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Risk Management

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NPR’s Risk Management for Asset Management

Formulation and Compliance to Investment Guidelines and Risk Management Rules

Our risk management system is operated through a combination of multiple platforms. PLDRM has established the "Investment Guidelines" in accordance with NPR’s articles of incorporation in order to realize the basic asset management policy. The Investment Guidelines stipulate investment policies, rules for related-party transactions, basic policies regarding the acquisition, disposition, and management of properties. PLDRM oversees risk management for investment management decisions by complying with our Investment Guidelines.
The “Risk Management Rules” define the fundamental framework of PLDRM’s risk management, attempting to maintain high levels of risk control that ultimately secure the soundness of PLDRM’s management. PLDRM’s board of directors, Compliance Officer and the head of each division are ultimately responsible for and supervise PLDRM’s risk management efforts.
The head of each division is responsible for the intra-divisional risk control and management. Semiannually, the status of PLDRM’s risk management processes is reported to the Compliance Committee and PLDRM’s board of directors. Also, PLDRM periodically conducts its own internal audit and the Compliance Officer is in charge of organizing risk controls and monitoring operations.

Risk Assessment

NPR’s Risk Assessment

NPR's business environment risks and asset management risks are periodically monitored and assessed according to the risk management categories specified in the “Risk Management Rules” and the "Risk Management Manual" set forth by PLDRM. PLDRM makes efforts to mitigate the potential risks, which are clarified in NPR’s risk assessment, in accordance with the policy for managing those risks, and make NPR’s investment management system and portfolio more resilient. The risk management categories currently being monitored are as follows:

  • Risks related to investment product design (risks in selecting real estate for investment, etc.)
  • Risks regarding related parties (risks related to the usage status of properties by tenants, etc.)
  • Risks related to the characteristics of assets under management (risks of fluctuations in rent revenue, risk of loss, damage, or deterioration of NPR’s portfolio properties due to natural disasters, etc.)
  • Financial risks of NPR (risks related to financing, etc.)
  • Risks related to antisocial forces (risks related to unreasonable demands, etc.)
  • Compliance risks (risks of false disclosure related to legal disclosure of NPR, etc.)

Emerging Risks and Measures in NPR’s Business Environment

We are investigating and analyzing situations and changes that may occur within NPR’s business environment and the emerging risks associated with them. In particular, we have extracted risks that are likely to have a long-term impact on NPR and are considering new mitigation measures for those risks.

Potential Changes in Business Environment Emerging Risks Our Understanding Potential Countermeasures
Global Financial Crisis Capital Market Dysfunction If another global financial crisis occurs, the financing environment for NPR may significantly deteriorate, which may potentially make it difficult to procure funds for NPR's external growth and debt refinancing, and may have a significant negative impact on NPR's financial conditions. We continue to maintain NPR's loan-to-value ratio at conservative levels, further enhance its strong balance sheet, and secure sufficient liquidity needed to carry out the external growth and refinancing.
Hyperinflation and Interest Rate Spikes Significant Increase in Debt Financing Costs As a result of wide spread global monetary/fiscal easing policies, we may encounter significant inflation and rises in interest rates, which may materially increase NPR's debt costs and thereby may deteriorate NPR's financial performances. We are able to minimize the risks of rising interest rates by extending NPR's debt duration and fixing a substantial portion of the interest rates of NPR's debt.
Further Stagnation of Japanese Economy Deterioration of Japanese Macroeconomic Environment NPR's profitability may be negatively impacted by potential deterioration of Japanese macroeconomic environment and possible decline in tenants' financial performances due to various macro factors, including declining birthrate, aging population, delay of Japan's technological innovation and global pandemic. We may be able to minimize the negative impact on NPR's financial performance from the macroeconomic environment through the diversification of NPR's portfolio properties and tenants.
Potential Changes in Business Environment Emerging Risks Our Understanding Potential Countermeasures
Acceleration of Global Warming Rise of Sea Level NPR's portfolio properties located in coastal areas may be damaged by potential floods which may be magnified by the rising sea levels. We continue to monitor and assess the amount of risks for each of NPR's portfolio properties by analyzing the latest hazard maps provided by local authorities and by judging the necessity of mitigating construction work.
Outbreak of Abnormal Weather NPR's portfolio properties may be severely damaged due to massive natural disasters such as super typhoons and ultra-heavy rainfalls at unprecedented scales. We continue to monitor and assess the risk exposure of NPR's portfolio properties by analyzing the latest hazard maps provided by local authorities and by judging the necessity of mitigating construction work.
Extreme Heatwaves Japan is experiencing an increasing number of heatwaves during the summer, which may potentially damage equipment/structure of NPR's portfolio properties and endanger NPR's tenant employees' health conditions/working environment. We continue to install effective heat insulation materials within the building facades/roofs of NPR's portfolio properties, and continue to install energy-efficient air conditioning systems within warehouse space, especially when we receive such requests from NPR's tenants.
Acceleration of Global Decarbonization Tightening Regulations Requiring the Reduction of Carbon Emissions NPR may be required to make a significant investment in achieving carbon emission reduction targets set by laws and regulations. At the same time, NPR may potentially incur penalties and other monetary expenditures if it fails to fulfill the reduction requirements. We continue to monitor the data of carbon emissions considering the value chain of NPR's business. We also discuss various countermeasures, including, but not limited to, the introduction of an internal carbon pricing system.
Increase in Cost due to Introduction of New Technologies Related to Energy Saving/Renewable Energy Laws/regulations in connection with carbon emissions may be tightened, which may expose NPR to risks from a significant increase in investments to adopt new technologies for energy-saving/renewable energy, including investments into "Net Zero Energy Buildings (NZEB)." We will maintain significant financial capacity within NPR to respond to potential urgent needs to introduce new technologies.
Changes in Tenant Preferences As NPR's tenants become more conscious of decarbonization and avoid logistics facilities with inferior environmental performances, NPR may be exposed to risks of its diminishing portfolio values. We will maintain exemplary environmental performance across NPR's portfolio properties and continue to acquire green building certifications from reputable authorities.
Large-scale Earthquakes Infrastructure Outages and/or Severe Human Damages Caused by Earthquakes If large-scale earthquakes occur in the Tokyo and/or Osaka metropolitan areas, NPR will likely be exposed to risks of physical damages on its portfolio properties and/or risks of suspension of their operations due to potential loss of essential infrastructure, including, but not limited to, communication channels and public transportation. If such large-scale earthquakes occur, we will promptly turn on the Prologis Group's Business Continuity Management System, confirming the safety of the people (and their families) involved in the operations of NPR and provide them with necessary goods to sustain their lives. At the same time, we will quickly assess the status of damaged properties and work to quickly repair any damage to support business continuity for our customers.
Potential Changes in Business Environment Emerging Risks Our Understanding Potential Countermeasures
Declining Birthrate and Aging Population in Japan Chronic Labor Shortage in the Logistics Industry NPR's tenants may be exposed to risks of not being able to grow their businesses due to continued labor shortages in the logistics industry and worsening business performance due to rising labor costs. If the tenants' financial performance declines in the long-term, NPR may be exposed to risks of decreased profitability. To help NPR's tenants attract a sufficient workforce, we will continue to strengthen the quality of property management and operations by improving the tenant employees' working environment through various measures, including, but not limited to, fulfilling amenities in NPR's portfolio properties. At the same time, we will cooperate with the tenants' hiring efforts by introducing effective third-party HR support services.
Potential Difficulty in Retaining Talented Employees at the Asset Manager and the Prologis Group NPR may be exposed to the risks of deterioration of its operational quality if the Asset Manager and/or the Prologis Group are not able to retain sufficient numbers of talented employees. We will continue to monitor and assess the status of engagement of employees at the Asset Manager and the Prologis Group. We will also continue to maintain high levels of employee motivation and loyalty. If necessary, we will introduce flexible working rules to meet employee expectations around an ideal work-life balance.
Unidentified Infectious Diseases Social and Economic Losses due to Potential Pandemic of Unidentified Infectious Diseases NPR's business operations may be hindered as a result of social and/or economic slow down which may be caused by a potential pandemic of unidentified infectious diseases. We will continue to maintain/improve our plans to minimize the potential impact of pandemic on NPR's business operations through various measures, which include, but are not limited to, the enhancement of facility sanitation programs and facility recovery programs.
Potential Changes in Business Environment Emerging Risks Our Understanding Potential Countermeasures
Complexity and Globalization of Information Technologies Potential Threats to Computer Systems due to Cyber Attacks NPR and the Asset Manager are exposed to potential risks of suspension of their business operations and/or leakage of confidential information as a result of cyber attacks on our computer systems. In addition, if such suspension or leakage occurs, NPR and the Asset Manager would be exposed to significant reputational risks. We will continue to introduce advanced information security systems to prevent intrusion into our computer systems from the outside. Also, if such intrusion occurs, we will pursue prompt remedies. For that purpose, we will continue to train employees to improve their awareness of, and responsiveness to, cybersecurity risks and importance of information management.

Information Security

Preparing for information security incidents is critical especially in an era of accelerating digitalization. PLDRM’s Chief Technology Officer (CTO) is responsible for supervising and developing our cybersecurity strategy. NPR and PLDRM mitigate the risks of cyber security through the implementation of security measures and a comprehensive disaster recovery plan.