FRI's Rules Concerning Conflicts of Interest
Frontier Real Estate Investment Corporation ("FRI") amended its Rules Concerning Conflicts of Interest on June 25, 2008. The Rules Concerning Conflicts of Interest, which have been determined by FRI's asset management company, Mitsui Fudosan Frontier REIT Management Inc. ("MFF"), regarding transactions with interested parties, etc. are as follows.
A. Interested Parties, etc.
Interested parties, etc. are the following persons.
- Interested parties, etc. of MFF as defined by the Investment Trust and Investment Corporation Law of Japan (hereinafter, the "Investment Trust Law") and the Enforcement Order for the Investment Trust and Investment Corporation Law of Japan (Cabinet Order No. 480 of 2000, including subsequent amendments; hereinafter, the "Enforcement Order for the Investment Trust Law")
- Other Interested Parties
- MFF's shareholders, including those who lost their shareholder status within the past two years (hereinafter, the same) as well as subsidiaries and affiliates owned by MFF's shareholders as defined under the Regulation for Terminology, Forms and Preparation of Consolidated Financial Statements (Ministry of Finance Order No. 59 of 1976; hereinafter, the "Consolidation Accounting Standards").
- MFF's shareholders and special purpose companies (SPC), including special private limited companies and limited companies as defined under the Act on Securitization of Assets (Law No. 105 of 1998, including subsequent amendments), which have invested a total of 15% or more of capital through anonymous associations and preferred equity investments by subsidiaries and affiliates owned by MFF's shareholders as defined under the Consolidation Accounting Standards.
B. Deliberation of Transaction Details
- Transactions, Including the Acquisition of Real Estate, etc.
- In accordance with internal rules and regulations, for one-off transactions of at least 10 million yen per deal, or for ongoing transactions of at least 10 million yen per year, conducted with an interested party, etc. and involving (i) the acquisition of real estate, etc., (ii) the sale of real estate, etc., (iii) the leasing of real estate, etc., (iv) the execution or amendment of a property management consignment agreement, (v) the execution or amendment of a general brokerage agreement involving the sale or leasing of real estate, etc., and (vi) transactions other than those listed from (i) to (v) above (excluding transactions not related to operations involving the management of FRI's assets), the Investment Management Department drafts a proposal and the General Manager of the Compliance Division conducts a preliminary review.
- The General Manager of the Compliance Division examines whether there are any issues related to compliance in light of laws and ordinances, and brings up such for discussion at the management meeting.
- The concerned proposal is deliberated at the management meeting, and, if approved, is brought up for discussion at the Compliance Committee meeting.
- The concerned proposal is deliberated at the Compliance Committee meeting, and, if approved by all Committee members, is brought up for discussion at the Board of Directors meeting. (However, transactions involving (1) and (2) listed above are first brought up for discussion at a meeting of FRI's directors and, if approved by FRI's board of directors, are then brought up for discussion at the Board of Directors meeting.
- The concerned proposal is deliberated at the Board of Directors meeting, and, in accordance with the stipulated regulations of the Board of Directors, the advisability of the concerned transaction is determined.
- Furthermore, if through either the examination or resolution the concerned proposal is determined to be inadvisable, it is immediately returned to the department that drafted it.
- Other Transactions
- In accordance with internal rules and regulations, for transactions other than those listed in "a" above that are one-off transactions of less than 10 million yen per deal, or continuous transactions of less than 10 million yen per year, and are conducted with an interested party, etc. (excluding transactions less than 10 million yen per deal that are not related to operations involving the management of FRI's assets), the Investment Management Department drafts a proposal and the General Manager of the Compliance Division conducts a preliminary review.
- The General Manager of the Compliance Division examines whether there are any issues related to compliance in light of laws and ordinances, and brings up such for discussion at the Compliance Committee meeting.
- The concerned proposal is deliberated at the Compliance Committee meeting, and, if approved by all Committee members, is brought up for discussion at the management meeting.
- The concerned proposal is deliberated at the management meeting, where the advisability of the concerned transaction is determined.
- Furthermore, if through either the examination or resolution the concerned proposal is determined to be inadvisable, it is immediately returned to the department that drafted it.
C. Disclosure of Transactions with Interested Parties, etc.
In the event that a decision is made to conduct a transaction with an interested party, etc. that falls under the below sections D. to I., disclosure is to be conducted based on separately determined information disclosure rules.
D. Acquisition of Investment Assets from Interested Parties, etc.
- In the event that real estate, leasehold rights to real estate or surface rights, as well as trust beneficiary interests in real estate, leasehold rights to real estate or surface rights are acquired from an interested party, etc., the acquisition price must not exceed the amount of the appraisal value determined by a real estate appraiser that is not the concerned interested party, etc. (including entities; hereinafter, the same). However, appraisal value amounts do not include in-period pro-rata adjustments, such as the price of the property itself, taxes, sales expenses, expenses required to establish a trust, trust account deposits, trust proceeds and fixed asset tax.
- In the event that expenses (company establishment expenses, due diligence expenses, etc.) arise from the temporary formation of an SPC or other vehicle as a prerequisite for the transfer from an interested party, etc. to FRI, notwithstanding "a" above, the acquisition can be conducted with the concerned expenses added to the appraisal value amount.
- In cases where other specified assets are acquired from an interested party, etc., the market value is used for the transfer price for those assets whose market values can be determined, and the transfer price is determined in accordance with the items above for other assets.
E. Sale of Investment Assets to Interested Parties, etc.
- In the event that real estate, leasehold rights to real estate or surface rights, as well as trust beneficiary interests in real estate, leasehold rights to real estate or surface rights are transferred to an interested party, etc., the transfer price must be no less than the amount of the appraisal value determined by a real estate appraiser that is not the concerned interested party, etc. However, appraisal value amounts do not include in-period pro-rata adjustments, such as the price of the property itself, taxes, sales expenses, expenses required to establish a trust, trust account deposits, trust proceeds and fixed asset tax.
- In cases where other specified assets are transferred to an interested party, etc., the market value is used for the transfer price for those assets whose market values can be determined, and the transfer price is determined in accordance with the items above for other assets.
F. Leasing of Investment Assets to Interested Parties, etc.
In the event that a property is leased to an interested party, etc., it is to be leased after an assessment of market prices in general and in the surrounding area, and according to terms judged to be reasonable based on the written opinion, etc. of a third party that is not the interested party, etc.
G. Consignment of Property Management Work, etc. to Interested Parties, etc.
- In the event that property management work, etc. is consigned to an interested party, etc., this must be determined after an assessment of the interested party's business results, creditworthiness and such, while taking into consideration such factors as the market level, contents of the provided services and total amount of work to be performed.
- In cases where the interested party, etc. is already conducting property management work for properties to be acquired, property management work, etc. will be consigned to the concerned interested party, etc. after the acquisition, provided that the consignment fee is determined in accordance with the items above.
H. Consignment to Brokers of the Trading of Investment Assets with, and the Leasing of Investment Assets to, Interested Parties, etc.
- In the event that the acquisition of specified assets from an interested party, etc., or the trading of specified assets with an interested party, etc., is consigned to a broker, remuneration shall be within the scope stipulated by the Building Lots and Buildings Transaction Business Law, while taking into consideration such factors as the trading price level and level of difficulty of the brokerage.
- In cases where leasing to an interested party, etc. is consigned to a broker, remuneration shall be within the scope stipulated by the Building Lots and Buildings Transaction Business Law, while taking into consideration such factors as the rent level and level of difficulty of the brokerage.
I. Contracting of Construction Work to Interested Parties, etc.
In the event that construction work, etc. is contracted to an interested party, etc., the construction work is to be contracted according to terms judged to be reasonable after comparing and examining the estimated price and details, etc. of a third-party. However, if such work requires emergency work, such as repair construction work due to damage to a property as a result of an earthquake, fire or other calamity, the manager of the Investment Management Department determines the contracting of the work. In this case, the contents, contract price and other details of such construction work, etc. must be in accordance with the rules specified in this section I. as well as the above section B., and retroactive approval must be obtained separately.
Compliance System Example
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