Other Policies

Operating Management Policies

MHR will conduct operating management rationally, efficiently, and deliberately, in order to increase tenant satisfaction, to maintain and enhance the trust of all our partners and stakeholders, to secure stable earnings for the overall portfolio over the mid to long term and to maintain and improve asset value.

Leasing Management

1. Market Comprehension and Setting Appropriate Terms and Conditions
   MHR will maintain a thorough understanding of the real estate markets relevant to its operating assets by thoroughly analyzing the present trends and future estimates of supply and demand by geographic area and product type, especially characteristics such as tenant needs and tenant trends at competing properties. MHR will set appropriate rent levels and other terms after careful analysis of the characteristics of the property such as the location, convenience to public transportation, tenant mix, age of building, and relative competitiveness in the market.
2. New Tenants
   Methods to attract candidates for new tenants will be examined with the above ("a. Market Comprehension") in mind, and sales and marketing will be conducted accordingly. Appropriate solutions will be proposed to address the customer's various needs such as moving schedules, required facilities and additions or adjustments for equipment, interior renovations, etc. Rent terms will be decided after an overall review of the tenant's credit, ratio of the rent to the overall portfolio, and the type of lease agreement (length of term, whether it is a fixed lease or not, etc.).
3. Tenant Relations
   MHR will strive to offer appropriate proposals, answer tenant's inquiries, and recognize whether or not tenants would benefit from expanding, reducing or changing their rented space through daily communication. MHR seeks to constantly monitor tenant satisfaction regarding the overall facility management such as the environment, hygiene, aesthetics, safety, anti-crime and anti-fire measures. MHR appreciates the fact that high tenant satisfaction leads to a higher appraisal value in the real estate market and attracts new tenants, and will reflect this on daily facility operation management and large-scale repairs and renovations. When renewing or updating a contract, MHR will consider the importance of the negotiation to its future stable profits, and will make appropriate proposals while addressing the tenant's needs. In addition, when a tenant is moving out, precise negotiations will be conducted with the contract terms and conditions and the next tenant in mind, and adequate renovation work will be executed.
4. Leasing Schemes
   Different types of leasing schemes (Direct lease with the tenant, Pass through or Fixed master lease) will be used based upon a comprehensive consideration of each property, stability of rent earnings, and efficiency of operation management.
   

   Direct Lease

   The master lease is not adopted, and the trust fiduciary or MHR will directly lease to the end tenant

   Master Lease

   The fiduciary trust or MHR will lease to the master lessee, and the master lessee will lease to the end tenant.

   Pass Through type Master Lease

   A master lease where the rent paid by the master lessee and the rent paid by the end tenant is always the same amount.

   Fixed Master Lease

   A master lease where the master lessee pays a fixed amount regardless of the amount paid from the end tenant to the master lessee.

   In the above, Master Lessee is the party that leases the entire property from the fiduciary trust of MHR, and subleases the units to third parties, and End Tenant is the party that actually pays the rent to the Lessor (including the Master Lessee in case of a Fixed Master Lease) for the leased unit.

Daily Facility Operation Management

In addition to the legally required facility management as the owner, MHR endeavors to conduct necessary facility management in order to increase tenant satisfaction, and to maintain and improve the physical, functional, and aesthetic quality of the operating assets. In addition, in order to strengthen the long term platform for profitability, MHR will reevaluate cost performance, make sure procedures and costs are appropriate, introduce the latest technology and conduct rational and efficient operations management based on the Asset Management Plan.

Large-scale Repairs and Renovations

MHR will do its best to avoid the deterioration of the operating assets' physical, functional, and aesthetic quality due to aging. If and when necessary, large-scale repairs and renovations will be conducted to add new functions and designs in order to strengthen the property's competitiveness. The necessary areas and timing of such large scale repairs and renovations will be listed in advance per property, and will be conducted rationally, efficiently, and deliberately according to the Asset Management Plan, after consideration of the balance within the overall portfolio, priority, cost, and effect on tenants.

Selection and Management Policies of the Property Management Company

MHR will, in order to achieve its purpose of operating management, entrust the operating management task to a PM company under the following criteria, and endeavors to build a close relationship and cooperative system with the PM company.

1. Entrustment of property management to a PM company
   MHR shall entrust various operations of property management regarding the real estate operating assets, and administrative tasks and tasks related to proposals, to a PM company as necessary. When the Master Lease system is used with the tenant regarding the real estate for the operating asset, the PM company may be designated as the Master Lessee.
2. Selection criteria for PM companies
   MHR shall select a PM company that understands the investment policies and operating management policies of MHR, and can act upon shared values with the following criteria in mind:
   • Industry history
   • Financial condition
   • Organizational system
   • Knowledge and experience regarding the relevant area and market of the property
   • Depth of knowledge of the relevant property and relationship with the tenants
   • Capabilities to attract new tenants
   • Reporting capabilities regarding the relevant property
   • Level of fees and compensation

   In addition to the above, when it meets one of the following criteria, Mori Building Co., Ltd. may be selected as the PM company.

   • It can be concluded that Mori Building has the best grasp on the operational management details of the relevant property, such as having planned and developed the property, or having been conducting property management at the property up until the time of PM company selection, etc.
   • Efficient property management can be anticipated due to economies of scale, since Mori Building conducts the property management for several properties within the same geographical area as the relevant property.
   • It can be concluded that entrusting the property management to Mori Building is the most effective and most appropriate from viewpoints such as having a strong information network and sales staff to gain new tenants or having unique management capabilities for the relevant property.
3. Supervision of the PM company
   MHR shall, as a general rule, receive reports from the PM company once a month regarding the items listed below, gain a thorough understanding of the operating management status for each property, analyze the variance from the Asset Management Plan, and, when necessary take appropriate measures to the PM company.
   
   • Rent collection status from tenants
   • Expense status
   • Status of new tenants moving in and tenants moving out
   • Facility management status (maintenance of the plant and equipment, status of repairs and renovations, and execution plans for the subsequent month.)
   • Status of complaints and requests from tenants, and the status of responses to such complaints and requests
   • Rent market trends for the geographical area surrounding the relevant property
4. Evaluation of the PM company
   The term for entrustment of the property management tasks shall, as a basic rule, be one year. The PM company shall be evaluated before the end of the term according to the viewpoints listed below. Upon evaluation, if the PM company is deemed unqualified, MHR will change the PM company. Also, even when the contract is renewed, MHR will endeavor to raise the standards of the PM company's administrative capabilities through appropriate instruction. Also, the terms and conditions of the contract will be reviewed, and fees and costs shall be rationalized.
   
   • Degree of achievement and contribution to achieving the property management plan
   • Circumstances of managing the properties and capabilities for making suggestions for improvement
   • Tenant satisfaction
   • Capabilities to establish a relationship with tenants
   • Leasing results
   • Execution capabilities for property management
   • Reporting from the PM company
   • Capabilities to plan and execute repairs and renovations

Insurance Policies

1. Property insurance
   MHR shall acquire the appropriate property insurance (fire insurance, liability insurance, etc.) for each target real property, with coverage against building damage due to a disaster, an accident, etc., or damages claimed by a third party due to an accident involving bodily injury or property damage that may occur.
2. Earthquake insurance
   When it is judged that the effect on the portfolio is significant in the case of a large-scale earthquake, etc., MHR shall acquire earthquake insurance. The decision to obtain such insurance will be made after comparing and examining the potential impact of an earthquake on each piece of real estate under management and the overall portfolio, as well as the potential impact of insurance premium burdens on earnings.