Principles for Customer-Oriented Business Conduct

We, Japan Hotel REIT Advisors Co., Ltd. (hereinafter called "JHRA") have adopted "Principles for Customer-Oriented Business Conduct" announced by Financial Services Agency of Japan on March 30, 2017. We set policy of our initiatives for the principles as follows.

1. Formulation and Announcement of Policies regarding Customer-Oriented Business Conduct

JHRA is entrusted the asset management by Japan Hotel REIT Investment Corporation (JHR). We hold up a mission statement, which is "Provide attractive hotel investment opportunities to investors as a professional of investment and management of hotel assets. Gain creditability from our stakeholders and contribute to local communities and society through investment and management in hotel assets." while we manage assets of JHR. Aiming to realize our mission statement, JHRA has formulated and announced the policies to realize the Customer-Oriented Business Conduct (hereinafter called the "Policy"). We regularly announce the status of Policy's implementation and review the Policy if necessary in order to improve the business conduct.

2. Pursuit of the Customers' Best Interest

While we manage assets of JHR, we believe that realizing stable growth of dividend and improvement of asset value is the benefit to our investors. In order to accomplish this goal, we operate our assets with a high level of expertise as an asset manager of J-REIT specializing in hotel assets.
To be more precise, we simultaneously pursue stability and upside potential. We pursue revenue enhancement of JHR by applying rent structures such as a variable rent which is linked to GOP (Gross Operating Profit) or revenue of the hotels, and management contract, etc. On the other hand, we aim for stable revenue by applying a fixed rent structure. Additionally, we, as an asset manager, continuously aim to provide high added values to investors through maintaining a high level of expertise and professional ethics and operate our business in a faithful and fair manner. Through providing these values, we aim to be selected by investors as a professional group to invest and manage hotels.
Also, we have incentives to maximize unitholders' values through holding JHR's units ("a same-boat investment" alongside with investors).

3. Appropriate Management of Conflicts of Interest

We believe it is necessary to avoid conflicts of interest to earn credibility from our investors. To prevent conflicts of interest, JHRA has set decision-making process stricter than it is required by laws and regulations. Specifically, in addition to interest related parties stipulated by laws and regulations, JHRA stipulates all of our shareholders and their subsidiaries, etc. as sponsor-related parties. With regard to transactions with sponsor-related parties and JHR, JHRA stipulates needs to obtain approval at Compliance Committee which in principle requires an attendance of an outside specialist (attorney) who is authorized to dismiss a proposal and other conditions. Moreover, resolution by Board of Director's Meeting at JHR is required for such transactions in principle. In addition, we disclose major details of the transactions between sponsor-related parties and JHR on Securities Report and Asset Management Report, etc.
We secure high independence from our main sponsor, as no director and employee of JHRA is a seconded employee of the main sponsor, except for part-time directors and non-sponsor-related directors account for half of JHRA's board of directors. Furthermore, all directors of JHR consisted by third-party members who do not have any relationship with the sponsor-related parties. JHRA and JHR strive to comply with "arms-length rules" and ensure transparency to prevent conflicts of interest.

4. Clarification of Various Fees and Commissions

We strive to improve unitholders' values through implementation of "Active Asset Management" strategy, which uses advanced expertise and know-how on hotel investment and management in order to enhance hotel performance, and increase variable rent and other revenue. JHRA receives the asset management fees from JHR as a counter value of such asset management. We have applied management fee structure in which a part of the asset management fees links to the revenue of JHR and dividend per unit. The management fee structures provide us with incentives to increase dividend per unit.
The ratio and amounts of the asset management fees, etc. are stipulated in Articles of Incorporation of JHR and disclosed in Asset Management Report, etc. Additionally, we disclose various fees related to outsourced business which is paid by JHR information related to fees structures and others on Securities Report and Asset Management Report, etc.

5. Providing Important Information in an easy-to-understand manner

In addition to information required by laws and regulations, JHRA discloses highly-transparent information which enables our investors to immediately understand operating status of our hotels through monthly disclosure of major performance indicators of rooms department in major hotels, such as occupancy rates, ADR (Average Daily Rate), and RevPAR (Revenue Per Available Room), etc.
Moreover, JHRA endeavors to disclose important information for decision-making of investment, in a quick, accurate, fair and easy-to-understand manner. We disclose such important information include overview of financial result and growth strategy of JHR in Asset Management Report, Financial Result Briefing as well as JHR's website.

6. Providing Suitable Service to Customers

From the standpoint of our customers, JHRA ensures transparency of asset management business and strives to disclose information in a quick, accurate, fair and easy-to-understand manner, for our investors' decision making. With regard to information which may have an impact on customers' decision making, JHRA actively discloses related information including through JHR's website.
JHRA defines earning credibility from our stakeholders including unitholders as our important business objective. JHRA and JHR have jointly established the "Sustainability Policy" in addition to policies stipulated by JHR's Articles of Incorporation and our investment and management guideline. JHRA also works on to enhance sustainability in mid-to-long term points of view through investment and management with consideration to risks and opportunities of ESG (Environment, Social and Governance). JHRA aims to improve unitholders' values for mid-to-long term through proactive review of our investment and management policy, etc. according to the change of market environment surrounding the hotel industry.

7. Framework for Adequate Motivation of its Employees

JHRA aims to provide high-quality added values to its customers based on awareness as a professional and high-quality business administration by individual employees. To make it possible, we encourage and support our employees to participate in various training programs to deepen their knowledge and improve business quality. We continuously implement trainings and other measures related to compliance to all employees since we request our employees to maintain high ethical perspective and awareness on compliance.

Established on March 20, 2018

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