C (related to the acquisition of the One Liberty Plaza Notes) between BROOKFIELD PROPERTIES OLP CO. LLC (f/k/a BFP ONE LIBERTY PLAZA CO. LLC)
and Goldman Sachs Mortgage Company, dated as of August 8, 2007, incorporated by reference to Exhibit 10.34 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008




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##### Table of Contents

PART II.   OTHER INFORMATION (CONTINUED)



|Item 6. | Exhibits (continued)
|------- | --------------------



Ex.

Description10.4

Intercreditor and Servicing Agreement (related to the acquisition of the One Liberty Plaza Notes) by and between Goldman Sachs Mortgage Company and itself as A-1 Lender and A-2 Lender, dated
as of October 1, 2007, incorporated by reference to Exhibit 10.35 to the Companys Annual Report on Form 10-K for the year ended December 31, 200810.5

Loan Agreement (related to the acquisition of the One Liberty Plaza Notes) between GOLDMAN SACHS COMMERCIAL MORTGAGE CAPITAL, L.P. and BFP ONE LIBERTY PLAZACO. LLC, dated as of
August 8, 2007, incorporated by reference to Exhibit 10.36 to the Companys Annual Report on Form 10-K for the year ended December 31, 200810.6

Amended and Restated Promissory Note Secured by Mortgage (related to the acquisition of the 100 & 200 Campus Drive Buildings in Florham Park, New Jersey) by KBSII 100-200 CAMPUS
DRIVE, LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated as of March 11, 2009, incorporated by reference to Exhibit 10.37 to the Companys Annual Report on Form 10-K for the year ended December 31, 200810.7

Modification Agreement (related to the acquisition of the 100 & 200 Campus Drive Buildings in Florham Park, New Jersey) by and between KBSII 100-200 CAMPUS DRIVE, LLC and WELLS FARGO
BANK, NATIONAL ASSOCIATION, dated as of March 11, 2009, incorporated by reference to Exhibit 10.38 to the Companys Annual Report on Form 10-K for the year ended December 31, 200831.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 200232.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002




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##### Table of Contents

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 REAL ESTATE INVESTMENT TRUST II, INC.
|                   |  |                                          
|Date: May 13, 2009 |  | By:                                       |  | /s/ Charles J. Schreiber, Jr.                              
|                   |  |                                           |  | Charles J. Schreiber, Jr.                                  
|                   |  |                                           |  | Chairman of the Board, Chief Executive
Officer and Director
|                   |  |                                          
|Date: May 13, 2009 |  | By:                                       |  | /s/ David E. Snyder                                        
|                   |  |                                           |  | David E. Snyder                                            
|                   |  |                                           |  | Chief Financial Officer                                    



52