First ]green bonds' for commercial properties offered to investors

Thursday, 7 March 2019

This eight-storey building at 143 Lambton Quay, Wellington, on the corner with Stout Street, has been upgraded and is one of the 'green assets' of listed property company Argosy.

Property company Argosy is offering $100 million of 'green bonds', the first New Zealand property company to do so.

The bonds will be used to repay bank debt but they will also highlight Argosy's upcycled 'green' buildings in Wellington and Auckland.

A green bond is where proceeds are used to finance or refinance projects with clear environmental benefits, NZX said.

Green bonds have exploded as a form of investment around the world since 2008 to around US$250 billion but are still fairly new in New Zealand.

15-21 Stout Street, in the Wellington CBD, is an Argosy 'green asset' and is tenanted by the Ministry of Business Innovation and Employment.

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Two other organisations in New Zealand have issued green bonds - Auckland Council and electricity generator and retailer Contact Energy - raising $772m, NZX said.

Green bonds can be bought and sold on the NZX Debt Market and Argosy's will be also. Investors who buy bonds are effectively lending money to the company that issues them.

Argosy owns $1.62 billion of commercial and industrial property, mostly in Auckland and Wellington.

Of the $100m bonds costing $1 each, $10m are only for retail shareholders of Argosy. Another $65m are offered to investors resident in New Zealand and Argosy will accept up to an extra $25m of oversubscriptions.

Argosy said it would use the proceeds to repay bank debt that supported green assets and use it for other green developments.

The funds would also help to lengthen the term of its debt as the green bonds 'mature' in seven years when investors get their money back.

'It's the first green bond offered by a listed property vehicle in New Zealand,' Argosy head of investor relations, Stephen Freundlich, said.

The green bonds highlighted Argosy's redevelopment of buildings into 'green assets'.

They carry an interest rate of 4 per cent.

Owned by Argosy, 82 Wyndham Street, Auckland, has a Green Star 'built' rating of 5 from the Green Building Council.

The offer of bonds opened on March 7. The offer of $10m closes on March 20 and the general offer of $65m on March 22.

Investors interested in sustainable investments had the option to invest in them but they were open to general investors as well.

'It's very much around diversification of funding sources for us but also a way for us to highlight the portfolio quality of our buildings.'

The bonds are secured by four 'green' buildings owned by Argosy.

They are three office buildings - 15-21 Stout Street and 143 Lambton Quay in the Wellington CBD, and 82 Wyndham Street in Auckland - and an industrial building Highgate Parkway in Silverdale, Auckland.

Each year Ernst Young would audit that the funds were used for green assets to provide transparency on what Argosy was doing.

Under Argosy's Green Bond Framework a project or building must be certified as obtaining or targeting a Green Star 'built' rating of at least 4 stars, or NABERSNZ energy efficiency rating of a least 4 stars to qualify as a green asset.

The company was likely to issue more green bonds in the future, Freundlich said.

Argosy has about $650m of bank debt - $350m due to refinance in 2021 and $300m due to refinance in 2022.

If it raises the full $100m, it will reduce one tranche of bank debt to $250m.

Freundlich said Argosy had been regarded as having second tier assets but over the past 18 months investors had come to understand that Argosy's assets were 'pretty good'.