Photo of Gilbert Ng, Citi, Joshua Liaw, Lendlease Global Commercial REIT and Mark Yeo, OCBC.
Kelvin Chow
Chief Executive Officer
Listed on the Singapore Exchange in October 2019, Lendlease Global Commercial REIT is a Singapore real estate investment trust established with the principal investment strategy of investing, directly or indirectly, in a diversified portfolio of stabilised income-producing real estate assets located globally, which are used primarily for retail and/or office purposes. Its portfolio comprises two properties in Singapore namely Jem (office and retail property) and 313@somerset (retail property) as well as Sky complex (Grade-A office) in Milan. Other investment includes development of a multifunctional event space on a site adjacent to 313@somerset.
in partnership with
Sustainability and finance fuse to deliver sustainability linked loan
The challenge
Lendlease Global Commercial REIT’s (LREIT) acquisition of Jem (a suburban mall in Singapore) required a debt solution of S$860m – a size that was almost as large as LREIT’s market capitalisation at that time. Against the backdrop of rising interest rates and geopolitical tension, LREIT must find a financing solution for the acquisition.
Meanwhile, LREIT has committed to achieve Net Zero Carbon by 2025. In line with Lendlease Group’s Sustainability Framework, LREIT aims to deliver a sustainable future for its stakeholders by striving towards economic, environmental and social progress through the delivery of the following targets:
- Maintain GRESB1 leadership.
- Achieve Mission Zero (Net Zero Carbon by 2025 and Absolute Zero Carbon by 2040).
- Create social value.
The solution
To meet both objectives (i) secure a large size debt at an attractive price (ii) deliver sustainability goals, LREIT looked to leverage on its leading sustainability credentials – including its GRESB Regional Sector Leader (Retail) for two consecutive years in its two years of listing – as a unique selling point to lenders in the form of a sustainability-linked loan (SLL) to finance the acquisition of Jem. The SLL provides interest savings for LREIT when it meets its sustainability performance targets (SPTs).
Compared with green loans that do not have SPTs, a SLL is far more ambitious, and borrowers committed to SPTs are rewarded with a reduction in interest costs if they meet the SPTs.
Upon selecting the SLL funding idea for the acquisition, LREIT team worked with its sustainability coordinators to determine the most appropriate SPTs that would create notable impact on sustainability. LREIT’s SPTs contain ambitious greenhouse gas reduction targets that align with the Science Based Targets initiative’s (SBTi) business ambition for 1.5°C, which Lendlease has committed. This set of targets will also support LREIT in meeting its sustainability objectives.
The SLL garnered strong demand amongst international lenders for the largest SLL ever completed for a REIT in Asia – and brought in bank liquidity in excess of S$1bn despite the competitive pricing achieved for LREIT. The success of the financing solution was driven by LREIT team’s accurate assessment of the market demand for a SLL that not only support the acquisition but meet its sustainability objectives.
Through this transaction, not only did it achieve its objectives (funding at competitive pricing and align with sustainability goals) but LREIT also added new banking relationships – further diversifying its sources of funding.
Mandated Lead Arrangers and Bookrunners – Citi, DBS, OCBC.
Joint Sustainability Coordinators – Citi, DBS, OCBC.
Key benefits
- Cost savings.
- Improved visibility.
- Quality accreditation achieved.
“We recently attained Net Zero Carbon and once again, clinched top spot in the 2022 GRESB real estate assessment as the Regional Sector Leader (Retail) for the third year running. Sustainability finance has an important place in our capital management plans and currently accounts for more than 60% of all our debt financing – one of the highest amongst our peers. In addition, we have extended our SPTs to S$335m of sustainability-linked derivatives. We remain focused in our decarbonisation journey and are on track to be one of the first in the industry to achieve Net Zero Carbon,” says Kelvin Chow, Chief Executive Officer.
Footnote
- GRESB provides validated ESG performance data and peer benchmarks for investors and managers to improve business intelligence, industry engagement and decision-making.
