Unsecured $372M Federal Realty Loan a Rarity in Today’s Credit Market

Despite credit still playing hard-to-get, several REITs have recently managed to get their hands on sizable financing deals. The latest firm to add its name to the list of firms receiving funding is Federal Realty Investment Trust, which just closed a new $372 million unsecured term loan facility. Less than two weeks ago, CPN reported that H&R Real Estate Investment Trust secured C$425 million in financing to complete construction of a 58-story office tower in Downtown Calgary, Canada. The 42-month financing was provided by a syndicate of lenders led by RBC Capital Markets and TD Securities. On Tuesday, ProLogis closed on a $137.5 million, five-year, secured financing with a major life insurance company on behalf of the ProLogis California Fund. The financing has a loan-to-value of approximately 50 percent with 21 industrial properties located in the Los Angeles Basin and Inland Empire as security. Proceeds from the Federal Realty Investment Trust financing were utilized to retire the trust’s previous $200 million term loan which was due Nov. 6 and provide sufficient capital to retire the trust’s 8.75 percent notes due Dec. 1. As a result, the trust will have no additional debt maturities until 2011. The new term loan facility, which bears interest at an annual rate of LIBOR (subject to a 1.50 percent floor) plus 300 basis points, will mature in July 2011. The financing was originally marketed as a $200 million loan, but significant demand from financial institutions for the trust’s credit at market leading terms allowed Federal Realty to upsize the loan to its final level of $372 million. Wachovia Securities and PNC Bank N.A. acted as lead arrangers for the loan. J.P. Morgan Chase Bank N.A., Regions Bank and SunTrust Bank acted as co-documentation agents. Bank of America N.A., Royal Bank of Canada, Chevy Chase Bank, F.S.B., Citicorp North America Inc., Comerica Bank and Raymond James Bank F.S.B. are all lenders for the transaction. “Even in this difficult credit environment, we were able to upsize the term loan from $200 million to $372 million because of the strong support we received from our lenders, with seven of our existing lenders increasing their collective term loan exposure from $133 million to $315 million,” said Andrew Blocher, senior vice president & CFO of Federal Realty, in a prepared statement. “As a result of this transaction, and our other capital market activities, we’re anticipating adequate capital to retire all of our debt maturing in 2009, with no additional maturities until 2011, and create significant capacity on our $300 million unsecured credit facility.” On March 26, CPN reported that Liberty Property Trust snagged six secured loans totaling $317 million. Relying on industrial and office properties as collateral, the Malvern, Pa.-based REIT obtained the mortgage loans through several life insurance concerns. Liberty depended on industrial portfolios to back five of the mortgages, and utilized office properties to secure an additional loan. What makes the Federal Realty deal unique is the unsecured terms. For many real estate companies these days, secured financing is the most–if not only–viable route for obtaining loans. “The market for senior unsecured debt financing has been generally unavailable to REITs during 2008,” Liberty noted in its annual report.