Green Building: Green bonds ideal funding diversification

Dave Fraser, chief financial officer, Argosy Property. Photo / Supplied

Argosy Property has raised $325 million from green bonds to reinforce its commitment to sustainability and climate change, as well as diversify its funding base.

In March 2019, Argosy became the first property company in New Zealand to issue a green bond worth $100 million — at the time only the second one in the market — and it became a frontrunner in the green building revolution.

Two more bonds followed — $100 million worth in October 2019 and $125 million in October 2020.

The three bonds carry seven-year terms and coupon rates of 4 per cent, 2.9 per cent and 2.2 per cent respectively for investors.

Dave Fraser, chief financial officer of Argosy, said the bonds attracted a lot of interest, first from retail investors and then institutions.

"The green bonds were something different, and they need to be applied to green projects — so you have to have green assets in the first place," he said.

"We have green buildings that are certified under international standards, so we are really 'dark green'.

"The funding from the bonds was applied to our 5 Green Star Built and 4 Star NabersNZ buildings that are rated by the New Zealand Green Building Council — which means best practice."

Fraser said all but one of Argosy's green buildings have been refurbished, using the existing structure and resources. "It's more sustainable not to knock down an office building, and instead you create a low carbon footprint by reusing the concrete, steel and cladding in the structure."

He said more and more investors want to invest in green, sustainable products, and "we will look to do another bond issue in a year or two".

Argosy's first issue attracted 423 bondholders, the second 193 and third 275 — made up of 70 per cent retail investors and 30 per cent institutional. The money raised from the bonds represents 40 per cent of Argosy's total debt.

"It's pretty good risk management to diversify away from bank funding," said Fraser.

"Banks have proven in the past that they can restrict credit and price-effective funding. Green bonds have been a fantastic funding source."

Renewable energy companies Contact, Meridian and Mercury, with their hydro schemes and wind farms, have issued green bonds, and Kiwi Property and Precinct Properties have also followed Argosy's move to fund green buildings.

Fraser said tenants were demanding more green to connect with a nice working environment. It improves staff productivity and lowers absenteeism. Labour is the biggest cost, and millennials care about sustainable buildings.

"It's a case of if you don't have a green building, what is it going to cost the business? Green is going to be increasingly important for tenants and investors," he said.

"Our business target is to be green, diversified and resilient. We want a quality portfolio to ride through the (economic) downturns and provide sustainable and ongoing returns to shareholders in the form of dividends. The green bonds were ideal for our diversification strategy."