Insurance firm Scottish Widows, with Lloyds Bank Commercial Banking acting as agent, has provided a £45 million (€57 million, $65 million) loan to UK real estate investment trust Custodian REIT.
Last March, Real Estate Capital revealed that Scottish Widows had become the latest insurer to target fixed-rate, long-term commercial mortgages through a new lending structure with Lloyds Bank. Both firms are part of Lloyds Banking Group.
The 12-year loan has been agreed at an all-in fixed rate of 2.987 percent and has a maximum loan-to-value (LTV) level of 45 percent. The facility provides £25 million to finance new property acquisitions, plus £20 million to repay an existing five-year variable rate term loan as well as an advance of £3.7 million drawn on the company’s revolving credit facility (RCF).
The REIT announced this afternoon that it had entered into the agreement today (6 June) with Scottish Widows, with Lloyds acting as agent, for Scottish Widows to provide the new term loan.
This is the second loan Custodian REIT has sourced from Scottish Widows and Lloyds Bank, following a £20 million facility agreed in July 2015. The first Custodian loan marked the first commercial property loan provided by Scottish Widows in association with Lloyds Bank.
Custodian REIT was launched in March 2014 with a £95 million seed portfolio. It now has a portfolio of more than £300 million of UK commercial property comprising 112 assets across the industrial, office and retail sectors. The firm invests exclusively in smaller lot size properties of between £2 million and £7.5 million in prime regional locations.
In addition to the latest loan, Custodian REIT has a £20 million term loan from Scottish Widows repayable in August 2025, with a fixed rate of 3.935 percent and a maximum LTV ratio of 45 percent. It also has a £35 million RCF with Lloyds Bank due to mature in November 2020 priced at 2.45 percent over three-month Libor and a maximum LTV of 50 percent.
The company’s debt facilities have a weighted average term of 8.6 years, a weighted average cost of 3.2 percent per year and 65 percent of the available facilities are at a fixed rate of interest. The REIT has cash and undrawn facilities of £60 million, which will be used to acquire £13.7 million of properties currently under offer and in solicitors’ hands.
Custodian REIT’s net gearing will rise from 12 percent to 15.8 percent after the purchase of the pipeline properties, with the company’s objective to increase gearing towards a ratio of 25 percent LTV.
“With interest rates continuing to be significantly below their historical average, we have taken the opportunity to reduce the company’s exposure to interest rate risk, while increasing debt capacity, lengthening the debt expiry profile and maintaining the weighted average cost of debt at 3.2 percent per annum. The flexibility to repay the RCF and manage the facility limit to minimise non-utilisation fees further demonstrates the efficiency of the company’s debt structure,” said Richard Shepherd-Cross, managing director of Custodian REIT.
“This deal showcases the versatility of the long-term funding solution we can provide in partnership with Scottish Widows. We can support not only large, single assets but also more complex and diverse portfolios such as Custodian REIT,” added Richard Round, relationship director at Lloyds Bank Commercial Real Estate.