Debt Funding

The ARC Fund has a well-diversified funding structure, consisting of a combination of secured and unsecured bank debt, an unsecured U.S. private placement (USPP) and an unsecured green bond. The ARC Fund has the ability to attract different debt funding instruments at any point in time. In 2024, the ARC Fund successfully obtained a Baa2 corporate credit rating with a positive outlook from Moody’s, which reflects the ARC Fund’s investment-grade credit profile.

Since 2022, the ARC Fund undertook various steps to implement its debt strategy to transition from solely mortgage bank debt towards a predominantly unsecured financing structure. In 2022, the ARC Fund successfully arranged an unsecured sustainability-linked Revolving Credit Facility (RCF). This transaction was followed by attracting an unsecured Private Placement in 2023 and by issuing ARC Fund’s first green bond in 2024. The green bond was issued under ARC Fund’s Euro Medium Term Notes programme (EMTN-programme) and in accordance with the ARC Fund’s Sustainable Finance Framework. This Framework was established in 2024 and highlights the ARC Fund’s focus on sustainability and affordability. The Second Party Opinion of the Sustainable Finance Framework was provided by Sustainalytics. 

The loan-to-value ratio increased to 23.2% at year-end 2024, compared to 21.8%% at year-end 2023, due to the issuance of the EUR 300 million green bond in 2024, which is partly off-set by positive revaluations throughout 2024. Per year end 2024, the ARC Fund opted to retain cash at as the short-term interest rates are currently higher than the fixed rates that are in place for the term loans. This provides the ARC Fund with adequate capital (cash and undrawn RCF) to finance its pipeline and other investments.

The ARC Fund’s average cost of debt increased from 2.4% in 2023 to 2.9% in 2024, driven by the higher fixed coupon rates on the USPP and green bond, as well as rising interest rates on variable-rate loans. The interest cover ratio stood at 4.0 at year-end 2024, compared with 4.8 at year-end 2023. The ARC Fund already anticipated on the higher interest rate environment by renegotiating the ICR-covenant to 1.8, which was originally set at 2.5. Consequently, the ICR-ratio of the ARC Fund is well-above the covenant of 1.8.

Our overall debt funding strategy is centered around the following targets for its debt profile:

• Maintain a loan-to-value ratio of ≤ 30%;

• Manage interest rate risk by setting total fixed-rate and hedged floating rate exposure to ≥ 65%;

• Pursue increase of the weighted average maturity profile of debt position towards 3.5 years.;

• Implement a diversified funding profile with at least three different funding sources;

• Ensure sufficient liquidity headroom: to refinance debt, finance committed pipeline, and other committed obligations over an minimum 18-month forward-looking period;

• Quarterly calendar issuance in a single year;

• Reduce asset encumbrance to a level of ≤ 20% of total assets for the long term

Debt maturity schedule

ARC Fund’s funding arrangements, as part of its financing agreements, are a maximum loan-to-value ratio of 50% and a minimum interest cover ratio of 1.8. We comfortably met all the financial covenants of our financing arrangements in 2024. The ARC Fund is committed to implement and maintain a resilient debt funding structure, with minimal refinancing risk and interest rate exposure risk while the same time striving for a favorable average cost of debt.

The information below is provided for explanatory purposes with regard to the ARC Fund’s’ long-term funding.

ARC Fund obtains its debt funding through various sources:

1. Bank facilities, comprising corporate unsecured and secured bank funding provided by banks

2. An unsecured U.S. Private Placement

3. A green bond, issued under the EMTN-programme.

Debt portfolio overview as at the 31 December 2024

* Depending on loan-to-mortage-value ratio; ** Depending on loan-to-mortage-value ratio and ESG KPI's; *** ARC Fund may request the lenders for an one year extension.                                                                                                                                                                                                                                                                                                                                                                                                                                                               

1) Bank facilities

The ARC Fund currently has three bank facilities in place for a total amount of EUR 1,075 million.

A EUR 500 million secured loan facility is provided by a banking consortium of four banks, consisting of ABN AMRO Bank N.V. acting as Facility Agent, Deutsche Hypotheken Bank AG acting as Valuation and Security Agent, ING-DiBa AG, and ING Bank N.V.. In 2024, a new secured loan facility agreement of EUR 300 million was signed with Deutsche Hypotheken Bank AG and ING Bank N.V. from January 2026 to January 2029. Resultingly, EUR 200 million of this facility matures in January 2026 and EUR 300 million of this facility matures in January 2029. The ARC Fund granted security to its lenders under this loan facility. As of 31 December 2024, EUR 1,083 million of the investment portfolio was secured under this facility, which equals a LTMV ratio of 46.2%.

Up until January 2026, the interest rate of the facility is determined as follows:

• EUR 290 million: 1.218% - 1.318% (depending on the LTMV ratio);

• EUR 60 million: 1.596% - 1.696% (depending on the LTMV ratio); and

• EUR 150 million: 1.733% - 1.833% (depending on the LTMV ratio).

The interest rate for the €300 million secured loan (after January 2026) has already been set and ranges from 3.55% to 3.65%, depending on the LTMV ratio. This rate will take effect starting January 2026. The interest rate is payable on a quarterly basis.

In addition, a EUR 125 million secured loan facility is provided by a banking consortium of three banks, consisting of Coöperatieve Rabobank U.A. acting as Facility and Security Agent, ING Bank N.V. and Postbank, a subsidiary of Deutsche Bank A.G. This facility fully matures in December 2025. The ARC Fund granted security to its lenders under this loan facility. As of 31 December 2024, EUR 404 million of the investment portfolio was secured under this facility, which equals a LTMV ratio of 30.9%.

This loan facility has a fixed and a variable interest rate tranche that is payable on a quarterly basis and is determined as follows:

• EUR 75 million: 1.20% - 1.50% (depending on the LTMV ratio); and

• EUR 50 million: 5-year IRS (if >0%) plus 1.20% - 150% (depending on the LTMV ratio)

The ARC Fund also has a EUR 450 million sustainability-linked unsecured revolving credit facility in place. This facility is provided by a banking consortium consisting of ABN AMRO Bank N.V., BNP Paribas S.A., ING Bank N.V. acting as Facility Agent and SMBC Bank EU A.G. The sustainability-linked RCF of €450 million matures in July, 2028. In May 2025 ARC Fund can request a one-year extension option shifting maturity to 2029, at the discretion of the lenders. At year-end 2024, the facility was fully undrawn.

Pricing of the RCF is calculated by adding the 3-month EURIBOR, the applicable margin and the applicable margin adjustment related to the ARC Fund’s sustainability performance. The applicable margin is subject to a margin grid, whereby a LTV equal to or below 20% equates to a margin of 0.80%, a LTV higher than 20% and equal to or lower than 25% equates to a margin of 0.95% and a LTV higher than 25% equates to a margin of 1.10%. The sustainability performance of the ARC Fund is measured with three KPIs. In 2024, ARC Fund met 3 out of 3 KPIs; this means that ARC Fund obtains a 0.05% reduction in the interest margin. Interest is paid on the drawn amount of the RCF on a quarterly basis. A commitment fee is payable on the undrawn amount of the facility. The commitment fee is 35% of the applicable margin.

Utilised commitments less than 33.3% equates to an utilisation fee of 0.10% and utilised commitments exceeding 33.3% but less or equal to 66.7% equate to an utilisation fee of 0.20%. Utilised commitments exceeding 66.7% equate to an utilisation fee of 0.30%.

2) Unsecured US Private Placements

The ARC Fund has a EUR 135 million unsecured USPP facility, which is provided by an investor consortium consisting of The Manufacturers Life Insurance Company, Metropolitan Life Insurance Company and New York Life Insurance Company. The USPP consist of two tranches: a EUR 100 million tranche with a fixed coupon of 5.19% and a EUR 35 million tranche with a fixed coupon of 5.09%. The interest is payable on a semi-annual basis. The notes are due on 8 November 2030.  

3) Bonds

On 25 September 2024, the Fund made its debut on the international capital markets by successfully issuing a EUR 300 million green bond. The green bond has a long-term Baa2 issuer rating from Moody’s, a term of 5.5 years, a coupon of 3.875% and is listed on Euronext Dublin. The notes are tradeable on the secondary market. The proceeds of the green bond are used to finance eligible assets as defined in the ARC Fund’s newly established Sustainable Finance Framework. The green bond was issued under the ARC Fund’s EUR 1.5 billion Euro Medium Term Note Programme, which was set-up in 2024.

The first interest on the green bond is semi-annual and was payable on the 25th of March, 2025. Thereafter, the coupon is paid annually every 25th of March. The notes of the green bonds are due on 25 September, 2030.