Strategic Hotels & Resorts Inc. BEE has enhanced its financial flexibility with a new $750-million unsecured credit facility and a $115 million 7-year term loan secured by the Ritz-Carlton Half Moon Bay hotel.
Specifically, the move is estimated to help Strategic Hotels & Resorts lower its interest expense by around $6.4 million for the remaining six months of 2015. This will also enable the firm to increase its weighted average maturity to nearly five years and reduce its overall weighted average cost of debt to 3.2%.
The $750-million unsecured credit facility, comprising a $450-million unsecured revolving credit facility and a $300-million unsecured term loan, has a five-year term and due for maturity in May 2020. Also, this facility has an accordion feature which will allow the company an additional borrowing capacity of up to $1.0 billion. A pool of unencumbered assets, initially comprising 9 of the company’s hotels, would support the unsecured facility.
It replaced a $300-million stock secured revolving credit facility. Notably, at the closing, $80 million was outstanding on the revolving credit facility other than the $300-million funded unsecured term loan.
Moreover, the $115-million term loan secured by the Ritz-Carlton hotel, with a floating rate of LIBOR plus 240 bps, has an initial term of five years with two, one-year extension options, subject to fulfillment of certain conditions.
On the other hand, the company repaid the prior outstanding $209.6-million loan encumbered by the Westin St. Francis and the $93.1-million loan encumbered by the Fairmont Chicago, which were cross-collateralized and slated to mature in Jun 2017. That led to the elimination of around $18.9 million of annual interest expense but the company had to pay a prepayment penalty aggregating around $32.9 million.
These strategic financing activities have enabled the company to leverage the favorable capital market environment, lower costs of debt and extend maturity. In fact, for this Zacks Rank #1 (Strong Buy) stock, the next debt maturity does not occur until 2018. Such financial flexibility is expected to aid this hotel real estate investment trust (REIT) in making opportunistic investments and conducting efficient operations and therefore, riding on the growth trajectory.
Investors interested in the REIT industry may consider stocks like Hospitality Properties Trust HPT, Kilroy Realty Corp. KRC and LaSalle Hotel Properties LHO. All these stocks hold a Zacks Rank #2 (Buy).
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