GROWING THE LANDLORD TENANT RELATIONSHIPCollaborating for More Sustainable Retail Outcomes

October 14, 2011Cathy Edens and Patrick Leonard, PaladinoAdam Siegel, RILARudy Milian, ICSC

Session Objectives

• Clarify the market and business context for greater landlord/retailer collaboration around sustainable retail store buildings and operations

• Share progress in developing guidance resources for industry

• Gather feedback/ideas/resources from attendees to improve outputs

Agenda

10:30 – 11:15 - Topic/Issue Context

11:15 – 12:00 Energy and Waste Zones Break Out (lunch)

12:00 – 12:30 Green Lease Discussion

12:30 – 1:00 Final Discussion and Adjourn

Market ContextDow Jones Industrial Average 1/8/10-9/30/11

Photo: Ed Zurga - Reuters

Market Context

Industry Context

Sustainability as an Investor Preference

Sustainability as a Tenant and Customer Attractor

Sustainability as Competitive Differentiator

Industry Context

How can retailers and landlords better collaborate to transform the industry towards

greater sustainability?

Discovery Method

• Interviews to understand

what participants prioritize and what they would like to do next

• Resource scan to identify

what is available to support both groups

• Media scan as a

representation of prevalent market thinking

Finding #1: Retail industry sustainability in facilities follows a predictable transformation pattern

Transformation Gradient

influx of new ideas that drive business forward

Retail Facilities Sustainability

Finding #2: Sustainability adoption is metered by internal, external and

relationship factors

Acknowledged Challenges

15

Retailer Internal Challenges

Landlord Internal Challenges

Shared Challenges

• Low utility usage visibility

• Cross functional fragmentation

• Business case models aren’t aligned to sustainability measures

• Cost and return misalignment

• Fragmented needs

• Lack of successful models

• Responsibility unclear

• Poor communication between parties

• Perception of lack of customer demand for green

• Lack of internal communication channels

• Low scalability of programs

• Cross functional fragmentation

MARKET FACTORS

Limiters and Drivers

• “Somewhere behind the scene, there’s a bank……(regarding rooftop solar)”

• “Our business case period is so short, nothing pays back that fast.”

• “I manage sustainability in addition to my first role, so I don’t spend as much time as I should (on it).”

• “Design and construction reports up differently than real estate, so we don’t really talk much (to determine green lease needs)

• “Our tax status as a REIT makes it harder to do some (sustainable) things we know we want to do.”

Finding #3: Fragmentation, varying needs and low awareness add to the

mix

Small

• “Utility costs are not our greatest expense, so why bother?”

• “Our waste stream is too small to negotiate recycling contracts separately from the mall.”

• “We don’t have the reverse logistics, back of house to be able to do anything on our own like the larger stores.”

• “At our size it (sustainability) just doesn’t pencil out, but a co-op model sponsored by the landlord could work.”

• “Aligning all these small tenants can be like herding cats.”

Large• “We don’t have too many issues doing what we want, because we manage

most programs ourselves.”

• “Our waste stream is large enough we manage it 75% of the time, and the other 25% its part of CAM.”

• “The landlord controls the common area, but not the space we’re under, so we do whatever we can that doesn’t require a landlord signature.”

• “A whole lot of these (mall wide strategies) have very little interest to the larger retailers that would need to be on board to make it pencil out.”

Finding #4: Both retailer and landlord priorities and needs are

focused

An Integrated Platform

Strategic Direction

Program Management

Resource Efficiency Program Implementation

1. How should customers experience sustainability in stores?2. What role does it play in our strategic business approach?3. Should it be driven through innovation or evolution?

1. How are costs for green integrated?2. Are green strategies best managed independently by landlord

and tenant or holistically together?

1. How are resource opportunities best maximized?2. What role do green building rating systems play?

Visioning – Coming TogetherLandlords

Robert Albert, Property Manager (Retail)

Vornado Realty Trust

Joe Jaworski, RPA, FMA, VP, National Operations

Westfield, LLC

Judith Knop, Senior Development Manager (Retail)

Vornado Realty Trust

Jeffrey Nash, Director of National Operations

General Growth Properties, Inc.

Mark Peternell, LEED AP, Vice President, SustainabilityRegency Centers

Scott W. Price, SCSM, Vice President of Property ManagementThe Rappaport Companies

Sukanya Paciorek, LEED AP O+M, Vice President -Corporate Sustainability

Vornado Realty Trust

Will S. Teichman, Director of SustainabilityKimco Realty Corporation

Jill Ziegler, LEED AP, Sustainability Program Manager

Forest City Enterprises, Inc.

22

Retailers

Hugh CherneSenior Manager, Environmental Sustainability TeamBest Buy Corporation

Trish KenlonEnergy and Sustainability ManagerAnn Taylor

Debra JamesWal-mart

Kristin RockEnergy ManagerPETCO

Letitia WebsterGlobal Corporate Sustainability VF Corporation World Headquarters

Brendan SullivanVice President - RetailVF Corporation World Headquarters

David HughesGroup Manager for Energy & Carbon ManagementTarget

Visioning: Slider Exercise

Example

BaconHow should bacon be integrated

into dessert foods like donuts, cookies and cupcakes?

Selectively Liberally

Measuring Preferences

13 sliders in 3 categories:

• Strategic direction

• Program approach

• Resource management

Example Slider Topics

• How is water/energy/waste best managed? Independently or holistically?

• How is sustainability best practice integrated into the deal structure? As an exception, or as a given?

• How will market transformation towards greener outcomes occur? Internalized or provided?

• How are green costs integrated? Value add or cost add?

Voting Dots

Landlords

Where we are today

Where we want to be

Retailers

Where we are today

Where we want to be

Key Finding: Landlords and tenants share the same priorities

Shared Priorities

1. ENERGY EFFICIENCY

• Shared visibility• Renewable energy• High performance building design

2. WASTE MANAGEMENT• Tracking and measuring• Recycling

3. AGREEMENTS• Green lease• Sustainability guidelines (Exhibit D)• Retailer’s Green Guidance

Resource Kits for Industry

Communicate

Formalize

Supplement

Reduce

Measure

30

Communicate with and educate stakeholders through plans and other tools

Formalize through business case models, programs, lease language and other guidance

Supplement with external sources/solutions

Reduce consumption through holistic programs

Track and measure at the store level to understandopportunities

CUSTOMER EXPERIENCE

ENERGY KIT SUBCOMMITTEEPatrick Leonard, PaladinoAdam Siegel, RILA

• Energy Usage Shared Visibility– Sharing energy consumption data is a key priority for the group as an

enabler for greater sustainability and financial opportunities

• Renewable Energy

• High Performance Building Design

Energy (& Water!) Needs

• Retailers– Monitor & control energy spend & consumption at portfolio level– Track progress against baselines, benchmarks & goals (energy, GHG)– Gain visibility & justify the value of energy efficiency improvement

projects – Confirm fair and accurate payment

• Landlords– Utility pricing increase risk shared with retailer, – Track progress against baselines, benchmarks & goals (energy, GHG)– Create opportunity for tenant value adds: benchmarking against

others on property, other sites etc– Gain understanding of tenant load profile

Value Proposition

Resource Kit Components

– User instructions

– Context

– Utility Monitoring Program 101

– Scenarios & Solutions

– Case Studies

– Expected results (ROI, other benefits)

Issues Solutions

1. Request estimated consumption data

2. Install monitoring onlysub meters

3. Include data provision in Green Work letter/future leases

Landlord prevented from installing utility sub meters by code

x

Utility data is metered, Landlord disincentivized fromproviding actual usage

x x x

Scenarios & Solutions Matrix

WASTE KIT SUBCOMMITTEEAdam Siegel, RILABen Hobbs, RILA

• New recycling programs where they do not exist

• Stronger recycling programs where they already exist

• Systems for tracking store-level recycling

Recycling Needs

• Retailers– Lower operating expense costs– Satisfy employee and consumer demand for recycling– Help achieve sustainability goals– Positive public relations

• Landlords– Lower costs / new revenue streams– Provide additional amenity to tenants– Code complicity / compliance in some jurisdictions– Reduce eco-impacts– Help achieve sustainability goals

Value Proposition

Resource Kit Components

– Value Proposition

– Questions to consider

– Case Studies of shopping centers

– Suggested program elements

– Expected program results

– Implementation steps

I. BREAK OUT SESSIONS

11:15-12:00 (LUNCH)

• Two topics, 1-3 tables each:– Energy Zone (Patrick and Maggie)

– Waste Zone (Ben, Cathy)

12:00-12:30 (AFTER LUNCH)

• Two topics, 2-3 tables each:– Model Green Lease (Cathy, Rudy)

– Retailer’s Green Guidance (Patrick, Ben)

GREEN LEASE SUBCOMMITTEE

Cathy Edens, PaladinoRudy Milian, ICSC

• A starting place for discussing shared approaches

• A way to identify retailer and landlord sustainability needs within the agreement process

• A model example to serve as guidance for both landlords and retailers

Green Lease Needs

• Retailers

– Engage internal stakeholders such as real estate and legal on green needs

– Help internal stakeholders communicate green needs to landlords– Gain visibility to landlord provided programs and features and

expectations– Provide a starting place for discussions with landlords

• Landlords

– Demonstrate green commitment to potential tenants– Describe property green features and programs to prospective tenants

and the community– Clearly state expectations for retailer participation– Provide a starting place for discussions with tenants

Value Proposition

The Green Model Lease

The Retailer’s Green Guidance

• Translates CSR commitments to the built environment

• Tells internal groups how store performance is optimized

• Identifies opportunities for discussion with landlords

Group Summaries and Adjourn

Thank You