It has been a tough few years for the renewable energy infrastructure trusts, as illustrated by the latest plan at Octopus Renewables Infrastructure (ORIT).
The trust has unveiled what it dubbed a “strategic road map for growth”. This includes around £30mn of share buybacks and seeking to bring debt to less than 40 per cent of gross asset value. That figure came to 47 per cent in mid-September.
Shareholders have had a rocky ride, losing around 20 per cent, in total return terms, from the trust’s initial public offering (IPO) in late 2019 to 26 September 2025. This has involved multiple challenges, from rising interest rates (and government bond yields) to shifting power prices.
To manage both debt reduction and buybacks, the trust will also sell “at least” £80mn of assets as part of its new plan.
The trust is not unique among its peers in having struggled: the average trust in the AIC’s Renewable Energy Infrastructure sector has lost around 22 per cent in total return terms over three years, and AIC data shows that the average trust in that sector is on a share price discount to net asset value (NAV) of a little over 30 per cent. However, now ORIT is trying to get on top of its debt, it’s worth assessing how other names focused on real assets are doing on that front.
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Debt piles
It’s first worth stressing how difficult it can be to get a grip on such metrics, given that trusts will use slightly different measures of debt. Confusingly, for example, infrastructure trusts can disclose their level of debt on an overall basis and a different metric for individual projects. Similarly, the AIC uses a metric as “a percentage of net assets” that puts ORIT’s gearing at 84 per cent, notably different from the 47 per cent figure cited by the trust from earlier this year.
Mick Gilligan, head of managed portfolio services at Killik & Co, noted that a downward trend in future expected power prices has dealt a blow to renewable energy infrastructure trust NAVs. “This puts pressure on the more highly geared trusts, resulting in larger-than-average NAV declines,” he said.
For Gilligan, a name in the sector that stands out as highly geared is NextEnergy Solar (NESF). Gearing at the trust, once preference shares and look-through debt are included, came to 48.4 per cent at the end of March.
“That is uncomfortably high in my view, given the lack of revenue diversification and lack of size, with a £369mn market cap, relative to the peer group,” he said.
The trust did announce a programme of assets sales in April 2023 but its last annual report pointed to the fact these were progressing at a slower rate than anticipated.
QuotedData’s James Carthew, meanwhile, pointed to property play Regional Reit (RGL), which had some £310mn of borrowings at the end of June. However, it has started to make progress when it comes to selling assets to get this down.
“Its efforts were recently boosted by the sale of a property in Bedford for £8.8mn, an 11 per cent premium to its value in RGL’s books,” Carthew said.
Greencoat Renewables (GRP) is another name with a high level of gearing but has also made progress recently.
It sold €156mn (£136mn) of assets in the first half of this year and debt came to $1.35bn, equating to gearing of 54.6 per cent at the end of June, before certain asset sale proceeds were allocated to debt repayment. Greencoat will also lock in its cost of debt at 3.9 per cent through to 2030, which compares favourably with an assumed long-term cost of debt of 4.7 per cent.
Bigger beasts
Carthew argued that relatively high debt levels on infrastructure and property trusts “reflect the predictability of income”.
“Lenders are cautious,” he said. “It was interesting to see Gresham House Energy Storage (GRID) doing deals with insurance companies to put a floor in its income as a way of providing comfort to lenders ahead of a refinancing of its debt.”
In July the fund announced it had undertaken two “long-term floor-pricing agreements” with Statkraft Markets, part of a renewable energy business, and Markel Bermuda, whose owner is a US insurance group. These will provide minimum contracted revenues of £35mn and cover the majority of the portfolio.
Gilligan highlighted more diversified names. He pointed to the fact that Renewables Infrastructure Group (TRIG) has debt of around 44 per cent of gross assets, while the trust has stated an intention to reduce this via asset sales, cash generation and refinancing of debt.
“TRIG’s scale puts it in a strong position to be able to refinance part of its debt on favourable terms,” he says.
Elsewhere he said he was “very comfortable” with the level of leverage on social infrastructure plays HICL Infrastructure (HICL) and International Public Partnerships (INPP), noting “most debt tends to be at the project level, fixed rate, matched against contract terms and amortising”.
Keeping debt at manageable levels can, in theory, give the trusts more leeway for new investment and other activities such as dividends and buybacks.
