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 (including short-term 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, 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.
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.
|LTV =||Amount of outstanding debts(Note1) ＋ Deposit or security money ー Matched money(Note2)|
|Total amount of assets(Note3) ー Matched money(Note2)|
- When corporate bonds have been issued, the amount of outstanding debts shall include the amount of outstanding bonds.
- Matched money refers to cash or deposits reserved in the trust account to guarantee the deposit or security money for the assets owned by HHR as the object of the trust beneficiary interests.
- The total amount of assets refers to the amount in the assets section of the most recent balance sheet at the time of calculating the LTV ratio. 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
- Composition ratio of short- and long-term borrowings
Given 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).
- Policy regarding fixed and variable interest rates
HHR may invest in the rights associated with derivatives to hedge interest rate fluctuation risk associated with the borrowings.
- Diversifying repayment dates
Given 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.
When 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.
- Investment corporation bonds
For the purpose of diversifying funding sources, HHR may issue corporate bonds. It may acquire ratings from a designated rating institution as an index of its financial health.
- 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.
- Maximum revolving credit line agreement, commitment line agreement, and others
HHR 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.
- Cash management policy
HHR 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 new units).