Atrium choses bank loan over bonds for its Polish retail refinancing

Retail specialist sees more attractive secured financing costs as it refinances debt used for the acquisition of Poland’s Wars Sawa Junior retail complex.

Faced with the recent task of refinancing its Wars Sawa Junior shopping centre in Warsaw, Atrium European Real Estate considered both the secured loan market and the unsecured bonds route.

The company opted for a €170 million bank facility, closing the deal this month, as the loan market allowed the firm to source longer-term finance and cheaper debt compared with the bond market, Ryan Lee, Atrium’s chief financial officer told Real Estate Capital.

The loan, provided by German bank Helaba, has a tenor of eight years and is understood to have a loan-to-value ratio of approximately 60 percent. The debt facility was sourced to replace the existing bridge loan taken in October this year, when the firm acquired the retail centre for €301.5 million. The pricing of the loan was undisclosed, but Atrium said its cost of debt was reduced to 3.1 percent.

“We had a choice between taking secured financing or increasing the size of our euro bond in the public market but, commercially, it made sense to take the loan from Helaba,” Lee explained.

“Firstly, because the tenor of the loan is eight years and at the moment it’s quite difficult to get very long-term money in the bond market as most issuances for credit rate are between five to seven years.

“Secondly, there’s quite a large difference between secured financing costs and the bond market at the moment,” Lee said.

Real Estate Capital understands the spread is in excess of 50 basis points currently for this type of tenor.

“We wanted longer-term money, we wanted cheaper money and we needed to replace the bridge. We felt this was the best solution,” Lee noted.

The bond market has gone through a major change since late April, when political turmoil in Italy started to affect the country’s bond markets, with repercussions for the wider European loan market, Lee explained. He added that expectations of increasing interest rates have also contributed to create a wider spread between secured lending and bonds.

The refinancing comes amid a solid macroeconomic environment in Poland. The country’s retail sales increased by 7.3 percent year-on-year and by 7.4 percent month-on-month in October, according to official data. Meanwhile, activity in Q3 remained robust, as Polish GDP is expected to expand by more than 4 percent in 2018 year-on-year.

With an annual footfall in and around the asset of 60 million, Warsaw’s fully let Wars Sawa retail centre is a “hybrid between retail, high street and shopping mall”, Lee said. Although he declined to disclose the yield of the asset, he said it trades from a yield perspective in between a high street in Prague, which currently stands at between 3.5 and 3.75 percent, and a shopping centre in Warsaw, at 4.75 percent.