HOME » Policy & Strategy » Basic Policy

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, the Asset Manager aims to achieve the goals of the basic policy below to construct an optimum portfolio, while giving due consideration to ever-changing domestic and overseas real estate market trends, regional economic trends, financial situations, capital market trends, changes in tax and legal frameworks and its own financial condition, as well as the credit of tenants and details of lease agreements, etc. as required, while at the same time attempting to mitigate the various risks involved in the management of its assets. While its asset management activities will focus primarily on investment in assets in Japan, it may invest in overseas assets as well.
Since stable revenues may be achieved through investments in overseas real estate properties as geographical diversity within the portfolio will help ensure stable revenues (including by mitigating seasonal fluctuations in revenues throughout the entire portfolio), and considering that high profitability may be achieved depending on the region and quality of the properties, the Asset Manager will consider investment in carefully-selected overseas hotels located in advanced countries and territories with expected stable demand. When making investments in overseas real estate properties, the Asset Manager will make an investment decision in a thoughtful manner, by comprehensively analyzing trends of the real estate markets, legal systems, accounting, tax and business principles and other market circumstances of the surrounding countries and territories in which the relevant properties are located, and considering the validity of investment schemes, risks related to legal, accounting and taxation issues, etc., as well as currency and country risks relating to investments and returns of revenues, based on proper information and from a macroeconomic viewpoint that also covers factors such as political situations, demographics and economic growth.

(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.)
Regarding overseas assets, INV currently plans to invest only in hotel properties.

The above investment targets are shown in the diagram below:

Diagram of Investment Targets

(Note 1) Regarding overseas assets, INV currently plans to invest only in hotel properties.

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.

Page Top

(II) Diversification by Property Type

A. Core Assets (Hotels)

Hotels generally have long lease periods with tenants or management arrangements and the performance of these properties depends significantly on the hotel operator’s operational capabilities and ability to pay rent. Regarding domestic hotels, the Asset Manager will mainly focus on (i) limited service hotels with relatively higher profit margins, which is an asset category that features expected revenue growth is due to increasing demand for accommodations, and (ii) full-service hotels and resort hotels that are expected to achieve stable growth in overall hotel revenues from a variety of revenue sources, including guest rooms, foods and beverages and banquet facilities. Limited service hotels refer to hotels that offer limited services and amenities, such as food and banquet facilities, gyms or spas, and focus more on revenues from guest rooms. Their profit margins tend to be relatively higher supported by the focus more on revenues from room stay. Full-service hotels refer to hotels which have lodging facilities and food and banquet facilities. Resort hotels refer to hotels located in a resort area or a health resort and which have lodging facilities, food facilities and adjoining facilities. In overseas markets, INV will target investments in hotels in major developed countries and regions that have the ability to capture demand for overnight stays, dining and other services. Through diversification of our portfolio in and outside Japan, INV aims to achieve growth and stability of revenues for our hotel portfolio as a whole.

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.
INV currently does not plan to invest in overseas residential properties.

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. INV currently does not plan to invest in overseas Sub Assets. (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, taking into account both domestic and overseas assets, 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%

Page Top

(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.

Page Top

(IV) Portfolio Allocation by Geography

INV's primary target regions for investment are the greater Tokyo area (Tokyo and Kanagawa, Chiba, and Saitama prefectures) and ordinance designated cities. Target regions further include major cities and surrounding areas nationwide and overseas to ensure flexibility in the pursuit of investment opportunities. In order to secure sound growth of investment assets and 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 diversify earthquake and other risks.
INV’s overseas investment targets will only include countries and territories that fulfill the requirements specified in Article 24-2 of the Rules on Real Estate Investment Trusts and Real Estate Investment Corporations prescribed by The Investment Trusts Association of Japan. Specifically, INV will invest only in assets located in advanced countries and regions in North America, Europe and Asia that have stable political, economic and financial systems, and in which transparency of legal, accounting and taxation procedures and real estate markets, etc. is ensured, as well as other equivalent countries and regions.
In accordance with the above, INV will seek to make investments based on the allocation ratio by geography shown in the table below. INV will not specify allocation ratios by geography for domestic hotel properties, as stable demand and growth potential can be expected in hotel properties in areas other than the greater Tokyo area. Also, the Asset Manager intends to limit investments in overseas properties to less than 15% of our portfolio on an acquisition price basis in light of the fact that investments in overseas assets may entail unique risks.
The allocation ratio may sometimes deviate temporarily from the ratio shown in the table below, during the course of the acquisition of assets necessary to build a portfolio that is expected to contribute to secure steady growth and mid- to long-term stable revenues.

<Allocation Ratio by Geography>
Area Specific Area Allocation Ratio
(based on acquisition value)
Greater Tokyo Area Tokyo and Kanagawa, Chiba and Saitama Prefectures Overall allocation ratio:
85% or more
Allocation ratio among domestic assets
excluding domestic hotels:
70% or more
Major Regional Cities Areas surrounding the greater
Tokyo area and major cities nationwide
including ordinance designated cities
Allocation ratio among domestic
assets excluding domestic hotels:
less than 30%
Overseas Countries and regions in North America, Europe and Asia with stable political,
economic and financial systems, in which transparency of legal, accounting
and taxation procedures and real estate markets, etc. is ensured, as well as
other equivalent countries and regions
(e.g., the United States of America,
Canada, Great Britain, The British
Cayman Islands and Singapore)
Overall allocation ratio: less than 15%
(Investments only in hotels for the time being)

(Note 1) Acquisition price of overseas properties will be converted into JPY amount based on the exchange rate as of the time of investment.