Company: KBSR
Filing Date: 2025-05-12
Form Type: 10-Q
Source: 0001482430-25-000036
Chunk: 215

Company: KBS Real Estate Investment Trust III, Inc.
Filing Date: 2025-05-12
Form: 10-Q
Item: Part I, Item 2
Chunk 215
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 as of March 31, 2025.  As we expect to hold our fixed rate instruments to maturity (unless the property securing the debt is sold and the loan is repaid) and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our operations.  

Conversely, 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 March 31, 2025, we were exposed to market risks related to fluctuations in interest rates on $350.1 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.  Based on interest rates as of March 31, 2025, if interest rates were 100 basis points higher or lower during the 12 months ending March 31, 2026, interest expense on our variable rate debt would increase or decrease by $3.5 million.  

The interest rate and weighted-average effective interest rate of our fixed rate debt and variable rate debt as of March 31, 2025 were 7.5% and 6.4%, respectively.  The weighted-average effective interest rate represents the actual interest rate in effect as of March 31, 2025 (consisting of the contractual interest rate and the effect of interest rate swaps, if applicable), using interest rate indices as of March 31, 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