EUAs – A Banking perspective ESI Seminar Series 12 June 2013 Page 1 EUAS – A BANKING PERSPECTIVE Get more for less 12 June 2013 – ESI Seminar Series #3

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EUAs – A Banking perspective ESI Seminar Series 12 June 2013 Why use an EUA over traditional debt? Page 3 EUADebt No Security  No covenants  No financial reporting  No re-financing risk  Non recourse to the lender  Long tenor  Transparent tenant engagement  Improved financial performance  An EUA delivers multiple benefits over existing debt facilities Building Owner Council Limited recourse Non-recourse Limited recourse EUA

EUAs – A Banking perspective ESI Seminar Series 12 June 2013 EUA removes the split incentive Page 4 Year0135 Do Nothing Debt Equity EUA Do nothing: economics worsen as tenants demand minimum NABERs ratings and potentially do not re-lease leading to lower rents The case for EUAs versus 3 other alternatives (for a building under 5 year WALL net lease conditions) Year 0135 Do Nothing Debt Equity EUA No action does not work for tenants or building owners BAU investment does not work for building owners EUAs work for both investors and tenants BUILDING OWNER sustainability economics TENANTS sustainability economics Do nothing: economics worsen as tenants pay higher unit costs for power consumption Debt/Equity: classic split incentive – owner wears capital charge, tenant gains efficiency savings. By year 5, building owner starts to recover via increased rents EUA: Building owner gains via recovering the capital charge from the tenants and potential re- leasing at higher rentals EUA: Tenant is no worse off than if the works are not done and over time they benefit as efficiency savings outweigh the cost of the EUA servicing Debt/Equity: classic split incentive – owner wears capital charge, tenant gains efficiency savings. By year 5, building owner starts to recover via increased rents

EUAs – A Banking perspective ESI Seminar Series 12 June 2013 Building Owner BAU Sustainability Economics Page 5 Sustainability upgrades for net let buildings are a difficult decision for building owners due to a drag on equity yield pre re-let Equity yield as a % of base rent reduces as debt increase and cannot be reset until lease expiration Debt service increases to fund investment Outgoing Recoveries Building as is 1:1 Base Rent Outgoings Debt Service 1:1 Equity Yield 0.6 : 0.6 Outgoings Debt Service Tax, Capex, other expenses Receipts Applications Tax, Capex, other expenses Equity Yield Energy Efficiency funded with debt Receipts Outgoing Recoveries Base Rent

EUAs – A Banking perspective ESI Seminar Series 12 June 2013 Building Owner EUA Sustainability Economics Page 6 Sustainability upgrades become an easy decision for building owners as equity yield are maintained pre re-let Equity yield stays the same Debt service stays the same Outgoings Tax, Capex, other expenses Applications Equity Yield Energy Efficiency funded with debt Receipts Outgoing Recoveries Building as is 1:1 Base Rent Outgoings Debt Service 1:1 Equity Yield 1.: 1 Tax, Capex, other expenses Outgoings Receipts Applications Receipts Applications Tax, Capex, other expenses Energy Efficiency funded with an EUA Debt Service Equity Yield Outgoing Recoveries Base Rent EUA Base Rent Debt Service

EUAs – A Banking perspective ESI Seminar Series 12 June 2013 CPs need to be satisfied: *know your customer form, *verification forms/evidence * signed purchase agreements/ construction contracts EUA Process – only 2 additional steps Page 7 Process is not more onerous than conventional lending Step 1 Step 4 Step 8 Step 7 Step 5 Step 6 Step 3 Step 9 B/o scopes out building and estimates works and power savings B/o and SMF – EUA application form Financier completes a credit process: - is abbreviated process as * low loan to value ratio, * repayment is via council * especially shortened if existing client of bank B/o and financier agree Letter of Offer - 10 page Letter of Offer (LoO) template B/o, council, financier agree EUA - EUA is a template - not designed to be amended - already negotiated; Annexures are customised B/o finalises work scope and signs purchase agreements, as well as LoO and EUA Monies advanced based on contract terms Monies repaid each quarter from first Council date after works completed Only additional steps required Step 2