Rules on Related-Party Transactions

Development of self-imposed rules on transactions with Related Parties and measures to avoid conflicts of interest through multiple checks

Related Party Transactions

Definition

"Tokyu Corporation and its subsidiaries" refers to any entity that falls under the following i to iii :

  1. Tokyu Corporation
  2. A consolidated subsidiary of Tokyu Corporation
  3. A tokutei mokuteki kaisha (TMK) or special purpose entity (SPE) that was established based on the intention of Tokyu Corporation or a consolidated subsidiary of Tokyu Corporation and where the share of investment by undisclosed associations or other investment shares in that entity by the respective company exceeds 50%.

"Affiliates of Tokyu Corporation except Tokyu Corporation's subsidiaries" refers to affiliates within the scope of consolidation of Tokyu Corporation.

"Tokyu Fudosan Holdings Corporation and its subsidiaries" refers to any entity that falls under the following i to iii :

  1. Tokyu Fudosan Holdings Corporation ("Tokyu Fudosan Holdings")
  2. A consolidated subsidiary of Tokyu Fudosan Holdings
  3. A tokutei mokuteki kaisha (TMK) or special purpose company (SPC) that was established based on the intention of Tokyu Fudosan Holdings or a consolidated subsidiary of Tokyu Fudosan Holdings and where the share of investment by undisclosed associations or other investment shares in that entity by the respective company exceeds 50%.

"Related Parties" is a collective term "Tokyu Corporation and its subsidiaries", "Affiliates of Tokyu Corporation except Tokyu Corporation's subsidiaries", "Tokyu Fudosan Holdings Corporation and its subsidiaries".

Basic Principles

Tokyu Real Estate Investment Management Inc. (“Tokyu REIM”) has established as its basic principles the formulation of the “Rules on Related-Party Transactions” set as self-imposed rules and their amendments as needed, as well as their disclosure, compliance and multiple checks.

1. Formulation of the Rules on Related-Party Transactions and their amendments as needed, as well as their disclosure and compliance

  • (1)Tokyu REIM has established self-imposed rules known as the "Rules on Related-Party Transactions" and has stipulated not to conduct transactions that would undermine interests of TOKYU REIT or unnecessary transactions upon transacting with related-parties.
  • (2)Summary of such shall be disclosed in the securities report and on TOKYU REIT’s website.

2. Multiple checks

A. Revision of “Rules on Related-Party Transactions”

  • Revision of the “Rules on Related-Party Transactions” shall be made with prior approval of TOKYU REIT’s board of directors prior to the resolution at the board of directors meeting of Tokyu REIM, after deliberation by the Compliance and Risk Management Committee of Tokyu REIM.
  • However, in the event the President of Tokyu REIM assumes the position of TOKYU REIT's Executive Director, the Executive Director shall not hold the decision-making authority to grant prior approval. When the “Rules on Related-Party Transactions” have been revised, details of such revision shall be immediately disclosed on TOKYU REIT’s website, etc. in addition to disclosure in accordance with disclosure regulations on the investment management business of the investment corporation.

B. Related-party transactions

  • Related-party transactions refer to the following transactions conducted between TOKYU REIT and a related party.
  • (1) Acquisition or transfer of real estate (Included in B as movables installed on the real estate, renewable energy power generation facility and facilities incidental to such facility are deemed as real estate), real estate leasing rights and land surface rights
  • (2) Acquisition or transfer of trust beneficiary interest in real estate, real estate leasing rights and land surface rights (hereafter, “Trust Beneficiary Interest in Real Estate” in B) and other assets.
  • (3) Leasing of real estate and other assets under management
  • (4) Outsourcing of property management
  • (5) Outsourcing of brokerage of sales and purchasing transactions and leasing of specified assets (as defined in Article 2, Paragraph 1 of the Investment Trusts Act)
  • (6) Construction orders
  • (7) Other transactions with related parties (hereafter, “Other Transactions” in B)

As to related-party transactions, in principle, compatibility of individual transactions to the Rules on Related-Party Transactions and adequacy of such transaction prior to resolution at the board of directors meeting shall be confirmed as follows, except for cases in which ①transaction of less than 10 million yen for selecting counter party for property leasing and property management is conducted, ②when co-ownership of a property with others or investment by undisclosed associations is intended, etc., application of rules on decision-making stipulated in the Rules on Related-Party Transactions is not possible for the management of said property thereafter as a result of discussions with the other party at time of acquisition or investment.

  • ・Deliberation by the Compliance and Risk Management Committee of Tokyu REIM
    The Compliance and Risk Management Committee shall deliberate on the compatibility of an individual transaction with the Rules on Related-Party Transactions as well as adequacy of each transaction and shall report to the board of directors. The Compliance and Risk Management Committee consists of two committee members and two external committee members other than the executives of related parties defined in the management guideline and as a general rule the meeting will not be held if three members including the two external committee members do not attend.
  • ・Prior approval at the board of directors meeting of TOKYU REIT
    Prior approval at the board of directors meeting of TOKYU REIT shall be required. However, in the event the President of Tokyu REIM assumes the position of TOKYU REIT's Executive Director, the Executive Director does not hold the decision-making authority to grant prior approval.

Individual Rules

In addition to restrictions based on laws and regulations concerning transaction restrictions with related parties, TOKYU REIT shall, in principle, earn the prior approval of TOKYU REIT's board of directors prior to the resolution at the board of directors for the following transactions conducted with a related party or a warehousing SPC for each transaction and shall do so based on the following standards.

1. Acquisition of assets from a related party

i. For subject asset

  1. In the case of acquiring real estate, real estate leasing rights and land surface rights, and trust beneficiary interest in real estate, real estate leasing rights and land surface rights from a related party (hereafter, collectively the “Subject Asset” ), the "investment amount" (limited to the purchasing amount of the Subject Asset itself and excluding taxes, acquisition costs, etc. not accounted for in the appraisal value, as well as prorated adjusted amounts of reserves within trust accounts, trust income, fixed property taxes, etc.) for each investment transaction shall not exceed the appraisal value.
    However, in the event a related party temporarily acquires an investment property of TOKYU REIT on the assumption of transferring it to TOKYU REIT, and TOKYU REIT later on acquires the said property, TOKYU REIT shall be able to bear the equivalent to miscellaneous costs (brokerage fees, due diligence costs, professional fees, etc.) borne by the related party upon acquiring the said property at the time of acquiring the property from the related party, apart from the "investment amount."
  2. To confirm appraisal value mentioned in (a) is adequate, a second opinion (refers to an opinion concerning its adequacy assuming the said appraisal; hereafter the same.) shall be obtained from a third party who possesses expert knowledge
  3. With regards to the appraisal summary of the appraisal value mentioned in (a) above or the second opinion summary, TOKYU REIT shall disclose these immediately after deciding the acquisition of the Subject Asset. Furthermore, in the event TOKYU REIT bears the miscellaneous costs borne by the related party for the purpose of acquiring the said property according to the exceptional rule in the abovementioned (a), TOKYU REIT shall disclose total costs borne, its breakdown, and payees (in the event the payee is a related party, this shall include the amounts individually paid to the said related party.) immediately after the acquisition of the property is decided upon (however, in the case of expenses that are still undecided as of that moment, these shall be disclosed after the amount of the said expenses are finalized).

ii. For other specified assets

    In the case of acquiring a specified asset other than the Subject Asset from a related party without being able to obtain its appraisal value, the acquisition price shall not exceed the estimated value calculated rationally by a third party who possesses expert knowledge. In the case appraisal value of the asset can be obtained, the case shall comply with the abovementioned i. Even with regards to the handling of miscellaneous costs borne by a related party for the purpose of acquiring the said assets, the abovementioned i. shall apply.

1-2. Acquisition of assets from a warehousing SPC (Special provision under 1.)

i. For real estate and trust beneficiary interest in real estate

  1. In the case of acquiring the Subject Asset from a warehousing SPC, with regards to restrictions on the "investment amount" for each investment transaction and acquisition of second opinion, these shall be conducted in the same manner as “1. Acquisition of assets from a related party” above.
    Furthermore, in that event, TOKYU REIT shall be able to bear the equivalent to miscellaneous costs (warehousing SPC origination costs, brokerage fees, due diligence costs, professional fees, etc.) borne by the warehousing SPC upon acquiring the said property, apart from the "investment amount."
  2. In the event TOKYU REIT bears the miscellaneous costs borne by the warehousing SPC for the purpose of acquiring the said property according to the abovementioned (a), TOKYU REIT shall disclose total costs borne, its breakdown, and payees (in the event the payee is a related party or a warehousing SPC, it shall include the amount individually paid to the said related party or warehousing SPC.) immediately after the acquisition of the property is decided upon (however, in the case of expenses that are still undecided as of that moment, these shall be disclosed after the amounts of the said expenses are finalized).

ii. For other specified assets

    In the case of acquiring a specified asset other than the Subject Asset from a warehousing SPC without being able to obtain its appraisal value, the acquisition price shall not exceed the estimated value calculated rationally by a third party who possesses expert knowledge. In the case appraisal value of the asset can be obtained, the case shall comply with the abovementioned (1, ii). Even with regards to the handling of miscellaneous costs borne by a warehousing SPC for the purpose of acquiring the said assets, the abovementioned (i) shall apply.

2. Transfer of assets to a related party

i. For the Subject Asset

  1. In the case of transferring the Subject Asset to a related party, the "transfer amount" (limited to the transfer amount of the Subject Asset itself and excluding taxes, sales costs, etc. as well as prorated adjusted amounts of reserves within trust accounts, trust income, fixed property taxes, etc.) for each investment transaction shall not be less than the appraisal value.
  2. To confirm that appraisal value mentioned in (a) is adequate a second opinion shall be obtained from a third party who possesses expert knowledge.
  3. With regards to the appraisal summary of the appraisal value mentioned in (a) above or the second opinion summary, TOKYU REIT shall disclose these immediately after deciding the transfer.

ii. For other specified assets

    In the case of transferring a specified asset other than the Subject Asset to a related party without being able to obtain its appraisal value, the transfer price shall be equivalent or higher than the estimated value calculated rationally by a third party who possesses expert knowledge. In the case appraisal value of the asset can be obtained, the case shall comply with the abovementioned (i).

3. Leasing of assets to a related party

  1. In the case of leasing real estate and other assets to a related party, the said subject property shall be leased based on appropriate leasing terms and conditions taking into comprehensive view market rents, standard leasing terms and conditions of the subject property, etc. When prior approval of TOKYU REIT's board of directors is required upon the transaction (leasing of which total rent (including common area charges) for a period of one year after the transaction is expected to be 10 million yen or more), market data prepared by a third party who possesses expert knowledge (depending on the context, a written opinion from a third party who possesses expert knowledge) shall be obtained. When the total rent for a period of one year after the transaction is expected to be less than 10 million yen, a summary of each lease agreement and such shall be reported to TOKYU REIT's board of directors every fiscal period.
  2. Based on the Cabinet Office Ordinance on Disclosure of Information, etc. on Specified Securities (Law No. 22 of the Ministry of Finance of 1993, including all amendments thereafter.), TOKYU REIT shall disclose leasing terms and conditions applied to a related party in addition to "Major Tenants (a tenant who occupies more than 10% of the total leased floor area)” required to be stated in securities registration statements and securities reports. However, for tenants who occupy less than 1% of the total leased floor area, a summarized disclosure with a total of floor areas occupied by such tenants is permissible.

4. Outsourcing property management to a related party

In principle, a selection will be made out of Tokyu Corporation and its subsidiaries based on their tenant sales performance backed by an information network on tenants and local contacts, as well as cost reduction wrought about by their economies of scale. However, TOKYU REIT is not prevented from selecting companies other than Tokyu Corporation and its subsidiaries based on a property's characteristics, continuity of management and various other circumstances. PM outsourcing terms and conditions with Tokyu Corporation, etc. and other related parties shall be as follows pursuant to Rules on Related-Party Transactions.

  1. In the case of outsourcing PM to related parties, outsourcing terms and conditions shall be decided in view of market rates, content of services provided and operational volume and relevant rates of fees, contract period and cancelation terms and conditions shall be disclosed. With regards to relevant rates of fees, disclosure shall be made after a written opinion on their adequacy based on the terms and conditions of the said contract is acquired beforehand from a third party who possesses expert knowledge, and prior approval of TOKYU REIT's board of directors prior to the resolution at the board of directors is earned.
  2. Performance checks shall regularly be conducted by Tokyu REIM. In the event the company does not meet the criteria set forth by Tokyu REIM, the contract shall not be renewed. With regards to relevant rates of fees upon renewal, disclosure shall be made after a written opinion on their adequacy based on the terms and conditions of the said contract is acquired beforehand from a third party who possesses expert knowledge, and prior approval of TOKYU REIT's board of directors is earned.

5. Outsourcing brokerage of sales and purchasing transactions and leasing to a related party

i. Sales and purchasing transactions

  1. In the case of outsourcing brokerage to a related party in line with sales and purchase of assets, such shall be determined after having assessed the sales price, difficulty of operations and other factors.
  2. In the case of outsourcing brokerage to a related party in line with sales and purchase of assets, TOKYU REIT shall disclose the fee amount for each transaction.

ii. Leasing

  1. In the case of outsourcing brokerage to a related party in line with leasing of assets, brokerage fees shall be less than the fees stipulated by the Building Lots and Buildings Transaction Business Law (the maximum of brokerage fees shall be the equivalent of 1 month worth of rent as stated in the contract.).
    Brokerage of leasing for which 10 million yen or more of brokerage fees is expected shall earn prior approval of TOKYU REIT's board of directors prior to the resolution at the board of directors.
  2. In the case of outsourcing brokerage to a related party in line with leasing of assets, a summary of fee amounts shall be disclosed every fiscal period.

6. Construction orders to a related party

  1. In the case of placing construction orders to a related party, disclosure for each transaction shall be made after earning prior approval of TOKYU REIT’s board of directors for constructions expected to cost 10 million yen or more.
  2. As to construction orders to a related party, a summary of ordering amounts shall be disclosed every fiscal period.

7. Other transactions with related parties

    In cases of conducting other transactions with a related party, when the amount TOKYU REIT pays to a related party or the amount a related party pays to TOKYU REIT for the transaction (hereafter the “Transaction Amount” in “7. Other transactions with related parties”) is expected to be 10 million yen or more in total, or when the Transaction Amount for a period of one year after transaction with repeated continuous transactions is expected to be 10 million yen or more, prior approval of TOKYU REIT's board of directors prior to the resolution at the board of directors shall be earned. When the Transaction Amount is expected to be less than 10 million yen in total, a summary of each transaction shall be reported to TOKYU REIT's board of directors every fiscal period.

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