REIT Uses Novel No-Borrowing Base Revolver

  • 14 Sep 2003
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Lexington Corporate Properties Trust has increased its revolver using an unusual structure that does not require a borrowing base. With a set borrowing base requirement, Lexington would need to maintain a dedicated group of properties free-and-clear of any mortgages or other obligations to support the loan. By the terms of this loan, Lexington is free to individually mortgage each property it buys, which it does to isolate risk, noted Patrick Carroll, Lexington's cfo.

The revolver has been increased from $60 million to $100 million, giving the REIT more room for property acquisitions, he explained. He said pricing on the three-year facility was kept the same at LIBOR plus 150-250 basis points in exchange for not having the set borrowing base on the facility. "We would have liked a lower spread, but we weren't willing to give up the flexibility of being able to finance properties as we saw fit. It's a tradeoff and at the end of the day, 150 over is [a] competitive spread. It's a spread we can definitely live with in our business plan," he explained.

Pricing on the facility fluctuates depending on how much of a base Lexington maintains. "If we fully leverage the portfolio, we'd have a 250 spread, but for the foreseeable future, I can't see the spread going over the 150 mark," he added. "Given the company's strong financial profile, we put in place a fairly unique and innovative structure," said Jim McLaughlin, a director at Fleet National Bank, which led the facility. "That's something that we've done with [Lexington] and...[for] an appropriately capitalized company with stable cash flows, we'd consider it also," McLaughlin added.

  1. In addition to Fleet, which had previously been Lexington's sole lender, Wachovia Securities, BB&T Capital Markets and Sovereign Bank also signed into the deal. "We feel it's good to expand the relationship with as many players as you can," Carroll said. "You never know when you will have to do property-specific financing. It's networking and building relationships with lenders. It's a big part of our business." Lexington has done equity deals with Wachovia and BB&T in the past and Sovereign was brought to the facility by Fleet. "They liked our story, and they wanted to be a part of it," said Carroll.
  • 14 Sep 2003

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1 Citi 7,171 21 10.72
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4 Credit Suisse 4,718 9 7.05
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3 JPMorgan 56,861.85 163 9.43%
4 Citi 56,521.05 165 9.38%
5 Credit Suisse 44,888.95 123 7.45%