Company: KBSR
Filing Date: 2025-11-14
Form Type: 10-Q
Source: 0001482430-25-000054
Chunk: 224

Company: KBS Real Estate Investment Trust III, Inc.
Filing Date: 2025-11-14
Form: 10-Q
Item: Part I, Item 2
Chunk 224
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 sweep arrangements, whereby each month the excess cash flow from the properties securing the loan is deposited into a cash management account held for the benefit of our lenders.  Generally, excess cash flow means an amount equal to (a) gross revenues from the properties securing the facility less (b) an amount equal to principal and interest paid with respect to the associated debt facility, operating expenses of the properties securing the facility and in certain cases a limited amount of REIT-level expenses.  In certain cases, we may request disbursements from the cash management accounts to fund capital or operating shortfalls at the underlying assets.  However, such cash management accounts place limits on our access to cash flows from these properties and decrease our operating flexibility. 

As a result of the current interest rate environment, the recent extensions and refinancings of certain of our loans have also reduced our available liquidity due to increased 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.

We expect that our debt financing and other liabilities will be between 45% and 65% of the cost of our tangible assets (before deducting depreciation and other non-cash reserves).  There is no limitation on the amount we may borrow for the purchase of any single asset.  We limit our total liabilities to 75% of the cost of our tangible assets (before deducting depreciation and other non-cash reserves), meaning that our borrowings and other liabilities may exceed our maximum target leverage of 65% of the cost of our tangible assets without violating these borrowing restrictions.  We may exceed the 75% limit only if a majority of the conflicts committee approves each borrowing in excess of this 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.  To the extent financing in excess of this limit is available on attractive terms, our conflicts committee may approve debt in excess of this limit.  From time to time, our total liabilities could also be below 45% of the cost of our tangible assets due to the lack of availability of debt financing.  As of September 30, 2025, our borrowings and other liabilities were approximately 54% of the cost (before deducting depreciation and other noncash reserves) and 56% of the book value (before deducting depreciation) of our tangible assets, respectively.