Schroder Real Estate Investment Trust Limited announces it has entered into an agreement with Canada Life for a new loan facility to refinance its existing securitized loan in full. Drawdown of the new loan and the simultaneous repayment of the existing loan are due to complete on 15 April 2013.
Completing a re-financing of the Company’s existing securitized loan that matures in July 2014 has been a major strategic objective, with a focus on achieving a long-term debt maturity, a reduction in the cost of debt and sufficient operational flexibility to permit continued active management of the portfolio. The new facility provides all these features.
Terms of the New Canada Life loan
The Company has entered into a Credit Agreement with Canada Life and expects to draw down the loan on 15 April 2013, the next available repayment date of the existing securitized loan. This is subject to satisfaction of standard conditions precedent which are required to be satisfied prior to loan drawdown. The key loan terms are as follows:
- Loan to value ratio (‘LTV’) of up to 50% calculated with reference to an independent valuation to be provided no later than 15 March 2013
- 80% of the loan maturing in 15 years and 20% in 10 years
- Fixed rate loan referenced to the 15 year Gilt rate. The Gilt rate will be set no later than 10 business days prior to drawdown
- Assuming the current 15 year Gilt rate and dependent on the LTV at drawdown, the Company expects a final fixed interest cost of approximately 5%. This could potentially change depending on movement in the Gilt rate prior to drawdown
- No amortization
- Flexibility to sell existing properties and acquire new properties
- Flexibility to asset manage the portfolio including the ability to utilize cash from disposals to fund capital expenditure
- LTV covenant ratio of 65% and an ICR covenant ratio of 185%
Repaying the existing securitized loan requires the remaining interest rate swaps to be broken, which as at 13 March 2013 would crystallize a cash cost of approximately £15.6 million (approx. €18.1 million) This negative mark to market value is already included as a liability in the Company’s balance sheet and therefore the break cost has no impact on Net Asset Value.
In order to optimize the terms of the re-financing, the Company has undertaken a number of strategic disposals since March 2012. This has involved the sale of seven properties for £66.8 million (approx. €77.4 million) , reflecting an average premium to the March 2012 valuation of 5.8% and an average net initial yield of 4.1%. This activity enabled the Company to repay £59 million (approx. €68.4 million) of debt since April 2012, resulting in a current outstanding loan balance of £114.5 million (approx. €132.66 million) at a total interest cost of 5.72%. The debt repayments reduced the net loan to value and supported the Company in achieving a competitive re-financing with Canada Life.
The Company’s current net LTV, adopting the portfolio valuation as at 31 December 2012 and approximately £27.7 million (approx. €32.09 million) of cash as at 13 March 2013, is 33.00%. If the mark to market value of the Company’s remaining interest rate swaps totaling -£15.6 million (approx. €18.1) as at 13 March 2013 were treated as a liability, the net loan to value would increase to 38.93%.
Following completion of the refinancing and based on current swap break costs the Company expects to have a loan balance of approximately £130 million (approx. €150.6 million) and a net LTV in the region of 40% after allowing for cash outside of Canada Life’s security totaling approximately £25 million (approx. €29 million).