Two major Canadian REITS have issued $850 million in green bonds during the past couple of months as commercial real estate owners increase emphasis on environmental, social and governance (ESG) initiatives.
“Going green — that’s a big topic from both investors and from issuers like us,” said RioCan senior vice-president and CFO Qi Tang in an interview with SustainableBiz. “It’s absolutely a growing field in Canada.”
RioCan (REI.UN-T) completed its inaugural $350-million green bond offering in March, just before the COVID-19 pandemic prompted widespread shutdowns of Canada’s economy. The debentures were the first green bond issued by a REIT in Canada.
The importance of green initiatives to society and the company is paramount, Tang said.
“Being sustainable is a key element of our development strategy. We’ll have more and more green projects down the road.”
Issued at par, the unsecured debentures carry an annual coupon rate of 2.361 per cent with a seven-year term.
Granite REIT (GRT.UN-T) soon followed suit, announcing a $500-million green bond offering (senior unsecured debentures bearing a rate of 3.062 per cent) which will be guaranteed by Granite and Granite REIT Inc.
What the green bonds will invest in
For RioCan, pricing “doesn’t really reflect an advantage from what we were told by our bankers, even before we decided to issue the green bond,” Tang said. However, as more investors move into the green bonds sector, she sees the potential for pricing advantages down the road.
According to RioCan’s green bond framework, proceeds from the bonds can be allocated to a variety of purposes:
* buildings that have received or are expected to receive LEED (Gold or Platinum), Toronto Green Standard (TGS Tier 2), BOMA BEST (Gold or Platinum) or other equivalent green certifications;
* resource efficiency and management: specifically projects, systems, equipment or technologies that reduce energy consumption or improve energy efficiency, reduce waste or improve waste diversion rates, reduce water consumption or improve water efficiency;
* renewable energy projects such as wind, solar or geothermal for heating and cooling, along with adaptability and resilience to climate change (ie projects related to energy storage, storm water management or other equivalent climate resilience projects).
Tang said although RioCan has access to a wide variety of existing investor pools, green bonds offer access to a different sector of investors.
“Certainly as a CFO from a financial perspective, it also potentially opens additional sources of funding for us,” said Tang, who joined RioCan in 2016 and was promoted to CFO a year later. “But certainly, investors … these days, they actually explicitly almost invest in green bonds.”
Equity provided by the green bond is to be allocated within two years, to costs incurred by RioCan in connection with eligible green projects. Proceeds may also be used for green projects that were developed or were being developed, by RioCan up to 36 months prior to the offering.
RioCan is one of Canada’s largest REITs, with 220 properties and a total enterprise value of $15 billion as of December 31, 2019. The REIT owns, manages and develops retail-focused, increasingly mixed-use properties located in prime, high-density transit-oriented areas where Canadians shop, live and work.
Its portfolio consists of an aggregate net leasable area of 38.4 million square feet (at RioCan’s interest) including office, residential rental and 14 development properties.
Granite REIT’s green bond
Over at Granite, the debentures also represent the REIT’s inaugural green bond issuance.
“Granite is committed to intelligently incorporating environmental, social and governance principles into its portfolio and business practices,” said Granite president and CEO Kevan Gorrie in a release announcing the initiative. “Our first green bond offering supports Granite’s growing investment in sustainable properties and development.”
Granite owns $4.5 billion worth of logistics, e-commerce, warehouse and industrial assets, and its portfolio of over 90 properties totals more than 40 million square feet of GLA. It is active in nine countries in North America and Europe.
Granite intends to use the net proceeds from the offering to finance or refinance expenditures associated with eligible green projects as described in its own newly published Granite Green Bond Framework.
This includes green buildings, resource efficiency and management (LED, cool roof, smart meters, energy storage, xeriscaping, drainage), clean transportation (investments in infrastructure to accommodate electric vehicles or other clean transportation), and renewable energy such as wind, solar or geothermal.