S-Reits seek out green and sustainability-linked loans

IN 2020, global sustainable debt issuance surpassed US$700 billion, up from US$566 billion in 2019, according to BloombergNEF. The notion of sustainable debt, which started off with an initial focus on green bonds, has evolved significantly in the last few years.

The scope of sustainable debt has expanded to include instruments such as sustainability-linked and social bonds, as well as green and sustainable-linked loans.

To encourage corporates to adopt sustainable business practices, provide them with access to green financing and anchor deep green finance expertise in Singapore, the Monetary Authority of Singapore (MAS) introduced a new Green and Sustainability-Linked Loan Grant Scheme (GSLS), effective since January 2021.

The first of its kind globally, the GSLS supports corporates of all sizes to obtain green and sustainable financing by defraying the expenses of engaging independent sustainability advisory and assessment service providers to validate the green and sustainability credentials of the loan.

Green loans are generally structured in the same way as standard loans except that proceeds from green loans are tracked and used for specific green projects which meet certain benchmarked criteria.

On the other hand, sustainability-linked loans generally do not restrict the use of proceeds, but borrowers will have to commit to sustainability performance targets and are awarded a reduction in interest rates if their sustainability targets are met.

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While green or sustainability linked loan opens more avenues of funding, it also serves as a signal to investors on the firm's commitment towards environmental and sustainable business practices.

As many as 12 Singapore Reits and property trusts have secured new or refinanced their green and/or sustainability-linked loans since the start of 2020 to March 30, 2021.

Together, the 12 S-Reits obtained more than S$2 billion in loan amount, of which close to 41 per cent are in the form of green loans while the other 59 per cent are sustainability-linked loans (See amendment note).

Most recently in March 2021, both Far East Hospitality Trust (FEHT) and Manulife US Reit (MUST) obtained their first sustainability-linked loan worth S$125 million and US$150 million respectively. Back in May 2020, MUST also obtained its maiden green loan of US$100 million of which proceeds will be primarily used to refinance Peachtree, a 27-storey Class A office building located in Midtown, Atlanta.

Ascott Residence Trust (ART) also secured its maiden green loan in January 2021. The S$50 million five-year green loan from DBS made ART the first hospitality trust in Singapore to secure a green loan.

ART noted that proceeds from the green loan will be used to finance its maiden development project and co-living property, lyf one-north Singapore.

lyf one-north Singapore is one of ART's 15 properties that attained green certifications in 2020, bringing the total number of ART's green properties to 21.

All four of Mapletree-sponsored Reits have existing green and/or sustainability-linked loans.

More recently, in 2021, both Mapletree Logistics Trust MLT) and Mapletree North Asia Commercial Trust (MNACT) have secured new green loan facilities while Mapletree Industrial Trust (MIT) obtained its inaugural S$300 million sustainability-linked loan back in December 2020. Mapletree Commercial Trust (MCT) entered into a green loan facility in June 2020 to refinance loans relating to MCT's properties which have been certified BCA Green Mark Gold or better.

This follows MCT's first S$670 million green loan in 2019 to part-finance its acquisition of Mapletree Business City (Phase 2). SGX RESEARCH

• For more research and information on Singapore's Reit sector, visit sgx.com/research-education/sectors for the monthly S-Reits & Property Trusts Chartbook.

• Source: SGX Research S-Reits & Property Trusts Chartbook.

Amendment note: This article and its accompanying table have been amended to reflect additional data on Frasers Logistics and Commercial Trust.