Foremost, we often self-insure a significant portion of our
risk, so we firmly believe that having a strong balance sheet
is the best tool for minimizing risk. We’re enhancing our
liquidity and further strengthening our balance sheet in
2016, and we have significant cash reserves. I am confident
we will have an A-rated balance sheet by the end of 2016,
which is extremely rare among REITs.
With that background, we still work with insurers and
view them as important partners in risk assessment and
transfer. Our scale allows us to build strong relationships
with global insurers, minimize industry volatility, and
structure comprehensive insurance programs in a cost-effective manner with predictable results.
As a global developer, owner, and manager, do you
find that natural disasters and other hazards vary
systematically by region? In which geographic lo-
cales do specific risks tend to be elevated?
We have a diverse global portfolio across 20 countries on
four continents, and we do, in fact, see hazards vary by
region. Prologis team members in each market where we
own properties have the local knowledge and familiarity to
adequately prepare for and respond to any natural hazards
our real estate portfolio might be exposed to, such as seismic risk in Japan and the US, windstorms in Mexico, and
flooding in Europe, to name a few.
Are there special environmental risks to consider
as a function of industrial real estate’s typical siting
near major transportation nodes such as airports,
seaports, and highway interchanges?
We have a number of projects globally where we were able
to transform underutilized land that had been severely
polluted by prior owners and conduct the proper environmental cleanup in order to develop our Class A facilities.
This work provides a clear beneficial value to the local community. Nevertheless, we won’t buy land if we don’t understand the downside risks. Through our in-house experts
and proven track record, risks are carefully evaluated, underwritten, and managed in a prudent manner.
One example is our Prologis Pulaski Distribution Center
in Jersey City, NJ, which was developed at the location of a
former Superfund cleanup site. Prologis worked closely with
state and federal environmental agencies to achieve a solution
that allowed for the redevelopment of a previously vacant,
underutilized parcel strategically located four miles from the
Port of New York and New Jersey and about three miles from
both New York City and the New Jersey Turnpike.
Risk management is addressed at the board level
and overseen by a dedicated senior vice president
of global risk management at Prologis. How is the
company’s approach to mitigating against external
hazards informed by this governance structure?
Strong corporate governance is in our DNA, as exhibited
by our 13th consecutive year of being recognized by Green
Street Advisors as the REIT industry’s corporate governance
leader. Risk is viewed from many different perspectives, ranging from financial and reputational risks to real estate and
natural disaster exposure.
There is a high level of awareness throughout the company that we all need to do our part to help reduce risk.
As an owner-operator, risk management is ingrained in our
company culture. We view how we manage risk as a competitive advantage, with risk being an opportunity when
Prologis’s 2015 Sustainability Report makes clear
that minimizing future environmental hazards is an
important dimension of the company’s current efforts at improving its environmental profile. Which
impacts are the focus of your sustainability plan?
We have a world-class sustainability program and have received numerous awards and recognition, including most
recently from the investor-facing Global Real Estate Sustainability Benchmark (GRESB), which awarded Prologis a clean
sweep of 9 out of 9 Green Stars. Our buildings are designed
to minimize energy, water, and waste. We have constructed
68 million square feet across 173 different projects with sustainable building certifications and tangible features such as
efficient lighting, cool roofs, and rooftop solar.
More important, however, our sustainability program creates value for our stakeholders. This happens in the form of
operational efficiency for customers, more valuable assets for
investors, and environmental, economic, and social benefits
for the communities in which we operate. Our focus on sustainability provides a good example of how we are aligned
with our investor partners; we are aware that this is something all of them place a priority on when deciding where to
invest their capital. n