Strategic cash management and a stable financial condition

• Effectively deploy retained earnings in an amount equal to the depreciation expense toward the acquisition of new properties and floor expansion, renovation and renewal of existing properties
• Establish strong and stable business relationships with a focus on Japan's megabanks institutions

We expect to establish and maintain a stable financial condition to ensure a steady cash flow in the medium to long term, which in turn will contribute to steady growth of our operating properties.
To this end, we have established a target LTV ratio of approximately 50%. We also expect to establish strong and stable business relationships with a focus on Japan's megabanks.
Furthermore, we implement the strategic and most effective cash management policy of deploying any surplus funds including retained earnings in an amount equal to the depreciation expense.

Strategic Cash Management

The large-scale retail properties that we target for investment are mostly located in suburban areas. Thus, the building value accounts for a large percentage of the property value and, compared to office buildings and residences, the depreciation period for the assets are shorter, which generally causes the depreciation expense to account for a large percentage of the property value as well.

By deploying retained earnings in an amount equal to the depreciation expense in a manner suitable for the given circumstances, we plan to increase capital efficiency and stabilize cash flow. In particular, we plan to increase unitholder value over the medium to long term through the following direct or indirect measures:

Distributions in Excess of the Amount of Profit

We have made it our policy to continually make distributions in excess of earnings ^{(Note 1, 2, 3)} each fiscal period, up to 60% of the depreciation costs for the relevant fiscal period, after careful consideration is given to trends in the economic environment, the real estate market and the leasing market, etc., the state of its assets or the state of its finances or other similar reasons. However, we may decide not to make any distributions in excess of earnings if we deem it inappropriate after considering trends in the economic environment, the real estate market and the leasing market, etc., the state of its assets or the state of its finances or other similar reasons.

When we make distributions in excess of earnings, we take into account the amount of capital expenditures that will be required for maintaining and enhancing competitiveness of the assets we own, as well as our financial conditions, etc. Such distributions shall be made only when we determine that there will be no hindrance to our operation after comprehensively taking into account the amount of capital expenditures and repair expenses assumed to incur during the fiscal period in which the distribution in excess of earnings is made and the following fiscal period, against the amount of our cash and deposits (including cash and deposits in trust accounts) as of the end of the fiscal period immediately preceding the fiscal period in which the cash distribution in excess of earnings is to be made.

Establish a stable financial condition

Our basic policy is to establish a stable financial condition conforming to the financing policies below to ensure a steady cash flow in the medium to long term, which in turn will contribute to steady growth of our operating properties.

We maintain a target LTV ratio of around 50% as a general rule in order to achieve a stable level of financial leverage, and establish strong and stable business relationships with Japan's major financial institutions with a focus on megabanks.

Financing Policies

Debt Finance

To ensure steady growth of our operating properties while providing funds for efficient operations and operational stability, we may take out loans or issue investment corporation bonds for the purpose of investing in properties, conducting repairs or other work, paying cash distributions, working capital for our operation, repaying our obligations, and other activities.

The maximum amount of each loan and investment corporation bond issuance will be ¥1 trillion and the aggregate amount of all such debt will not exceed ¥1 trillion.

We intend to obtain unsecured and unguaranteed financing. However, we may take out loans or issue investment corporation bonds by collateralizing our properties.

When investing in overseas real estate, we may obtain loans denominated in local currency. We may also raise funds in Japanese yen and convert the funds to local currency based on market conditions and other factors at the time of procurement.

Maintaining a conservative interest-bearing debt ratio and LTV ratio

While taking external growth strategies and internal growth strategies into consideration, we will maintain a strong financial condition and aim to keep a conservative debt ratio.
In property management, we have set an upper limit for our LTV ratio at 60% and intend to maintain an LTV ratio of about 50%. We may, however, temporarily exceed the 60% threshold as a result of property acquisitions or other events.

Extension of loan terms and fixing of interest rates

We set loan terms according to the status of cash flows based on tenant lease terms and content.
To reduce various risks, we will consider extending the terms of our loans and fixing our interest rates as a part of our effort to ensure appropriate operation.

Extension of loan terms and fixing of interest rates

When obtaining loans, we make use of Aeon Group's creditworthiness and seek to achieve appropriate diversification of different lender financial institutions with a focus on megabanks.

When obtaining debt financing, we diversify our financing methods by both using direct and indirect financing including the issuance of investment corporation bonds while always basing our decisions on a comprehensive assessment of the market environment and our financial standing.

Equity Finance

We may issue additional investment units for the purpose of property acquisitions, payments for construction, refunding of leasehold or security deposits, payments for our operational expenses, or other repayment obligations.

In such event, we will be mindful of the potential for dilution of our investment units in order to achieve long-term and stable growth in unitholder value.

Derivative Transactions

In order to primarily hedge the interest rate risks arising from any borrowing or other debts, we may undertake derivative transactions, taking into account the economic situation and the movement of interest rates.
Further, in the course of an investment in overseas real estate, we may undertake derivative transactions for the purpose of hedging foreign-currency risks if, among other things, any rent or other income gain is required to be received or paid in local currency.

Investment Policy Concerning Excess Funds

Investment of excess funds is conducted carefully based on adequate consideration of the interest rate environment, cash flows and the safety and liquidity issues related to any such investments.

Credit Ratings

Obtainment of long-term credit rating of AA from Japan Credit Rating Agency, Ltd

AEON REIT Investment Corporation has obtained a AA (double-A) long-term issuer rating from the Japan Credit Rating Agency, Ltd.

Use of Leasehold and Security Deposits Received from Tenants

We may utilize the leasehold and/or security deposits received from tenants. Such funds are procured at a low cost and secured over the long term.
Further, in order to respond to various financial needs (such as repair expenses, capital expenditures, payment of distributions, repayment of small amount of debts, working capital for our operation, refunding leasehold deposits, or acquisition costs for new real estate-related properties), we will hold cash and deposits in such amount as is deemed to be appropriate taking into account the status of commitment lines granted by financial institutions and other factors.