The real estate investor argues its focus on the environmental credentials of its buildings will deliver long-term value. Shanny Basar reports.

In October, CapitaLand Ascott Trust (Clas) and the International Finance Corporation (IFC) partnered to launch a Y16.5bn ($117.4m) sustainability-linked bond — the IFC’s first sustainability-linked bond (SLB) in the hospitality sector.

This was the latest in a series of sustainable finance firsts for the Singapore-based real estate investor, which primarily invests in serviced residences, rental housing, student accommodation and other hospitality assets, and describes itself as is the largest lodging trust in the Asia-Pacific region.

In total, Clas has raised approximately S$450m ($327m) through SLBs, sustainability-linked loans (SLLs), and green loans since the beginning of 2021. In April 2022, it was the first hospitality trust globally to issue an SLB, and, in January last year, it was the first in Singapore to secure a green loan. It worked with Singapore’s DBS Bank on both deals. In June this year, it also secured a SLL from the Bank of East Asia.

Stepping out

Serena Teo, CEO of Clas and CapitaLand Ascott Business Trust Management, says the trust aims to strengthen its environmental, social and governance (ESG) efforts as Clas’s footprint expands globally. Its global portfolio currently comprises 95 properties in 44 cities across 15 countries in Asia-Pacific, Europe and the US.

This includes reducing the carbon footprint of its activities and incorporating sustainability factors into its investment and financing decisions, in order to deliver long-term sustainable value to stapled security holders. She adds: “Dovetailing our financing efforts with our ESG efforts further affirms our commitment towards responsible growth.”

Moody’s ESG Solutions, which provided the second-party opinion on Clas’s sustainability-linked finance framework, said: “Clas’s key performance indicators are clearly defined, measurable and demonstrate a robust level of ambition compared to peers in the hospitality sector.”

Ms Teo says the firm already had a large existing group of institutional investors interested in sustainable financing, which enabled it to upsize its April SLB from S$150m to S$200m. The final orderbook closed at S$335m, with orders from 47 accounts; 79% was allocated to institutions and the remainder to private banking accounts. The five-year bond, with a fixed annual coupon of 3.63%, was used to refinance existing borrowings.

In October, the Y16.5bn SLB had a fixed coupon of 1.05% per annum and a seven-year maturity. OCBC Bank was sole dealer for the issue for which IFC was the sole subscriber.

“The IFC and Clas have a strong alignment of interests to play our part to build a climate resilient future,” says Ms Teo. She continued that IFC, part of the World Bank Group, has an established, internationally recognised green building certification system, known as Excellence in Design for Greater Efficiencies (Edge). Clas already has seven properties in Asia and Europe that are Edge-certified and has been involved with the initiative since 2018.  

Going green

The bond’s sustainability performance targets (SPTs) require three serviced residences in Indonesia and the Philippines to achieve a 40.5% reduction in electricity consumption and obtain Edge certification by December 31, 2028, subject to independent verification and audit.

Clas’s sustainability-linked finance framework includes an SPT of ‘greening’ half of its property portfolio by the end of 2025 and the entire portfolio by 2030. Currently approximately a third (35%) of Clas’s global portfolio, based on gross floor area, is green-certified, according to Ms Teo. An acquisition of nine serviced residences, rental housing and student accommodation properties, announced in August 2022, is expected to take the proportion of green-certified properties in its portfolio to 38%.

“In addition to greening our global portfolio by 2030, we seek to also reduce our carbon footprint to meet carbon emissions targets approved by the Science Based Targets Initiative and to be more resource efficient,” she says.

Ms Teo argued that Clas’s focus on sustainability also helps to mitigate rising energy costs. In 2021, Clas’s energy consumption from renewable sources increased threefold and properties in the UK, Belgium and Germany were powered solely by renewable sources.

Ms Teo says Clas is also in a strong financial position to weather the rising interest rate environment. It had approximately S$1.20bn in cash on-hand and available credit facilities, and a gearing of 35.8% as of September 30, 2022. Clas’s effective borrowing cost has remained at 1.7% per year, and three-quarters of Clas’s debt is effectively on fixed interest rates.

“We will continue to keep our gearing well below the 45% gearing threshold set by the Monetary Authority of Singapore, maintain a high proportion of debt on fixed rates, and adopt hedging strategies as appropriate to effectively manage rising interest rates and foreign exchange volatility,” she says.


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