euas – a banking perspective esi seminar series 12 june 2013 page 1 euas – a banking perspective...

EUAs – A Banking perspective ESI Seminar Series 12 June 2013

EUAS – A BANKING PERSPECTIVEGet more for less12 June 2013 – ESI Seminar Series #3


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Why use an EUA over traditional debt?

EUA DebtNo 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 OwnerCouncil

Limited recourse

Non-reco

urse

Lim

ited

reco

urse EUA


EUA removes the split incentive

Year 0 1 3 5

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 0 1 3 5

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


Building Owner BAU Sustainability Economics

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

Service1:1

Equity

Yield

0.6 : 0.6Outgoings

Debt

Service

Tax, Capex,

other

expenses

Re

ceip

ts

Ap

plic

atio

ns

Ap

plic

atio

ns

Tax, Capex,

other

expenses

Equity

Yield

Energy Efficiency funded with debt

Re

ceip

ts

Outgoing

Recoveries

Base Rent


Building Owner EUA Sustainability Economics

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

expensesA

pp

lica

tion

s

Equity

Yield

Energy Efficiency funded with debt

Re

ceip

ts

Outgoing

Recoveries

Outgoing

Recoveries

Building as is

1:1

Base Rent

Outgoings

Debt

Service1:1

Equity

Yield

1.: 1

Tax, Capex,

other

expenses

Outgoings

Re

ceip

ts

Ap

plic

atio

ns

Re

ceip

ts

Ap

plic

atio

ns

Tax, Capex,

other

expenses

Energy Efficiency funded with an

EUA

Debt

Service

Equity

Yield

Outgoing

Recoveries

Base Rent

EUA

Base Rent Debt

Service


CPs need to be satisfied:*know your customer form, *verification forms/evidence* signed purchase agreements/ construction contracts

EUA Process – only 2 additional steps

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

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