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Principal Global Investors

PRI reporting framework 2018

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Selection, appointment and monitoring third-party property managers

PR 07. ESG issues in selection, appointment and monitoring of third-party property managers

New selection options have been added to this indicator. Please review your prefilled responses carefully.

07.1. Indicate if your organisation includes ESG issues in your selection, appointment and/or monitoring of third-party property managers.

07.2. Indicate how your organisation includes ESG issues in your selection, appointment and/or monitoring of third party property managers.

Types of actions

Coverage

Types of actions

Coverage

Types of actions

Coverage

07.3. Provide a brief description of your organisations selection, appointment and monitoring of third party property managers and how they contribute to the management of ESG issues for your property investments.

For all properties, Principal Real Estate Investors uses third-party property management firms. Property management firms are retained through a competitive selection process to provide management and leasing services. The factors we consider when selecting a property management and leasing company include but are not limited to the following:

• Asset type and property issues and challenges.

• Market or sub-market conditions and challenges.

• Firm qualifications, experience, past performance, and reputation.

• Ability to adhere to Principal Real Estate Investors ESG policies.

• Market share and potential conflicts of interest.

• Proposed key personnel including experience and expertise, industry certifications, capacity and current assignments.

• Market competitive fee structure.

• Ability to source additional opportunities such as acquisitions.

While service fees are certainly an important consideration, we generally make a selection based on the overall fit of a management company and its key employees with a particular assignment. Property managers are under 30-day cancellable contracts, which provide our firm with the ability to terminate firms quickly if there are performance issues.

Property managers are contractually required to contribute to ESG efforts through the Pillars of Responsible Property Investing initiative, including to but not limited to the following:

Environmental Measurement

  • Targeted portfolio-wide environmental (GHG emissions, water, and waste) reduction target of 10 percent by 2020, and a recently revised energy reduction target of 20 percent by 2020, in addition to significant reductions already achieved.
  • Benchmark energy and water consumption/costs and waste production/costs monthly in EPA’s ENERGY STAR Portfolio Manager.
  • Develop a sustainability plan as part of the annual budgeting process, implement sustainable building remodeling and operations practices.
  • Create safe, healthy living and work environments through green cleaning and integrated landscape and pest management practices.
  • Comply with our Utility Data Management policy, which requires property teams to ensure accurate and timely data on energy, water, waste and other key metrics.

Resource Management

  • Achieve standard practices that enable cost savings through no- and low-cost measures, strategic capital improvements, and best-in-class building operations.
  • Implement Energy Playbook and property assessment program to perform in-depth analyses to identify financially viable technologies and efficient operational techniques.
  • Establish transportation and sustainable purchasing policies.

Stakeholder Engagement

  • Utilize our newly updated green leasing language, which allows us to: pass through energy efficiency-related capital expenses to tenants, require disclosure of tenant utility consumption information for the purposes of whole building benchmarking, require tenants to purchase efficient equipment and fixtures during tenant improvement projects, and install submeters to track tenant space energy consumption.

  • Leverage utility and regional incentives, rebates and technical resources.

  • Increase performance certifications such as ENERGY STAR, LEED, and BOMA 360.
  • Develop a tenant and community engagement plan.

We have standard policies and procedures in place for all property managers, including property managers who are affiliated with our joint venture partners. In addition, our comprehensive program to monitor and evaluate our property managers includes but is not limited to: ongoing thorough and extensive underwriting, property manager and joint venture partner watch list, day-to-day oversight of compliance with policies and procedures by a robust multi-disciplined internal staff; frequent visits to the properties and management companies by staff throughout the year; annual property management company scorecard evaluations including a specific sustainability component; annual operational and internal control compliance certification by management company; tenant surveys; formal audit program; and annual property inspections. In addition, property managers are required to submit energy, water and waste data and complete a comprehensive protocol of responsible property investing measures, policies, and procedures as part of our Pillars of Responsible Property Investing initiative.

To monitor property manager progress and provide feedback, we have created a web-based Status Board, which tracks property performance and environmental consumption metrics. The Status Board is viewable by all property managers. While specific properties are not listed, management firms are shown so that firms can see how they are performing against their peers. Status board information is also included in our annual Property Manager Scorecard, which grades property teams on their data management, data accuracy, and responsiveness to ESG responsibilities. Adhering to our policies and procedures is an expectation of their standard performance and part of their management fee and contractual agreement. We do not provide additional reward or incentivize them monetarily for these achievements. Additionally, in 2016 we created the Energy Playbook program, which holds property managers accountable for creating energy targets and identifying energy efficiency projects to meet these targets. This program was expanded in 2017 to include more than 60 properties. We monitor participating property teams by requesting quarterly updates on the implementation of energy efficiency updates and reviewing property performance towards their energy goal using data from ENERGY STAR Portfolio Manager.


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