Equity Residential (EQR) has disclosed new financing activities as it inches closer to the accomplishment of the Archstone deal in the current quarter. The financing activities include securing a new $2.5 billion line of credit, $750 million of term loan and termination of the $2.5 billion bridge loan facility.
These financing measures coupled with the sale of over $3.0 billion of non-core assets, position the company well to fund its Archstone acquisition and accelerate its portfolio restructuring initiatives.
Notably, the Archstone deal penned in November, entitles Equity Residential to 60% of Archstone’s assets and liabilities, while the remainder will be acquired by AvalonBay Communities Inc. (AVB). Archstone is one of the largest investors, developers and operators of apartment communities in the U.S.
New Financing Activities
The new $2.5 billion unsecured revolving credit deal, which Equity Residential inked with a syndicate of 25 financial institutions, matures in April 2018. It replaced the existing $1.75 billion facility that was scheduled to mature in July 2014, securing ample liquidity to support Equity Residential’s growth initiatives. Based on its current credit rating, the new facility bears an interest rate of LIBOR plus a spread of 1.05% and annual facility fee of 15 basis points.
Further, Equity Residential inked a new senior unsecured $750 million delayed draw term loan facility. Maturing on Jan 11, 2015 (subject to a one-year extension option exercisable by the company), this facility has an interest rate of LIBOR plus a spread (currently 1.20%).
It can be availed in one draw made on or before Jul 11, 2013 and the company has the liberty to utilize the fund for the Archstone purchase or for other corporate uses. Further, it terminated the $2.5 billion bridge loan facility pledge that it obtained simultaneously while it penned the Archstone deal contract last November.
Recently, Equity Residential disclosed that it has inked a deal to sell a portfolio of assets worth $1.5 billion to a joint venture of The Goldman Sachs Group Inc. (GS) and Greystar Real Estate Partners LLC.
For Equity Residential, securing these credit facilities along with the non-core asset sales assure ample liquidity to fund the Archstone acquisition. It is a strategic fit as the Archstone acquisition is likely to result in operational synergies for the company, improving the overall quality of the portfolio with assets in high-barrier, high-growth coastal markets.
Equity Residential currently has a Zacks Rank #3 (Hold). Considering its fundamentals, we also have a long-term Neutral recommendation on the stock.
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