Compare and Contrast:

Sustainability Reporting within WP Glimcher and Simon Property Group

Prepared by:

Zachary Hicks

UMD RDEV688Y

Effective Date: December 10, 2015

Executive SummaryReal estate firms are starting act on the belief that green building features and high-performance

operations impact business value and financial performance. Green building features and high-performance operations can result in higher rents, reduced operating costs, greater tenant retention, and enhanced resale value, particularly in competitive office space types. Institutional property owners are finding that tenants recognize and value attributes such as energy and water efficiency, daylight and views, individual system controls, and the reduction of environmental impacts.

In this study, I conducted a review of practices in performance track and reporting by two publicly traded real estate investment trusts (REITs), WP Glimcher and Simon Property Group. My purpose and intent was to provide a snapshot of industry practices and an assessment of the current state of practice.

I found:

WP Glimcher has no sustainability measuring or reporting at the corporate level at this time, although there is hope that due to the company’s very recent formation, WP Glimcher will begin sustainability reporting in the near-future;

WP Glimcher has installed sustainable features on some of its properties, although these projects were overlooked after a corporate merger in January 2015;

Simon Property Group tends to make extraordinary claims in its sustainability reporting that are not always accompanied with supporting statistics – support in the form of anecdotes is more common;

Upon further examination, Simon Property Group is meticulous in its corporate-level reporting, although one would have to look at the appendix on the Sustainability Report as well as individual web pages that could possibly be overlooked by even the most astute investor;

And Simon Property Group has its greenhouse gas emissions certified by a third-party, but does not collect data on water consumption or waste production.

Problem DefinitionThere is an emergence of sustainability efforts within the real estate industry. Despite how

several leading firms have started to embrace sustainability, a large measure of discrepancy exists regarding what should be measured and how these efforts should be reported to investors. This can lead to misinterpreted claims or misleading assertions made to investors and the public regarding such efforts. Within the REIT sector, it is important that the industry utilize a standard set of metrics for monitoring and reporting over time. If this is not done, investors will struggle to identify leaders from laggards, overlook opportunities for superior risk-adjusted returns, and miss potential opportunities to capture value appreciation that companies realize as they engage in industry best practices.

Engaging in and appropriately communicating management’s focus on energy, water, and waste reduction can further illustrate to the investment community that sustainability can add value both economically and environmentally. Developing a way to document and institutionalize comparative peer-based analytics and subsequently connecting these concepts to a company’s investment return profile will evolve sustainability tracking into a necessary component in the real estate industry. This paper details reporting discrepancies existing within the industry and between two individual REITs, and highlights macro-level trends and reporting strategies that currently comprise industry best practices.

Rationale for Company PairingIt’s hard to find a similar REIT to Simon Property Group: Simon is the largest REIT in the world,

and has properties on multiple continents. The only way to compare Simon to another REIT is by finding another retail-oriented REIT. That is when I settled on WP Glimcher, a firm whose parent company, Washington Prime, was actually spun-off from Simon Property Group in 2014. After Washington Prime’s merger with Glimcher Realty Trust, WP Glimcher owns a third of the number of properties that Simon owns and has an equity market capitalization that is 1/30th of Simon Property Group’s market capitalization. Although both REITs are based in Midwestern state capitals – Simon Property Group in

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Indianapolis and WP Glimcher in Columbus – and both REITs own and operate malls, there aren’t many similarities between the two REITs.

WP Glimcher Overview

WP Glimcher was formed in 2015 following the merger of Glimcher Realty Trust and Washington Prime, which spun off from parent company Simon Property Group. (WP Glimcher, 2013-2015) WP Glimcher is based in Columbus, OH, and operates 97 properties across the country, managing over 53 million square feet of commercial space. WP Glimcher has an equity market capitalization of $2 billion. Some properties which are known nationally include Polaris Fashion Place in Columbus, OH, Bowie Town Center in Bowie, MD, Irving Mall in Irving, TX, Seminole Towne Center in suburban Orlando, FL, and Town Center at Aurora in Aurora, CO.

CommunicationI was unable to find any information from WP Glimcher’s website concerning their corporate

sustainability practices. Furthermore, their 2014 Annual Report makes no mention of the phrase “sustainability”. While it would be a reasonable assumption to come to the conclusion that WP Glimcher does not currently embrace sustainability and green building practices at either the corporate level or the asset level, one must look at multiple sources when evaluating a company’s sustainability reporting. An investigation revealed that many of Washington Prime’s properties have sustainable features and Glimcher had some sustainability initiatives such as power generation, but there is no present communication of these initiatives prior to the spin-off and merger on their website. This lack of communication can be directly attributed to the company’s recent formation and financial problems following the merger.

WP Glimcher has a tendency to misuse the word “sustainability”, primarily in press releases. Although sustainability is a broad concept, their definition is strictly limited to financial sustainability. It is not impossible to find phrases such as “sustainably-run” that are actually referring to the building’s profitability. This is a deviation from the most common definition of sustainability: environmental stewardship.

EngagementWP Glimcher does not have any reporting mechanisms or ongoing engagement efforts, as WP

Glimcher has no sustainability reporting at a corporate level.

Metrics ReportedThere are no metrics being reported because there is no sustainability report.

TruthfulWP Glimcher has no sustainability report to require truthful sustainability reporting.

Specificity/ExamplesThere is no sustainability report; however, a Google search revealed that Glimcher property

Jersey Gardens, now known as The Mills at Jersey Gardens, was a lightly-publicized example of a sustainability initiative. This occurred in 2011. Jersey Gardens was sold to Simon Property Group subsidiary The Mills Corporation and renamed to its current name in January 2015.

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Figure 1. The solar panels featured on the roof of the mall formerly known as Jersey Gardens, a former Glimcher Property Trust property.

Aesthetics/MarketingWP Glimcher has no sustainability report to market.

Simon Property Group Overview

Simon Property Group was founded in 1993 after Melvin and Herbert Simon made their private company, founded as Melvin Simon & Associates in 1960, a publicly traded company. Following mergers with DeBartolo Realty Corp. and the Mills Corporation, Simon Property Group became the largest REIT in the world by equity market capitalization, with an equity market capitalization of $60 billion. The company is headquartered in Indianapolis, IN, and operates such properties as Arundel Mills in Hanover, MD, King of Prussia Mall outside of Philadelphia, Hagerstown Premium Outlets, and The Forum Shops at Caesars in Las Vegas, NV. The company owns or has interest in 325 properties and manages 241,000,000 square feet of gross leasable area.

Figure 2. My favorite mall in the Baltimore-Washington region, Arundel Mills, is a Simon property. The adjacent Maryland Live! casino is owned by the Cordish Company.

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CommunicationSimon Property Group’s website for investors has an entire page devoted to sustainability. The

right side of the page features news articles concerning its leadership in sustainability and reporting transparency, the hiring of current Director of Sustainability Mona Benisi, and the opening of electric vehicle charging stations for the dozens of Chevy Volts on the roads. Simon also includes a list of electric vehicle charging stations. I am skeptical of electric vehicles – they simply replace gasoline with primarily other fossil fuels used in power generation for these electric vehicles – but I was nevertheless impressed that Simon meticulously documented the 343 charging stations at Simon properties.

Unlike many companies, Simon combines corporate giving, or social sustainability, with climate change initiatives, or environmental sustainability. Simon’s sustainability web page features a link to the Simon Youth Foundation, which helps at-risk teenagers graduate high school.

Finally, the bottom of Simon’s sustainability web page includes a video of Mona Benisi being interviewed about green leases, the challenges of jurisdictions with different benchmarking requirements, Simon’s sustainability framework, and the future of corporate sustainability. Simon’s website does an excellent job of selling that they legitimately care about corporate sustainability from an environmental perspective. There is no indication that Simon’s internal motivations for sustainability could be financially-related – I view any suggestion that “it’s all about the money” as toxic for investors.

EngagementAccording to the appendix on the Sustainability Report (all facts here on are derived from the

Sustainability Report – I refuse to post multiple links) , Simon Property Group bases all its methodologies on guidance from the World Resource Council and World Business Council for Sustainable Development’s Greenhouse Gas Protocol Initiative for corporate greenhouse gas accounting and reporting. Emissions factors are derived from sources including the EPA, the Intergovernmental Panel on Climate Chance, and the World Resource Council.

When analyzing whether a sustainability report, it helps the student greatly when a firm has a section entitled “Stakeholder Engagement” as Simon’s report does. The Stakeholder Engagement section addresses how Simon informs investors, joint venture partners, tenants, shoppers, employees, suppliers, and communities about societal, environmental, and financial challenges that being the largest REIT in the United States will present. Upon request, the Director of Sustainability will provide updates on the company’s sustainability progress. Simon also actively informs all members of the supply chain – from the farm to the checkout counter – about the benefits of sustainability. While stakeholder engagement appears to be superb, I would have hoped to see examples of stakeholder interactions in the report.

Metrics ReportedI found the reporting of metrics to be inconsistent throughout the report. The reporting of metrics

will help the investor better understand how their money is going towards sustainable causes, and many sections lack the reporting of individual metrics to support some of the extraordinary claims made in the report. Simon Property Group used gigajoules in the report’s appendix to display how much energy the entire company consumed as well as metric tons of carbon dioxide released into the atmosphere. However, their reporting of metrics seems to be focused on greenhouse gases. Their reporting on greenhouse gases is extremely thorough, and verifies the corporate narrative that they have been market leaders in combating climate change since 2003. Sections in the Sustainability Report which pertain to climate change are generally more thorough and specific than sections that are less related to climate change. The Energy Management section has a table which lists the number of LED fixtures replaced as well as kWh savings – a helpful tool to communicate how a simple light bulb replacement can lead to significant reductions in energy consumption.

The primary weakness of Simon Property Group’s sustainability reporting is that benchmarking for water consumption and waste management is not mentioned on the Sustainability Report. An increasing number of jurisdictions are requiring benchmarking at the asset level, and Simon does benchmark where required by law. It is disheartening to see that Simon does not report on water consumption, waste management, etc. on a corporate level.

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TruthfulMost of the numbers in Simon’s Sustainability Report appear to self-affirm of the company’s

status as one of a handful of retail-oriented REITs with an emphasis on sustainability. There is no way for me to verify if Simon Property Group actually performed the sustainability measures described in this 36-page report, as third-party verification of the Sustainability Report was only provided with regards to its greenhouse gas emissions. However, the specificity and wealth of information provided in this report would suggest that this report is truthful, and the company sustainability accolades are deserved.

While I was disappointed in the lack of detail featured in the report, I understand that investors who feel strongly about sustainability are not keen on statistics as much as statements such as “Hagerstown Premium Outlets installed a windmill to generate power for the property”. The possibility for exaggerations of Simon’s sustainability measures is possible where metric reporting is limited. This would be remedied by more extensive and detailed reporting throughout the entire report, as well as an appendix listing sustainability measures taken at each property in Simon’s portfolio. As painstaking as this sounds, this would give erudite investors a better idea of how Simon is trying to address environmental issues.

The wording in the sustainability report implies that Simon Property Group may have a very typical understanding of sustainability. Many sections of the report were generalized and lacking in detail: It’s apparent that the company understands financial sustainability, but its knowledge of environmental sustainability appears to be limited to climate change and things that can cause climate change. As suggested earlier, “climate change” is a trigger phrase for many investors. While it is possible that Simon knows more about sustainability than I am giving them credit for, my opinion of their report will continue to suffer as they dumb their report down to investors.

Specificity/ExamplesI was expecting a generic sustainability report with no substantive examples; however, I would be

proven wrong. The sustainability report gives specific examples of how Simon’s properties have become sustainable from energy management, water management, waste management, and customer-oriented perspectives. Individual properties are mentioned in each example. For instance, the report mentions how both South Shore Plaza in Braintree, MA and Emerald Square in North Attleborough, MA have full composting programs that divert approximately one ton of food waste weekly. If placed into landfills, this organic waste will produce methane, which is a far more potent greenhouse gas than carbon dioxide.

Ironically, Simon’s Sustainability Report most eloquently stated its corporate sustainability initiatives in a section that environmentally-conscious investors often forget is a component of sustainability: giving back to the community. Since 1998, Simon has donated $27 million to the Simon Youth Foundation, an organization which is determined to help at-risk students graduate from high school. The youth initiatives were started when individual malls began to notice that many teenagers were being truant during school hours, and were hanging out at Simon-owned malls. Since 1998, Simon has helped 27,000 teenagers graduate, and has awarded more than $12 million in scholarships to students in over 42 states. Simon also runs programs oriented towards the health-conscious, developing women into strong and self-supported leaders, and local hunger.

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Figure 3. A random pile of compost, most likely not from South Shore Plaza or Emerald Square.

Aesthetics/MarketingI was pleased with how Simon’s Sustainability Report was formatted. The report used plenty of

photographs, inserts, tables, and graphs, and the amount of text featured in the report did not overwhelm me as a reader. It exceeded all expectations I had for the report, and was (surprisingly) fun to read. I imagine that as a critic of sustainability report aesthetics that investors will find the report easy to read, although the lack of statistics in the actual report may be troubling to some investors.

Simon Property Group will boast at any given opportunity about their sustainability program. The company’s emphasis on awards won is interpreted by me to be excellent marketing. Just as Chevrolet will talk about all the awards it’s won yet refuses to advertise the Cobalt, Simon Property Group will boast how successful their sustainability program is by ignoring the success of individual projects or the potential lack of sustainable features at some properties. A perfect example of sugar-coating sustainability practices can be found in how frequently Simon will mention how they have been a leader in sustainability for “over a decade”: their first sustainability report was actually released in 2014, and thus it is impossible to verify whether they truly are market leaders. Furthermore, the statement from CEO David Simon at the beginning of the report mentioned every honor from FY 2014 (paraphrased): “In 2014, the company was named to the CDP Global 500 Climate Disclosure Leadership Index for the sixth time, and was also included in the Climate Performance Leadership Index. Additionally, the Global Real Estate Sustainability Benchmark recognized Simon with a Green Star rating, its highest designation.” One of the basic rules of marketing is a potential customer needs to hear how amazing a product is before why that product is amazing. This was a smart, subtle marketing technique by a company that specializes in more overt forms of marketing.

Sustainability Reporting GradesWP Glimcher

WP Glimcher has no sustainability reporting, so six out of seven categories received an “Incomplete” or “N/A” grade. The one category which could be graded, Communication, was an easy determination. With regards to communicating its sustainability measures, WP Glimcher does nothing to inform investors about its attitudes towards sustainability. Therefore, WP Glimcher received a failing grade for communication.

Simon Property Group Even though I was able to find faults in Simon Property Group’s sustainability reporting, I was

very pleased with their reporting. Simon’s overall grade, A-, reflects the mean of the reporting grades from the other six categories I evaluated. I was unable to find any flaws with their communication, specificity/examples, and aesthetics/marketing schemes. Additionally, Simon’s scores in engagement and how truthful their reporting reflects my opinion that Simon is doing well, yet still has room for improvement. The category with the lowest score, Metrics Reported, is admittedly the result of my high standards. I found the use of metrics to be inconsistent throughout the report, and Simon’s score of a C+ reflects this inconsistency.

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Chart of Sustainability Reporting Grades

Overall Communication Engagement Metrics Reported Truthful Specificity/

ExamplesAesthetics/Marketing

WP Glimcher Incomplete F N/A N/A N/A N/A N/A

Simon Property

GroupA- A+ B+ C+ B+ A+ A+

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