LondonMetric has joined the growing list of real estate companies that have tapped the green finance market, lining up hundreds of millions of pounds in refinancing earmarked to bolster its sustainability performance.
The logistics investor has included a £50m green use-of-proceeds tranche in its latest £380m private placement with institutional investors. It is also working with banks on plans to refinance some £400m of revolving credit facilities, tying the new loan to its green initiatives.
The refinancing projects, on which the company is working with banks including HSBC, Wells Fargo, Barclays, NatWest Markets and Santander, come as part of an ongoing ESG push at LondonMetric. In its most recent results, for the half-year to 30 September, the company said its energy consumption had been cut by 92% since 2015, with 96% of its energy supply now on a green tariff from a standing start in 2018.
Greening the balance sheet
Others to green their balance sheet include Great Portland Estates, which sealed a £450m ESG-linked RCF in February 2020; Tritax Big Box, which late last year drew orders of more than £2bn for its £250m green bond; and flexible office company Workspace, which this month secured £300m from a green bond issue, its first public bond sale of any type.
At NatWest Markets, which worked on the Workspace and GPE deals, head of ESG advisory Varun Sarda said he and his colleagues in the financing teams were helping property companies discover “the art of the possible” when it comes to using the capital markets to improve the sustainability impact of their businesses.
“The [environmental] impact of the real estate sector can be huge,” Sarda said. “When we look at a lot of our loan book and our portfolio, there’s an opportunity there in line with our own purpose to help those companies begin to address sustainability more effectively through their financing.”
Workspace’s bond was more than twice oversubscribed, drawing an order book of £800m. The company will use the proceeds to fund refurbishment and redevelopment projects.
“Sustainability generally is at the heart of what we do,” Dave Benson, Workspace’s chief financial officer, told EG. “For 30 years the Workspace approach has been focused on employment-led regeneration in London. We will acquire and repurpose character historic buildings and then refurbish those buildings increasingly to high environmental standards. From that perspective, a green bond is a blindingly obvious thing to do.”
A maturing market
From a financing perspective, the deal has extended the company’s maturities on its borrowing and broadened its lender base. “The advantage of the green bond is it’s a maturing market, well understood and rapidly becoming more and more mainstream,” Benson added. “There’s a deep pool of investors – you have access to your whole pool of traditional public bond investors and then also those funds that only look at green bonds.”
And the good news for companies like Workspace or LondonMetric is that borrowers are finally finding that use-of-proceeds deals can lower the cost of their financing, according to Sunil Kainth in NatWest Markets’ debt capital markets division.
“Twelve or 18 months ago, you’d get a lot of demand for a green, social or sustainable deal, but not necessarily a pricing benefit for it,” Kainth said. “What we see now is that ‘green-ium’ effect coming through. It’s difficult to pinpoint exactly – it could be a couple of basis points, there’s no blanket number – but if we look at the implied fair value level of some of the deals that have come versus where they are priced, the pricing levels have been inside. It’s something that is becoming more common, more acceptable.”
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