Investment Criteria

Items to be reviewed in investment decision

In deciding each of investments, HHR shall conduct analyses based on objective research data, such as market research, and make a forecast of future cash flow for income and expenditures of portfolio properties. In addition, HHR shall take into account the potential effects of the said portfolio properties on the overall portfolio, and shall conduct thorough due diligence in accordance with the following investment criteria for a comprehensive review.

※This table can be scrolled horizontally.

	Retail-use facility		Office-use facility	Complex facility	Other facility
Site Location	Urban type	Located in urban sites with a concentration of city functions	Located in urban sites with a concentration of offices HHR shall make a decision after comprehensive consideration of the above factors, as well as trends in rent markets, convenience, visibility, among others.	For complex facilities, which combine retail-and office-use zones, HHR shall make a decision after comprehensive consideration of the criteria for both zones.	Logistics　facility	The situation of competing facilities and ease of securing workers, etc., shall be comprehensively taken into account.
	Suburban type	Located in suburban sites			Residence	Current and future population, number of households, living convenience such as educational facilities, government offices or hospitals, condition of sunshine, views and scenery, notability and reputation of the area, etc. shall be comprehensively taken into account.
	HHR shall make a decision after comprehensive consideration of the above factors, as well as the current/future market areas, population, number of households, traffic access such as flow lines and commuting time, the status of competitors, and other factors.				Residence
Traffic Access	Urban type	Within walking distance from commuter hubs	Within walking distance from commuter hubs		Logistics　facility	Current and future accessibility including proximity to expressways, port areas, industrial parks and consumption areas, etc., shall be comprehensively taken into account. Accessibility for workers is also considered.
Traffic Access	Suburban type	In general, within 30 minutes distance from commuter hubs	Within walking distance from commuter hubs		Residence	Within walking distance of the nearest train station in principle.
Total Floor Area	Urban type	In principle, 500m² or larger	In principle, 1,650m² (about 500 tsubo) or larger		Logistics　facility	In principle, 3,300m² (about 1,000 tsubo) or larger.
Total Floor Area	Suburban type	In principle, 3,300m² (about 1,000 tsubo) or larger	In principle, 1,650m² (about 500 tsubo) or larger		Residence	In principle, 500m² or larger.
Amount of Investment	In principle, one billion yen or more (purchase price only; does not include expenses and others ancillary to the purchase).		In principle, one billion yen or more (purchase price only; does not include expenses and others ancillary to the purchase).		Logistics　facility	In principle, one billion yen or more. (purchase price only; does not include expenses and others ancillary to the purchase).
Amount of Investment					Residence	In principle, 500 million yen or more (purchase price only; does not include expenses and others ancillary to the purchase).
Building Age	In principle, 30 years or less However, if a facility fulfills the functions necessary for its use, or is considered to be able to fulfill such functions by post-acquisition improvements, HHR shall be able to acquire a property that is more than 30 years old.		In principle, 30 years or less However, if the facility's building quality is improved by major repairs and others, or is expected to be improved by post-acquisition improvements, HHR shall be able to acquire a property that is more than 30 years old.		In principle, 30 years or less. However, if a facility fulfills the functions necessary for its use, or is considered to be able to fulfill such functions by post-acquisition improvements, HHR shall be able to acquire a property that is more than 30 years old.
Condition for Properties with a Core Tenant	The core tenant must be a listed company or a corporation that has comparable credit standing, and the property must be able to be converted into other uses or sold at the time the core tenant moves out. Core tenant refers to a tenant that occupies 30% or more of a property's leasable area.
Occupancy Rate	In principle, the occupancy rate shall be 80% or more. However, HHR shall be able to invest in a property with less than 80% occupancy rate if it determines, on the basis of market research or other methods, that there is an adequate chance of an increase in the occupancy rate in the future. With respect to market research, HHR shall, as necessary, commission an independent third-party institution.
Tenants	Tenants shall have credit of a certain level or more, or shall provide sufficient deposits, among meeting other conditions. Confirmation shall be made or contractual measures shall be taken to ensure prevention of transactions with anti-social forces.				Tenants shall have credit of a certain level or more, and the amount of deposits shall be also taken into consideration. Confirmation shall be made or contractual measures shall be taken to ensure prevention of transactions with anti-social forces.
Rights and Other Matters	With respect to matters concerning rights to investment-target facilities, HHR shall consider the following: With respect to co-ownership and quasi co-ownership, the property shall have few restrictions on disposal of ownership, the creditworthiness of other co-owners and quasi co-owners shall be sound, and the methods of operation of investment-target facilities between co-owners, or between quasi co-owners shall be established. With respect to stratified ownership, the property shall have few restrictions on management, and there shall be no material problems in the creditworthiness of other stratified owners. With respect to a property built on leased land, there shall be few restriction on the disposal of the building, and no special problem with the creditworthiness of the land owner. With respect to properties with leased-land ownership, there shall be no material problems related to the details of the leased-land contract (term periods, type of leased-land rights, existence or absence of restrictions concerning disposition etc.) and the creditworthiness of the leased-land tenant. In principle, security interests and yoeki-ken (i.e., the right to use and derive profit or benefit from property that belongs to another person) shall not exist for the benefit of third parties except for those created for unavoidable reasons, such as those created for construction assistance fund or security deposit stipulated in the lease agreement with tenants.
Equipment Conditions	With respect to equipment of investment-target facilities, such equipment is required to be equivalent to or above the standard that meets tenant needs in the use of the facility, as well as versatile and easily convertible. HHR shall conduct detailed examinations (due diligence) on the management of such equipment and to use the results as a basis for HHR's evaluation, and examine risk factors.
Acquisition Price	HHR shall determine the acquisition price on a case-by-case basis based on real estate appraiser's appraisal value, and by taking into account the investment criteria. However, in the case of the transaction with the interested parties, HHR shall comply with criteria and procedures set forth in our Conflict of Interest Transactions Rules.
Earthquake-Resistance Capacity	In principle, PML* of individual property shall be 20% or less. However, investment shall be possible if it is expected that the property is able to fulfill requirements through post-acquisition work to strengthen earthquake resistance and others.
Environmental Analysis	With respect to toxic substance investigation for investment-target facilities, HHR shall conduct a careful investigation and shall review individual cases by taking into account the condition of use and other factors. HHR shall only invest in a property that has been determined to have no or little possibility of soil contamination as a result of the land history investigation, or a property in which measures necessary for soil improvement etc. have been made.				With respect to toxic substance investigation for investment-target facilities, HHR shall conduct a careful investigation and shall review individual cases by taking into account the condition of use and other factors. With regard to residences, HHR shall only invest in a property that has been determined to have no or little possibility of soil contamination as a result of the land history investigation, or a property in which measures necessary for soil improvement etc. have been taken. With regard to logistics facilities, HHR shall invest in a property only if appropriate measures of covering have been made in addition to the measures mentioned above.
Property use	If a hotel-use portion is included in a retail-use zone, it can only be an investment target if the facility allows for the conclusion of a lease agreement that contains provision that enables HHR to avoid the management and operational risks of the hotel. Also, the share of the hotel-use portion with respect to the entire assets under management of HHR shall not exceed 20% in principle. Moreover, the tenants of the hotel-use portion shall be prudently selected based on consideration of all-round creditworthiness, including operational capacity and experience as a hotel operator, financial position, and recognition of brand.				Logistics　facility	When logistics facilities include zones for other use such as factory use for product processing (except for cargo handling or storage use), HHR shall invest in the property only if it is possible to conclude a lease agreement concerning those zones which states that HHR would be able to avoid the management and operation risks of the entire facility.
Property use					Residence	Dormitories and company housing facilities (student dormitories, dormitories for singles, dormitories for company employees, etc.) shall be considered as investment targets.

Although there is no single precise definition of PML (Probable Maximum Loss), in this website PML refers to the percentage of the expected amount of loss that may result from a large earthquake that occurs once every 475 years (annual exceedance probability: 0.21%) to the replacement cost (the cost of rebuilding the existing building at the time of the investigation). However, the expected amount of loss shall be the direct loss of building only (structural parts, non-structural parts, and construction equipment) caused by seismic movements, and shall not include secondary damage such as damage to equipment, furniture, or fixtures, or post-quake losses caused by water or fire, compensation for victims, operating loss caused by suspension of operation, and other losses.

Investment in properties under development

HHR shall in principle invest in real properties and other properties that are being used for lease at the time of acquisition, and shall not regard non-operating real properties and others as an investment target. However, even if a property is still non-operative, or scheduled to be constructed or under construction, HHR may invest in the property if it is determined that securing tenants can be sufficiently expected after completion, and that a stable income can be expected after the start of operation.

Investment in real estate-backed securities

HHR shall consider investing in real estate-backed securities if one of the following conditions is fulfilled:

Sufficient stability in income from the securities can be sufficiently expected; or,
Acquisition of the underlying real estate (facility) of the securities can be considered at the time of redeeming the securities (or at the end of the scheme).