Company: KBSR
Filing Date: 2025-03-14
Form Type: 10-K
Source: 0001482430-25-000021
Chunk: 185

Company: KBS Real Estate Investment Trust III, Inc.
Filing Date: 2025-03-14
Form: 10-K
Item: Item 1A
Chunk 185
---
 Compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits and reduce the value of our stockholders’ investment.  In addition, the terms and conditions of our existing loan agreements or any future extension or refinancing agreements entered into may impact our ability to qualify as a REIT as an operational matter or we may determine that qualifying as a REIT is no longer in our best interests.

If our operating partnership fails to maintain its status as a partnership for U.S. federal income tax purposes, its income would be subject to taxation and our REIT status could be terminated.  

We intend to maintain the status of our operating partnership as a partnership for U.S. federal income tax purposes.  However, if the Internal Revenue Service (“IRS”) were to successfully challenge the status of our operating partnership as a partnership, it would be taxable as a corporation.  In such event, this would reduce the amount of distributions that our operating partnership could make to us.  This could also result in our losing REIT status and becoming subject to a corporate level tax on our own income.  This would adversely impact our financial condition and results of operations.  In addition, if any of the entities through which our operating partnership owns its properties, in whole or in part, loses its characterization as a partnership for U.S. federal income tax purposes, the underlying entity would become subject to taxation as a corporation, thereby reducing distributions to our operating partnership and jeopardizing our ability to maintain REIT status.  

Potential characterization of distributions or gain on sale may be treated as unrelated business taxable income to tax-exempt investors.  

If (i) all or a portion of our assets are subject to the rules relating to taxable mortgage pools, (ii) we are a “pension-held REIT,” or (iii) a U.S. tax-exempt stockholder has incurred debt to purchase or hold our common stock, then a portion of the distributions to and, in the case of a stockholder described in clause (iii), gains realized on the sale of common stock by such tax-exempt stockholder may be subject to U.S. federal income tax as unrelated business taxable income under the Code.  

The tax on prohibited transactions will limit our ability to engage in transactions that would be treated as sales for U.S. federal income tax purposes.  

A REIT’s net income from prohibited transactions is subject to a 100% penalty tax.  In general, prohibited transactions are sales or other dispositions of assets, other than foreclosure property