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

Status of engagement based on Customer-Oriented Business Conduct

We are engaged in the following activities in accordance with the “Principles for Customer-Oriented Business Conduct” in the asset management of Japan Hotel REIT Investment Corporation (hereinafter called “JHR”).

1. Pursuit of Customers’ Best Interest

We conduct asset management based on the belief that realizing the stable growth of dividend of JHR and the improvement of asset value are the benefit to our investors. We also believe that sound management that enables coexistence with society and the environment will contribute to enhancing medium to long term unitholder value. Accordingly, we are working to improve sustainability through considerations of the environment, social and governance (ESG).

For performance of dividend per unit and NAV per unit, please refer to the followings:

(1) Performance of Dividend per Unit

Change in Dividend per Unit

(2) Performance of NAV (*) per Unit

Change in NAV (*) per Unit

(3) ESG Initiatives:
https://www.jhrth.co.jp/en/about/sustainability.html

2. Appropriate Management of Conflicts of Interest

We established a more rigorous decision-making process than required by laws and regulations to prevent conflicts of interest. In addition, we do not have seconded employees from the main sponsor except for the part-time directors, and our management structure is highly independent from the sponsor. Furthermore, all officers of JHR are composed of the third parties who have no relationship with the sponsor-related parties. We and JHR work together to ensure compliance with the “arms-length rules” and transparency.

For relevant information, please refer to the followings:

Corporate Governance (described in “Management Policy” in JHR’s website):
https://www.jhrth.co.jp/en/feature/governance.html

IR Library(described in “Report on the Operating System, etc. of Issuers, etc. of Real Estate Investment Trust Securities”)(Japanese only)

3. Clarification of Various Fees and Commissions

We are striving to improve unitholders’ value by improving the hotel performance and increasing variable rents, etc. through the implementation of an active asset management strategy that draws on our advanced expertise and know-how on hotel investment and management. We receive management fees from JHR as a counter value of its asset management business. A part of the management fees is linked to the revenue of JHR and dividend per unit, creating compensation structure that provides incentives for increasing the amount of dividend per unit.

The Structure of the asset management fees is as follows:

Type of fee Method of calculation of fee
Management Fee 1 Total Assets x 0.35% per annum (upper limit)
Management Fee 2 NOI x 1.0% (upper limit)
Management Fee 3 Dividend per unit before deducting Management Fee 3 x 43,000
Acquisition Fee Acquisition price x 0.75% (upper limit)
(In the event that JHR acquires properties from a sponsor-related party, the fee shall be lowered by 0.25%)
Disposition Fee Transfer price x 0.50% (upper limit)
(In the event that JHR sells properties to a sponsor-related party, the fee shall be lowered by 0.25%)
Merger Fee Appraisal value as of the merger date, of the real estate-related assets, etc. which JHR succeeds through merger x 0.25% (upper limit)

For details of the asset management fee structure, please refer to Article 36 of the Articles of Incorporation for JHR (Japanese only) or Disclosure for the AIFMD Article 23 of the IR Library of JHR’s website.

For the asset management fees that we received from JHR, please refer to "Asset Management Report; I. Asset Management Report; Expenses and Liabilities; 1. Details of expenses related to asset management, etc." in the IR Library of JHR’s website.

IR Library:
https://www.jhrth.co.jp/en/ir/library.html

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

In addition to the disclosure of information required by laws and regulations, we disclose monthly information on major performance indicators of accommodation departments in major hotels owned by JHR to enable investors to immediately grasp the status of hotel operations.
We also disclose important information related to decisions on investment, such as overview of JHR’s financial results and various initiatives based on our growth strategy on JHR’s websites, etc.

For our disclosure, please refer to the followings:

Press Releases:
https://www.jhrth.co.jp/en/ir/index.html

IR Library:
https://www.jhrth.co.jp/en/ir/library.html

5. Providing Suitable Service to Customers

We hold financial results briefings for analysts and institutional investors every fiscal year and mid-term to explain the financial results and business overview, etc. of JHR, by which we are entrusted with asset management. From the viewpoint of fair, timely and appropriate disclosure, the contents of these financial results briefings and explanatory materials are disclosed on the JHR’s website in a timely manner. We are also engaged in Investor Relations activities for institutional and individual investors in Japan and overseas.

6. Framework for Adequate Motivation of its Employees

We encourage our employees to obtain various types of qualifications in order to maintain a high level of expertise and maintain stable asset management. In addition to providing support for training and examination for the acquisition and maintenance of specialized qualifications, we also provide support for obtaining a wide range of knowledge and skills necessary for business operations. Moreover, through continuous implementation of training on compliance, ESG, and other topics, we are working on increase awareness among employees of the importance of customer-oriented business operations.

【Number of officers and employees who hold professional licenses】

  • Real Estate Broker: 18
  • Real Estate Appraiser: 2
  • Class-1 Architect: 1
  • Certificated Building Administrator: 2
  • Official Real Estate Consulting Master: 3
  • ARES Certified Master: 9
  • United States Certified Public Accountant (USCPA): 2
  • Certified Securities Analyst: 2
  • Administrative Scrivener (Gyousei Shoshi): 2
As of June 30,2020

【Record of Compliance Training】

(unit: times of training)

For all officers and employees For specific departments and new employees Total
2018 7 15 22
2019 12 14 26

As of March 30, 2020

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