PREIT Hedges Rates on $150M More of Future Debt

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PHILADELPHIA-Pennsylvania Real Estate Investment Trust has entered into interest-rate swap agreements in the amount of $150 million to hedge the expected interest payment on a portion of anticipated future long-term debt. The locally based retail REIT entered into similar agreements for $370 million in the middle of 2005. Today’s agreements hedge the remaining portion of refinancing scheduled to take place in 2008, says Robert McCadden, EVP and CFO. “Short-term and long-term rates are even closer together now than they were last year,” he tells GlobeSt.com, “which makes conditions for the swap agreements even more favorable.”

The anticipated future financings may include refinancing of a 15-property real estate mortgage investment conduit that matures in 2008 and could also provide opportunity for other financings in that year. The new agreements lock in a blended 10-year swap rate of 5.3562% on the notional amount of $150 million, starting in 2008. Excluding the transaction-date swap-spread component, the underlying effective Treasury rates in the agreements would be 4.8212%.

Ultimately, the effective interest rate on PREIT’s 2008 debt issuances will depend primarily on the credit spreads in effect at that time, among other factors. The counter-parties to these new swaps are all major financial institutions and participants in the company’s credit facility. Chatham Financial served as the financial advisor in connection with the agreements. Earlier this month, PREIT amended its $500-million credit facility to shave 0.1% from the original interest rate and also extend the term from Nov. 20, 2007 to Jan. 20, 2009.