Performance
This review details the performance of our managed portfolio in terms of key impact areas using appropriate Key Performance Indicators in line with GRI principles.

In the interests of best practice reporting, to avoid double counting and to focus solely on the impacts of our directly managed portfolio, we have excluded the properties from other property companies in the BTPS family, Argent and MEPC, from our performance review and target achievements. We provide a separate performance analysis for these portfolios here
For each impact area in this review we provide explanation and analysis as to why certain trends occur and try to explain why we met, or in some case did not meet, our targets. A full list of our targets can be found here.

Energy
Hermes measures Key Performance Indicators (KPI’s) for energy using two approaches: absolute consumption and like-for-like 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 from one year to the next.
  
• Like-for-like, or consistent portfolio consumption refers to those properties for which Hermes has a like-for-like set of data over a given period. For the purposes of this report, our like-for-like portfolio refers to all those properties which provided data from January 1st 2007 through to December 31st 2008.

Measuring and reporting our absolute consumption represents our actual environmental footprint in a given year. Measuring and reporting our like-for-like portfolio consumption permits us to 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.

Important correction: Some historic data previously published has had to be updated in this year’s report because inaccuracies were discovered. These inaccuracies were discovered in our Shopping Centre portfolio as part of an exercise to move from manual to Automatic Meter Reading (AMR). This highlighted differences between some of the meter reads that had been taken originally and the figures that we published in last year’s report. Following a rigorous data checking process, we believe that the data stated in this report is an accurate representation both of 2008, but also of prior years, as far back as 2005. This process has highlighted the importance of reliable metering arrangements, and re-enforces our commitment to install Automatic Meter Reading (AMR) capabilities wherever possible.

Absolute Energy Consumption and CO₂ Emissions
Absolute owner controlled* energy consumption (kWh) and associated CO₂ emissions1 (kgCO₂)*

Total Hermes portfolio CO₂ emissions by sub-sector for 2008 (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. This was correct when all emissions data received final sign-off. 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

* Where we have the ability to delineate between owner and occupier areas, we have reported solely on owner-controlled utilities consumption. The majority of data we collect is for utilities bought by the owner which is then charged back to the occupiers through the Service Charge, but not on a specifically-metered basis. Where we do not have the ability to meter out occupier consumption, we have included this as part of the owner-controlled data.
Although occupier data is not included in the above reporting, we do aim to collect it wherever possible. Freeport Braintree has used this information to foster friendly competition amongst its occupiers by producing a regular energy league table showing who has made improvements.

Both the Industrial and Retail Warehouse (RW) portfolios consist solely of Cat 2 & 3 properties³. Therefore, where we as the owner buy the 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.

Only one property in our High Street shop portfolio is included in the data set, as the remainder are all FRI properties (Cat 3), with no owner 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

3. Cat 1 - Internal Common parts; Cat 2 - External common parts; Cat 3 - No common parts (FRI)

The decline in absolute CO₂ emissions can be attributed both to the successful management of existing buildings and to disposals in the portfolio. The CLO portfolio’s reduction can partly be explained because we have sold 4 properties since 2007. Consequently the overall number of properties that we are measuring within the RPM programme has also declined for the first time. Please see here for further details of the scope of the managed portfolio. In order to understand where management processes have resulted in change, we also undertake a like-for-like portfolio analysis (see below)

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. 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 2007 and 2008 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 2007 and 2008 (% change – absolute). Each of our principal sub-sectors saw a decline in emissions during this period (see details above) and our total energy consumption for the whole portfolio dropped by 10.3% (4,692 tonnes CO₂).

The chart above also shows the change in relative consumption to floor area over the same period (% change per sq m). This has been calculated by comparing the total consumption of all properties in our portfolio in 2008 (total consumption / total floor area) with the total consumption of all properties in 2007 (total consumption / total floor area). The result is impressive, with a total relative reduction of 12.5%. This analysis allows us to demonstrate that in the CLO portfolio, whilst there has been a decrease in the emissions per square metre, there has been a larger absolute reduction of 13.4% (see above).

The fall in relative emissions is partly explained by the sale of high energy intensive properties in the CLO portfolio. To delineate changes that have occurred due to management actions, we also measure a like-for-like set of properties, which have all been in our portfolio for a 24 month period.

Like-for-like Portfolio Energy Consumption & CO₂ Emissions
There were a total of 65 properties for which we have like-for-like data from 1st January 2007 to 31st December 2008. This is the consistent portfolio that we have measured for progression against our internal CO₂ target of a 5% annual reduction (see targets section). This is a significant increase compared to the 46 properties for which we had like-for-like data in the last reporting period from 1st January 2006 to 31st December 2007.

Owner controlled energy consumption for a like-for-like portfolio of 65 properties

Change in absolute CO₂ emissions for a like-for-like portfolio of 65 properties between 2007 and 2008 by sub sector

Our like for like portfolio has seen a decrease in its absolute CO₂ emissions of 1,698 tonnes or 4.3% between 2007 and 2008.

With a reduction of 4.3% we have not have not met our internal 5% year on year reduction target, however we have made significant increases compared to last year when we reported a 0.43% decrease between 2006 and 2007 for our like-for-like portfolio.

Each of the principal portfolios has made considerable improvements in the last year. In 2007 CLO increased its emissions by 1.01% but reversed that in 2008 to register a 1.32% decrease. In 2007 RUKO decreased its emissions by 0.45% and that further improved to a 6.68% decrease in 2008. And SC has continued its excellent performance improving further from a 5.45% decrease in 2007 to an 8.37% decrease in 2008⁴.

In 2007 we made energy a particular focus of the RPM programme and this emphasis has continued into 2008. Whilst 2007 was a year where the foundations of a coherent energy strategy were laid throughout the portfolio with the help of the PMs, 2008 has seen the fruits of these labours manifested in impressive improvements. We continue to place emphasis on the installation of automatic meter reading technology across the portfolio as well as close engagement with occupiers to try and help us reduce the total energy use in our buildings.

This approach has seen some excellent improvements at individual properties. In the CLO portfolio, Prospect House has seen a 14.62% decrease in its CO₂ emissions; in the RUKO portfolio, 101 Barborolli Square saw a decrease of 22.88%; and in the SC portfolio Freeport Braintree has seen a decrease of 13.14% and thecentre:mk 15.01%. Each of these properties is an example of the ongoing strategy of tight management controls and continuing engagement with occupiers.

4. The SC figures are based on the restated 2007 and 2008 data as explained above.

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 benchmarks our portfolio against the performance 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 17% drop in energy intensity between 2007 and 2008.

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)

Our office portfolio continues to reduce its energy intensity and 2008 was the third year in a row which we achieved a reduction. Since 2005 we have reduced the energy intensity by 21%. Our office portfolio, as shown here, is a mix of our multi let offices from both our CLO and RUKO sub-sectors.
Significant improvements in the benchmarking survey were made by 101 Barborolli Square and 55 Spring Gardens, managed by King Sturge and 20 Bedfordbury and Prospect House, managed by Jones Lang LaSalle.

Water

Absolute water consumption

Absolute owner purchased water (m3)

Total Hermes portfolio water consumption by sub-sector for 2008 (m³)

We are only responsible for the procurement of water in the CLO, RUKO and SC sub-sectors.

Rate of change between 2007 and 2008 of absolute and relative water consumption by principal sub-sector ⁵

5. The methodology for calculating the change in absolute water consumption by sub-sector and building efficiency by sub-sector is the same as was used for the equivalent CO2 calculations (see energy section).

Overall there has been a 5.43% decrease in absolute consumption and a 1.85% increase in relative consumption between 2007 and 2008.

Our absolute water consumption has reduced, due to disposals and improved water efficiency measures in some assets. The rise in total relative consumption has been mainly due to the selling of certain water efficient CLO properties. This has also affected the total absolute water consumption. These sales have resulted in the CLO portfolio increasing its water use on a square meter basis.

Like-for-like Portfolio Water Consumption
There were 37 properties that provided like-for-like water consumption data from 1st January 2007 to 31st December 2008. This is the like-for-like portfolio that we have measured for progression against our internal water target of a 5% year on year reduction (see targets section). This is an increase compared to the 33 properties for which we had like-for-like data in the last reporting period from 1st January 2006 to 31st December 2007.

Owner purchased water for a like-for-like portfolio of 37 properties

Change in absolute water consumption for a like-for-like portfolio of 37 properties between 2007 and 2008 by sub-sector

We have done a great deal in the past year to focus on water consumption. Following the success of our energy focus in 2007, we adopted a similar approach to water. The results so far have been positive, and an indication that we have managed to stabilise our water consumption. Our like-for-like portfolio reduced its consumption by 0.08%. This is still short of out year-on-year target of 5%, but is a significant improvement on the 3.19% increase last year. We continue to focus on water consumption, and made it the subject of the key note speech at this years’ RPI Forum.
There have been some individual highlights within the portfolio. The SC portfolio reduced its water consumption by 3.95%, with Crompton Place Shopping Centre achieving a reduction of 14.77%.

Industry Benchmarking
The Upstream Sustainability Benchmarking Service for Shopping Centres and Offices benchmarks our portfolio water consumption against the industry.

Shopping Centres

Water intensity of the Hermes shopping centre portfolio compared to peers (m3/visitor) ⁷

7. Owner only water

There has been an increase in water intensity (a measure of water use divided by visitor numbers) in the Shopping Centre portfolio. As mentioned above we made water a focus in 2008 and we hope to see improvements in 2009.

Offices

Water intensity of the Hermes office portfolio compared to peers (m³/work station) ⁹

9. Owner & occupier water

Water intensity has increased year on year in our office portfolio, with a jump of 4% between 2007 and 2008.

There have, however, been some notable improvements from some properties, including 117 Jermyn St (managed by Jones Lang LaSalle), 18 Mole Business Park (managed by King Sturge) and 599 Avebury Boulevard (managed by The Central Milton Keynes Management Company), each of which achieved savings of over 20% in water intensity.

Waste
2008 saw a change in focus for our waste strategy within the RPM Programme. Following the introduction of a new long-term target to send zero waste directly to landfill by the end of 2010, we changed our emphasis from increasing on-site recycling rates to decreasing landfill rates (see below for analysis).

One of our targets is to record waste consumption by weight from all our properties by 2010. Last year, 31 properties out of a total of 46 did so. This has proved to be a highly ambitious target, as the method of waste collection is determined by the contractor used, the amounts of waste produced and whether the property has segregation facilities on-site. Consequently weight measurement tends to occur more frequently at the larger multi-let properties, especially in our shopping centre portfolio.

For this reason we have divided our analysis into the two waste collection methods – weight and volume.

Waste by weight

Waste disposal route by weight (kg)

Total Hermes portfolio waste by disposal route for 2008 (kg) (31 properties)

As noted above, in 2008 we shifted our emphasis towards reduction in waste sent directly to landfill. This has resulted in a drop from 16% in 2007 to only 7% in 2008 and means that we are well on course to achieve our target of zero waste sent directly to landfill by the end of 2010. For Quarter 4 of 2008 the rate of the waste that we sent directly to landfill had fallen to 2%.

Proportion of waste by disposal route for 2007 and 2008
(31 properties measuring by weight)

The reduction in waste sent directly to landfill has been achieved primarily through an increase in waste sent to Materials Recovery Facilities (MRFs) from 36% in 2007 to 47% in 2008. This has occurred as a result of individual properties negotiating new waste contracts which require that no waste is sent direct to landfill (a requirement set by Hermes). The easiest way for a waste contractor to ensure that this requirement is met, is to take any residual waste that has not been segregated for recycling on-site to and send it to an MRF. At the MRF, waste can be further segregated into recyclable materials. Any non-recyclable waste remaining is either incinerated (preferably with energy recovery) or sent to landfill.

We appreciate that this renewed strategy will not result in 100% of our waste avoiding landfill, but we believe that if we can ensure that zero waste is sent directly to landfill, any waste that we are unable to recycle on-site will be further segregated within specialist waste facilities. We have been working with our specialist advisors to identify those waste providers which are able to extract high proportions of recyclable waste with the residual waste going to energy recovery.

Waste disposal route as % (properties measuring by weight)

This change in emphasis towards reduction in waste sent directly to landfill has meant that we have been unable to hit our target of 50% on-site recycling by weight. We did increase recycling across those properties measuring waste by weight but only marginally from 43% to 44%.

However, a number of individual properties did surpass this target. All but one of the REALM managed shopping centres achieved 50% recycling or higher , with Freeport Fleetwood leading the portfolio with a 72.5% on-site recycling rate.

Waste by volume
While it is our preference for our properties to measure by weight, we recognise that this is not always possible.

In 2007, 23 properties were measuring by volume. By 2008, this number had dropped to just 15.

Waste disposal route by volume (m³)

Total Hermes portfolio waste by disposal route for 2008 (m3) (15 properties)

As with waste measured by weight, we have also changed our strategy for managing the waste measured by volume to one of reducing waste sent directly to landfill by the end of 2010. The properties measuring waste by volume tend to be those that do not have space on-site for designated waste segregation and recycling facilities, and are primarily from the RUKO portfolio.

Proportion of waste by disposal route for 2007 and 2008 (properties measuring by volume)

The success of this change in emphasis has been even more marked for those properties measuring waste by volume, reducing waste sent directly to landfill from 70.8% in 2007 to 16.5% in 2008. This has been achieved primarily by waste contracts stipulating that residual, non-recycled waste must be sent to MRF which in turn has increased from 21.2% in 2007 to 68.2% in 2008.
We have managed to realise both of the waste (volume) targets for 2008 of achieving 50% or less waste sent directly to landfill (we achieved 16.5%) and a recycling rate of 15% (we achieved 15.2%).

Waste disposal route as a % (for properties measuring by volume)

The graph above shows the marked improvement in waste measured by volume. The significant drop in the proportion of waste sent directly to landfill at the beginning of 2008 was because all of the Central London Offices, (apart from Ryder Court) managed by Jones Lang LaSalle, moved to a waste contractor that sends its residual waste to an MRF. These properties have also stipulated that they require weight data from their new contractor, so we are no longer included in the volume analysis.

As stated above, most of the remaining properties measuring waste by volume are in the RUKO portfolio managed by King Sturge. They have done an excellent job in 2008, improving their recycling rate from 4.45% in Quarter 1 to 26.6% in Quarter 4.

Industry benchmarking
Through the Upstream Sustainability Benchmarking Service for Shopping Centres and Offices, we benchmark the rate of waste that we avert from landfill.

Shopping Centres

Rate of waste averted from landfill of Hermes shopping centre portfolio compared to peers (by weight)

Hermes continues to be a market-leader in waste management. Across the shopping centre portfolio we achieved a 98% rate of waste averted from landfill for those properties measuring waste by weight. This is an excellent performance and means that we are on course to achieve our target of sending no landlord-controlled waste directly to landfill by the end of 2010.
All but two of the shopping centres in the benchmark sent zero waste to landfill in 2008.

Offices

Rate of waste averted from landfill of Hermes office portfolio compared to peers
(by weight)

2008 saw a very large increase in the percentage of waste being averted from landfill across our office portfolio. The rate increased from 21% in 2007 to 71% in 2008. This was largely due to the negotiation of new waste contracts across our CLO portfolio.

Seven of the offices that we submitted to the benchmarking sent no waste directly to landfill in 2008.

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