Three REITs Find Their Way to Better Capital

Riverside Apartment

WASHINGTON, DC—An anecdotal tour of US banks’ earnings reports and investor calls for Q1 last week suggested that their appetite for commercial real estate lending remains strong, despite hints of a regulatory crack down and suggestions that pricing may be peaking . Two recent bank refinancings totaling more than $1 billion each for two separate US REITs highlight this ongoing appetite and also point to REITs’ resilience as other capital market avenues become less accessible to them. One transaction we reported last week: Chicago-based General Growth Properties secured a $1.4-billion term loan refinance backed by 15 retail properties across the US. Minneapolis-based US Bank led the refi, joined by 14 other lenders including Wells Fargo Securities. In Bethesda, MD, locally-based RLJ Lodging Trust announced it had refinanced more than $1 billion in debt. These deals are particularly telling, as Fitch Ratings recently reported that weaker REIT capital access “was casting a shadow over otherwise healthy property operating fundamentals.” Granted, Fitch was referring to the public unsecured bond market and CMBS market, both of which are struggling with separate issues, and not the banking market.  And granted, both of these bank loans were secured, or partially secured, with properties and multiple lenders participated in the transactions. The larger point, however, is that capital is still available if not from one source, then another. Indeed, even unsecured financing is available, especially if – as illustrated by Washington REIT, the third REIT in this narrative — some asset substitution sales in exchange for equity issuance is at play. Washington REIT just secured $130 million or so from a public offering that it recently priced following such a transaction. GGP’s $1.4B Loan Backed by 15 Retail Centers GGP’s $1.4-billion term refi was backed by 15 retail properties across the US. Minneapolis-based US Bank led the refi, joined by 14 other lenders including Wells Fargo Securities. The refi was secured by the company’s Southwest Plaza in Littleton, CO; Brass Mill Center in Waterbury, CT; Grand Teton Mall in Idaho Falls, ID; Oakwood Center in Gretna, LA; Mondawmin Mall in Baltimore, MD; River Hills Mall in Mankato, MN; the Shops at Fallen Timbers in Maumee, OH; Sooner Mall in Norman, OK; Pioneer Place in Portland, OR; Columbiana Centre in Columbia, SC; Red Cliffs Mall in St. George, UT; NorthTown Mall in Spokane, WA; the Oakwood Mall in Eau Claire and Mayfair Mall in Wauwatosa, WI; and Eastridge Mall in Casper, WY;. US Bank served as left lead arranger, joint bookrunner and administrative agent. Wells Fargo Securities served as right lead arranger, joint bookrunner and syndication agent. RLJ Reduces Interest Rates with $1B Refi The $1 billion in debt that RLJ Lodging Trust refinanced consisted of a $400 million unsecured term loan, a $400 million revolving credit facility, $148.5 million in secured loans provided by Wells Fargo Bank and an $85 million secured loan provided by PNC Bank. The newly amended and restated five-year term revolver reduced interest rates by an average of 21 and 26 basis points, respectively, and extended final maturities to 2021. RLJ also increased the capacity on its revolver from $300 million to $400 million. Three Wells Fargo loans secured by four properties totaling $148.5 million extended the final maturity to 2022 and improved pricing by 15 basis points. The PNC loan, which is secured by five properties, was recast to extend the maturity to 2023 and improve pricing by 25 basis points. The PNC loan was also upsized from $74 million to $85 million. Washington REIT Prices Public Offering Washington REIT’s public offering of 4.62-million common shares priced at $28.20 apiece, for a total of $130.4 million in gross proceeds. The company said the size of the offering was increased from 4 million common shares and that underwriters have been granted a 30-day option to buy up to 693,750 additional shares. This transaction followed the news that the REIT  sold six of its suburban Maryland office properties for  $240 million and is acquiring Riverside Apartments in Alexandria, VA, for $244 million. Washington REIT will use the net proceeds initially to repay borrowings outstanding under its revolving credit facility. The funds will subsequently be used to fund an acquisition, among other general corporate purposes, it said. Fitch mentioned this strategy (in general, not specifically about Washington REIT) in its alert last month. As REITs navigate the more challenging capital markets landscape, it said, “…Many companies have substituted asset sales for equity issuance to fund external investments on a leverage-natural basis…”