Equity Financing/Cash Management

Basic Principle

Mori Hills REIT (hereinafter "MHR") will borrow funds or issue corporate bonds in order to ensure mid to long term stable earnings and a steady growth in operating assets. The funds raised by these means are used for the acquisition of assets, renovations, payment of distributions, working capital needed for the operation of MHR, repayment of debt (including the refund of security deposits and guarantee money, and the repayment of borrowings and obligations under issued corporate bonds) and other purposes.

Operating Standards

1. Equity Finance (Issuance of new investment units)
   Additional investment units will be issued in order to ensure stable growth in operating assets, taking into consideration the mid to long term financial environment and with attention paid to dilution of investment units
2. Debt financing
   1. The limit on borrowings or bond issuances is JPY 1 trillion, and the aggregate amount of debt financing is up to JPY 1 trillion.
   2. Lenders are limited to those from eligible institutional investors .
   3. Debt financing is undertaken based on an overall evaluation of factors such as the capital market, financial environment, capital structure of MHR, impact of debt financing on existing unitholders, etc. After projecting fluctuations in economic and social conditions in the future, efficient funding methods are selected in view of borrowing period, interest rate type, i.e. fixed or variable, necessity of collateral, fees, and other factors.
   4. For the purpose of funding for acquiring additional assets or refunding security deposits and guaranteeing money, or for operating funds, MHR may establish in advance borrowing lines or enter into agreements for reserved borrowings through agreements for revolving credit lines, commitment lines, etc.
   5. MHR may pledge a portion of its operating assets as collateral when borrowing funds or issuing corporate bonds.
   6. The target ratio of the total amount of borrowings and corporate bonds issued to MHR's total assets (the loan-to-value ratio) is not to exceed 65%. However, the ratio may temporarily exceed 65% when acquiring certain assets or when the valuation of such asset fluctuates.
3. Financial derivative transactions
   MHR may invest in rights relating to financial derivatives transactions for hedging against interest rate fluctuation risk, and the other risks arising from borrowings or other financing.
4. Cash Management
   1. MHR holds at all times cash and cash equivalents in an amount that is considered reasonable to cover normally anticipated funds required for the operation of MHR (acquisition of new operating assets, repair and maintenance expenses and capital expenditures, working capital required for the operation of MHR, repayment of small obligations, payment of distributions, refund of amounts deposited by tenants, etc).
   2. MHR may invest in marketable securities or monetary claims in order to utilize surplus funds. In such case, investment targets will be selected with an emphasis placed on their safety and liquidity.
   3. MHR may utilize security deposits and guarantee money deposited by tenants as a means of funding.