Related-Party Transactions Rules

Related Party Transactions

Definition
“Tokyu Corporation and its subsidiaries” refers to any entity that falls under the following (i) to (iii):
(i)   Tokyu Corporation
(ii)   A consolidated subsidiary of Tokyu Corporation
(iii)   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 Land Corporation and its subsidiaries” refers to any entity that falls under the following (i) to (iii):
(i)   Tokyu Land Corporation (“Tokyu Land”)
(ii)   A consolidated subsidiary of Tokyu Land
(iii)   A tokutei mokuteki kaisha (TMK) or special purpose company (SPC) that was established based on the intention of Tokyu Land or a consolidated subsidiary of Tokyu Land 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 Land Corporation and its subsidiaries”.
     

Basic Principles
TOKYU REIT, Inc. (“TOKYU REIT”) has established as its basic principles the formulation of self-imposed rules and their amendments as needed, as well as their disclosure, compliance and multiple checks.
1. Formulation of Related Party Transactions Rules and their amendments as needed, as well as their disclosure and compliance
     
(1) TOKYU REIT shall establish self-imposed rules known as “Related party Transactions Rules,” (hereafter, the “Rules”) and shall incorporate them in its management guidelines.
(2) Their details shall be disclosed in prospectuses and on the website to be opened after listing.
(3) The Investment Committee shall carry out deliberations and resolutions based on the Rules and shall report to the board of directors.
(4) In the event the Rules are amended based on a resolution by TOKYU REIT’s board of directors, TOKYU REIT shall disclose these immediately.
2. Multiple checks
A. Checks of the asset management company (by an external party)
     
(1) The Compliance and Risk Management Committee shall deliberate on the adequacy of the Rules and shall report to the board of directors.
(2) Confirmation of compatibility of individual transactions to rules by a third party (this shall be outsourced to an auditor, or other third parties deemed appropriate).
In the event there are special matters in the report on the results of implementation of procedures prepared by the abovementioned auditor, the Compliance and Risk Management Committee shall conduct deliberations based on judgment of the Chief Compliance Officer.
B. Prior approval by the board of directors（*）of TOKYU REIT
（*）In the event the President of the asset management company (“Tokyu REIM”) takes up the position of TOKYU REIT’s Executive Director, only the approval of 2 Supervisory Directors is necessary.
     

Individual Rules
In addition to restrictions based on laws and regulations concerning transaction restrictions with related parties, TOKYU REIT shall earn the prior approval of TOKYU REIT’s board of directors for all 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 property from a related party
     
i. For real estate and trust beneficiary interest in real estate
(a) The “investment amount” (limited to the purchasing amount of the property 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 future, 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.”
(b) To confirm that the said appraisal value 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, and it shall be submitted to TOKYU REIT’s board of directors as decision-making reference.
(c) With regards to (i) the appraisal summary of the abovementioned appraisal value or (ii) the second opinion summary, TOKYU REIT shall disclose these immediately after acquisition. 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 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 fair value can be ascertained, then the fair value. All other cases 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 specified assets, the abovementioned i. shall apply.
1-2. Acquisition of property from a warehousing SPC (Special provision under 1.)
     
i. For real estate and trust beneficiary interest in real estate
(a) 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 I. above. Furthermore, in that event also, 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.”
(b) 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 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 fair value can be ascertained, then the fair value. All other cases shall comply with the abovementioned i. Even with regards to the handling of miscellaneous costs borne by the warehousing SPC for the purpose of acquiring the said specified assets, the abovementioned i. shall apply.
2. Sale of property to a related party
     
i. For real estate and trust beneficiary interest in real estate
(a) The “sales amount” (limited to the sales amount of the property 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.
(b) To confirm that the said appraisal value is adequate, a second opinion shall be obtained from a third party who possesses expert knowledge, and it shall be submitted to TOKYU REIT’s board of directors as decision-making reference.
(c) With regards to (i) the appraisal summary of the abovementioned appraisal value or (ii) the second opinion summary, TOKYU REIT shall disclose these immediately after the decision of sales.
ii. For other specified assets
In the case fair value can be ascertained, then the fair value. All other cases shall comply with the abovementioned i.
3. Leasing of property to a related party
     
(a) Taking into comprehensive view market rents, standard leasing terms and conditions of the subject property, etc., the said subject property shall be leased based on appropriate leasing terms and conditions. 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) that was used as the basis shall be submitted to TOKYU REIT’s board of directors and their prior approval shall be obtained.
(b) 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, a summarized disclosure is permissible for tenants who occupy less than 1% of the total leased floor area.
4. Outsourcing property management to a related party
     
i. Selection criteria for a property management company
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 retail 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. As measures to avoid conflicts of interest, outsourcing terms and conditions shall be decided in view of market rates, content of services provided and operational volume. Relevant rates of fees, contract period and cancelation terms and conditions shall be disclosed. With regards to relevant rates of fees, a written opinion on their adequacy based on the terms and conditions of the said contract shall be acquired beforehand from a third party who possesses expert knowledge, and shall be submitted to TOKYU REIT’s board of directors as decision-making reference. After having gained prior approval, the results will be disclosed.
ii. Renewal of property management contracts
(a) Performance checks shall regularly be conducted by the asset management company. In the event the company does not meet criteria set forth by the asset management company, the contract shall not be renewed.
(b) With regards to the rates of fees at the time of renewal, a written opinion on their adequacy based on the terms and conditions of the said contract shall be acquired beforehand from a third party who possesses expert knowledge, and shall be submitted to TOKYU REIT’s board of directors as decision-making reference. After having gained prior approval, the results will be disclosed.
5. Outsourcing brokerage of sales and purchasing transactions and leasing to a related party
     
i. Sales and purchasing transactions
(a) Brokerage fees shall be less than the fees stipulated by the Building Lots and Buildings Transaction Business Law (the maximum shall be 3% of the sales price) and shall be determined after having assessed the sales price, difficulty of operations and other factors.
(b) For each transaction, TOKYU REIT shall disclose the fee amount.
ii. Leasing
(a) 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 a month’s worth of rent stated in the contract.).
(b) With regards to brokerages for leasing where a fee of more than 10 million yen is charged, TOKYU REIT shall obtain the prior approval of TOKYU REIT’s board of directors.
(c) A summary of fee amounts shall be disclosed every fiscal period.
6. Construction orders to a related party
     
(a) With regards to constructions of over 10 million yen, the amount for each transaction shall be disclosed after having obtained the prior approval of TOKYU REIT’s board of directors.
(b) A summary of ordering amounts shall be disclosed every fiscal period.

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