KIMCO'S UTILITY MANAGEMENT INITIATIVE: WHAT WE'VE LEARNED AFTER A YEAR
Hopefully you have been following our new blog and might have read some of my recent posts about Kimco's sustainability initiatives, including our rooftop solar panel installations and high-intensity fluorescent lighting retrofits. In these instances, we made strategic investments in improved technology that will reduce and offset the cost and environmental impact of energy consumption at individual properties.
In addition to these site-specific activities, Kimco is working on several company-wide operational programs under the sustainability umbrella. They focus on making our internal business processes more efficient and improving the way in which we manage large corporate expenses. These behind-the-scenes projects can yield sustainability benefits that exceed what we can achieve at the individual property level.
One such back-office effort that we've been pursuing for the past year is our utility management initiative. Our goal with this program is threefold: First, we want to develop a more streamlined approach to managing utility accounts and payment processing. Second, we want to leverage our improved management approach to pursue better rates and other bill-related savings opportunities. Third, we want to analyze our rich data set of energy, water, and other information in order to prioritize further site-level efficiency improvements.
The first step in launching this initiative involved assembling a comprehensive picture of our utility consumption across the country. With hundreds of properties across the United States, you can imagine that on any given day we receive and process hundreds of utility invoices.
We made it a priority to establish a comprehensive list of all accounts and meters, and to develop a database of key historical invoice information tied to these accounts. These efforts were the first steps toward our utility management initiative. In addition, these efforts also supply crucial information that will allow us to participate in global reporting efforts, such as the Carbon Disclosure Project.
After compiling a year's worth of data, we've gained a broader perspective on how energy, natural gas, and water are used across our portfolio. We've determined that over 60 percent of our utility expenses incurred are for energy. We are now able to determine how that cost breaks down in terms of energy used and the rates we pay per unit of energy.
Additionally, as a landlord that at times has responsibility for both common areas and tenant-occupied space, we have much better insights into what areas of our properties are driving utility consumption and environmental impacts. As we analyzed our accounts and meters, we found that there are three primary drivers of utility expenses in open-air shopping centers:
1. Common areas. This includes spaces used for the benefit of all tenants and customers at our shopping centers, such as parking lots, sidewalks, landscaped areas, etc. A major driver of utility consumption in common areas is nighttime lighting for buildings and parking lots.
2. Vacancies. In most cases, Kimco assumes responsibility for a space when a tenant vacates it, including covering any relevant utility costs. Although a space might be unoccupied, at times it is necessary to maintain power or water service to the space in order to protect the physical infrastructure and allow for contractors and prospective tenants to tour the premises. One driver of utility expense in these instances is heating, ventilation, and air conditioning (HVAC) systems, used to heat an interior space to prevent pipes from freezing in the winter, and cool a space to prevent humidity from damaging interior finishes during the summer.
3. Tenant-specific expenses. In some cases, the landlord is responsible for paying utility costs on behalf of its tenants. For example, in some municipalities, the water utility is willing to bring just one water line onto the property.
Armed with information from our utility bill analysis, we have sought to implement a few quick wins, such as identifying and rectifying utility billing errors. Many utility bills have errors, such as mistaken meter readings, rates, or other typos and errors. Identifying and remediating these errors will allow us recoup unnecessary costs.
Further cost and environmental savings projects will unfold as we leverage our new data sets and management approach to identify more opportunities. Rate optimization, procurement, and demand-side management efforts are all underway. And of course, we'll continue the site-level utility expense management efforts that have been a focus of our property management department for many years.
Our data collection efforts will also allow us to better benchmark the performance of individual properties within Kimco's portfolio, comparing energy usage among individual properties -- and hopefully, one day benchmarking our properties more broadly within the industry.
To that end, we are actively engaged with a new industry-driven effort to develop tools and approaches for benchmarking shopping centers. Together with our industry association, the International Council of Shopping Centers, Kimco is collaborating with other landlords to address this crucial class of real estate that to date has been excluded from other major benchmarking tools.
As we continue the roll-out of our utility management initiative, we will work toward establishing a baseline of performance, measuring progress, and setting goals to guide our efforts. With thoughtful planning and execution, addressing areas from lighting to irrigation, we will continue to generate environmental and economic benefits for Kimco, our tenants, shareholders, and the communities in which we operate. I'll keep you updated on our progress in the coming months.