British Land has secured a £290m five-year revolving credit facility (RCF) from a consortium of seven international banks, as part of a wider debt raising strategy which has seen the UK’s second largest REIT raise as much as £2.8bn over the last two years.
Lloyds Banking Group – facility agent and co-ordinator for the new RCF – along with Royal Bank of Scotland, British Land’s two principal relationship banks, have provided around half the total £290m, with the five remaining banks providing the balance.
The remaining syndicate – each committing between £10m to less than £75m – is comprised of senior debt commitments from JPMorgan, Bank of Tokyo-Mitsubishi, The Bank of Nova Scotia, and Taiwan’s Mega International Commercial Bank.
Lloyds, RBS and Bank of Tokyo-Mitsubishi acted as the three joint bookrunners.
British Land is also expected to confirm at least one more bank to the consortium, possibly two, in the next week, which would take the overall RCF to the low £300m-range, with the proceeds to be used for short-term corporate acquisition purposes.
The headline margin for the RCF’s primary first third of usage – likely to be just over £100m when the final banks sign-up – will be at 135 basis points over three-month LIBOR, which reflects a highly competitive rate for senior debt, relative to today’s margins.
Moreover, British Land can lend at this margin, regardless of the asset quality and lease profile of the individual properties, although margins are thought to step-up materially for RCF usage beyond the “first third” threshold.
British Land’s ability to secure market-superior margins for its RCF, reflects the broader relationships that the largest-listed property companies have with their banking partners.
Large REITs, property companies and funds are often able to negotiate preferential margin terms in exchange for banks’ securing a slice of profitable ancillary banking mandates, such as interest rate and currency swaps, corporate bond agency mandates, money transmission, advisory services and foreign exchange.
British Land’s competitive margins compare with Land Securities’ giant £1.05bn six-bank RCF, which the UK’s largest REIT refinanced in December 2011, at a margin of 120 bps for the first third usage.
RCFs allow borrowers to freely change underlying collateral security, providing much-needed flexibility for opportunistic transactions, and are structured with staggered margin uplifts after agreed thresholds – known as utilisation fees.
British Land has raised £2.8bn in the last two years, £2.3bn of which has been for the REIT’s own use and its share of joint venture partnership financings. This £2.3bn raised in the last two years reflects half of the REITs entire available finance, which underscores the scale of British Land’s recent debt capital raising campaign.
The weighted average maturity across the full £4.6bn is at 9.9 years, at a 40% LTV and 2.3 times interest cover for loan repayments.
Perhaps most significantly over this period, British Land’s group and JV-wide weighted average interest rate has fallen by 40 basis points over the last 12 months – from 4.6% at the end of last March to 4.2%.
This followed British Land’s £493m equity placing in March and the sale of Ropemaker in the City of London to a Gingko Tree Investments-led investment for £461m, net of costs.
British Land’s huge debt raising, as well as its March near half a billion equity placing which is equivalent to 10% of value of the REIT, reflects senior management’s belief that there has been a material uplift in investment opportunities, in the wake of fund redemptions, regulatory pressure on de-leveraging banks.