Investors lodged orders of more than £2bn for Tritax Big Box REIT’s £250m green bond, demand that the company’s finance director takes as a sign that linking fundraisings to sustainability “is going to become the norm”.
The logistics investor announced the results of the bond issuance today. It claims the deal marks the first sterling-denominated green bond from a UK REIT.
Green bonds allow companies to raise money in the debt markets and link the proceeds specifically to environmentally friendly projects and purposes. The market for such deals has grown rapidly.
Tritax Big Box’s bonds have a 13-year tenure and were priced with a coupon of 1.5%. The deal will reduce the company’s capped cost of debt to 2.5% and increase its average duration to 7.5 years.
Proceeds from the deal, overseen by bookrunners Barclays, BNP Paribas and Wells Fargo, will be spent on green initiatives on new and existing buildings.
“Following the Symmetry purchase almost two years ago now, we’ve got this incredibly attractive and deep runway of high quality, sustainable buildings that we’re seeking to develop over the next 10 to 12 years,” said finance director Frankie Whitehead.
“The development of green buildings and the net zero carbon piece to that got us thinking: how can we finance this in a green way and benefit from that in terms of the company having access to a new pool of capital that it didn’t have under its existing bonds?”
With an eight-times oversubscribed order book, “demand was crazy in terms of what the bookrunners have seen in recent deals,” Whitehead said. The company was able to shave 20 basis points from pricing during the course of bookbuilding on the back of such strong interest.
“Pricing wise we shot the lights out here,” Whitehead said, adding: “From a pure finance perspective, having a 1.5% coupon for 13-year money, and us being able to develop at a 6-8% yield, gives an extremely healthy arbitrage that will be accretive to the portfolio, accretive to earnings and hopefully accretive to our dividend over the medium term.”
The company will focus on three uses for the proceeds, said Helen Drury, its sustainability lead.
The first is developing green buildings. “We’ve got this huge pipeline and that’s the area where we’ve got the most control, but it’s also where our greatest direct environmental impact is,” Drury said. “Tackling that means all of that pipeline of new developments is at least a BREEAM ‘very good’ [rating] and will be net zero carbon.”
Next is increasing the use of renewable energy at existing sites. “We’ve got large, flat roofs, perfect for solar PV [panels],” Drury said. “That’s also helping our tenants reduce their environmental impact in their operations.”
Finally, the company is focusing on energy efficiency in existing assets, targeting 100% of its portfolio to have EPC ratings of A-C.
With £250m in the bag, Whitehead said the company will be back for more from the green bond market: “We’ll have future requirements to fund buildings of this nature and will be coming back for plenty more of this type of financing.”
He added: “My view is that going forward, this is going to become the norm. [Companies] will have to have a green slant to financing to capture this type of liquidity. The old-fashioned bonds are almost going to become redundant – investors are going to want to see companies commit to some form of sustainability. It’s a sign of the times and we’d like to think we’re at the cutting edge.”
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