Company: KBSR
Filing Date: 2025-03-14
Form Type: 10-K
Source: 0001482430-25-000021
Chunk: 142

Company: KBS Real Estate Investment Trust III, Inc.
Filing Date: 2025-03-14
Form: 10-K
Item: Item 1A
Chunk 142
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 of liquidity and greater credit spreads.  We cannot be certain that these markets will remain an efficient source of long-term financing for our assets.  If our strategy is not viable, we will have to find alternative forms of long-term financing for our assets.  This could subject us to more recourse indebtedness and the risk that debt service on less efficient forms of financing would require a larger portion of our cash flow, thereby reducing funds available for operations and causing our financial condition to suffer.  

Elevated interest rates and higher interest rate spreads and future increases in interest rates and interest rate spreads could increase the amount of our interest and/or hedge payments and/or mitigate the effectiveness of our interest rate hedges.

As of December 31, 2024, our debt obligations consisted of $118.4 million of fixed rate notes payable and $1.3 billion of variable rate notes payable.  As of December 31, 2024, the interest rates on $1.1 billion of our variable rate notes payable were effectively fixed through interest rate swap agreements.  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 in connection with the loans refinanced or extended in the last 12 months 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 to increase in the future as a result of recent extensions and as we continue to refinance our maturing debt. 

14

Interest we pay reduces our net cash flow.  Since we have incurred and expect to continue to incur variable rate debt, increases in interest rates raise our interest costs to the extent such debt is not effectively hedged, which reduces our cash flows and may cause our operations to suffer.  In addition, if we need to repay existing debt during periods of elevated interest rates, we could be required to sell one or more of our properties at times or on terms which may not permit realization of the maximum return on such investments.  Increases in interest rates and high interest rates may cause our