City of Melbourne

Financing your retrofit

Scott Bocskay, Chief Executive

Sustainable Melbourne Fund

25 July 2012

–  Wholly owned, independent trust established by Melbourne City Council in 2002 with an investment of $5 million - currently a $6.4 million fund

–  Expertise in energy efficiency, renewable energy and project management and delivery

–  We have two distinct roles

1.  Through our investment program provide loans of up to $500,000 for up to 6 years; $8.1 million invested in energy generation, water savings and energy efficiency projects since inception

2.  Administer environmental upgrade finance on behalf of the City of Melbourne

Sustainable Melbourne Fund

Council drivers

–  To retrofit 2/3rds of the City of Melbourne’s commercial office

–  38% reduction in energy use in commercial buildings with 383 kilotonnes of CO2-e and five gigalitres annual savings

–  Drives investment at an accelerated pace – $2 billion in retrofit activity

–  Strengthens community through job creation – 8,000 new jobs

What is environmental upgrade finance?

How the process works

Key Features –  ‘Super’ senior –senior to existing mortgages (do not interfere with existing creditors

rights) –  Charge attached to property - Finance not registered on title, rather is a council

‘special rate or charge’ and remains with the property – multiple charges can exist –  Tenant Pass Through – EUC’s are council statutory charge, can be passed through

under triple net leases by agreement –  Local Government rights unfettered – The EUC’s are only payable to lenders upon

receipt –  Voluntary – The EUC’s are voluntarily entered into by the parties to the EUA

Design Principles to Projects –  Must deliver energy, greenhouse or water savings –  “Nailed down”–charge and benefits to remain with building the improvements also

remain with the building –  Recognise long flat tail of technology performance and encourage innovation –  Real opportunity lay in working with tenants to deliver comprehensive projects and

new cash flows

Role of Sustainable Melbourne Fund

–  Work in partnership with City of Melbourne to set up the project underwriting criteria, program guidelines and application processes of the environmental upgrade finance mechanism

–  Third party administrator - Assess and process project applications on behalf of City of Melbourne

–  Work with financiers to the program to make their products available to customers

–  Fee for service model – user pays, as benefits accrue to building owner and occupiers

Environmental upgrade agreements - economics

Environmental upgrade agreement economics - Building Owner

EUA Total Initial Project Costs

Description Cost

Base Building Improvement measures $ 817,600

Tenant Improvement measures $ 499,827

Project fees $ 105,000

VEET Incentive -$ 59,979

Total Anticipated Cost $ 1,362,448

Building owner Benefit

Anticipated Annual EUC (10yr, 7.5% P&I) -$194,879.78

Anticipated receipts from tenants $ 195,222

Net cash position of Building owner $ 343

Providing Building Owners real benefit

DEBT Total Initial Project Costs

Description Cost

Base Building Improvement measures $ 817,600

Tenant Improvement measures $ -

Project fees $ 60,000

VEET Incentive $ -

Total Anticipated Cost (+/- 15%) $ 877,600

Building owner Benefit

Anticipated Annual debt Payment (3yrs, 8% P&I) -$330,010

Anticipated receipts from tenants $ -

Net cash position of Building owner -$ 330,010

Environmental upgrade agreement economics - Tenant

Providing tenants with an energy price hedge

Fixed cost

Variable costs

Environmental upgrade agreement economics - Tenant

Providing tenants with an energy price hedge

Year Ending 2012 2013 2014

Expenditure Pre retrofit EUC Payment to Owner $ - $ - $ -

TLP Energy Bills $ 393,108 $ 432,419 $ 475,660

Tenant outgoings $ 396,933 $ 436,627 $ 480,289

Total Expenditure $ 790,041 $ 869,045 $ 955,950

Expenditure post retrofit EUC Payment to Owner $ 195,222 $ 195,222 $ 195,222

TLP Energy Bills $ 309,435 $ 340,378 $ 374,416

Tenant outgoings $ 277,853 $ 305,639 $ 336,203

Total Expenditure $ 782,511 $ 841,239 $ 905,841

Net Position $ 7,531 $ 27,806 $ 50,109

460 Collins Street, Melbourne

–  $400,000 project –  Installation of high efficiency

chiller unit and building management system upgrade

–  Aims to cut annual CO2-e emissions by approximately 170 tonnes

123 Queen Street, Melbourne

–  $1.3 million project –  Installation of trigeneration

system, occupancy sensors and double glazing

–  Aims to cut annual CO2-e emissions by approximately 2500 tonnes

–  First privately funded environmental upgrade agreement through the National Australia Bank (NAB)

Kings Business Park precinct, South Melbourne

–  $3.4 million project –  Installation of high efficiency

chiller units, cooling towers, lighting system upgrades, heating and air conditioning units and controls

–  Aims to cut annual CO2-e emissions by approximately 2600 tonnes

Updated Victorian Legislation

–  Bill passed to correct unintended consequences of drafting matters

–  Enables property portfolio’s who’s debt is secured by multiple buildings to partake

–  Came into effect at July 1st 2012

–  Applies to a large amount of NLA within Melbourne

Thank You

Scott Bocskay, Chief Executive

Sustainable Melbourne Fund

scott.bocskay@sustainablemelbournefund.com.au +61 3 9658 8666

www.sustainablemelbournefund.com.au