Summary
Essex Property Trust, Inc. (ESS), through its operating partnership Essex Portfolio, L.P., has entered into a new five-year secured line of credit facility with Freddie Mac, replacing an existing facility set to mature in January 2009. This new facility significantly expands borrowing capacity from $100 million to $150 million, with an option to increase it further to $250 million within the first two years. The line of credit is secured by mortgages on eight of the company's multifamily properties and will be utilized to finance its development pipeline and future investments, crucial for growth in the current market environment.
Key Highlights
- 1Secured a new five-year $150 million secured line of credit with Freddie Mac, replacing an expiring facility.
- 2The new facility offers expansion potential up to $250 million within the first two years.
- 3The credit line is backed by first priority mortgages on eight of Essex's multifamily properties.
- 4Proceeds are earmarked for funding the development pipeline and future investments.
- 5Interest rates are tied to the Freddie Reference Rate plus a margin, influenced by loan-to-value and debt service coverage ratios.
- 6Interest rate margins increase with longer borrowing periods (90, 180, 360 days).
- 7Essex has the option to terminate the facility at no cost if Freddie Mac increases pricing after the third year.
Frequently Asked Questions
The primary purpose of the new secured line of credit is to provide funding for Essex Property Trust's development pipeline and future investments, allowing the company to continue its growth strategy.
The new facility represents a significant expansion, increasing the borrowing capacity from $100 million to $150 million, with the potential to reach $250 million. It also has a longer term of five years, compared to the soon-to-mature existing facility.
The interest rate is variable, based on the Freddie Reference Rate plus a margin that fluctuates with loan-to-value and debt service coverage ratios of the underlying assets. Furthermore, the margin increases for longer borrowing periods (90, 180, 360 days). While the company aims for the lowest margin, there is no guarantee this will be achieved. There's also a risk of potential rate increases by Freddie Mac after the third year, though Essex can terminate the facility if it finds the new pricing unacceptable.
The credit facility is secured by cross-collateralized first priority mortgages on eight of Essex Property Trust's multifamily properties.