Schroder REIT refinances two facilities

Schroder Real Estate Investment Trust has completed two refinancings in respect of its £129.6m term loan with Canada Life and its £20.5m revolving credit facility with the Royal Bank of Scotland, it announced on Wednesday.

The London-listed real estate investment trust said the initiatives reduced its interest costs, and extended the overall duration of its debt facilities.

It said it negotiated improved terms with the refinancing and part extension of its Canada Life term loan, in respect of the £25.9m portion of the loan that was due to expire in April 2023.

The maturity of that portion was extended by five years to be co-terminus with the rest of the loan, due to expire in April 2028, and fixing that interest rate for a further five years to remove the risk of rising interest rates.

Schroder REIT said the fixed interest rate cost had reduced to 3.09% from 4.77% on that portion of the loan, saving around £0.44m of interest per annum.

The refinancing resulted in a negotiated break cost of £2.63m.

On its extension of the revolving credit facility, Schroder REIT said it had increased the available facility to £32.5 million from £20.5m, with £20.5m already drawn.

The additional loan amount available would provides the company with greater funding flexibility, to be used for acquisitions or capital expenditure across the portfolio, the board explained.

It said the revolving credit facility was an “efficient and flexible” source of funding, due to the low margin of 1.6% and the ability to be repaid and redrawn as often as required and substitute assets within its security pool.

The existing revolving credit facility had been due to expire in July 2019, and the new five year loan had a maturity in July 2023.

Schroder REIT said it would also extend its interest rate caps in respect of the revolving credit facility, to align with the new term of the facility and mitigate the potential risk of interest rate increases.

It added that the transactions capitalised on current low interest rates, and repositioned the balance sheet for a lower cost and longer term.

“This active management of the balance sheet results in competitive financing terms that lengthen both near-term debt maturity dates by five years, and extend the average weighted debt term from 7.7 years to approximately 9 years,” the Schroder REIT board said in its statement.

“The overall cost of debt reduces from 4.4% to 4.0% assuming the RCF is fully drawn.”

It also noted that 80% of the company’s debt was fixed, with the remainder capped, adding that the enlarged revolving credit facility provided additional liquidity for acquisitions and capital expenditure, with the ability to efficiently de-gear following asset sales or equity issuance.

“The company’s net loan-to-value post the transactions is approximately 26% based on the 31 March valuation, within the target ratio of 25% to 35%.

“The successful refinancing combined with contemplated acquisitions should allow the board to consider the company’s ability to progressively increase the level of dividend.”