Hankyu REIT, Inc.

Items to be reviewed in investment decision

In deciding each of investments, Hankyu REIT, Inc. 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, Hankyu REIT 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.

	Retail-use facility		Office-use facility	Complex facility
Site Location	Urban type	Located in urban sites with a concentration of city functions	Located in urban sites with a concentration of offices Hankyu REIT 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, Hankyu REIT shall make a decision after comprehensive consideration of the criteria for both zones.
	Suburban type	Located in suburban sites
	Hankyu REIT 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.
Traffic Access	Urban type	Within walking distance from commuter hubs	Within walking distance from commuter hubs
Traffic Access	Suburban type	In general, within 30 minutes distance from commuter hubs	Within walking distance from commuter hubs
Total Floor Area	Urban type	In principle, 500m² or larger	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, 3,300m² (about 1,000 tsubo) 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).
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, Hankyu REIT 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, Hankyu REIT 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, Hankyu REIT shall be able to invest in a property with less than 80% occupancy rate if it determines, on a 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, Hankyu REIT 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.
Rights and Other Matters	With respect to matters concerning rights to investment-target facilities, Hankyu REIT 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 (existence or absence of restrictions etc. concerning term periods, type of leased-land rights, and disposition) 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. Hankyu REIT shall conduct detailed examinations (due diligence) on the management of such equipment and to use the results as a basis for Hankyu REIT's evaluation, and examine risk factors.
Acquisition Price	Hankyu REIT 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, Hankyu REIT shall acquire the property always at a price equal to or less than the appraisal value in accordance with our Conflict of Interest Transactions Rules, with the prior approval of the Compliance Committee.
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, Hankyu REIT shall conduct a careful investigation and shall review individual cases by taking into account the condition of use and other factors. Hankyu REIT 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 land improvement etc. have been made.
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 Hankyu REIT 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 Hankyu REIT 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.

* 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

Hankyu REIT 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 under contemplation or construction, Hankyu REIT may invest in the property if it is determined that sufficient tenants can be secured after completion, and that a stable income can be expected after the start of operation.

Investment in real estate-backed securities

Hankyu REIT 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 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).

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