Portfolio-Building Policy
In addition to preparing a Periodic Management Plan covering LaSalle Japan’s entire portfolio for every fiscal period, asset management company LaSalle Investment Advisors K.K. (“LaSalle Investment Advisors”) compiles an Individual Property Management Plan for each investment asset and undertakes strategic asset management (hereafter collectively referred to as the “Management Plan”). In the management and maintenance of LaSalle Japan’s investment assets, LaSalle Investment Advisors makes ongoing and effective investments in facilities to maintain and improve the values and competitiveness of investment assets after acquisition, thereby expanding revenue and reducing costs to achieve stable and improved profitability.
Formulation and Control of Management Plan
(1) Formulation of Management Plan
To facilitate its effective and efficient asset management, LaSalle Investment Advisors formulates a Periodic Management Plan for each fiscal period based on the Investment Management Guidelines which have been established through the deliberations of the Portfolio Committee and Risk Management and Compliance Committee, and the approval of LaSalle Investment Advisors’ Board of Directors. The “Periodic Management Plan” addresses the following matters:
- Plans for purchasing and disposing of investment assets
- Matters relating to selection and change of outsourcees
- Plans for building repairs and renovations
- Plans relating to debt borrowing and repayment
(2) Management Plan Verification
In addition to the Periodic Management Plan, LaSalle Investment Advisors formulates an Individual Property Management Plan to conduct strategic asset management. The Individual Property Management Plan covers the following items:
- Monthly revenue and expense budget
- Leasing plans
- Repair and capital expenditure plans
Leasing Policies
(1) Basic Policies
To achieve its goal of securing stable revenue and profits over the medium to long term, LaSalle Japan conducts strategic investment management with strict adherence to the following policies:
- Accurately assessing the rental market conditions and rent levels in regions where LaSalle Japan owns investment assets
- Setting optimal lease terms based on the use and unique characteristics of each investment asset
- Maintaining good relationships with tenants through sound management of investment assets
- Accurately assessing tenant creditworthiness
- Selecting appropriate brokers
(2) Lease Agreement Code
LaSalle Japan shall conclude lease agreements with end-tenants based on the Lease Agreement Code determined by LaSalle Investment Advisors. The process includes assessing tenants’ ability to pay rents and checking their social standing, including whether they are affiliated to or members of anti-social forces and organizations, and comparing their attributes with the standards set by each type of use.
(3) Use of Master Lease Companies
LaSalle Japan may engage master lease companies in cases where it is deemed rational to facilitate efficient management of investment assets. The selection will be made taking into account the attributes of the investment assets and characteristics of the master lease company. When ARM Leasing Co., Ltd. is selected, the agreement will have appropriate terms.
PM Company Selection and Control Policies
(1) PM Company Selection Policies
LaSalle Japan shall select and use the PM company that possesses the most appropriate capabilities specialized for each type of property use namely, office, retail and residential. PM companies are selected based on their business performance capabilities, which are determined in the light of the formal and substantive requirements listed below.
- Formal requirements
- Experience and track records
- ・Company overview, business operations, history
- ・Past business performance, track record as PM outsourcee
- Organization and structure
- ・Internal organization and systems sufficiently capable of conducting PM operations and specialized staff engaged in each type of operation
- ・Number of personnel holding PM-related qualifications
- Financial condition
- Financial base and conditions necessary and sufficient for conducting PM operations
- Personal information protection system
- ・Status of third-party certification relating to information management systems
- ・Internal information management systems
- Experience and track records
- Substantive requirements
- Leasing capabilities
- ・Familiarity with the rental market of their operating regions
- ・Network with leasing companies
- ・Leasing system that utilizes the PM company’s own Web site and those of its affiliates, as well as other media
- Reporting capabilities
- ・Business planning, report compilation capabilities
- ・Reporting swiftness and accuracy
- Tenant relation capabilities
- ・Ability to forge good relationships with tenants
- ・Capability to grasp and consolidate tenant needs
- Capabilities to handle complaints
- ・Capabilities to recognize issues when facing a complaint, reporting system
- ・Swiftness and accuracy of complaint response
- Building and facility management capabilities
- ・Building and facility management know-how and experience
- ・Capabilities to negotiate with external parties
- Adaptability to rental management control systems
- Status of introducing internal rental management control systems (Please refer to item (2) c. in PM Company Management Policies below, “Promotion of efficient operations through introduction of rental management control systems.”)
- Fee levels
- Appropriateness of fee levels
- Leasing capabilities
(2) PM Company Management Policies
- Integrated management controls through collaboration with PM companies
- In addition to establishing close, everyday two-way contacts with PM companies, LaSalle Investment Advisors will regularly (in principle every month) request their reports on the management and control of investment assets and conduct consultations concerning the status of and responses to conditions.
- Establishment of management system tailored to the characteristics of investment assets
- LaSalle Investment Advisors will facilitate efficient operations and appropriate asset management by requiring PM companies to establish a management system tailored to the characteristics of each management asset.
- Promotion of efficient operations through introduction of rental management control systems.
- With the aim of achieving efficient management by sharing and managing in a unified manner the data and information necessary for the management of investment assets, LaSalle Japan considers the introduction of rental management control systems to integrate LaSalle Investment Advisors, PM companies and the general administrator (see Note).
(Note) LaSalle Japan introduced Property Data Bank, Inc.’s rental management control system, “@property”, in May 2006 to facilitate efficient administration.
- With the aim of achieving efficient management by sharing and managing in a unified manner the data and information necessary for the management of investment assets, LaSalle Japan considers the introduction of rental management control systems to integrate LaSalle Investment Advisors, PM companies and the general administrator (see Note).
(3) PM Company Assessment
LaSalle Investment Advisors regularly monitors PM companies’ property management status and operations based on PM company reports on the management of investment assets and through daily oversight and, if necessary, asks them to improve their operations. At the same time, LaSalle Investment Advisors conducts regular (in principle yearly) performance reviews to ensure efficient operations, which may lead to changes of PM companies.
Repair and Capital Expenditure Policies
- With the aim of maintaining stable profits over the medium to long term, the Periodic Management Plan includes an effective repair and improvement plan to maintain and improve property competitiveness, in accordance with which repairs and capital expenditures are carried out.
- In principle, repairs and capital expenditures are carried out within the amount of depreciation expense of each property. However, LaSalle Japan and LaSalle Investment Advisors may undertake strategic and urgent repairs and capital expenditures on an as-required basis, within the sum of depreciation expense and reserve for repairs and maintenance for the entire portfolio. Renovation of common use areas, however, shall be conducted with high priority from the viewpoint of marketing strategy for end-tenants. Furthermore, anti-seismic reinforcements, if necessary, shall be implemented with due consideration given to minimizing the disturbance to end-tenants’ businesses.
Property Disposal Policies
（1）Basic Policies
In principle, LaSalle Japan shall hold investment assets over the medium to long term. However, LaSalle Japan may dispose of them in the following cases:
- Cases in which, from the standpoint of profitability improvements, LaSalle Japan deems the strategic disposal of a property appropriate for the effective implementation of its medium- and long-term growth strategy.
- Cases in which LaSalle Japan concludes that it will be extremely difficult to secure projected rental revenue and expense from a property and to recover from the situation due to significant changes in economic conditions or damage caused by disasters
When considering a property disposal, LaSalle Japan shall give the utmost consideration to sustainability of unitholder value. In the process, LaSalle Japan shall leverage best practices in accurately understanding the following factors:
- ・Real estate market forecasts
- ・Impact of development plans on a property to be disposed in the area
- ・Impact on LaSalle Japan’s revenue and profits over the medium to long term
- ・Possibility of divergence from LaSalle Japan’s investment allocation policies
- ・LaSalle Japan’s property acquisition forecasts
- ・Comparison between (i) the present value that would be produced by keeping the property-taking into consideration the additional capital expenditures in connection with investment real schedule under consideration for disposal and (ii) the profit that would be gained or loss incurred by the immediate disposal of the property.
- ・Forecast change in asset value
（2）Disposal Methods
In principle, LaSalle Japan shall hold investment assets over the medium to long term. When LaSalle Japan decides to dispose of a property, however, it shall closely observe the following procedures:
- The Periodic Management Plan shall include disposal policies for a property planned for disposal.
- When disposing of a property, LaSalle Japan ensures its sale at a price not lower than the most recent appraisal value, as stipulated in Article 59, Paragraph 1, Item (7) b. of the Ordinance on Balance Sheet, Profit and Loss Statement, Asset Management Report, Financial Statements pertaining to Allotment of Funds and Detailed Statement for Investment Corporation (Cabinet Office Ordinance No. 134 of 2000, as amended) and tries to introduce such measures as a competitive bidding system which deems necessary to sell it at even higher price.
- The maximum limit for disposals of investment assets in a fiscal period shall be, in principle, one-third of the total value of LaSalle Japan’s portfolio as of the end of the preceding fiscal period, excluding the case described under (1) b. of Property Disposal Policies above.
Insurance Coverage Policies
(1) Insurance against Loss or Damage
In order to cover the physical damage to properties caused by fire and accidents and possible restitution to third parties, LaSalle Japan shall procure fire and general liability insurance corresponding to the value of each investment asset. An insurance company shall have a Moody’s Investors Service, Inc. rating of A3 and above or a Standard & Poor’s rating of A- and above to avoid a possible default risk of insurance payment.
(2) Earthquake Insurance
In principle, LaSalle Japan does not acquire properties with a PML of more than 20%. However, if granted approval by the Portfolio Committee, including the consent of its external expert member, LaSalle Japan shall take out earthquake insurance for a property to be acquired even though that property’s PML exceeds 20%.