Great Portland Estates has put its money where its green-talking mouth is with the signing of an innovative £450m ESG-linked unsecured revolving credit facility.
The facility, which has been signed at a headline margin of 90 basis points over Libor with Santander, NatWest, Wells Fargo, Lloyds and Bank of China, has an initial term of five years with the option to extend to seven years.
It is the first ESG-linked facility of its type to be signed by a UK REIT, and will see GPE have to hit three clearly measurable key performance indicators designed to help it deliver on its sustainability strategy.
Last October, Derwent London agreed a £450m revolving credit facility with a £300m “green” tranche. That “green” money will be used specifically to fund projects to meet its sustainability targets. That was the first revolving credit facility to be provided to a UK REIT that met the Loan Market Association’s Green Loan Principles.
Nick Sanderson, finance and operations director at GPE, said: “We have come up with what we think is an innovative structure where we have implemented very clear and transparent performance KPIs that demonstrate that we are seeking to align our sustainability strategy not just with specific projects but all the way across our business.”
The three KPIs, all of which will be annualised over the life of the facility, revolve around energy usage, embodied carbon and biodiversity.
The first will see GPE having to reduce its energy usage by 40% by 2030, a KPI which will include occupier emissions. The second addresses the industry-wide challenge of embodied carbon and sets a 40% reduction target across its new-build developments and major refurbishments by 2030. The third KPI is focused on increasing biodiversity net gain across the portfolio by 20%, also by 2030.
If GPE exceeds its targets on all of the KPIs, the margin on the facility will decrease by 2.5 basis points; it increases by the same figure if it fails to meet targets. That margin change – regardless of direction – will be given by GPE to registered charities focused on environmental issues.
GPE’s director of sustainability and community, Janine Cole, said: “When we developed these KPIs, the key was that they would drive real behavioural change, not just within our business but have them touch on our stakeholders as well.”
She added: “These are challenging, but our view is that we have to push for this. And it is absolutely imperative that we do. We need to challenge ourselves and challenge our supply chain to deliver, and these are going to be key in supporting us to do that.”
“This is a clear statement of intent of where the social and environmental agenda sits within our broader strategic agenda,” said Sanderson. “We are realistic about the changes that we and others need to make, and that we won’t be able to do all of them overnight. Equally, we recognise that capital can get reallocated pretty quickly.”
He added that talking about initiatives and the sustainability agenda was easy to do, but that as an industry real estate needed to move into the “action stage”.
“It is clearly the right thing to be doing from a moral perspective, but it is increasingly becoming the right thing to do from an economic perspective, because it will inform the decisions that occupiers take,” he said. “If you are not addressing these challenges then you are going to lose occupiers.”
GPE will start measuring performance against each KPI from May 2021 and is keen to see its peers follow suit.
“We’d be delighted if people copied this and will share the technology we have used around this facility, because we think it will drive continued behavioural change, not just within property companies but within their supply chain,” said Sanderson.
He added: “It is pretty clear that as an industry there is a very important role we all have to play in trying to address the many issues of the day, particularly around climate change.”
The facility, which is available for general corporate purposes, includes GPE’s standard unsecured financial covenants and is an amendment and extension of its £450m facility signed in October 2018, which had a headline margin of 92.5 basis points over Libor.
Santander acted as sustainability co-ordinator.
For more on sustainability in real estate: EGSustainability hub
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