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Basic Policy

Invincible Investment Corporation (hereinafter "INV") shall manage its assets for the purpose of investing the assets primarily in the Real Estate and Other Assets (meaning the Real Estate and Other Assets set forth in the Ordinance for Enforcement of the Act on Investment Trusts and Investment Corporations) in an aim to guarantee sound growth of its assets and secure stable profits over the medium and long term. INV's asset manager, Consonant Investment Management Co., Ltd. (hereinafter "CIM"), in accordance with its Articles of Incorporation and Asset Management Services Agreement with INV and in line with the basic policy set forth under the Articles of Incorporation, has set forth internal rules in the form of asset management guidelines. It has also set forth management policies for INV's assets as follows. The asset management guidelines emphasize the pursuit of profitability and stability and clarify the requirement to comprehensively review real estate markets as well as factors such as the current situation of and trends in financial and capital markets and the general economic situation. CIM will revise these guidelines as deemed necessary in response to changing situations, as set forth in the Articles of Incorporation and provisions of the Asset Management Services Agreement with INV.

Portfolio Construction Policy

Based on the policies set out below, CIM aims to fulfill the goals of the basic policy above to construct an optimum portfolio, giving full consideration to ever-changing real estate market trends, regional economic trends, financial situations, capital market trends, changes in tax and legal frameworks and its own financial standing, as well as the credit rating of tenants and details of rental agreements, etc. as required, while at the same time attempting to mitigate the various risks involved in the management of its assets.

(I) Selection Policy for Investment Targets

INV will make investment primarily in hotels or residential properties, or Real Estate Assets and Other Assets backed by such hotels or residential properties and Real Estate-Backed Securities (hereinafter "Core Assets," and Real Estate Assets and Other Assets and Real Estate-Backed Securities are collectively referred to as "Real Estate-related Assets"). INV will also make investment in properties used for purposes other than hotels, residences or Real Estate Assets backed by such hotels or non-residential properties (hereinafter "Sub Assets") to diversify investment targets. As compliments to the Core Assets, being hotels and residential properties, Sub Assets refers to office buildings, commercial facilities, and facilities that fall under either "special nursing home for the elderly" or "housing for the elderly with life support services" among housing or accommodation facilities for the elderly, etc.) (hereinafter collectively referred to as "Senior Citizens Properties"), pay-by-the-hour parking lots and properties used for other purposes or Real Estate Assets backed by those properties.
As explained above, INV seeks to expand its portfolio by diversifying investment targets to Sub Assets, while making focused investments in hotels and residential properties as Core Assets, thereby developing a comprehensive portfolio in which risk is spread among a variety of different types of properties. (Portfolio allocation by property type is provided in "(II) Diversification by Property Type, D. Portfolio Allocation by Property Type" below.)

The above investment targets are shown in the diagram below:

Diagram of Investment Targets

While steadily investing its assets, INV intends to diversify geographical risks by making investments across a number of regions.
In line with its basic policy of asset management, INV endeavors to diversify risk and achieve "steady growth of its investment assets and secure stable earnings over the medium and long term," by investing in various types of properties and across a wide geographical area.

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(II) Diversification by Property Type

A. Core Assets (Hotels)

Hotels tend to have long-term rental agreements with each tenant, and have a unique characteristic of being affected in particular by the operational ability and rent payment capacity of hotel operators. In addition, INV plans to make a focused investment in limited service hotels, as in addition to its stable revenue, they are expected to further expand its market share and have a high potential for further growth in revenue. Limited service hotels refer to hotels that offer limited amenities such as food and banquet facilities, spa and gym. By focusing more on revenue from guest rooms, limited service hotels generally have relatively high GOP margins.

B. Core Assets (Residences)

Rental demand and market rents are relatively stable for Residences compared with properties for other uses as a large proportion of tenants are individuals and the number of potential tenants is large, while the terms of rental agreements are relatively short, being around two years. For these reasons, INV considers Residences a stable investment over the medium and long term.
In addition, INV can diversify tenant credit risk as single tenants, while large in number, individually occupy a smaller percentage of the total investment portfolio and their actions have a smaller impact on the overall investment assets of INV.

C. Sub Assets (Properties of other types)

INV, while taking risk factors and other characteristics into consideration, makes investments in properties other than hotels and residential properties (office buildings, commercial facilities, Senior Citizens Properties, and pay-by-the-hour parking lots, etc.) that complement the Core Assets, hotels and residential properties. The specific investment targets by type of property, etc. and the respective investment policies are shown below. (Please note that these are only some of the examples and investments may be made in other types of properties, etc.)

(i) Office Buildings

INV invests in office buildings for which it judges sufficient rental demand can be expected among those properties that boast convenient or superior locations in business districts located mainly in the central districts of three major urban areas in Japan and comparable areas, after comprehensively judging various factors such as profitability, size of building, architectural and building specifications, earthquake resistance, attributes of tenants, and environment.

(ii) Commercial Facilities

INV invests in versatile multifaceted facilities located near cities and large general merchandise stores in suburbs, selecting those commercial facilities in superior locations while also taking the surrounding market conditions etc. into consideration.

(iii) Senior Citizens Properties

Of the housing or accommodation facilities for the elderly, INV defines "special nursing home for the elderly" and "housing for the elderly with life support services" as Senior Citizens Properties and will make investments in such properties as per its investment targets. In the operations regarding Senior Citizens Properties, INV strives for efficiency by leveraging the expertise of operators who have track records in the operation of such properties. The definitions and characteristics of "special nursing home for the elderly" and "housing for the elderly with life support services" that fall into the category of Senior Citizens Properties are shown below.

Type Definitions and Characteristics
Special Nursing Home for the Elderly "Special nursing home for the elderly" means a fee-based home for the elderly as defined under Article 29 of the Welfare Law for the Aged. These are facilities that provide accommodation and nursing care services related to bathing, eating and toileting, as well as meals and other forms of daily assistance to elderly people, as specified by the ministerial orders of the Ministry of Health, Labour and Welfare. Excluded from this category are elderly care facilities and residential facilities that provide long-term care services for dementia patients in communal living provided under the same Law and other facilities specified by the ministerial orders of the Ministry of Health, Labour and Welfare.
"Special nursing home for the elderly" is qualified to provide nursing care services to elderly people who require it. Special nursing homes for the elderly are required to register with the government of the prefecture in which they are located and are placed under the supervision of local authorities.
Housing for the Elderly with Life Support Services "Housing for the elderly with life support services" mean residences that meet criteria concerning designs and structures of residences, criteria concerning services to residents, and respective requirements in the following three criteria concerning the contents of the contract and registered to the prefectures in which the residences are located.
(Residences)
- Floor area (25m2 or more in principle)
- Facilities such as toilets and washbasins to meet certain level of criteria on structures
- Barrier-free
(Services)
- Provision of services (provision of safety confirmation services and daily life consultation services at the least)
(Contracts)
- The contracts should aim for stable supply of residences for elderly people
- Monies other than tenant leasehold, rents and compensation for the services should not be collected
- Rules for returning prepaid rents and preservative measure should be established

(iv) Pay-by-the-hour parking lot

INV examines investment targets in the category of pay-by-the-hour parking lots in consideration of the experience, track record and creditworthiness of parking lot operators. It selects parking lots with a superior location after comprehensively examining various factors such as ground surface connection to road, signboard installation, regional characteristics and distance from the nearest train station.
The primary reasons for acquiring pay-by-the-hour parking lots are as follows.
We can expect solid demand for pay-by-the-hour parking, given the reinforced traffic regulations and crack down on illegal parking, etc., and thus a certain level of revenue can be expected. In addition, these properties can be acquired with INV's own funds as, with the exception of some large-scale parking lots, they are generally small in size. Also, the management costs are low as tenants are responsible for parking lot facilities and management. Furthermore, conversion into other use is relatively easy since many are located in commercial districts.

D. Portfolio Allocation by Property Type

Based on the perspectives set out in the above, INV invests its funds using an investment ratio by property type deemed optimum to guarantee sound growth of investment assets and secure stable profits, as shown in the table below.
In the process of acquiring assets while guaranteeing sound growth of investment assets and securing stable profits, the investment ratio may sometimes temporarily deviate from the ratio shown in the table below.

Portfolio Allocation by Property Type
Type of Real Estate Assets Allocation ratio
(based on acquisition value)
Hotels and Residences 50% or above
Properties of other types
(office buildings, commercial facilities, Senior Citizens Properties, and pay-by-the-hour parking lot, etc.)
Less than 50%

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(III) Investment Approach by Range of Rent for Residences

While rental demand and market rents are relatively stable for Residences, demand for properties in the high price range is limited. Rents for these properties may significantly increase at times, but they also have the potential to plunge during a recession. Luxury properties are therefore susceptible to economic fluctuations.
For that reason, INV focuses its investments on properties that command an average monthly rent of less than JPY 100,000 and enjoy solid demand not subject to economic fluctuations. In doing so, it seeks the stability that is characteristic of Residences. At the same time, INV invests in luxury properties with superior locations and amenities, to ensure the profitability of its investment activities.

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(IV) Portfolio Allocation by Geography

INV's target regions for investment are chiefly the greater Tokyo area (Tokyo and Kanagawa, Chiba, and Saitama prefectures) and cities designated as such by government ordinance. It further includes major cities and surrounding areas nationwide to ensure flexibility in the pursuit of investment opportunities.
For the purpose of ensuring sound growth of investment assets and secure stable profits over the medium and long term, INV aims to construct a geographically diverse portfolio of investment assets by avoiding the risk of economic fluctuations in certain regions as well as avoiding concentrated investment in certain areas to spread earthquake-related risks, etc.

In accordance with the above approach, in regards to the geographical investment distribution for managing Real Estate Assets, INV adopts the investment ratio shown in the table below. Hotels have higher allocation ratio in major regional cities as compared to other types of properties, given that there are areas where hotels can be expected to have stable demand and growth potential outside of the greater Tokyo area.

Portfolio Allocation by Geography
Area Specific Area Allocation Ratio
(based on acquisition value)
Greater Tokyo Area Tokyo and Kanagawa, Chiba and Saitama Prefectures in Japan 65% or above
(or 70% or above excluding hotels)
Major Regional Cities Areas surrounding the greater Tokyo area and major cities nationwide including cities designated as such by government ordinance in Japan Less than 35%
(or less than 30% excluding hotels)