Julie Swinehart on financing today’s new projects
Julie, you have been with RPAI for several years, serving in a variety of accounting roles prior to making the move to CFO roughly two years ago. As CFO of RPAI, what’s your top priority today?
That’s correct. I recently celebrated 11 years with RPAI, and in terms of priorities, all are rooted in working to improve RPAI’s cost of capital, both equity capital and debt capital. It’s an exciting time at RPAI right now as we are underway with each of our “Big 3” expansion and redevelopment projects – Circle East, One Loudoun, and Carillon. This key facet of our growth profile needs to be supported today and in the future by our strong balance sheet. Ensuring that these projects have the green light from a funding perspective is top of mind for me.
We spoke with Steven Grimes, RPAI’s CEO, in the past about RPAI 2.0 and those projects. Specifically, what funding sources are you considering?
The good news is that we have plenty of options, which allows us to stay flexible and in the driver’s seat. In the past, we have sold air rights to help fund projects, like we did at Circle East, our redevelopment in Towson, Maryland. There, we sold air rights to AvalonBay – the company responsible for developing, owning and operating the multi-family portion of that project. We will own the retail portion, which was funded, in part, by the air rights sale. In other cases, including our expansion at One Loudoun Downtown and our Carillon redevelopment, we have formed joint ventures with best-in-class partners, which provides a portion of project funding, but also benefits our projects as we let the “experts” in multi-family and medical office execute those components of our mixed-use redevelopments. For these initial projects, which are sizable investments, a portion of funding will come from borrowing temporarily on our revolving line of credit. Our current portfolio contains a significant amount of additional air rights, most of which are already entitled, which are also available to fund the projects if we wish to go that route.
Have you been able to take advantage of lower interest rates this year? How do you think about that opportunity today and what additional opportunities may exist in the future?
For us, the low-interest rate environment has paired nicely with interested lenders and fixed income investors. In an effort to preserve ample capacity for purposes of redevelopment spend over the next few years, we replaced our revolver borrowings with bank term debt, at very attractive interest rates. We also repaid a handful of higher interest rate mortgages early with the proceeds. As a result, our revolving line of credit is practically undrawn and we have further strengthened our debt profile, having improved both our weighted average interest rate and our weighted average years to maturity. Because we pay interest on our revolver based on one-month LIBOR, plus a credit spread, as one-month LIBOR has moved lower in recent months, we continue to benefit. All this work around debt structuring clears the way for the development team to progress on the projects without having to think about the funding sources.
The projects sound like they are getting a lot of attention from all sides of the business. What else are you focused on in your role?
While the development teams are busy on these projects, the rest of the company is acutely focused on operating the core portfolio of just over 100 assets. We’ve had tremendous success on the leasing front this year, in terms of volume, rent spreads and annual contractual growth in our leases. I focus on maintaining rigor around our financial reporting and forecasting processes, and our external communication with all constituents – striving for accuracy and transparency.
It’s said that investors rate companies taking environmental, social, and governance factors into account as having superior business models. What are your thoughts on ESG and how is RPAI responding to the increasing interest in the topic?
ESG has become a larger area of focus than ever before. Everyone, from investors, to ratings agencies to our employees, wants to know more about how we are evaluating decisions and actions through an ESG lens. We have made great strides this year on the topic, including rolling out our microsite at RPAIesg.com. Now it’s much easier to locate information about all the great work we are doing on the environmental, social and governance fronts. As we move forward with our expansion and redevelopment projects with an energy-conscious focus, we will have even more to share in the “E” category. ESG is extremely relevant and has truly become part of the RPAI fabric.
Julie Swinehart is executive VP, chief financial officer, and treasurer of Retail Properties of America, Inc., based in Oak Brook, Ill.