Presentation on theme: "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."— Presentation transcript:
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
EUAs – A Banking perspective ESI Seminar Series 12 June 2013 Disclaimer Page 2 IMPORTANT NOTICE: Accounting treatment of financial instruments is a matter of agreement between the client and its external auditors. National Australia Bank Limited (ABN 12 004 044 937, AFSL 230686) ( “ nab ” ) does not give advice in relation to accounting, tax or other implications of entering into any financial instruments and nab recommends that you obtain independent financial advice before entering into any transactions. The information contained herein has been prepared by nab solely for the use of the recipient. It is Confidence and for informational and discussion purposes only. The information does not constitute, in any jurisdiction, a recommendation, invitation, offer, or solicitation or inducement to buy or sell any financial instrument or product, or to engage in or refrain from engaging in any transaction. It is not the intention of nab to create legal relations on the basis of the information contained herein. This information does not purport to contain all relevant information. Nothing in this document should be construed as legal, tax, accounting or investment advice. This document has been prepared without taking account the objectives, financial situation or needs of any recipient. Neither nab nor any of its respective affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein. The information may include estimates and projections and involves elements of subjective judgment and analysis. Past performance is not indicative of future results. The information contained herein is of a general nature intended to provide a broad overview of the relevant market and is not illustrative of a proposed transaction. nab believes this information to be accurate, including the certain parts of this information which have been prepared from third party sources, but nab does not give any warranty of accuracy or completeness of the information. The information on which the statements are based has been gleaned from public sources or provided to us on a non-confidential basis. To the extent permitted by law, nab, their related bodies corporate, their officers, employees, agents and members (a) disclaim any and all liability relating to this information, including, without limitation, any express or implied representation for statements and conclusions contained in and omissions from this information; and (b) accept no liability (whether in negligence or otherwise) for any loss, damage, costs or expenses of any nature which may be suffered or incurred by any person relying on any information or statement contained herein or otherwise arising in connection with any such information or statement. No part of this document may be reproduced without the prior permission of nab. All material presented in this document, unless specifically indicated otherwise, is under copyright to nab. The information contained herein may contain “ forward-looking statements. ” These forward-looking statements may be based upon certain assumptions. Actual events may differ from those assumed. All forward-looking statements included are based on information available on the date hereof and neither nab nor its respective affiliates assume any duty to update any forward-looking statement. Accordingly, there can be no assurance that any forward-looking statements will materialise or will not be materially lower than those presented. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.
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