Company: KBSR
Filing Date: 2025-03-14
Form Type: 10-K
Source: 0001482430-25-000021
Chunk: 186

Company: KBS Real Estate Investment Trust III, Inc.
Filing Date: 2025-03-14
Form: 10-K
Item: Item 1A
Chunk 186
---
, deemed held primarily for sale to customers in the ordinary course of business.  Whether property is held primarily for sale to customers in the ordinary course of a trade or business depends on the specific facts and circumstances.  No assurance can be given that the IRS would agree with our characterization of our assets or that we will always be able to make use of the available safe harbors. If the IRS were to successfully challenge our characterization of a sale, we would be liable for the aforementioned 100% penalty tax, which could be significant in size.  

Complying with REIT requirements may force us to liquidate otherwise attractive investments.  

To qualify as a REIT, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets.  The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer.  In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, no more than 20% of the value of our total assets can be represented by securities of one or more taxable REIT subsidiaries and no more than 25% of the value of our total assets can be represented by “non-qualified publicly offered REIT debt instruments.”  If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences.  As a result, we may be required to liquidate from our portfolio otherwise attractive investments.  These actions could have the effect of reducing our income and adversely impact our financial condition and results of operations.  

Liquidation of assets may jeopardize our REIT qualification.  

To qualify as a REIT, we must comply with requirements regarding our assets and our sources of income.  If we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are