Revolving credit gives better spin to big REITs’ borrowings

British Land, Segro and Capco tap debt repricing with new unsecured facilities, writes Alex Catalano

Britain’s big REITs are busy rearranging their financings. Last month, British Land, Segro and Capco arranged a total £1.64bn of unsecured bank facilities.

“Revolving credit facilities are an important tool for investment-grade companies,” says Romain Simon, BNP Paribas’s head of UK real estate finance. “They provide flexibility to buy and sell assets.”

These financings highlight how much the availability and pricing of real estate debt has improved over the past year, especially for the big, quoted companies.

As the UK real estate market heads north, the big REITs are now more actively working over their portfolios, trading assets, developing or upgrading. With margins on unsecured borrowing now back down in the 115-165bps range, they are also taking advantage of lower pricing on the debt.

Says Simon: “There is more liquidity, banks’ capital has been strengthened and the traditional lenders to large property players are active with more vigour than in recent years in the syndication market.”

During the credit crunch, there was speculation that the unsecured lending model might wither away, as regulation made it more expensive to write unsecured loans and a reduced pool of lenders had less appetite for risk.

“The reality is that the unsecured market for established UK REITs who traditionally borrowed on this basis stabilised relatively quickly after the crisis,” says Michael Acratopulo, Wells Fargo’s head of origination.

Six banks provided Capco’s £665m revolving facility – its first-ever unsecured borrowing. “The appetite for lending has increased,” says Soumen Das, Capco’s finance director. “We kept the number small, but could have doubled it.”

The margin is 165bps, but as Das notes, that headline figure doesn’t reflect all the various fees attached to facilities. Capco opted for a “pretty simple” deal. “The all-in pricing, with the other pieces in, makes it a very efficient facility,” notes Das.

When the company demerged from Liberty International four years ago, it had five secured facilities; the new loan replaces three of these. “We needed to grow to have the scale and level of leverage to go from secured to unsecured and we needed a track record for credit committees,” says Das.

The five-year debt is unrated, to a Capco subsidiary holding its Covent Garden estate, which has grown from £548m at demerger to £1.2bn. “It’s a mini-business in its own right and needed more financing,” says Das.

A “transformational” deal

“We do a lot of replacing tenants, and it is simple with unsecured borrowing; the loan covenants are very straightforward,” says Das. “From our perspective it felt transformational. To get banks to lend to us on this basis is very nice.”

Wells Fargo is part of the six-strong syndicate. Acratopulo says: “Capco is a relatively recently demerged company and does not have an established track record of borrowing on an unsecured basis. It is no coincidence that there’s more transparency on what underpins the facility – in this case, the Covent Garden estate.”

In contrast, British Land is a veteran user of unsecured debt and has arranged a new, £785m revolving credit facility.