Energy

Absolute Energy Consumption & CO₂ Emissions
Consistent Portfolio Energy Consumption & CO₂ Emissions
Industry Benchmarks

Hermes measures Key Performance Indicators (KPI’s) for energy using two approaches: absolute consumption and consistent portfolio consumption.

• Absolute consumption refers to all measured data at any time during the period shown and is equivalent to the whole portfolio carbon footprint in a given year. This includes properties that have been bought, sold and refurbished throughout the year, and takes no account of changes in the portfolio.
  
• Consistent portfolio consumption refers to those properties for which Hermes has a consistent set of data over a given period. For the purposes of this report, our consistent portfolio refers to all those properties which provided data from January 1^st 2006 through to December 31^st 2007.
  
  By measuring consistent portfolio consumption we can track the changes in performance of a portfolio in the knowledge that it will not have been affected by acquisitions and disposals, thereby allowing us to more closely monitor performance changes that are directly attributable to the way a building is managed.

Absolute Energy Consumption & CO₂ Emissions

Absolute landlord controlled energy consumption (kWh) and associated CO₂ emissions¹ (kgCO₂)

1 Hermes uses the latest DEFRA electricity and gas conversion factors to calculate emissions of CO₂. In order to convert kWh of energy to kgCO₂ the conversion factor for grid electricity is 0.537 and the conversion factor for natural gas is 0.206. Further information can be found on the DEFRA website: http://www.defra.gov.uk/environment/business/envrp/pdf/conversion-factors.pdf
2 GRI KPI code - see GRI checklist

Total Hermes portfolio CO₂ emissions by sub-sector for 2007 (kgCO₂)

Both the Industrial and Retail Warehouse (RW) portfolios consist solely of Cat 2 & 3 properties. Therefore, where there is landlord bought energy, this tends to be mainly for car park and security lighting and is minimal compared to the consumption in the Shopping Centre (SC), Central London Office (CLO) and Rest of UK Office (RUKO) portfolios.

Our High Street shop portfolio is not included as these are all FRI properties (Cat 3), and therefore have no landlord purchased energy..

For this reason we class the three larger consuming portfolios of CLO, SC and RUKO as our principal sub-sectors.


Hermes portfolio CO₂ emissions by principal sub-sectors

The absolute rise in emissions in the RUKO portfolio has been caused primarily by 9 additional properties being measured in 2007 compared to 2006.

It is evident from the chart above that our PM’s are working to achieve our requirement of procuring Climate Change Levy Exempt electricity where possible. King Sturge and Jones Lang LaSalle in particular are having success with this in the RUKO and CLO portfolios respectively.

While we support the development of renewable and Climate Change Levy Exempt energy generation sources, we do not see the procurement of Climate Change Levy Exempt electricity as equivalent to reducing our carbon emissions. However, our main focus is to deliver energy efficiency improvements and to reduce our overall consumption. For this reason, we do not draw a distinction between the sources of electricity procurement in the remainder of this report.

Rate of change between 2006 and 2007 of absolute and relative CO₂ emissions for principal sub sectors

The chart above shows the percentage change in absolute CO2 emissions for SC, RUKO and CLO sub-sectors between 2006 and 2007 (% change – absolute). Only the RUKO portfolio saw a rise over this period due to acquisitions (see details above) and our total energy consumption for the whole portfolio dropped by 2.07% (890,671 kg CO2)

The 12.8% drop in absolute consumption in our SC portfolio is partly due to improvement in management practices, but is also due to the sale of Princes Square shopping centre. The 5.3% drop on our CLO portfolio is partly due to the sales of multi let offices, although there were significant improvements in some buildings, as highlighted later in the consistent portfolio analysis.

The chart above also shows the change in relative consumption over the same period (% change per sq m). This has been calculated by comparing the total consumption of all properties in our portfolio in 2007 (total consumption / total floor area) with the total consumption of all properties in 2006. The result is impressive, with a total relative reduction of 31.7%.

While this does indeed sound impressive, we can not simply use this analysis in isolation. The reason for this significant drop in relative consumption is largely due to the buying and selling of properties during the 24 month period. We sold a number of multi let properties (which have higher consumption per floor area) and bought a number of cat 2 and 3 properties (which have much lower consumption per floor area).

For this reason, we feel it is important to also measure a consistent set of properties, which have all been in our portfolio for a 24 month period.

Consistent Portfolio Energy Consumption & CO₂ Emissions
There were a total of 46 properties for which we have consistent data from 1^st January 2006 to 31^st December 2007. This is the consistent portfolio that we have measured for progression against our internal CO₂ target of a 5% annual reduction (see targets section).

Landlord controlled energy consumption for a consistent portfolio of 46 properties

Change in absolute CO₂ emissions for a consistent portfolio of 46 properties between 2006 and 2007 by sub sector

Our consistent portfolio has seen a decrease in its CO₂ emissions of 162,134kg or 0.43% between 2006 and 2007.

While two of our sub-sectors, SC and Industrial, have met our internal 5% year on year reduction target, we have not met our target for the whole of our portfolio. This is due largely to our CLO portfolio which saw an increase of 1%. While this is only a slight increase, the sheer scale of consumption at our CLO portfolio means that it accounts for around 60% of our total consistent portfolio emissions in a given year. Therefore, the significant reductions made by the SC and Industrial portfolios and to a lesser extent the RUKO portfolio, are ‘undone’ by the slight rise in our London offices.

This finding illustrates the value of analysing a consistent portfolio. Despite the CLO sub-sector achieving an overall absolute reduction (see above), the consistent portfolio actually saw a rise.

This is not to say that all CLO properties saw an increase. In fact there were a number of significant improvements in several offices. Of particular mention are Nations House, Cheapside House and Prospect House, all managed by Jones Lang LaSalle.

A number of shopping centres made significant reductions in 2006/7, including all the REALM managed outlet parks, which all contributed to a saving of over one million kilowatt hours of energy as part of their ‘Save A Million’ campaign.

Acknowledging the importance of our energy target, we made energy a focus for 2007. This resulted in the implementation of new energy management systems and processes by the PM’s, including automatic metering installation across several sub sectors and Total Building Management approaches to engage with our occupiers. We believe that by ensuring we have robust management processes in place, we will be able to see marked savings in the future. For this reason we are committed to our target of 20% reductions by 2010.

Industry Benchmarking
We have submitted properties to the Upstream Sustainability Benchmarking for Shopping Centres service since 2004 and we were one of the first members of the Upstream Sustainability Benchmarking for Offices in 2005.

This syndicated service allows us to benchmark our portfolio against our own performance and that of our peers over time.

Shopping Centres

Energy intensity of the Hermes shopping centre portfolio compared to our peers (kgCO₂/m²)

A similar pattern can be seen in the benchmarking analysis for our shopping centres, as was identified in our own consistent portfolio analysis. The annual saving is even greater in this analysis, with a 14% drop in energy intensity between 2006 and 2007.

The results of the benchmarking analysis are not directly comparable to our own portfolio analysis as presented in this report. The reasons for this are that the Upstream benchmarking analysis normalises the data to account for weather and hours of operation. This allows for closer and more meaningful comparison to other peer group properties.

We do not normalise in this way because we are simply comparing our own portfolio against itself over time.

Offices

Energy intensity of the Hermes office portfolio compared to our peers (kgCO₂/m²)

Compared to our peers, our office portfolio is one of the lowest energy users in terms of intensity and we have achieved a consistent reduction over the past three years, with a 14% drop between 2006 and 2007. Our office portfolio, as shown here, is a mix of our multi let offices from both our CLO and RUKO sub-sectors.

Significant improvers in the benchmarking survey were Nations House, managed by Jones Lang LaSalle, which continues to see improvements year on year. Nations House has been identified as an RPI Centre of Excellence, and in 2007 further reduced its energy by reducing air conditioning and boiler use, and switching off its boiler pumps in the summer months.

599 Avebury Boulevard managed by thecentre:mk, Leatherhead House and The Anchorage managed by King Sturge, also made significant improvements in energy consumption over this period.

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