1. ENERGY, PERFORMANCE & VALUE Dr Neil Blake, Head of EMEA Research & Rebecca Pearce, EMEA Head of Sustainability 30 th June 2015

2. 2 CONTEXT The UK Carbon Trust set the scene… 40 largest centres consume £40m energy per annum 20% reduction in energy costs = 5% uplift in sales The regulatory environment is complex and fast changing EU 2030 climate change agenda UK - CRC, ESOS, MEPS Are retailers and consumers really interested? Are investors paying attention?

3. 3 WHAT WE KNEW…

4. 4 WHAT WE DID NEXT… ENERGY SPEND RENT SERVICE CHARGE €€€ OPERATE €€€ OPERATE AGE REFURB. DATE LOCATION SERVICES VALUE €€€ REPLACE €€€ REPLACE €€€ MAINTAIN €€€ MAINTAIN

5. 5 CATEGORISING SHOPPING CENTRES

6. 6 Simple cash flow based valuation model: Occupier Cost Rent + services charge Rents adjust to accommodate changes in the service charge – dependent on “market power” Energy Intensive Equipment Lighting, HVAC, escalators & lifts Energy & maintenance costs Capital expenditure is passed on through the service change over 5 years with a 2½% interest rate Cash flow discounted over 25 years with a discount rate of 6% to give estimated value MODEL STRUCTURE

7. 7 SUSTAINABILITY & VALUE: THE BASIC MODEL Energy Cost Rebuild/Refurb Cost Service Charge Rent Value Variables: Service intensity/energy intensity Age Maintenance & Refurb Cycles Energy efficiency Price of energy (Marginal) cost of energy saving equipment

8. 8 £p.a. assuming 11p per kwh. Average for B-D Type Centres RUNNING COSTS OF ENERGY INTENSIVE EQUIPMENT

9. 9 (% 2015 net rental income) ANNUAL SAVINGS FROM REPLACING ENERGY INTENSIVE EQUIPMENT

10. 10 SAVINGS VS SERVICE CHARGE Type B

11. 11 VALUE (NPV) IMPACT OF EQUIPMENT REPLACEMENT

12. 12 1.Landlord installs new energy intensive equipment and charges capital costs to tenants (over 5 years) 2.ERV adjusts in reaction to high service charge 1.change in ERV depends on the “market power” of the centre 2.Actual rents adjust on lease renewal 3.Energy and maintenance costs fall and the service charge falls 4.ERV and rents eventfully adjust upwards in response to a lower service charge 5.The NPV of the income stream increases (in the cases examined) HOW DOES IT WORK?

13. 13 Electricity prices rise at 2% p.a real (base = 0%) IMPACT OF HIGHER ENERGY PRICE INFLATION ON VALUES

14. 14 RECOMMENDATIONS Proactively manage for energy efficiency Planned preventative maintenance programmes Energy procurement The power of humans Take a whole building approach Educate occupiers Drive results from maintenance teams Commission and re-commission Benchmark energy performance Think holistic - avoid reactive adjusments Align services with opening hours Reduce heat loss in winter Set maintenance contractor KPIs

15. 15 RECOMMENDATIONS Build energy considerations into your investment philosophy Life cycle & energy assessments Upgrade glazing & insulation Consider low carbon energy & renewables Prepare long term energy strategies Rethink & replace major energy users LED lighting replacement Energy efficiency as a risk issue Build into due diligence Create asset management strategies Reposition for energy efficiency, not just appearance and branding Green leases to drive engagement

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