Hulic : Integrated Report 2021

Integrated Report

2021

7-3 Nihonbashi Odenmacho, Chuo-ku, Tokyo, Japan Phone: [phone]

URL: https://www.hulic.co.jp/en/

Publication of Integrated Report 2021

CONTENTS
Corporate Philosophy, Sustainability Vision and		2
Medium-andLong-term Management Plan
About Hulic Group
History of Hulic Group											4
Profile of Hulic									6
Message from the Chairman,							8
Representative Director
Message from the President,							16
Representative Director
Financial and Non-financial Highlights			18
Hulic Group's Value Creation Story
Hulic Group's Value Creation Process			20
Materiality Assessment				22
KPIs for Non-financial Information			26

Business Strategies
Progress of Medium- and		28
Long-Term Management Plan
Financial Strategy and Capital Management, Message			32
from the Executive Officer in Charge of Finance
Hulic Growth Strategies by Business Segment					36
ESG Initiatives
Environmental Initiatives				52
Social Initiatives					60
Corporate Governance Initiatives			68

Financial and Corporate Information, etc.

Financial Information				78
Stock Information				88
Corporate Information				89
Third-party Assurance / External Evaluation		91

Saburo	Manabu
Nishiura	Yoshidome
Chairman,	President,
Representative	Representative
Director	Director

About the Integrated Report

Financial Information		Non-financial Information

Integrated Report 2021

The Report explains our initiatives for the sustainable growth of the Hulic Group ("the Group") with

financial and non-financial information.

• Summary of Consolidated Financial		• Initiatives for Sustainability
Results		https://www.hulic.co.jp/en/sustainability/
• Investor Presentations		• Sustainability Book
• FACTBOOK				• News Release
• IR Information
https://www.hulic.co.jp/en/ir/

For more than half a century, Hulic Co., Ltd., ("the Company") has been in a real estate leasing business focused on office buildings in central Tokyo. With the corporate philosophy of "for the realization of a society full of safety, peace of mind and trust, and for the continuous improvement of corporate value," we have been pursuing growth of our company as well as realization of a

Medium- and Long-Term Management Plan launched in 2020 and what we have achieved during its first year. In addition, it presents topics such as initiatives in the field of Environment, Social and Governance (ESG) to support our growth.

The Report has been issued with reference to a range of

materials to ensure that the editorial process and the content meet

Editorial Policy

The aims of the Report are to facilitate a multi-facet understanding of the Group's sustainable growth among investors and other stakeholder groups as well as to create new opportunities for dialogues. In issuing the Report, it has been presented to and reviewed by the Board of Directors. Financial and sustainability related information which we were unable to present in the Report from space constraints are available on our website.

sustainable society.

• We created and presented the first edition of the Integrated Report ("the Report") last fiscal year. This year, for the second edition, we have further improved the content and have provided stakeholders with a clearer explanation of our medium- to long-term initiatives.
• The Report explains the Company's value creation process and how the strengths we have cultivated feed into increasing medium- to long-term corporate as well as social value. It also outlines the

the appropriate standards. These reference materials included the

International Integrated Reporting Framework recommended by the

International Integrated Reporting Council (IIRC) and the Guidance

for Integrated Corporate Disclosure and Company-Investor Dialogue

for Collaborative Value Creation issued by Japan's Ministry of

Economy, Trade and Industry.

We would like to use the Report as one of our communication

tools with our shareholders, investors, and our stakeholders.

Reporting Boundary

Hulic Co., Ltd. and its Group companies

Reporting Period

Fiscal Year 2020 (from January 1, 2020 to December 31, 2020) Information as of December 31, 2020 in principle unless otherwise noted. Notwithstanding the foregoing, included some activities and information after January 1, 2021.

Time of Issuance

June 2021

Reference Guidelines

International Integrated Reporting Council ( IIRC) "International Integrated Reporting Framework"

The Japanese Ministry of Economy, Trade and Industry "The Guidance for Integrated Corporate Disclosure and Company-Investor Dialogue for Collaborative Value Creation" The Japanese Ministry of the Environment

"The Environmental Reporting Guidelines (2018)" GRI (Global Reporting Initiative)

"The GRI Sustainability Reporting Standards"

Hulic Co., Ltd. Integrated Report 2021 1

Corporate Philosophy and Basic Stance

Corporate Philosophy

For the realization of a society full of safety,

peace of mind and trust,

and for the continuous improvement of corporate value

	Basic Stance
Ideal	We aim to be a company that grows each day by utilizing stable corporate
Company	infrastructures.
Corporate	We always conduct business from a new viewpoint in an effort to increase our
Culture	corporate value.
Stance to	We are committed to providing optimal products and services to customers,
Customers	placing customer satisfaction as our top priority.
Ideal	Each of Hulic's employees strives to provide high quality value as a professional.
Employees

Medium- and Long-Term Management Plan (2020-2029)

Target	"Driving innovation and accelerating progress" as our motto, we
Profile in

10 Years	continue to steadily increase our corporate value through evolving
ourselves flexibly in response to changes in macro environment
(FY2029)

Sustainability Vision

We aim to pursue realization of a sustainable society and continued growth of

Hulic by putting our Corporate Philosophy into practice.

We commit to take a faithful approach to all of stakeholders. To this end, we pursue initiatives based on a three-point Vision.

• We create shared value with our society by actively engaging with the environmental issues through our corporate activities.
• We lay the foundation for the future by providing peace of mind to our customers through offering our high value-added products and services.
• We take compliance seriously, respect human rights and strive to perform transparent corporate activities based on our high ethical standards.

Financial Targets		Non-financial Targets
(see details on page 29, Medium- and Long-Term Management Plan)		(see details on page 26, KPIs/Targets and Results for Non-financial Information)

						Business
Basic
	1	Further evolve the		2	Strengthen		3	Create unique new
Strategies			business model and			development			business domains
			restructure the leasing			and value-added			and improve Group
			portfolio			businesses			strengths

Basic Policy

Strike a balance between P/L Growth, Profitability, B/S Soundness, and Productivity (efficiency) at a high level and achieve further growth through dynamic transformation backed by overwhelming speedy decision-making

Management Infrastructure

4			5
	Strengthen the management			Implement management that
	foundation and implement stringent			emphasizes sustainable co-creation
	risk management			and co-existence with society

2 Hulic Co., Ltd. Integrated Report 2021

Hulic Co., Ltd. Integrated Report 2021 3

History of Hulic Group	Toward further growth by	JPY180.0 Bln
A Real Estate Company with Over 60 Years	"driving innovation and accelerating progress"
of Growth and Achievements

Group

In 1957, Hulic (then called Nihonbashi Kogyo) was established to manage the branch buildings and other properties of the former Fuji Bank (now Mizuho Bank). In 2007, the Company made a new start to mark the 50th anniversary of being established by changing the corporate name to Hulic Co., Ltd. ("the Company"). Then in 2008, we became a public company by listing our shares on the First Section of the Tokyo Stock Exchange.

We have steadily strengthened the business base with a unique growth strategy centered on real estate reconstruction, investments, and M&As.

Consolidated Ordinary Income (Unit: JPY billion)

■ Initial forecast ■ Results (difference over initial forecast) ■ Plan/targets

Medium-term Management

Plan (2020-2022) Phase I

In 2017		In 2019
• Established Hulic Property		• Made Nippon View
Solutions Co., Ltd.		Hotel CO., LTD., a	110.0
				subsidiary
				100.0
	In 2018
			95.6

About Hulic

In 1957

• Established Nihonbashi Kogyo Co., Ltd. Started property management for the former Fuji Bank (now Mizuho Bank)

branch buildings and insurance agency business

In 2007

• Changed corporate name to Hulic Co., Ltd.

In 2010

• Spun off insurance agency business as Hulic Insurance Service Co., Ltd.
• Merged with Senshu Shoji Co., Ltd. and Fuyo General Development and Finance Co., Ltd. (real estate leasing companies)

In 2008

• Listed shares on the First Section

of the Tokyo Stock Exchange	In 2011
	• Established Hulic Hotel
	Management Co., Ltd.

							12.3	16.8
10.9	10.9
Financial	Crisis							Great East	Japan	Earthquake

In 2012

• Completed Hulic head office building
• Merged with Shoei Co., Ltd. (a real estate company)

In 2013

• Established Hulic Reit Management Co., Ltd. [full-scale entry into J-REIT business (real estate investment business)]

34.3

25.9 20.0

In 2015

• Merged with Simplex Investment Advisors Inc. (a real estate company)

51.4

42.5

• Made HULIC FUFU

Co., Ltd., a subsidiary 84.6

72.5

61.8

Planned increase of approx. JPY10 Bln each year

Spread of COVID-19

StrategiesHulic Group's Value Creation Story

1957	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2029 Fiscal Year
				Long-term Management Plan before the previous plan (2009-2018)		Previous Long-term Management Plan (2014-2023)				Launch of Long-term Management Plan (2020-2029)

Record of Business and ESG Initiatives	Achieved the plan's targets four years ahead of schedule	Achieved the plan's targets four years ahead of schedule

Building on the leasing business as a foundation, grew through M&As in addition to taking on new businesses such as property development and the 3K businesses (koureisha, kanko, and kankyo i.e., seniors, tourism, and environment)

Advancement of development and reconstruction business

Started PPP business

Business Initiatives

&New • Completion of HULIC &New SHIBUYA, the first property under our &New brand of medium-sized commercial buildings, in 2017

Progress on initiatives for senior citizen-related businesses

Tourism-related businesses • Opened THE GATE HOTEL KAMINARIMON by HULIC, the first in THE GATE HOTEL series, in 2012

Started new businesses (children's education and Bizflex)

General

• Established CSR Vision

• Issued first CSR Report in 2008, and continued to publish reports until 2019

• Issued first Integrated Report in 2020

• Established a CSR Committee

• Established Sustainability Vision and a Sustainability Committee

• Conducted three years of joint research with the Massachusetts Institute of Technology (MIT) on natural ventilation and natural lighting systems; patented Natural Lighting System in 2016

• Joined RE100 and declared a commitment to achieve RE100 by 2025 with Hulic's own power sources

Environment

• Established the Hulic Guidelines for Longer Life Buildings as standard specifications for 100-year offices

• Expressed support for TCFD recommendations

• Ranked first in the real estate/warehouse industry in the Environmental Management Survey conducted by Nikkei Inc. (ranked top every year until the survey ended in

2019)

• Declared goal of "net zero CO2 emissions by 2050"

• Opened the Hulic Suginami Office in the Ogikubo area of Suginami ward, Tokyo, creating a conducive working environment for

• Obtained the highest "Eruboshi" rank

• Certified as a Health & Productivity Management Outstanding Organization (Small and Medium-sized

ESG

employees with disabilities

Enterprises Category) for three consecutive years from 2019

Initiatives

• Established a Diversity Promotion Project Team (formerly the Women's Career Promotion Project Team)

• Concluded an Official Gold Partner Agreement with the Japan Para-Badminton Federation

Society

• In order to enable continuous use and prompt resumption of activities in the event of a major earthquake,

adopted an optimal structural format

• Started special sponsorship of the Hulic Cup Kisei Championships

• Established the Hulic Cup Hakurei Championships and women's rank-deciding

competition

Corporate

• Organized a Risk Management Committee, a Fund ALM Committee, and a Compliance Committee

• Appointed a female external director

• Established Corporate Governance Guidelines, a Remuneration Committee and a Nominating Committee

• Introduced the Board Benefit Trust (BBT), a stock compensation system for directors, etc.

Governance

• Made all external officers (directors and auditors) independent officers

Business

ESG Initiatives

Financial and Corporate Information, etc.

4 Hulic Co., Ltd. Integrated Report 2021

Hulic Co., Ltd. Integrated Report 2021 5

Profile of Hulic

Hulic's Management Policy and Business Strategies

Management Policy

Driving Innovation and Accelerating Progress

Balanced Management

Strike a balance between P/L Growth, Profitability, B/S Soundness, and Productivity (efficiency) at a high level

P/L Growth		B/S Soundness
Posted continued earnings growth since listing on TSE		Credit rating: A+ (positive) (as of May 12, 2021)
Average rate of growth of Consolidated Ordinary Income: 22.0%		Equity Ratio (December 31, 2020): 32.7%*
Profitability		Productivity (Efficiency)
Maintained higher profitability than competitors		Putting emphasis on income per employee and ROE
Ordinary Income to Sales ratio (FY2020): 28.1%		ROE (FY2020): 13.4%

*50% (JPY175 Bln) of all hybrid finance raised in 2018 and 2020 combined (JPY350 Bln) was calculated as nominal equity.

Business Strategies

Expansion of business domains

Leasing Business

P. 36〜39

We are providing the real estate leasing business based on rental properties we own and manage, primarily in Tokyo 23 wards. We have disaster-resilient and highly safe offices, commercial facilities, hotels, nursing homes, and rental housing, etc. with earthquake-resistant and seismic-damping structures in convenient locations near stations. These form the core of our business model.

• To effectively use this asset portfolio and further improve profitability, we are aggressively investing in real estate acquisition and operation, as well as development and reconstruction of properties in prime locations. In this way, we strengthen our real estate leasing business.

Development Business

P. 40〜43

For Hulic-owned properties whose floor area could be increased in accordance with zoning laws, we systematically carry out reconstruction suitable for the location with optimal floor area ratio. This enables us to increase leasing revenue while making qualitative improvements to our portfolio.

• In addition, we aim to create added value through the acquisition, development, and sale of new properties using the skills and know-how we have cultivated through the reconstruction of existing properties. We are pursuing highly value- added development business opportunities with excellent earthquake-resistant features and energy-saving performance in superior locations.
• Furthermore, we strongly pursue opportunities in PPP business*1 and development of medium-sizedurban-style commercial facilities ("&New" series)*2.

*1 We are participating in projects to support the efficient use and operation of public assets (national and local government-owned land) by providing the know-how cultivated through the development and reconstruction of office buildings and commercial & lodging facilities.

*2 We are providing the development of "commercial buildings with a strong presence" though expanding the "&New" series of medium-sizedurban-style commercial facilities.

Value-added Business

P. 44〜45

StrategiesHulic Group's Value Creation StoryAbout Hulic Group

Diversification of assets

Current Businesses

Leasing Business		Development Business
Value-added Business		New Acquisitions (including M&As)
Publicly offered REIT		Private REIT

Initiatives in growth fields in line with the needs of the times

Seniors, Tourism and Environment

"&New" (urban-style commercial facilities)		Data Centers, etc.

New Businesses

New initiatives responding

to market needs

• Bizflex
• Education business for children etc.

We are engaged in the business of using various value adding methods including as renewal, renovation and conversion to increase the asset value of properties we own and those we have recently purchased or invested in for resale. We take profits by sales of these properties once we have maximized a property's value.

• We also hold assets for short-term warehousing purposes with the aim of helping distribution of real estate in response to the diverse needs of the real estate market.

New and Other Businesses

P. 46〜51

We launched several new businesses in recent years on the back of our corporate culture which allows us to constantly challenge in progressive new business fields. We will continue to create new businesses in targeted fields that have unmet market needs and good growth prospects by employing various methods including business collaboration and alliance, as well as M&As.

• Senior citizen-related business

As the aging of society proceeds, we anticipate that social demands for nursing and medical care will increase. Therefore, we are

actively promoting the development of nursing homes, hospitals, and burial pavilions, as well as businesses to promote wellness

Business

ESG Initiatives

Our Strengths

1	Stable revenue structure	2	The majority of properties is	3	Selection and concentration
in prime locations of central
centered on leasing business	strategy
			Tokyo and/or near stations

Core Fields	Non-core Fields
• Tokyo and/or near stations	• Regional office buildings
• Medium-sized office buildings	• Large-scale office buildings
• Reconstructions, and small to medium-sized developments	• Large-scale developments
• Nursing homes, hotels, ryokans (Japanese style luxury inns)	• Condominiums for sale, overseas businesses

6 Hulic Co., Ltd. Integrated Report 2021

and QOL of healthy and active seniors.

• Tourism-related business

To capture demand for tourism, which is expected to increase over the medium- to long-term, Hulic operates own-brand hotels and

ryokans (Japanese style luxury inns), and we are acquiring more hotel assets.

• Environment-related business

In recent years, we have been developing the highest level of environmental technologies, installing them in our buildings, and

commercializing this process in recognition of increasing environmental issues including climate change.

• Bizflex business

We will develop a series of medium-sized flexible offices called "Bizflex" and provide services that allow tenants to use the offices flexibly.

• Children's education business

We will promote businesses that provide education-related services for children.

• Other businesses

Our Group companies are in various businesses including operation of REITs (both publicly offered and private), building management, insurance, and

contracting for construction work among other opportunities. We are also working to utilize technologies such as AI and IoT in various businesses.

Hulic Co., Ltd. Integrated Report 2021

Financial and Corporate Information, etc.

7