Redefine International has refinanced its seven-strong predominantly Holiday Inn UK portfolio with a £90.6m six-year senior loan with Aareal Bank, as part of a wider near £200m in early refinancings by the REIT which is seeking to capitalise on tightening UK credit spreads for senior debt.
Aareal Bank has priced the senior loan at 2.275% above LIBOR, compared to the legacy facility – also by Aareal – which was at 2.45% above LIBOR. Existing hedging until November 2015 will be retained and a 3.0% interest rate cap will be taken out for the remainder of the loan term.
The REIT’s UK hotel portfolio, owned through Redefine Hotel Holdings Limited (RHH), which is 71% owned by Redefine International and the balance owned by three small co-investors including Bashir Nathoo, the vendor who Redefine International initially acquired the five of the seven hotels from in August 2012 for £122m in a portfolio then dubbed the Splendid Portfolio.
The last valuation of the seven hotels, at £155.7m, was taken at 28 February 2014, subsequent to which there is expected to have been an additional modest uplift which is thought to put Aareal Bank’s LTV at circa 60%.
This is inclusive of the acquisition of the remaining 40% of the 150-bedroom Holiday Inn Express Hotel in Earls Court, which was not already owned, for £6.3m from Camden Lock and Earls Court LLP, which implies a valuation for the entire hotel of £28.1m.
RHH’s remaining hotels comprise a further five Holiday Inns in Brentford, Southwark, Limehouse, Royal Docks and Park Royal as well as a Crowne Plaza in Reading
In addition, Lloyds Banking Group has extended its £35.4m Zeta facility to Redefine for a further two years to May 2017. The existing facility, secured by Redefine’s UK government offices let, is priced at 3.25% plus LIBOR.
Finally, Redefine has selected a preferred lender for an additional £50m single-asset refinancing.
Redefine said in an interim management statement this morning that the investment market continues to be supported by active capital markets with recent fundraising activity in both the equity and debt markets likely to support demand in the short-to-medium term.
The statement said: “Historically low interest rates combined with a competitive lending market are providing an opportunity to extend the group’s debt maturity profile at attractive rates.
“Improving economic and occupier fundamentals are encouraging and, while UK interest rates are likely to rise, absolute levels are expected to remain well below long run averages in the short-to-medium term. Germany appears likely to benefit from historically low Eurozone interest rates for an extended period, which is likely to attract further equity investment into the German real estate market.
“The investment market looks set to remain competitive given these conditions and caution will need to be exercised in certain markets that have already experienced significant yield compression.
“However, this will provide further opportunities to recycle capital out of low growth assets into investments expected to benefit from ongoing occupier demand, supported by improving economic fundamentals.
“The company remains focused on improving the quality of its portfolio to underpin long-term income returns and extending its debt facilities to provide certainty around future interest costs.”