Vesteda has a well-diversified fully unsecured funding structure, consisting of a combination of bank debt, Euro Commercial Paper (ECP), private placements and public bonds. This unsecured debt profile enables Vesteda to secure debt funding through various debt markets at any point in time. In 2018, Vesteda’s debt funding strategy was subjected to an extensive benchmarking and strategic review. The (external) review concluded that the current financing strategy is logical, well substantiated and adequate. Since this review, Vesteda issued its first benchmark bond, followed by a green benchmark bond in 2019, and added the ECP programme to its funding structure. These actions further improved the robustness, flexibility, diversification, and sustainability of our funding structure.
In the first half of 2020, the economy was severely hit by the effects of COVID-19 and many businesses were forced to tap into extra liquidity from banks and capital markets. Vesteda was also hit by these effects, as it proved difficult to make use of the Euro Commercial Paper market. As Vesteda is required – due to its long-term funding targets - to have a Revolving Facility Agreement in place as a back-stop for its ECP, Vesteda was able to make use of its €700 million Revolving Facility Agreement to replace its ECP. Vesteda was not required to arrange extra financing for its funding requirements and the funding structure proved to be robust, which meant Vesteda did not have to make any changes to its funding strategy.
Vesteda has a credit rating of BBB+ with a stable outlook from Standard & Poor's, which was reconfirmed in May 2020.
In October 2020, we issued our first green private placement with two new lenders. This private placement is made up of two €50 million placements and has terms of 10 and 15 years, with interest rates of 1.03% and 1.38%. The financing has two purposes: firstly, to (re)finance homes with an energy label A and, secondly, to (re)finance homes that made an improvement of the energy label by at least two steps, to a minimum energy label C. We will report on any energy savings and CO₂ reductions realised in the homes, and this reporting will be verified by an independent party. The green private placement also has a shelf structure; Vesteda can raise another €150 million with these investors (subject to approvals) without amending the private placement agreement.
In December 2020, we signed a term loan agreement with the European Investment Bank (EIB). This agreement will have a tenor of 10 years and allow fixed rate and floating rate funding. Drawdowns can be made up to one and a half years after signing. The proceeds of this loan agreement will be used to fund projects in (regulated) mid-rental housing and to improve the sustainability of Vesteda’s existing portfolio, up to 50% of the total investments. This loan enables Vesteda to fund itself at attractive rates, which will improve the Internal Rate of Return for projects in affordable housing. The EIB loan meets our funding targets, as it increases the average maturity and improves the average cost of debt. It also further diversifies our funding structure with EIB as a reputable debt investor.
To ensure that debt investors have effective insight in Vesteda's credit profile, we continue to focus proactively on our debt investor relations through (virtual) roadshows ahead of bond issues and our (virtual) presence at conferences and seminars attended by debt investors. This will also enable us to quickly execute the above-mentioned bonds issuances, if needed.
As a green bond issuer, Vesteda is subject to the EU Taxonomy regulation. The EU is setting up the Taxonomy Regulation, which sets out criteria to determine if economic activities can be classified as environmentally sustainable. Financing that is raised for environmentally sustainable activities needs to comply with this regulation. For Vesteda’s green financing, we make use of our green finance framework. Once the Taxonomy Regulation is finalised, we will need to review this Green Finance Framework and update it to make sure it complies with the EU Taxonomy Regulation. In addition, we will assess the impact on Vesteda’s reporting.
Vesteda is in the process of amending its €700 million Revolving Facilities Agreement (RFA) to make it a sustainability-linked RFA. To do this, we will incorporate four KPIs in this facility agreement to incentivise Vesteda to improve its sustainability performance. If Vesteda meets the majority of these KPIs, it will be able to obtain a reduction in the interest margin. On the other hand, the interest margin will be increased if Vesteda fails to meet the majority of these KPIs.
The RFA matures in 2025, although one lender of €70 million plans to step out of the RFA in 2023. We started negotiations with new lenders to take on this €70 million participation, but given COVID-19, last year was not a good time to find a replacement for this lender. We expect to restart this process in 2021.
Our financing strategy is based on funding targets:
Leverage of ≤ 30%
Total fixed-rate and hedged floating rate exposure of ≥ 70%
Weighted average maturity of > four years
Diversified funding profile, with at least three funding sources of at least 10% individually
Sufficient liquidity headroom to refinance short-term debt (including maturing bonds and private placements), finance committed pipeline, and to accommodate redemption requests (Redemption Available Cash) according to the terms and conditions.
Well-balanced maturity calendar with < 35% maturing in a single year
Asset encumbrance of < 15%
At year-end 2020, we met all our funding targets.
Vesteda’s average weighted maturity of debt was 4.9 years, above our long-term minimum target of four years. The average total debt interest rate improved to 1.9% in 2020 from 2.0% in 2019. The loan-to-value ratio stood at 23.3% at year-end 2020, compared with 23.1% at year-end 2019.
Vesteda's main financial covenants, as part of its financing agreements, are a maximum loan-to-value ratio of 50% and a minimum interest cover ratio of 2.0. We comfortably met all the financial covenants of our financing arrangements in 2020.
Vesteda’s funding targets contribute to its robust, well-diversified and flexible funding structure. Within this funding structure, Vesteda is always looking to further optimise its average cost of debt by making use of different funding instruments at different maturities.
Debt portfolio at year-end 2020
Green Bond 1.50%
Pricoa USPP 1.8%
Pricoa USPP 3.18%
EMTN PP 1.93%
EMTN PP 2.50%
NYL USPP 1.03%
AIG USPP 1.38%
* Facility is to be used for affordable housing projects and to improve the sustainability of Vesteda’s portfolio.
SMBC Uncommitted Facility
Euro Commercial Paper programme