How Green Is Your REIT?
Feb 26, 2014
This post from Eric Hawthorn is part of our Llenrock guest post series and originally appeared on the Llenrock Group blog.
What makes a REIT “green”? What makes any company green, for that matter? As today’s discussion will no doubt reveal, there are a great many factors in a company’s overall sustainability, and the criteria by which a company’s environmental impact is judged will vary by asset class. After all, the commercial real estate world is a very diverse place. As the US Green Building Council has realized, and addresses in its LEED v4 guidelines, retail landlords and developers are working under a very different set of circumstances than their peers in multifamily or industrial. That’s why, today, I don’t want to look at sustainable business practices in one REIT specialty, but in a few different asset classes within the overall REIT sector.
Two of the companies I want to look at, industrial REIT Prologis (NYSE: PLD) and timber REIT Weyerhaeuser (NYSE: WY) were recently included on the World Economic Forum’s prestigious Global 100 index, a ranking of the 100 most environmentally friendly companies worldwide. Prologis came in at number 54, Weyerhaeuser at 68. Granted, only publicly traded companies are eligible for this index, so that organic muffin bakery down the street didn’t get a shot at this list. Still, to be included among the 100 most sustainable big companies is a pretty big deal, especially considering the likelihood that sustainable practices are much more difficult to achieve on a large, particularly international scale.
So how did these two companies earn their positions on the Global 100?
Let’s start with Prologis. Logistics Management reports the company
has a comprehensive approach to sustainability encompassing three dimensions: environmental stewardship, social responsibility and governance.
As the leading global provider of certified sustainable logistics space, Prologis owns more than 39 million square feet of facilities meeting green building standards, has completed energy efficiency improvements in over 50 percent of its global property portfolio, and has installed 83 megawatts of solar panels as part of its commitment to renewable energy.
83 megawatts would certainly power a lot of light bulbs! It makes sense that Prologis would place such a great emphasis on solar energy; its distribution center properties are absolutely enormous, and their sprawling rooftops create a great opportunity to offset the building’s drain on the electrical grid by generating some of its own juice with solar panels.
Weyerhaeuser, on the other hand, has a very different set of priorities when it comes to sustainability. Speaking to NAREIT, sustainability manager Ara Erickson explains that the way in which the company grows, harvests, and processes timber is central not only to its efficiency but to the company’s public image as well.
As a timber REIT, Weyerhaeuser’s line of business comes with its share of public relations headaches. Even though everyone uses and benefits from timber companies’ products, people don’t like the idea of chopping down trees. As essential as they are to real estate, construction, and plenty of other economic activities, such companies are often associated with pollution, the devastation of natural landscapes, and so on. Rather than ravaging forest after forest, however, the company’s land and timber management maintains its products’ status as a renewable resource; more than 95% of its timberland is certified as sustainable, and its facilities have also been updated to reduce energy and water consumption, according to a report the company released last year.
The company emphasizes transparency, actively communicating its sustainability agenda and progress to shareholders and the public, which is important. A company’s sustainability (in real estate or any other industry) has become increasingly central to its public image and investor appeal.
Finally we have Kimco (NYSE: KIM), one of the country’s largest shopping center landlords. Like other REITs, Kimco has upgraded its assets with green features like rooftop solar panels, energy management systems, and a waste management program, earning the company NAREIT’s Leader in the Light award. In some respects, Kimco approaches sustainability in an unusual way; the REIT doesn’t only look at how its practices as a landlord can reduce energy usage, but how its tenants’ practices can do so as well. The company has initiated a pilot program at a shopping center in California to develop ways in which it can work with tenants to improve sustainability.
That’s crucial: a landlord or developer can only do so much to ensure that a property is energy-efficient. At a certain point, the responsibility of sustainability falls on the property’s tenants, as well.