Sustainability in Real Estate Investments - CERES conference 2013, San Francisco

Breakfast Session

Sustainability in Real Estate Investments

Ceres Conference

May 1, 2013 San Francisco

Panel

•  Nils Kok, UC Berkeley/Maastricht & GRESB

•  Mike Ibarra, Landon Butler & Co (MEPT)

•  Laurie Weir, CalPERS

•  Darryl Neate, Oxford Properties (OMERS)

•  Jennifer Young, Townsend Group

Sustainable Investing in Real Estate Equity

Multi-Employer Property Trust (MEPT)

§  $5.65 billion open-end commingled core real estate fund

§  7.64% gross return since inception. Benchmark 7.01%

§  Portfolio of 136 assets (333 buildings) in 30 US markets

§  357 pension plan investors across the U.S.

§  Leader in Responsible Property Investing (RPI)

§  100% Union Labor for all construction §  Leadership in LEED and EPA Energy Star Programs §  Ranked as #1 diversified-asset fund in US by the Global

Real Estate Sustainability Benchmark (GRESB)

Responsible Property Investing = ESG

§  Environmental §  High Performance Property Operations §  Sustainable Development & Redevelopment

§  Social §  Job Creation – Fair Labor Practices §  Economic Impact

§  Governance §  Benchmarking, Monitoring, Reporting

RPI Performance Impact on MEPT

Enhances portfolio income and stability §  Superior asset operations and workplace environment retains tenants §  Operating costs lowered by up to 30% in green buildings §  Tax credits and reduced zoning/permitting costs

§  Higher revenue + Lower costs = Increased property income

Increases long term property values §  Highly skilled construction labor results in better buildings §  Investors and tenants willing to pay a premium for sustainable assets

Reduces risk for MEPT investors §  Emerging corporate and governmental environmental policies and mandates §  Transparent governance and reporting protects investors and trustees §  Quarterly mark-to-market process ensure accurate asset values

Environmental Benchmarking Programs

US Green Building Council LEED : Leadership in Energy and Environmental Design (LEED) is a points-based certification system for existing buildings, tenant improvement work and new construction.

§  Currently 49 buildings representing $3.2 billion are LEED Certified

ENERGY STAR: A joint program of the U.S. Environmental Protection Agency (EPA) and the U.S. Department of Energy that promotes energy efficiency to reduce greenhouse gas emissions.

§  Currently 84 buildings representing $3.2 billion are in Energy Star

Responsible Contractor Policy

§  MEPT maintains a Responsible Contractor Policy

§  All work be performed by contractors signatory to a collective bargaining agreement

§  New construction, renovation or rehabilitation, and tenant improvements

§  Require that janitorial services be provided by signatory contractors

Economic Impact Benchmarking Econometric Modeling Methodology

Period “Green” Job Hours based on Total Project Investment

Estimated Economic Impact

2009 5.6 million $1.1 billion

2010 2.0 million $401.6 million

2011 8.0 million $1.6 billion

2012 YTD 5.4 million $1.1 billion

TIs 1.0 million $196.7 million

Total (‘09-’12) 22.0 million $4.3 billion

Period Job Hours based on Total Project Investment

Economic Impact

Since MEPT’s Inception

85.0 million

$17.9 billion

ESG Benchmarking of MEPT

§  UNPRI – MEPT is signatory to United Nations Principles of Responsible Investment §  MEPT scored in first quartile of global asset owners

§  GRESB – Global Real Estate Sustainability Benchmark survey – 443 respondents with $1 trillion in real estate §  MEPT ranked #1 diversified fund in the US

§  Energy Star Partner of the Year - Bentall Kennedy recipient 4 years in a row

TRUSTEE INVESTOR RELATIONS INVESTMENT ADVISOR

Sustainability in Real Estate Investments CERES Conference

CERES Sustainability in Real Estate Investments Laurie Weir Senior Portfolio Manager Investment Office CalPERS

Towards Sustainable Investment UNEP FI Property Working Group

May 1, 2013


Why sustainable investment?

“Sustainable Investment in its simplest form is the ability to continue, and for a long-term investor like CalPERS with long-term liabilities, it’s at the heart of what we do.”

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Financial Capital Includes equity, debt, public and private investments

Physical Capital Includes use of natural resources and buildings

Human Capital Includes labor practices

Long-term value creation

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At the heart of sustainability


CalPERS putting principles into practice

•  Environmental –  2004 to 2009: Exceeded 20 percent energy reduction goal in

core portfolio over five-year period

–  2012: CalPERS and Core Managers join ULI Greenprint and begin participation in its Carbon Index Report

–  Most portfolio assets that are new construction are built to LEED certification standards

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Real Estate – ESG Integration



•  Social –  Established revised Responsible Contractor Policy and new

Neutrality Trial Responsible Contractor Policy

•  Governance –  Alignment of Interests: investment contract documentation

that aligns external managers with CalPERS

–  Upcoming Manager Expectations: develop a set of expectations for internal (staff) and external managers for ESG integration

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Real Estate – ESG Integration



•  United Nationals Environment Programme Property Working Group

–  Property investors from around the globe

–  Advisory Group of experts

–  Responsible Property Investment

•  30 case studies

•  CalPERS Responsible Contractor Policy

–  Upcoming projects

•  Energy Efficiency Retrofit Finance

•  Valuation

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•  Real Estate – ESG integration


Questions?

CERES Conference, May 2013 Darryl Neate, Director Sustainability

Sustainability & Shareholder Value Drivers & Lessons Learned

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1. Competitiveness

Core Drivers

2. Customers

3. Fiduciary Duty

4. Employees

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Our Drivers

Competitiveness

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Royal Bank Plaza Investment Decision

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Sustainable Intelligence

Target 2012 Management Decision

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Customers

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Investment Decisions - New Buildings

LEED Core & Shell Gold Certified, August 2011

RBC WaterPark Place Investment Decision

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Sustainable Intelligence

Occupant Engagement Management Decision

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Our Drivers CAPITAL & INCOME YIELD

CUSTOMERS & CO-OWNERS

EMPLOYEES

Our Fiduciary Duty

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Our Drivers

Our Employees

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•  Data, Data, Data

Lessons Learned

•  Credible & Performance Based Approach

•  Complexity, Uncertainty & Transparency

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Our Drivers

Social Responsibility

Complexity, Uncertainty & Transparency

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Our Drivers

Management is Management Data, Data, Data

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Our Drivers

Credible, Performance Based Approach

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•  Core Drivers

Summary

•  Lessons Learned

www.oxfordproperties.com/sustainable

[email protected]

The Townsend Group

The Townsend Group Sustainability in Real Estate Investment

2013

The Townsend Group

■  The Townsend Group became a signatory to the Principles for Responsible Investment (PRI) on April 13, 2010

and are in acDve conversaDons with the Global Real Estate Sustainability Benchmark (GRESB) to collaborate on best pracDces for measuring the impact of sustainability on real estate.

■  The Townsend Group integrates an analysis of ESG issues into its due diligence efforts through quarterly monitoring of investment posiDons and ongoing dialogue with investment managers acDve in the space.

■  ESG acDvists include asset owners (and many Townsend clients), investment managers and professional service partners. •  Townsend esDmates that it monitors over 15 separate vehicles with over 90 investment posiDons in

urban/revitalizaDon focused investments. •  Townsend monitors 3 investment posiDons in 2 pure “Green” funds and sits on the Advisory CommiSee

of one Green fund. •  Raising awareness has led to increased acDvity in this space since 2010, as denoted by the number of

signatories to the UN PRI and growing parDcipaDon in GRESB.

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Townsend ESG Overview & ObjecBves

UN PRI Signatories (2010)



Asset owners 210 241 268 Investment managers 438 527 736 Professional service partners 161 152 184

Total 809 920 1188

The Townsend Group

■  Fiduciary ObligaDon •  Townsend is not responsible for making investment decisions solely based on ESG iniDaDves at the

por\olio, investment and/or property level. However, Townsend believes it becomes a beSer fiduciary by expanding due diligence efforts to include ESG consideraDons.

■  Limited Performance History •  Analyzing past performance remains a crucial part of Townsend’s underwriDng process. There are fewer

realized exits in ESG assets and limited data supporDng the performance of ESG properDes. Benchmarking and consistency in reporDng pracDces will be crucial to understanding the cost/benefit analysis for incorporaDng sustainability at the property level.

■  Uncontrollable Elements •  Clients

–  Client preferences, specific por\olio needs and market opportunity will conDnue to guide real estate investment strategies.

•  Managers –  Clients and Consultants will not directly influence ESG adaptaDon at the property level, as discreDon

generally lies with the real estate managers. •  Property Owners

–  Fund managers may outsource property management services, thus limiDng involvement in the decision-‐making process.

•  Tenants –  End users are not contractually obligated to adhere to ESG principles, making it difficult to control.

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ESG Overview -‐ Challenges to Consider

The Townsend Group

■  Townsend clients are amongst the signatories to the UN PRI and members to GRESB. A sample list is below.

•  Allianz Global Investors France France •  Amundi (formerly Crédit Agricole Asset Management Group) France •  ATP -‐ The Danish Labour Market Supplementary Pension Denmark •  CalPERS USA •  CalSTRS USA •  Canada Pension Plan Investment Board Canada •  ConnecDcut ReDrement Plans and Trust Funds (CRPTF) USA •  Crédit Agricole Assurances France •  Government Pension Fund of Thailand Thailand •  Hermes Pensions Management UK •  Illinois State Board of Investments USA •  Korea NaDonal Pension Service (NPS) South Korea •  Los Angeles County Employees ReDrement AssociaDon (LACERA) USA •  New York City Employees ReDrement System USA •  SEIU Pension Plans Master Trust USA •  Strathclyde Pension Fund UK •  Teachers' ReDrement System of the City of New York USA •  United NaDons Joint Staff Pension Fund InternaDonal

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Examples – InsBtuBonal Focus

The Townsend Group

■  Several investment managers are signatories to the UN PRI and/or report to GRESB, a sample of which is below.

•  AEW Europe France •  BlackRock USA •  CBRE Investors USA •  MulD-‐Employer Property Trust USA •  Deutsche Asset Management Germany •  DEXUS Property Group Australia •  Hamilton Lane USA •  Henderson Global Investors UK •  JPMorgan Asset Management USA •  Kennedy Associates Real Estate Counsel, LP USA •  LaSalle Investment Management UK •  Legg Mason Asset Management Australia Limited Australia •  Lend Lease Investment Management Australia •  Longview Partners UK •  PrudenDal Real Estate Investors USA •  Principal Global Investors USA •  Schroders UK •  Standard Life Investments UK •  Stratus Brazil

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Examples – Investment Manager Focus

The Townsend Group

Sample Ques3ons from Request For Proposal (Winter 2013)

■  Please describe your resources relevant to analyzing ESG issues, risks and opportuniDes in real assets. Please idenDfy any individuals dedicated to this area within your firm.

■  If ESG responsibiliDes are spread across the investment team, discuss your process for ensuring adequate experDse. Please list any third-‐party resources you use to provide ESG analysis and research.

■  What is your expected allocaDon to “sustainable” funds? What areas are of parDcular interest? ■  Please explain how you idenDfy suitable sustainable/ESG-‐focused investments.

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UN PRI Overview – Sample Townsend Client Request for Proposal

Property Infrastructure Restricted Some controversy, mixed environmental impacts. Investment may depend on specific impact and/ or management

N/A Not currently willing to participate in GRESB

• Gas fired power generation • Gas pipelines, distribution • Nuclear power generation/ storage • Desalination plants • Tidal barrages • Seaports and ferries • Military establishments • Hydro • Dams

Excluded N/A Not currently willing to participate in GRESB.

High carbon energy • Coal fired power generation • Oil pipelines and refineries High carbon transport • Motorways & service stations • Roads & road bridges • Airports & traffic control

The Townsend Group

Sample Investment Mandate (Fall 2010) The Manager will act in the best long-‐term interests of its beneficiaries and believes that environmental, social, and corporate governance (“ESG”) issues may affect the performance of investment por\olios. As one part of its responsible investment strategy, the Manager has signed the Principles for Responsible Investment ("PRI"). This is an industry focused iniDaDve that promotes long term responsible investment and share ownership, and the integraDon of material ESG issues into investment analysis. •  The Manager intends to remain an acDve and engaged member of the PRI, and meet its ongoing

membership commitments. •  The Manager is willing to make available to the Client on request a copy of each assessment

quesDonnaire that it submits to the PRI, as well as the PRI's analysis of its relaDve performance. The Client may also request copies of the voDng and engagement work undertaken within the context of the PRI.

•  The Manager will noDfy all clients if its intenDon to remain engaged with PRI changes, for example if the PRI materially changes in a way it does not support and will fully explain to clients its raDonale for withdrawing.

•  The Manager will report to the Client on an annual basis on its responsible investment acDviDes and included therein will be comments on such acDviDes which (a) specifically relate to the por\olio that is managed on the Client’s behalf and (b) generally relate to all of the above. This will be delivered to the Client in an electronic format as specified by the Client, within at least 25 Business Days from the year end.

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UN PRI Overview – Sample Townsend Client Mandate

Panel

•  Nils Kok, UC Berkeley/Maastricht & GRESB

•  Mike Ibarra, Landon Butler & Co (MEPT)

•  Laurie Weir, CalPERS

•  Darryl Neate, Oxford Properties (OMERS)

•  Jennifer Young, Townsend Group

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