Pennsylvania Real Estate Investment Trust has entered into USD150 million in interest-rate swap agreements to hedge the expected interest payment on a portion of anticipated future long-term debt. The Philadelphia-based REIT entered into similar agreements for USD370 million in mid 2005 and last week's move hedges the remaining portion of future refinancing opportunities. With the inverted yield curve and short-term and long-term rates moving even closer together compared to last year, the conditions for the swap agreements were favorable, said Robert McCadden, cfo.
The investor in shopping and power centers also has preferred stock that is callable in mid 2007 with an 11% coupon. The swaps are a hedge against future interest rates if the company is to issue new debt at that time, McCadden added. The new agreements lock in a blended 10-year swap rate of 5.3562% on the notional amount of USD150 million, starting in 2008. Excluding the transaction-date swap-spread component, the underlying effective Treasury rates in the agreements would be 4.8212%.
McCadden declined to name the banks which are counter-parties to these new swaps except to say that they are members of the company's credit facility. Chatham Financial served as the financial advisor.
