The GRESB Conundrum Should we do what is needed, or should we do what is needed

to improve of GRESB Score ?

Hamburg, August 2014

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Disclaimer

Cautionary Note Regarding Forward-Looking Statements The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Purpose of the document The purpose of this document is to engage with a selected number of investors, around the CSR rating process in the real estate industry, and more specifically GRESB BV. Sources of information Views express therein are based on our current understanding of how GRESB function based on publically available information. Shall this information be inaccurate or not current, the conclusion that we have drawn from the analysis of this information might proof unfounded. All information quoted in this document are sourced from public sources (except for the alstria GRESB report). Information about GREB policy, pricing, company feedback and other communication is sourced from the google group available at : https://groups.google.com/forum/#!forum/gresb-all Which was publicaly available as of the 06.08.2014.

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How can alstria improve its GRESB score

Why are we concerned about GRESB

Agenda

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Implement PDCA principle (EUR 1.950)

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Where are we really weak?

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Monitoring and EMS

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Building an EMS

Aspect Impact Significant

Impact alstria's view

Energy Consumption Acidification, Depletion of Natural Resources, Eutrophication, Explosions, Global Climate Change, Increase in Ground Level Ozone

Yes alstria total energy consumption (ex-tenant) is by far the main significant impact on the environment regardless of the asset location

Water Consumption Depletion of Natural Resources Eutrophication, Global Climate Change

No Not significant in the context of alstria's standing operations and in the context of its assets.

GHG emission Acidification, Depletion of Natural Resources, Eutrophication, Explosions, Global Climate Change, Increase in Ground Level Ozone

Yes alstria total energy consumption (ex-tenant) is by far the main significant impact on the environment regardless of the asset location

Waste Management Depletion of Natural Resources, Global Climate Change, Sedimentation, water pollution

No Not significant in the context of alstria's standing operations and it the context of its assets

Refrigerant Ozone Depletion Potential of Refrigerants (Fluorocarbons), Global warming

No The vast majority of alstria's assets do not have cooling system except for server rooms. R22 is not used anymore in alstria's assets.

Of the top five “aspect” of GRESB, only two (in essence the same) would be categorized by alstria as “significant aspect” and therefore could be integrated into an EMS.

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Do we need to set-up an EMS?

The only reason why Energy and GHG Emission is a “Significant Environmental Aspect” is because it is assumed that energy is produced using fossil fuels.

Since 2011, alstria has been switching all its energy contracts to renewable energy, and is since then increasing substantially the part of renewable electricity it is using. For each building that switches to full renewable energy, the environmental aspect disappears.

Since 2007, alstria has been switching as soon as possible its heating systems to “district heating” which is the most effective way to provide heat and hot water to a building.

We have put in place a process using the best available alternative to reduce the environmental impact (and in the case of electricity, suppress it) of each of the two “Significant Environmental Aspect” that would remain, therefore suppressing the need to include them into an EMS system.

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Think global act local

That alstria choose to move into full renewable energy sources, is to a certain extend guided by the need to cut down emission to zero. However this decision is also driven by the bigger picture and we position ourselves within a broader community.

Germany has decided in the wake of Fukushima to terminate its nuclear power plants and to exit nuclear energy. Regardless of whether or not we agree with this position, we need to take it into consideration in our energy policy

The result of German policy is an immediate increase in German Fossil Fuel consumption and an increase in GHG emission (conversion factor for Germany are going up dramatically). This in the interim period where renewable energy production is low.

By moving into 100% renewable energy, alstria increases the demand for that specific kind of energy, and therefore participates in the stimulation of the investment in new renewable infrastructure, therefore contributing to make the transition more effective.

By operating the way we do, we believe we contribute to Germany achieving its overall goal, and therefore participate with our means to the implementation and success of the energy transition plan that was decided by the government.

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The most sustainable building is...

... the one you did not have to build.

As a company we have identified that the Significant Environmental Aspect that we need to tackle relates to the development construction process.

There is no need for additional built space in Germany

Policy: We do not undertake ground up developments

Policy: We endeavour not to create more than 10% additional sq. of space in our assets, without compensating elsewhere (i.e.. demolishing space, so the total stock remains constant).

Construction process uses a substantial amount of resources, and generates a substantial impact on the environment

Policy: When refurbishing assets we endeavour to keep as much as possible of the infrastructure of the existing building to avoid the use of high intensity resources materials (cement, glass…)

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Which leads us to our next weakness

While it is difficult to understand how to improve our GRESB rating here, it is most likely by owning more “certified” buildings.

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Do green buildings add environmental performance ?

Source: IREBS - 2010

This result is backed by our practical experience where getting a “Green Building Certificate” in Germany is just a matter of documentation management, but not of building improvement vs regulations

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Do green buildings add economical value?

Source: IPD France – IPD all offices index for the same period outperformed the green building index by 0.1%, at 4.4%

Despite what “science based” studies (mainly based on US data) might say, empirical evidence in Europe shows that “Green Certification” does not necessarily increase cash-flow yields nor rent. This is also backed by our practical experience in Germany

GRESB Dogma: “It quickly transpired that sustainable real estate performs better than non-green buildings. Green buildings don’t stay vacant as long, they use less energy and they can be rented out for higher price” P. Eichholtz, GRESB Executive director

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Where should we allocate our ressources?

In order to improve our GRESB “rating”, alstria should allocate its “sustainability” resources to:

Put together an EMS monitoring Non Significant Environmental Aspects.

Increase the amount of Green Buildings in its portfolio, despite the fact that theses would have a negative impact on its overall cash-flow, without any material impact on the environment

While our current focus is on:

Switching our electricity procurement to full renewable, and heating/hot water to district (and offsetting additional costs, by other savings)

Improving our construction/development process to reduce the use of natural resources

Running pilot project to optimize the tenant energy usage in the assets

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Our concerns vis a vis what to do next

Is it in the best interest of our the company and its stakeholders to improve its rating in GRESB, even though this would mean diverting useful resources for more useful sustainability projects ?

If we decide not to divert our resources but still report to GRESB, is it acceptable for the company that it is not offer by GRESB a mean to explain its sustainability policy and approach to the investors to which its GRESB report is sent out ? (we have no way to know who theses are)

Is it more appropriate for the company not to report in order to be able to engage with the investors that ask about our GRESB involvement and be in a position to explain our view ?

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How can alstria improve its GRESB score

Why are we concerned about GRESB

Agenda

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Why we still think GRESB is a good initiative

There is a lack of information/database of asset level information in real estate

There is a lack of transparency in the real estate sector that deserves to be properly addressed

There is a fundamental need for improvement in transparency in the real estate sector when

it comes to sustainability

But…

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When reporting becomes a goal per se

The way GRESB is being set-up (as an automatic rating model), implies that it becomes more important to answer the question, than to do the right things.

Some tech firms (which are GRESB members) are proposing services that allows to fill the GRESB survey at the click of a button (sic), as well as pre-drafted texts to fill in the open questions using “best practice”.

GRESB itself, as feedback of its Validation Plus program take praise of the fact that “water meters are improved in order to deal with GRESB data request”… Shouldn’t be because it makes a difference ?

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One size fits it all

70% of the GRESB score (in 2013) depends on whether or not you have implemented what GRESB thinks is good for you (Implementation and Measurement). Irrespective of whether this is actually good for you.

As a result a substantial numbers of companies are becoming GRESB members in an effort to adapt theses rules to their practice. Joining the “Benchmark” committee is the most common reason quoted by companies for becoming a GRESB member, clearly mentioned in the GRESB Sales Pitch

Extract from GRESB feedback of companies meetings: “They offered to help us getting the PI section better aligned and

scored (they have a 10 year track record for their portfolios re

consumption data, so they have quite some expertise) and this

would also be a major consideration to become a Member.”

„These issues are so fundamental, that they even would consider

cancelling their involvement in GRESB. However, as we can

provide them with the opposite: involvement in GRESB via

Benchmark Committee, thus helping to provide solutions for these

issues, opened up new possibilities and they immediately offered

their support. This would also be their major consideration in

becoming a GRESB Member.”

Both companies became members and Members of the Regional Benchmark Committee a few months following theses emails

As a pure commercial company, GRESB has a sales pitch, and sales prospects which are called right after the publication of the GRESB report....

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World domination

GRESB aim, is to become the „only“ sustainability reference in the real estate scene, thus trying to establish a monopoly in the sector.

This is acheived by imposing itself as the only relevant player in sustainability and proposing an agressive pricing that cannot be matched by other rating agencies in the market. GRESB offers access to full report on the listed universe for EUR 10.000.

This is acheived by:

Full automation of the GRESB process, taking out any „subjective“ analysis of the company performance (machine vs brain).

Sole reliance on company information which is the only source of information for GRESB report.

The support of large investors, which put all their weight behind GRESB, de facto endorsing its views.

This results in:

A lack of other voices that could provide a different perspective, as GRESB kills competition with low prices

The fees paid by users of GRESB do not cover for its costs, which triggers a search for additional revenue sources for GRESB and the conflict of interest that go with it

The data becomes a source of revenue (which is sold/planned to be sold via the planned API), rather than a free open source database (like for instance CDP data)

„Another step towards

world domination has

been taken.”

Philippa Shire, Inhouse Counsel and Operation,

GRESB, November 2013

“I like your world

domination plan. Let's

make it our mission!” Piet Eichholtz, Member of the Executive Board GRESB, November 2013

Extract from GRESB associate members fees schedule 2014

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GRESB stimulates transparency (or not)…

Transparency is defined by the vast majority of the stakeholders as being Public Disclosure:

ISO 14001: Environmental policy publicly available

CDP: CDP is an international, not-for-profit organization providing the only global system for companies and cities to measure, disclose, manage and share vital environmental information

UN Global Compact: Communicates publicly (through its annual report or other public document such as a sustainability report) the ways in which it implements the principles and supports broader development objectives – also known as the Communication on Progress;

EMAS: communicates its environmental results to society and stakeholders in general

RIO declaration - Principle 10: Environmental issues are best handled with participation of all concerned citizens, at the relevant level. At the national level, each individual shall have appropriate access to information concerning the environment that is held by public authorities, including information on hazardous materials and activities

CERES: Companies will report regularly on their sustainability strategy and performance, disclosure will include credible, standardized, independently verified metrics encompassing all material stakeholder concerns and detail goals and plans for future.

Transparency according to GRESB is submitting data to GRESB

CERES

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Doing no harm, or doing good ?

The mere fact of submitting data to GRESB becomes enough to claim for transparency

GRESB became a justification in itself supressing the mere idea of transparency (as it is sufficient to submit data to GRESB)

This is the full public disclosure by UBS (as an example among others) (with two sector leaders)

...which is provided for by the Business Development division

It is hard to understand why GRESB does not impose that all raw data submitted to it is made available in an open source manner to all the stakeholders involved, in a similar fashion than CDP.

The only rational explanation for this position of GRESB can be found in the fact that it has become a commercial entity, and therefore, its policy is driven by growth, and revenue concern, and it is afraid to limit its market share if it was to impose more transaparency

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Solely rely on companies data

ARISTA* first commitment is : „assess/rate companies using more than company-provided

information“

Unlike the vast majority of the CSR Rating, GRESB solely rely on data provided by

companies to establish its rating.

While doing this, it might miss important information, not because company would withheld

them, but simply because they are not asked to provide them.

Would it be a valuable information to know that there was a trial for insider trading

to which the 2013 US sector leader for Hospitality was a defendant?

Would it be a valuable information for the stakeholder to know that alstria was

accused in the Hamburg press, and in the Hamburg senate of making a

EUR 500 m profit by abusing the City of Hamburg?

Whether or not this information has an impact on the rating or not, would remain to be

seen, based among others on explanations provided by companies but it is difficult to see

how it is acceptable for the stakeholder to ignore it all together.

Doing proper research based on independant sources on companies imply an important

effort in term of human ressouces and costs, which cannot be covered by GRESB with it

current EUR 10.000 fee for the full listed universe.

About Arista:

ARISTA 3.0® has been developed in response to the demands from global investors and

companies for Responsible Investment Research (RIR) Groups to incorporate the key

principles of quality, integrity, transparency and accountability into their research processes.

www.aristastandard.org

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Our concern about GRESB, and our participation

Whether this is done knowingly or not, GRESB policy is targeted toward the building of

a monopolistic situation/one side fit it all in the field of real estate CSR research:

Services seem to be sold to investors below their marginal costs of EUR

10.000 for the full listed universe, driving GRESB to seek payments from the

companies its rates through several „services“ (to a certain extend the

commercial services of GRESB to investor seem to be comparable to dumping

practices).

In order to keep it prices low, GRESB solely rely on company data and

therefore lack of background information which are needed to perform a

proper CSR analysis.

GRESB fee policy excludes de facto from the market other CSR research

firms which have a more detailled analysis of companies they cover, and

cannot compete with the pricing of GRESB.

While building its monopoly, GRESB intends to impose its view of what is good

and what is bad from a sustainability perspective (Green building for instance),

regarless of the underlying reality/complexity of each local market.

In doing so, GRESB will tend to put companies and funds in front of a

conumdrum. Should they do what is needed, or should they do what is needed

to improve their GRESB score (theses two are unlikely to be the same thing)

Finally in order to acheive the commercial goal of „world domination“, GRESB

looses its independance, as it becomes critically linked to the companies it

rates. Fundamental factors like public disclosures, seems sacrified to the

benefit of growing the member base, and monitizing the data.

As a company, we question whether it is „sustainable“ to take part in such a process,

and would like to have an open discussion about all of this.

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Some question worth asking ?

Why did GRESB turned from a non profit to a commercial organization?

Why GRESB do not make publicaly available the data provided to it, and make it

available to the wider audience?

How can the publication of GRESB raw data be a problem for anyone which is

serious about sustainability?

Why do company have to pay to get access to the full report if the aim of GRESB

is to help company to improve? (in 2012 only 10, out of around 249 reporters

acquired the report)

How can anyone reasonnably provide CSR coverage on the full listed universe

for EUR 10.000 per annum?

What is the benefit for investor in having one single voice in the CSR world? Why

should CSR research be different than financial research?

If this was the oil industry, how would have BP ranked in a similar research one

week before DeepWater Horizon? Would that rating change one week after

DeepWater Horizon?