The Pennsylvania Real Estate Investment Trust has entered into nine forward-starting 10-year interest rate swaps to hedge anticipated interest rate payments on future financings.
The nine swaps can be viewed as two blended swaps in which the rate is a weighted average of the different rates offered by nine counterparties, explained Andrew Ioannou, v.p. of capital markets with PREIT in Pittsburgh. The first blended swap starts in 2007 and PREIT has locked in an average fixed rate of 4.6858% on USD120 million. The second blended swap begins in 2008 and the trust locked in an average rate of 4.8047% on USD250 million.
"The strategy was to protect our company against increases in interest rates and future refinancing costs," Ioannou said. He added the trust has not decided what the aggregate USD370 million will be used to finance, but noted it could be used to fund callable preferred shares, which can be called back in 2007, as well as the refinancing of real estate mortgage securities that mature in 2008.
Ioannou declined to name the nine counterparties to the swaps, but he said they are all major financial institutions which have worked with PREIT in the past. "We wanted banks with [which] we have an established relationship," he said, adding, among those, the trust selected the firms that offered the best pricing.
