Company: KBSR
Filing Date: 2025-08-14
Form Type: 10-Q
Source: 0001482430-25-000042
Chunk: 94

Company: KBS Real Estate Investment Trust III, Inc.
Filing Date: 2025-08-14
Form: 10-Q
Item: Part I, Item 3
Chunk 94
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 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 June 30, 2025, we were exposed to market risks related to fluctuations in interest rates on $357.0 million of variable rate debt outstanding after giving consideration to the impact of interest rate swap agreements on approximately $1.0 billion of our variable rate debt.  Several of our interest rate swap agreements mature during the 12 months ending June 30, 2026.  Based on interest rates as of June 30, 2025, and with the consideration of the maturity dates of our interest rate swap agreements, if interest rates were 100 basis points higher or lower during the 12 months ending June 30, 2026, interest expense on our variable rate debt would increase or decrease by $4.6 million.  

The interest rate and weighted-average effective interest rate of our fixed rate debt and variable rate debt as of June 30, 2025 were 7.5% and 6.4%, respectively.  The weighted-average effective interest rate represents the actual interest rate in effect as of June 30, 2025 (consisting of the contractual interest rate and the effect of interest rate swaps, if applicable), using interest rate indices as of June 30, 2025 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 that have been 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 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Outlook – Real Estate and Real Estate Finance Markets” and