Essex Property Trust, Inc. (ESS - Analyst Report), a fully integrated real estate investment trust (REIT), recently announced the closing of a unsecured term loan worth $200 million. The loan has a time period of 5 years and also comes with an option of increasing the amount of the loan to $300 million. The term loan has a variable interest rate of 142.5 basis points over LIBOR.
The company expects to utilize the proceeds from the loan to retire the $250 million Freddie Mac secured facility. Additionally, Essex Property entered into three interest rate swap contracts for a term of five years with a total amount of $150 million. The interest rate swaps are expected to effectively convert $150 million of the $200 million unsecured term loan from a variable to a fixed loan of 2.66%.
An interest rate swap is a highly liquid financial derivative instrument where two parties agree to exchange interest rate cash flows based on a specified amount from a fixed rate to a floating rate or from one floating rate to another. This move on the company’s part is expected to enhance its credit profile.
Based in Palo Alto, California, Essex Property acquires, develops, redevelops, and manages multi-family residential properties in select West Coast markets. Essex currently has ownership interests in 155 apartment communities with 5 communities under construction.
Essex Property currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, BRE Properties Inc. ([url=http://www.zacks.com/stock/quote/bre]BRE[/url]) has a Zacks #3 Rank, which translates into a short-term Hold rating.