Management Policy

1. Building Age
   In principle, the age of the building shall be 15 years or less at the time of acquisition.
2. Location
   Acquisitions shall be determined based on a comprehensive evaluation that takes the following factors as well as the characteristics of the region and property into account. However, as criteria for acceptable transactions as set forth in the management guidelines, the evaluation shall count each sub-item as a single factor.
   1. Good/Bad access to the Tokyo 23 Wards Exclusive of Central 7 Wards and central terminal stations from the nearest station
   2. Distance from the nearest station
      (As a rough guide, within a 10-minute walk for Single Type and Compact Type and within a 15-minute walk for Family Type and Large Type.)
   3. Sunlight, view, landscape, noise and other living environment; and presence/absence of distasteful facilities
   4. Presence/Absence of facilities offering public services and everyday convenience
   5. Good/Bad state of land use in the surrounding area
3. Structure
   In principle, the structure shall be reinforced concrete (RC) or steel-reinforced concrete (SRC), and the building shall comply with new earthquake resistance standards (refers to earthquake resistance standards for buildings, etc. pursuant to the 1981-amended Building Standards Law (Law No. 201 of 1950; including amendments thereto) (hereafter, the "Building Standards Law"); the same hereafter) or be a building of a comparable level.
4. Size
   1. In principle, the acquisition price (refers to the acquisition price exclusive of costs incidental to the acquisition) per property shall be no more than 20% of the total acquisition price of the entire portfolio.
   2. In principle, the acquisition price (refers to the acquisition price exclusive of costs incidental to the acquisition) per property shall be 500 million yen or more.
5. Kind of Rights
   In principle, acquisitions shall be of the proprietary rights to the entire property inclusive of the site as well. ADR shall also be open to investment into the following properties on the basis that the impact on the entire portfolio is duly considered.
   1. Building under Sectional Ownership
      In principle, buildings for which the proportion of sectional ownership that ADR can acquire is at least 50% of the total.
   2. Property under Co-Ownership
      On the premise that freedom in maintenance and disposal can be secured, acquisitions shall be determined for each property individually based on a comprehensive evaluation of the attributes, creditworthiness, etc. of other co-owners.
   3. Property under Leasehold
      In principle, ADR shall be able to acquire buildings with leasehold rights or fixed-term leasehold rights. Specifically, the propriety of acquisitions shall be determined in consideration of the leasehold contract details from such perspectives as profitability, security and liquidity.
   4. Miscellaneous
      Concerning real estate with usufruct, etc., the propriety of acquisitions shall be determined based on a confirmation of the pledge details and having considered from such perspectives as profitability, security and liquidity. In principle, ADR shall not acquire encumbered properties.
6. Environmental, Geological and Other Conditions
   ADR shall be prohibited from acquiring properties with soil contamination that are not being properly dealt with, or properties using building materials, etc. containing hazardous substances that Japanese laws and regulations (including ordinances) have banned or restricted the use of in relation to real estate and no adequate measures are in place.
7. Attributes of Current Titleholder, etc.
   ADR shall not acquire properties having a current titleholder or primary user that is or belongs to an anti-social organization, or properties being used in a manner that is offensive to public order and morals based upon social conventions.

ADR studies property acquisitions in a comprehensive manner, thoroughly assessing the concerned real estate's projected revenues, future of the area, building specifications, earthquake resistance, rights relations, and environmental, geological and other conditions. Specifically, decisions are based on a comprehensive evaluation, upon assessing the investment value of the real estate that is the target of investment in reference to analytical assessments of the real estate appraisal reports, building conditions investigation reports and earthquake risk assessment reports as well as market reports and other documents prepared by third parties that are fair and possess research capabilities and experience, along with conducting economic research, physical research, legal research and other property scrutiny.

1. Economic Research

   Assessment Item	Research Points
   Tenant Research	Information on creditworthiness of tenants Status of tenant's rent payments, etc. Tenants' line of business, number of tenants, lease purpose, contract details, use, etc. Current and past occupancy rates, average length of tenancy, past changes in rent and future prospects Percentage that each tenant occupies of the respective building, etc.
   Market Research	Market rent and occupancy rate Competitive properties, tenant demand trends, etc. Trends of development plans in surrounding area Trade area analysis: trade area population, number of households, commercial indices, etc.
   Earnings	Tenant soliciting, property disposability and other research on competitiveness Standard lease agreement level, lease agreement structure and possibilities of renewal Standard expense level, expense-related agreement structure and possibilities of renewal Research on appropriate rent level and appropriate expense level, and possibilities of burden of expected expenses Actual state of reserves for repairs upon comparison with history of repairs and repair plans Taxes and public dues

   
   
2. Physical Research

   Assessment Item	Research Points
   Location Factors	Street conditions, convenience in terms of railway and other main means of transportation, and number of passengers getting on and off main means of transportation Distribution and proximity of convenient facilities, economic facilities, educational facilities, government and public offices, recreational facilities and other facilities State of use of surrounding land and future developments City planning and regional planning Sunlight, view, landscape, noise and other environmental conditions State of public services and infrastructure development State of name recognition, reputation, etc. of region
   Outline of Architecture, Facilities and Specifications	Design, principal structure, building age, designer, contractor, etc. State of interior and exterior finishing members <Residential> Floor plan, ceiling height, air-conditioning system, security system, broadcast system, internet system, plumbing, elevator, car parking space, bicycle parking space, state of entrance and other common facilities, etc. <Office and Retail> Position in relation to front road, visibility from front road, prosperity of front road, shape and area of opening, depth, etc., partitioning compatibility, stairs, ceiling height, air-conditioning system, electric power capacity, operable business types, state of use of car parking space and other common facilities, free access floors (raised floors), floor loading, etc.
   Earthquake Resistance Assessment	Performance pursuant to new earthquake resistance standards or performance of an equal or greater level secured Earthquake risk analysis and earthquake resistance assessment implemented
   Building Management Assessment	State of compliance, etc. with applicable laws and regulations (Building Standards Law, Fire Service Law (Law No. 186 of 1948; including amendments thereto) (hereafter, the "Fire Service Law"), City Planning Law (Law No. 100 of 1968; including amendments thereto) (hereafter, the "City Planning Law") and other building laws and regulations and local government guidelines, etc.) Forecast repair costs in the future (about 10 to 12 years) according to building conditions report Good/Bad building management condition, presence/absence and details of management agreement, and interview of management companies Guarantee and content of after-service from contractors Presence/Absence of agreements with neighboring residents
   Environment, Soil, etc.	State of use, control, etc. of asbestos, CFC, PCB and other hazardous substances Geological conditions, land use history, soil and other environmental research

   
   
3. Legal Research

   Assessment Item	Research Points
   Dealing with Rights Relations	Studies the certainty of the rights of previous titleholders. The following points and other rights relations shall be carefully studied, particularly with properties under co-ownership, sectional ownership, leasehold, etc., properties to which the proprietary rights are not held by or not solely held by ADR, and other properties with complicated rights relations. Fulfills/Fails to fulfill the required conditions against leasehold rights, and presence/absence of other rights that supersede leasehold rights Land use rights registered/not registered, presence/absence of restrictions on separation and disposal of building and land use rights and registration of such, and state of rights holding Measures to protect deposits, and policy on and measures for reserves based on long-term repair plans Presence/Absence of rider prohibiting subdivision of a property under co-ownership and registration of such, presence/absence of adequate measures for demanding subdivision of a property under co-ownership, sale of co-ownership interest, etc., and credit and debt obligation relations among co-owners Nature of sections of sectional ownership State of collateral pledged before acquisition by ADR, details of such agreement, and whether or not it is to be succeeded Details of agreements, riders, etc. entered with leasehold right pledgors, sectional owners, co-owners, etc. (notably the presence/absence of a right of first refusal and details of such) Attributes by corporation, individual, etc. of leasehold right pledgors, sectional owners, co-owners, etc. Details of trust agreement for beneficiary interests in trust that places real estate in trust
   Boundary Research	State of defining boundaries, and presence/absence of anything crossing the boundary, and state of such

In principle, ADR acquires real estate that is actually generating stable rental income. ADR does not engage in developments and investments involving ADR itself acquiring land and constructing buildings (also including rebuilding properties ADR has already acquired). However, in regards to properties under construction by a third party, ADR shall also be open to consider entering into agreements on acquisition of the concerned building prior to construction completion in the case that it deems tenants can be sufficiently secured after construction completion and it deems the risks in relation to completion and delivery have been minimized.

Effective and efficient operational management is pursued through a comparative review of several property managers from the following perspectives.

1. Experience and track record
2. Financial strength and creditworthiness
3. Leasing capacity
4. Building management capacity
5. Reporting capacity
6. Commission level

ADR examines the following matters primarily based on monthly property management services reports, as well as guides and supervises property managers on the following matters so that operational management is performed in line with management and maintenance plans.

1. Status of monies received from tenants
2. Status of tenants moving in and out
3. Status of payment of expenses, etc.
4. Requests and claims from tenants, and how these are handled
5. Information on capturing new tenants, and details of such initiatives
6. Status of repairs and other construction

Operational management performance is evaluated on a regular basis (in principle, once a year) in terms of the following points as well as other matters. ADR will consider changing property managers depending on the results of that evaluation.

1. Degree of attainment of operational management plans
2. Actual leasing results
3. Competency in performing property management duties
4. Ability to respond to tenants

Tenants are selected based on a comprehensive evaluation of the following items.

1. Corporations
   • Line of business, business history, financial results, etc.
   • Details of lease (purpose of use, agreement period, etc.)
   • Presence/Absence of a joint surety, and the attributes of such
   • Adequacy of guarantee by surety company
2. Individuals
   • Occupation, details of place of employment, etc.
   • Annual income and other proof of capacity to pay rent
   • Details of lease (purpose of use, agreement period, etc.)
   • Presence/Absence of a joint surety, and the attributes of such
   • Adequacy of guarantee by surety company

Each real estate is covered by fire insurance and liability insurance with content that is deemed appropriate in accordance with the characteristics of the real estate.

When the probable maximum loss (PML) (Note) of an individual investment property exceeds 20% or when the addition of an individual investment property will cause the PML of the entire portfolio to exceed 15%, earthquake insurance coverage will be considered based on a comprehensive comparison of the impact of disasters, burden of insurance premium payments and other matters.

Portfolio management will be implemented in a systematic manner for ADR by establishing annual asset management plans for each fiscal period. An annual asset management plan is comprised of income/expenditures budgets for each property, new investments and planned sale of portfolio assets, and is deliberated and resolved by the asset manager's compliance committee, investment committee and board of directors by the start of the respective fiscal period.

Portfolio management will be implemented in a systematic manner from a medium- to long-term standpoint for ADR by establishing medium-term (5-year) asset management plans. A medium-term (5-year) asset management plan is comprised of medium-term income/expenditures budgets for each property, plans for new investments and plans for sale of portfolio assets, and is deliberated and resolved by the asset manager's compliance committee, investment committee and board of directors by the start of the respective fiscal period.

Annual asset management plans are checked against actual results of income and expenditures every month. Where a disparity is found between the budget and actual results or other grounds deemed to require the plan to be revised, an amended annual asset management plan is promptly established.
Medium-term (5-year) asset management plans are checked against actual results every fiscal period. Where a disparity is found between the budget and actual results or other grounds deemed to require the plan to be revised, an amended medium-term (5-year) asset management plan is promptly established. Amendments of asset management plans are deliberated and approved at the asset manager's compliance committee, investment committee and board of directors.

ADR acquires properties under the basic policy of managing them for the medium to long term. However, ADR may occasionally sell properties as determined based on a comprehensive evaluation that takes the following matters into account.

1. Financial market and real estate market trends
2. Revenue projections
3. Actual and forecast increases/decreases in asset value
4. Future of the location/area
5. Portfolio composition