PREIT's Flexibility Up On Credit & Term Loan Facility Recast
Zacks Investment Research | May 29, 2018 09:28PM ET
Pennsylvania Real Estate Investment Trust (NYSE:PEI) — better known as PREIT — is making every possible move to strengthen its balance sheet. The company recently announced execution of a recast of $700-million revolving credit and term loan facility.
The accomplishment of these transactions prior to their scheduled maturities offers flexibility to the company because although the terms and conditions remain the same as its existing loans, their maturities now get extended to 2023.
This makes the company’s maturity schedule well-laddered and the company now has no material debt maturities until 2021. Thus, the company has accomplished more than $1 billion in transactions in the financing market, in the year so far.
Specifically, the facilities included $400-million unsecured revolver and two $150-million 5-year term loans. For the $400-million revolver, the interest rate is unchanged at LIBOR plus a range of 120-155 basis points (bps), based on a calculation of Liabilities to Gross Asset Value (GAV). Notably, the rate is 130 bps over LIBOR on the basis of the company’s current leverage. Considering term, this facility now has 4 years plus 1 year extension option (maturity in 2023).
For the $300-million term loan, interest rate is unchanged at LIBOR plus a range of 135-190 bps. The rate is 160 bps over LIBOR based on the company’s current leverage. The loan’s term is five years, with maturity in 2023.
Admittedly, shrinking mall traffic and store closures amid aggressive growth in online sales have kept retail REITs, including PREIT and others like Simon Property Group, Inc. (NYSE:SPG) , The Macerich Company (NYSE:MAC) and GGP Inc. (NYSE:GGP) , on tenterhooks. Furthermore, tenants are demanding substantial lease concessions owing to a turbulent retail real estate market scenario. Nonetheless, retail REITs are countering this dreary situation and putting in every effort to enhance the malls’ productivity, by focusing to grab attention from new and productive tenants, and disposing the non-productive ones, on the other hand.
PREIT, too, along with its remerchandising, redevelopment and anchor-repositioning program, has resorted to a portfolio rejig, selling lower productivity malls, as well as other non-core properties over the past several years. The company also recently announced scope for densification including addition of 5,000-7,000 residential units in the Philadelphia and Washington DC markets, and 1,500-3,000 hotel units across its several properties.
While such measures are a strategic fit for the long term, these efforts tend to drag down margins in the near term. Therefore, amid the choppy retail real estate environment, this Zacks Rank #4 (Sell) company underperformed the real estate market in the past three months.
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Shares of PREIT have ascended 3% as compared with the real estate market’s rally of 5.5%.
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