One of the most heavily levered companies in the apartment REIT sector got some relief earlier this week. Birmingham, Ala.-based Colonial Properties Trust announced that it has closed a $350 million secured credit facility originated by PNC ARCS, part of Pittsburgh-based PNC, for repurchase by Fannie Mae.
It's a welcome injection of liquidity for a company with leverage levels in the high 70 percentile range. According to estimates of current market values by Newport Beach, Calif.-based consultants Green Street Advisors, the average debt for the apartment REITs is about 60 percent.
Colonial will use the proceeds from the credit facility, which has a 10-year term, to repay all but about $35 million of the outstanding balance on the company's $675 million unsecured line of credit. The facility carries a fixed interest rate of 6.04 percent and is secured by 19 multifamily properties totaling 6,565 units.
"It provides us liquidity to take care of our bond maturities coming due in 2010 and 2011," says Jerry Brewer, executive vice president of finance at Colonial."This solidifies us for the next couple of years to weather through this storm."
Colonial is one of many REITs, including Chicago-based Equity Residential and Houston-based Camden Property Trust, that's secured a credit facility backed by Fannie Mae or Freddie Mac.
"There's a great deal of repositioning occurring among the REITs and large real estate operators as they move from other financing into secured financing with Fannie Mae and Freddie Mac," says Tim White, president of PNC ARCS. "REITs can lock up permanent financing for many years on their portfolios. They have features to pull out properties and put them in without paying yield maintenance and defeasance costs."
Already, Colonial was had been repurchasing its unsecured bonds at a discount, buying $195 million last year and an additional $70 million already in 2009. This year, it secured those bonds at a $20 million discount.
"It takes the refinancing risk out of the market going forward," Brewer says. "Since Fannie and Freddie are open for business and lending at attractive rates, it's a great place to go for that financing. You might as well take advantage of it while you've got it."