2018 – Bartlett Belgrove

Green Bonds and Green Buildings—The Perfect Match?

Article originally appeared on Eco-Business (2 October 2018)

Using green bonds to finance environmentally-friendly buildings is one way developers can express their commitment to sustainable business, but at what point does that become greenwashing? Experts at the International Green Building Conference in September discuss.

Imagine going to a bank to ask for your energy-efficient, environmentally-friendly building to be refinanced through a green bond, only to be told by the banker that there would be no financial return in doing so. Should you go ahead with it anyway?

Yes, was the consensus from a panel of business leaders at the International Green Building Conference (IGBC) in September.

Talking about Swire Properties’ experience launching its first green bond In January, general manager of technical services and sustainable development, Raymond Yau, said that there were benefits to issuing green bonds even if companies have no liquidity issues. Some of the funds Swire raised were used to upgrade the energy efficiency of one of the Hong Kong-listed company’s properties.

“It’s estimated we can save 4 million kilowatt hours a year, which is equivalent to about HK$6 million (US$766,898),” he said. “In other words, if I didn’t do it, I would be paying the Hong Kong utility this HK$6 million or even more.”

Another Asian developer to have used funding for retrocommissioning is City Developments Limited (CDL), which was the first Singapore company ever to issue a green bond last year. Chief sustainability officer, Esther An, told the audience that the company saves S$1.2 million (US$877,282) annually from reduced water and energy consumption from the retrocommissioning.

Its green bond raised funds to refinance the loan taken out in 2012 to implement water and energy saving energy measures in CDL’s Republic Plaza building in Singapore.

But a member of the audience, Eco-Business research director Tim Hill, commented that the business cases presented appeared “small” when compared to the overall amount of funding invested in constructing or retrofitting.

“Is the business case for green bonds more challenging to explain than other forms of investments?” he asked.

Yau responded: “Our revenue is huge, so reflecting the profit from this investment is not a big deal.” But he said even a small percentage helps considering the size of Swire Properties’ overall portfolio, for which it spends HK$500 million on electricity bills alone.

For low-margin businesses such as hotels, “a small saving can quickly reflect in their profit and overheads, making [issuing a green bond for retrocomissioning] a very justifiable business case,” Yau said.

Such projects provide long term, and not just immediate, cost savings, added CDL’s An. “But that is not all we’re looking at. Branding is priceless and revenue generation comes with stronger branding and higher quality products.”

In the eight months after the Singapore-based property developer issued its maiden green bond, it attracted 55 new investors who were signatories to the United Nations’ Principles for Responsible Investment. An said: “[Issuing the green bond] raised our profile, and I received many more calls from big investors, a lot of whom are increasing the number of investments into companies that show ESG [environment, social and governance] commitment, in their portfolios.”

“Having said that, S$1.2 million cost savings per year is still good, and a recurrent cost saving,” she said.

Speaking from the viewpoint of a financial institution, Mikkel Larsen, managing director and chief sustainability officer of Singapore’s DBS Bank, said that a green bond demonstrates commitment to sustainability. “It’s saying that by issuing this green bond, I commit to reporting on my green initiatives and assets,” he elaborated.

But the main reason for the biggest bank in Southeast Asia to get into green bonds—which it did in 2017—was to create new liquidity and reach new investors, he said. “The idea here is that by issuing a green bond, we would have an opportunity to speak to an investor group that would otherwise not even know about DBS. That, for us, was the primary reason.”

The perfect green bond asset

Buildings that are energy efficient and have a smaller impact on the environment, known as green buildings, are the perfect asset for green bonds, it was said on the panel.

“Green buildings have key attributes you’d want in a green asset: a single asset big enough to be financed without a pool of assets; and the green merits can be easily evaluated and certified,” said DBS’ Larsen.

But he cautioned against the dangers of greenwashing around green bonds and the misperception that these instruments should be used to fund something new. He said even if an existing green building had successfully taken out a loan for upgrading, it was “normal and acceptable” to refinance the first loan.

“This has led some people to feel that [green bonds] are greenwash,” Larsen added.

Looking ahead, DBS is considering green bond options for the retail market, which tend to be smaller in amount and open to non-professional investors. “All our focus today as bankers has been on institutional investors, [but] one thing we’re thinking about and beginning to see more of is products that allow retail investors to invest.”

This remains an unexplored segment of the green bond market, which is unsurprising given that bonds for environmentally-friendly projects remain smaller than 1 per cent of all issued bonds.

Speaking to Eco-Business on the sidelines of IGBC, An said more banks should consider targeting green bonds at retail investors. She remarked that banks were increasingly open to issuing bonds in local currencies rather than US dollars, and issuing bonds for smaller amounts.

“At a conference I was at recently, some small-to-medium enterprises said, ‘I’m a small business and I only need US$2 million and cannot meet the minimum bond amount, so how can I possibly issue a green bond?’” she recalled.

Retrofitting a single building—in line with Singapore’s target to green 80 per cent of its building stock by 2030—may not cost millions of dollars, but it’s not easy to pay cash, An added.

“So if I were a bank, I’d definitely look at retail green bonds. Even US$5 million or US$10 million is still business, and the interest is high,” she said.

Sep 23 No Comments

Africa’s Next Top Property Trends

Categories:News

Article originally appeared on Asset News Hub (22 August 2018)

Major trends that are likely to shape Africa’s property market in the future show the sector is getting smarter. It is responding to infrastructure and social challenges, and easing the ability to do business on the continent. These trends also reveal exciting opportunities for property investment across its multiple distinct markets.

For its 9th consecutive year, the Africa Property Investment (API) Summit & Expo, held at the Sandton Convention Centre on Thursday 20 and Friday 21 September 2018, will unpack and highlight some of the key trends affecting the continent’s real estate sector.

Providing access to the largest pool of real estate investors, developers and stakeholders on the continent, this year’s API Summit will provide the ideal setting for global players and local businesses to discuss a wide variety of industry trends, including:

Industrial Property
Due to a lack of professionally managed logistics infrastructure and inefficient supply chains across sub-Saharan Africa, logistics cost as a percentage of product retail costs is still very high at 30-40%. According to Toby Selman, CEO for Africa Logistics Properties, there is currently almost no grade-A warehousing on the continent.

“It tends to be the ugly duckling in the property sector as most investors flock to offices and retail first. And while most investors think the highest demand comes from multinationals, it is the fast-growing regional companies that tend to be the first movers, largely because they have higher local growth rates than the international companies. We see the main demand for our facilities from e-commerce, third-party logistics companies, product distributors and retailers,” he says.

Africa Logistics Properties believe they are helping to solve the logistics infrastructure challenge with their privately-financed distribution and industrial facilities for the rental market.

“We are disrupting the status quo with our modern logistics and distribution warehouses, offering businesses the chance to consolidate existing go-down based operations into a purpose-built grade-A facility at an affordable cost for the very first time.”

Affordable Housing
While governments can no longer afford to ignore the housing crisis, developers are coming to understand that low-cost housing can be a significant and lucrative market. Innovative financing structures backed by global institutional investors could also allow large-scale implementation.

But a pressing issue many African countries face is the lack of durable, low-cost housing with a minimum standard of infrastructure to prevent the spread of diseases.

“The target group for low-cost housing, in general, does not have enough equity or credit history to finance the purchase of even low-cost dwelling units. Without innovative financing solutions there can be no mass supply of low-cost dwelling units,” says Eckardt M.P. Dauck, Chairman for Zero Carbon Designs Ltd.

To address challenges around quality, Zero Carbon Designs has developed solutions that are based on a local value chain including raw-material sourcing, planning, manufacturing, and construction.

“Our processes ensure job creation and income within the country, while products are manufactured under strict quality controls. They are scalable, allowing for large numbers of housing units to be built, and they quick to construct, ensuring project finance costs are low, and they are also sustainable, environmentally friendly and carbon neutral,” he says.

Student Accommodation
Student accommodation is very much emerging in greater Africa, with the supply of student housing still low on the continent, South Africa being the exception.

Craig McMurray, Respublica CEO, says that while there are regional and nodal hotspots across all geographies, the African continent primarily sees domestic student demand and one where the highest need is an affordable product.

“This is in contrast to the more developed markets in Europe, UK, and Australia, which are primarily driven by international student demand and generally higher levels of affordability,” he says. Respublica started out eight years ago with their first facility of 300 beds and will be nearing 10,000 beds across the country by January next year.

“We believe that the demand for tertiary education will likely be driven by increasing urbanisation, higher living standards, mobility, as well as technological advancement in educational content delivery. This will have differing implications for the industry. However, I expect the demand trend to be upwardly steep but continually constrained by affordability at state, university and student levels,” notes McMurray.

Serviced Apartments
Serviced apartments in Africa represent less than 1% of all hotel rooms whereas internationally the figure is close to 9%. Currently, the highest concentration is in South Africa.

The Capital, which dominates the South African market, has combined serviced apartments with its regular hotel and conferencing to give their clients all the services of a hotel such as security, flexibility of stay length, room service, and a concierge at the same high standard expected in 4- and 5-star hotels.

“Due to historic undersupply, serviced apartments are increasing. Africa requires a secure and affordable alternative to regular hotels for consultants to stay for the many projects in Africa as the continent, unfortunately, imports a lot of skills internationally,” says Marc Wachsberger, Managing Director for The Capital.

While there is no shortage of long-stay accommodation available, not all experiences are equal. The Capital’s model, which has taken 10 years to develop, emphasizes operational skills to ensure that extended stay is positioned correctly in the market.

Sep 20 No Comments

Fairvest | Why Township Malls Outperform their Suburban Counterparts

Categories:Local News,News

Article originally appeared on BusinessLIVE (13 September 2018)

Malls that cater for lower-income shoppers are delivering better returns than their suburban counterparts

Real estate investors may well be tempted to stash their cash elsewhere in light of the disappointing income and share price performances delivered by JSE-listed property stocks this year.

Few SA-based real estate investment trusts (Reits) have bucked the general trend. Fairvest Property Holdings is a notable exception.

The company, which owns a R3bn portfolio of more than 40 retail centres that cater mostly for lower-income shoppers in townships and rural areas, last week reported dividend growth just short of 10% for the year to the end of June. That’s impressive in a recessionary climate, and nearly double the average 5.5% rise in dividend payouts expected from the sector as a whole this year.

Moreover, Fairvest continues to shine on the capital growth front, notching up a share price gain of about 20% in the year to date versus the SA listed property index’s drop of 23% over the same time.

“Fairvest’s distribution growth of 9.9% was perhaps the silver lining in what has been a pretty cloudy results season. Overall, Fairvest’s was a great result, with no one-off earnings,” says Kundayi Munzara, director and portfolio manager at Sesfikile Capital.

He says it is particularly impressive that Fairvest’s portfolio achieved like-on-like net income growth of 11.7%. It was driven by rental hikes of about 7%, new lettings that pushed vacancies down from close to 5% to a low of 3.5% in the year to June, and improved cost recovery. Munzara says these numbers are indicative of management “sweating the assets”.

He believes other smaller property stocks could take a leaf out of Fairvest’s book: “The company compensates for lower liquidity and diversity by delivering sector-beating results, and its management team has a deep understanding of the portfolio, with a business plan for each property.”

Though the loan-to-value ratio of a relatively low 25% poses an opportunity for Fairvest to acquire more assets without tapping the capital markets, Munzara says the low level of debt that is fixed is a concern.

“Only 46% of Fairvest’s debt is fixed, versus the sector average of more than 70%. The risk of limited hedging is that earnings could be [lowered] should local interest rates and funding costs rise,” he notes.

The question for investors who haven’t yet bought Fairvest shares is whether they have missed the boat. It doesn’t appear so. Ian Anderson, chief investment officer at Bridge Fund Managers, says Fairvest has been one of the fund’s preferred holdings for quite some time and remains an attractive buy at current levels of about 230c a share, given the company’s above-market growth prospects over the next two to three years.

Despite Fairvest being the top-performing SA Reit over five and 10 years in terms of total returns, Anderson says it surprisingly still trades at a discount to its NAV.

He ascribes that to its relatively small size, which means the company tends to attract few institutional investors.

“Double-digit growth in net property income is what sets Fairvest apart from its peer group. The company’s focus on low-income mass-market retail in a sector where disposable income is supported by social welfare grants has clearly paid dividends,” says Anderson.

He adds that management has delivered on its growth promises year in and year out, without the market taking much notice. “But I think a few more investors will look at Fairvest following last week’s results announcement, particularly on the back of disappointing outlook statements from Growthpoint, Hyprop and the Resilient group over the past few weeks.”

Kelly Ward, investment analyst at Metope Investment Managers, has a similar view.

“Fairvest now trades at a forward yield of 9.9%, which we believe to offer good value in the current market.”

Ward says Fairvest’s pleasing set of results comes at what is clearly a very trying time for SA consumers because of rapidly rising living costs, including recent VAT and fuel price hikes, in a contracting economy. Even more encouraging, she says, is that Fairvest has forecast dividend growth of a further 8%-10% for the year ending June 2019 when many local counters are offering investors growth in line with inflation at best.

“We believe there is more pressure to come for the consumer, and very few green shoots given SA’s recent GDP numbers and forecasts,” says Ward.

At the results presentation last week, Fairvest CEO Darren Wilder said he believes the company’s competitive advantage is that it is a simple business with a specific focus. “We let our space and we collect rentals. We don’t pay any fees or one-off profits as part of our distributions, so we don’t have to reset our base as some other companies are doing these days.”

Wilder stressed that management doesn’t intend to change its investment strategy. “Our focus will remain on retail properties that cater for the lower LSM market.

“And we are not going offshore or into the rest of Africa.”

Referring to Fairvest’s target market, Wilder said there’s no doubt that lower-income shoppers are more resilient in an economic downturn than middle-and higher-income consumers. “Our malls cater mostly for daily shoppers who typically spend R80 a visit on a basket of food.

“They have very little debt, are often recipients of social grants and don’t have to pay for housing, electricity or water.

“[Their] disposable income as a percentage of total earnings is much higher than that of middle-and higher-income households, which are now under pressure.”

Mar 12 No Comments

The Successful Redevelopment of Pretoria’s Hatfield Square

Categories:Local News

Article originally appeared on africanism

Hatfield Square is a student housing development providing 2200 beds to students in the Hatfield area of Pretoria. The building, designed by Paragon Architects, is owned by Redefine and Respublica, and managed by Respublica Student living. The 51 000sqm development (excluding basements) has reinvigorated the former Hatfield Square social hub, a local watering hole for students in Pretoria, by providing 3500sqm of retail, with a mix of restaurants and line shop tenants on the ground floor square facing Burnett Street.

The redevelopment of the student residence was designed around the concept of a village with consideration given to all aspects of student life in order to create a mixed-use development where students can live, study and play in a safe, accessible environment.

Various sun studies were undertaken to optimise building heights to ensure that all rooms have maximum access to air and light. The result is a precinct of four interlinking buildings, or ‘neighbourhoods’, arranged around a series of intimate courtyard spaces where students can enjoy the smaller neighbourhoods within their blocks. Each building is defined by its ‘theme’ colour which is visible internally and externally.

“It’s an exciting development which stands out in its surroundings, and once complete, Block D, facing Prospect Street will be the highest building in the area,” notes Antoinette Kloppers, Senior Project Architectural technologist at Paragon Architects. “The design not only ensures that each unit has maximum access to views and light, but also has the added benefit of promoting individual communities with their own amenities and shared spaces, within the larger scheme.”

Five modular unit types – ranging from single and double sharing, single en suite with own kitchenette, double sharing en suite and apartment style unit with four beds and own ablutions and kitchenette – create a variety of rental options, with common study rooms and lounge/kitchen areas on each floor. Units are serviced daily and resident students have access to free Wi-Fi and 24 hour security, while facilities include a rooftop gym (which overlooks the Retail Square), computer centre, large study centres, recreational rooms, laundry facilities, swimming pool, landscaped gardens and braai areas. In total, there are 85 common facilities spread out over the four buildings and seven courtyards within the development, six of which are exclusive to resident student use

The precinct benefits from different scales of public, semi-public and private spaces. Common areas are defined on the façade with sculptural forms and colours which link back to the neighbourhood theme, while rooms are defined on the façade by an array of window patterns that reflect the diversity of accommodation types. “The Burnett Street side of the development acknowledges the history of Hatfield Square by recreating an active lifestyle courtyard, where students and the public can socialise and enjoy a variety of retail offerings and restaurants,” says Kloppers.

Energy efficiency, as with all Paragon’s buildings, was a cornerstone of the Hatfield Square project. The building was constructed with AAC (Aerated Autoclaved Concrete) blocks, which contributed to speed and ease of construction. The blocks also have great thermal and fire insulation properties. Terraco South Africa assisted with coating advice onto the AAC block. Terraco, a leading producer of environmentally friendly finishing materials for the construction industry since 1980, the company’s founding in 1980, installed their EIFS system onto the block work, and also created the relief onto the building by using EPS (Expanded Polystyrene) with various textured finishes of the Terraco coating in three shades of grey to create an interesting relief pattern on the façade.

“The building has been designed to have natural ventilation, water storage tanks and heat farms to minimise the energy consumption of the development,” explains Kloppers. “The residence is also fully equipped with water storage tanks and electricity supply services in the events of shortages.”
The use of sustainable products such as AAC blocks and the use of natural ventilation works well in the climate in which the project is located, while the development responded to the culture of the area by reinstating student living with collaborative spaces, socialising, and pedestrianizing the precinct due to the close proximity to the Gautrain and University.

About Paragon
Paragon Architects, established in October 1997, is an internationally-active African design business, based in Johannesburg, South Africa. It is the originator of the Paragon Group of design businesses, delivering commercial architecture, master planning, interior design and space planning to visionary clients in all property sectors. As a Group they are committed to Africa, and believe in the future of its cities. Each project is unique and is not driven by style, but by lifestyle and a response to user needs. Elegant and efficient planning form the core of our designs. They understand the needs of their clients, and know how to generate ever new architectural forms in a competitive property market.

About Terraco
A leader in the formulation, design and production of environmentally friendly finishing materials, Terraco prides itself on providing innovative, green solutions to the construction industry. Since its founding in 1980, Terraco uses carefully selected raw materials and production techniques, resulting in products that promote health, ensure comfort, improve energy efficiency and provides a sophisticated finish. Available in over 75 countries, via 32 companies & 18 factories. Terraco has a production capacity over 650 000 tons, with more than 250 million square metres of product applied annually. Terraco’s mission is to be the leading producer of environmentally friendly ﬁnishing materials for the construction industry. Our core values are Innovation, Excellence and Life.

LOCATION: Pretoria, South Africa
ARCHITECTS: Paragon Architects
PROJECT TEAM: Estelle Meiring, Anthony Orelowitz, Mila Ravid, Antoinette Kloppers, Ilona Botes, Ricardo Andrade, Tom Hill, Miguel Gandra, Mouaz Sabha, Leanie van Brummen
CLIENT: Redefine and Respublica
YEAR: 2017
PHOTOGRAPHS: Tristan McClaren/Paragon Architects

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Year: <span>2018</span>