Features of HHRGrowth Strategy

External Growth Strategy

Acquisition - Asset Acquisition -

HHR will continue to acquire assets under management in order to expand and stabilize revenues by scaling up its assets and the number of properties, to diversify risks and to increase the liquidity of the investment units.

Obtaining property information

The Asset Management Company shall use its own network and the information gathering capability of the Hankyu Hanshin Holdings Group, in conjunction with property information received based on an information sharing-related agreement entered into with Hankyu Corporation, Hanshin Electric Railway Co., Ltd., Hankyu Hanshin Properties Corp. and Hankyu Hanshin Real Estate Investment Advisors, Inc. (including sharing of external property information (Note)), to collect information on sales of real properties and other properties extensively. The company shall accurately analyze the information it obtains from various perspectives, and make investment decisions.

• Note: External property information refers to information on sales of properties that meet the investment criteria of HHR obtained by the parties to the information sharing-related agreement from third parties other than the parties to the agreement (including operators of parties with which the parties to the agreement have entered into an anonymous association (silent partnership) agreement, etc.).

Priority negotiation rights granted by the Hankyu Hanshin Holdings Group

Based on the information sharing-related agreement, the Asset Management Company shall be provided information on sales of eligible real estate (Note) owned or developed by Hankyu Corporation, Hanshin Electric Railway Co., Ltd., Hankyu Hanshin Properties Corp. and Hankyu Hanshin Real Estate Investment Advisors, Inc. with priority over other parties to the agreement or third parties and, if it makes a submission for deliberation of acquisition of the eligible real estate, then it shall be granted priority negotiation rights for that property acquisition. In this way, along with strengthening information sources, a mechanism has been established in which HHR can use the network of the Hankyu Hanshin Holdings Group in its property acquisition.

• Note: Eligible real estate refers to those profitable real estate or the trust beneficiary interests of such real estate, either with current occupancy or in the stages after development planning with reasonable potential for prompt occupancy after the completion of construction, of which meet HHR's publicly announced investment criteria.

Warehousing

Based on the information sharing-related agreement, when needed in cases where acquisition of a property directly from the seller by HHR would be difficult and that property is eligible real estate of which the seller is a third party other than the parties to the agreement, the Asset Management Company shall request Hankyu Hanshin Properties Corp. or Hankyu Hanshin Real Estate Investment Advisors, Inc. to acquire and temporarily hold the property for the purpose of future acquisition by HHR. In this way, the Asset Management Company shall strive to realize smooth acquisition of assets by HHR.

Own network

HHR has uniquely expanded its inter-company network with companies in several sectors such as general business, distribution business and real estate fund management, through the Asset Management Company, so that it can acquire external properties at reasonable prices by bidding with few competitors and through one-on-one transactions. It is also diversifying its acquisition scope such as acquisition of properties to be developed and lands with leasehold interest.

Internal Growth Strategy

Operational management - Tailored to the characteristics in the use of the zones -

As for management of portfolio properties, HHR attempts to maintain and improve lease operating income by seeking to optimize operations according to the characteristics of the use of the units. Specifically, HHR shall consider not only the building as a whole but also forms of use of each floor and zone, and incorporate the perspectives of not only tenants but also end-user consumers.

Management of individual tenants

HHR shall frequently communicate with individual tenants through the property management company to enable customized management that reflects tenant needs (including consumer trends in retail-use properties) for improved tenant satisfaction.

Optimization of management cost

By streamlining operation management and reviewing the unit prices of management cost from time to time, HHR shall attempt to optimize management cost.

Use of property management companies within the Hankyu Hanshin Holdings Group

If HHR has determined that the use of the operation capability of the Hankyu Hanshin Holdings Group in operating individual portfolio properties is effective and appropriate, HHR may select a property management company from within the Group.

Financial Policy

Basic policy

The basic financial policy that Hankyu Hanshin REIT, Inc. (hereinafter "HHR") uses in maximizing unitholder value by securing stable income and generating steady growth from its portfolio properties is to develop and execute a stable and efficient financial strategy.
HHR may use funds procured from borrowings or the issuance of corporate bonds for the purposes of funds to acquire specified assets, payment of construction fees relating to real estate properties that are trust properties related to trust beneficiary interests or leased real estate, repayment of security deposits and guarantees, payment of distribution, payment for the expenses of HHR, repayment of liability including the redemption of borrowings and corporate bonds, and operating funds. Concerning the use of (or the intention to use) funds procured from the issuance of short-term corporate bonds, HHR will limit its action to within the scope allowed for by laws and regulations. Moreover, the maximum aggregate amount of borrowings and corporate bonds issuing shall not exceed one trillion yen each, and inclusive sum of borrowings and issuance of corporate bonds shall not exceed one trillion yen either.
If HHR makes borrowings or issues corporate bonds, it shall select a stable and efficient method of funding from the perspectives of loan period and type of interest, such as fixed and variable rates, among other factors. It will do this by giving comprehensive consideration to capital market and interest rate trends, the capital structure of HHR, or the potential effects on existing unitholders, and forecasting changes in the economic and social situations.

LTV

With respect to the calculation of the loan-to-value (LTV), HHR uses the following formula with a 60% cap. However, LTV may temporarily exceed 60% because of property acquisition or changes in appraisal value.

• Note1 When corporate bonds have been issued, the amount of outstanding debts shall include the amount of outstanding bonds.
• Note2 Security deposits and guarantees refer to the security deposits and guarantees received by HHR (and the assets subject to the trust beneficiary interests held by HHR).
• Note3 Matched money refers to cash or deposits reserved in the trust account to guarantee the security deposits and guarantees, etc., for the assets owned by HHR as the object of the trust beneficiary interests.
• Note4 The total amount of assets refers to the amount in the assets section of the most recent balance sheet for each period. However, with respect to tangible fixed assets, the difference between appraisal value and book value at the end of the fiscal period shall be added to or subtracted from the book value of the tangible fixed assets at the end of the fiscal period. Appraisal value denotes the appraisal value for the fiscal period, made by real estate appraisers and acquired in accordance with HHR's Articles of Incorporation and Ordinance on Accounting for Investment Corporation.

Debt financing strategy

1. Composition ratio of short- and long-term borrowingsGiven trends in the capital market and interest rates, HHR shall make stable and effective funding by efficiently combining short-term funding with more flexibility (short-term loans or short-term corporate bonds) and long-term funding with more stability (long-term loans and corporate bonds, not including short-term corporate bonds).
2. Policy regarding fixed and variable interest ratesHHR may invest in the rights associated with derivatives to hedge interest rate fluctuation risk associated with the borrowings, etc.
3. Diversifying repayment datesGiven consideration of trends in the capital market and interest rates, as in the case with i. above, HHR shall attempt to diversify repayment and redemption dates for its borrowings and corporate bonds.
4. LendersWhen HHR makes borrowings, lenders shall be limited to qualified institutional investors as stipulated by the Financial Instruments and Exchange Law.
   Borrowing terms and conditions shall be determined in negotiation with multiple qualified institutional investors at the time of financing implementation. However, HHR shall consider diffusion and enlargement of the pool of lenders in accordance with the size of the asset, to secure stable funding sources and to avoid a reliance on certain qualified institutional investors.
5. Investment corporation bondsFor the purpose of diversifying funding sources, HHR may issue corporate bonds. It may acquire ratings from a credit rating agency as an index of its financial health, etc.
6. Policy concerning borrowing terms and others (security pledge and others)To procure stable and effective borrowings while attenuating the effects of changes in the financial environment, HHR shall determine various borrowing terms, such as the loan period and the existence or non-existence of a security pledge, in negotiations with multiple qualified institutional investors.
7. Maximum revolving credit line agreement, commitment line agreement, and othersHHR may make borrowings after it preliminary sets up credit limits by setting a maximum revolving credit line and commitment line agreements or executes forward commitment agreements for occasional borrowings with the aim of flexibly raising the funds it needs in the future for the additional acquisition of portfolio properties, capital expenditure, return of deposits and security money, or other purposes.
   In this case, entities with which HHR executes the agreements shall be limited to qualified institutional investors, as in the case of iv. above. Terms and conditions shall be determined in a comparison of offers in negotiations with qualified institutional investors.
8. Cash management policyHHR may at times manage deposits and security money deposited by tenants in order to raise the funds. Fund management shall take into consideration security and liquidity and shall take fully into account trends in interest rates and cash position.

Equity financing strategy

HHR may make a flexible additional issue of units to seek long-term and stable growth of portfolio properties by accurately assessing the market situation and taking into consideration dilution of existing unitholders (a decrease of the percentage of ownership among existing unitholders by additionally issuing units).