Company: KBSR
Filing Date: 2025-03-14
Form Type: 10-K
Source: 0001482430-25-000021
Chunk: 2

Company: KBS Real Estate Investment Trust III, Inc.
Filing Date: 2025-03-14
Form: 10-K
Item: Item 7A
Chunk 2
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versely, movements in interest rates on our variable rate debt would change our future earnings and cash flows, but not significantly affect the fair value of those instruments.  However, changes in required risk premiums would result in changes in the fair value of variable rate instruments.  As of December 31, 2024, we were exposed to market risks related to fluctuations in interest rates on $232.6 million of variable rate debt outstanding after giving consideration to the impact of interest rate swap agreements on approximately $1.1 billion of our variable rate debt.  Based on interest rates as of December 31, 2024, if interest rates were 100 basis points higher or lower during the 12 months ending December 31, 2025, interest expense on our variable rate debt would increase or decrease by $2.3 million.  

The interest rate and weighted-average effective interest rate of our fixed rate debt and variable rate debt as of December 31, 2024 were 7.5% and 5.7%, respectively.  The weighted-average effective interest rate represents the actual interest rate in effect as of December 31, 2024 (consisting of the contractual interest rate and the effect of interest rate swaps, if applicable), using interest rate indices as of December 31, 2024 where applicable.

Given the challenges affecting the U.S. commercial real estate industry and the challenging interest rate environment, in order to refinance or extend loans, our lenders have required higher interest rate spreads compared to the terms in the loans being refinanced or extended.  We utilize interest rate swaps to manage interest rate risk, and in particular fluctuations in the variable rate, namely SOFR, but these interest rate swaps will not mitigate any risk related to higher interest rate spreads.  Additionally, we have entered into various interest rate swap agreements that are currently below market and as those swaps expire, our interest expense will increase and further impact our liquidity position and ongoing cash flows.  As a result, we expect interest expense and our weighted-average effective interest rate to increase in the future as a result of recent extensions and loan modifications.  For a discussion of the interest rate risks related to the current capital and credit markets, see Part I, Item 1A, “Risk Factors” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Outlook – Real Estate and Real Estate Finance Markets.”  

We are exposed to financial market risk with respect to our investment in the