Leverage development

The ARC Fund's leverage level increased from 20.1% to 21.8% as a result of increased drawn debt and negative revaluations during the year. The total asset base decreased from EUR 4.4 bn to EUR 4.3 bn, while the drawn debt position increased from EUR 885 million to EUR 940 million on a year-end basis. We will continue to actively manage the leverage and expect that leverage will increase further during 2024 towards the target LTV (Loan to Value) ratio of 25%.

In combination with the headroom under the financial covenants, the ARC Fund retains adequate flexibility to further increase the overall debt position in order to fund new projects.

Exposure to interest rate risk decreased as the new EUR 135 million USPP facility has a fixed rate coupon and was primarily used to temporarily repay drawn debt in the fourth quarter of 2023. Mainly due to the further rise in variable interest rates during 2023, the total interest costs have increased compared to 2022.

Second unsecured debt transaction

On 8 November 2023, the Fund successfully secured its first USPP transaction. The notes with a total size of EUR 135 million have been issued on the US Private Placement Market to a consortium of US and Canadian institutional investors. The EUR 135 million USPP term loan has an average fixed interest rate of 5.164% per year until its maturity in 2030. The proceeds were used to temporarily repay drawn debt under the revolving credit facility. The new facility was arranged by SMBC bank and mirrors the corporate unsecured structure of the existing EUR 450 million revolving credit facility. The transaction marks the next step in the debt funding strategy of ARC Fund to further diversify funding sources and counterparties.

Next to the new EUR 135 USPP facility and the EUR 450 million revolving credit facility, the ARC Fund has two existing mortgage loan facilities of EUR 625 million of term loans with a bullet repayment profile.

The four facilities are provided by four different bank consortia:

• EUR 135 million unsecured USPP facility is provided by an investor consortium consisting of The Manufacturers Life Insurance Company, Metropolitan Life Insurance Company and New York Life Insurance Company.

• EUR 450 million revolving unsecured credit 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.

• 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.

• EUR 125 million secured 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.

As of 31 December 2023, EUR 940 million in debt facilities had been drawn. EUR 270 million of the committed revolving credit facility remains undrawn and available on demand. Following the refinancing of the revolving credit facility in 2022, at year end, the loan facilities had a combined weighted average maturity of c. 2.9 years (YE 2022: c. 3.6 years).

Financial covenants

The financial covenants of all four loan facilities are disclosed in the notes to the financial statements under paragraph 16. The ARC Fund adhered to all financial covenants in 2023.

Asset encumbrance

As a borrower, the ARC Fund grants security to its lenders under the existing secured loan facilities. As of 31 December 2023, EUR 1.5 billion of the investment portfolio was secured with mortgages. The market value of the security pool is within the maximum loan to mortgage value of 50%.

Interest rate risk

The ARC Fund’s policy is to limit interest rate risk exposure at a reasonable cost. We aim to keep the interest rate level low, while retaining flexibility for future investments and divestments. As of 31 December 2023, EUR 575 million of term loans and EUR 135 million of USPP notes (76% of drawn debt) had a fixed interest rate. The breakdown is as follows (ranges depending on the LTMV ratio):

• EUR 290 million of term loans had a fixed annual interest rate of 1.218% up to 1.318%

• EUR 60 million of term loans had a fixed annual interest rate of 1.596% up to 1.696%

• EUR 150 million of term loans had a fixed annual interest rate of 1.733% up to 1.833% until its maturity in 2026

• EUR 75 million of term loans of the new facility had a fixed annual interest rate of 1.20% up to 1.40% until its maturity in 2025

• EUR 100 million of USPP notes had a fixed annual interest rate of 5.19% until their maturity in 2030

• EUR 35 million of USPP notes had a fixed annual interest rate of 5.09% until their maturity in 2030