Japan Excellent : Financial Results Material

PRINCIPAL ADVERSE IMPACT STATEMENT

The following is the adverse sustainability impact statement of Japan Excellent, Inc. ("JEI") pursuant to Regulation (EU) 2019/2088 ("SFDR"). We have no employees in accordance with the prohibition on having employees under the Act on Investment Trusts and Investment Corporations of Japan and rely on Japan Excellent Asset Management Co., Ltd. (the "Asset Manager"), to manage and operate the properties in our portfolio. JEI and the Asset Manager are hereinafter referred to collectively as "we," "us" or "our."

1. Summary

We consider principal adverse impacts of our investment decisions on sustainability factors. The present statement is our consolidated statement of the principal adverse impacts on sustainability factors ("PAI"). The statement covers the reference period from January 1, 2022 to June 30, 2022. The statement will be reviewed at least once during every year.

We believe that our sustainability initiatives are essential for our sustainable growth. We improve long-term returns of investors and contribute to the realization of sustainable society and urban development by implementing initiatives that address social issues. Under our sustainability policies and framework, we, in collaboration with the Asset Manager, take actions on climate change, including energy conservation, and being resilient in times of disasters.

We use the definition of PAI as described in Recital 20 of SFDR being "those impacts of investment decisions and advice that result in negative effects on sustainability factors," with sustainability factors referring to environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters as defined in article 2 (24) of SFDR.

We believe that investment decisions that negatively affect climate or other environment-related resources, or have negative implications for society, can have a significant impact to risk and value creation for our unitholders. To this end, we consider PAI of our investment decisions throughout all major steps of the investment decision and property management process throughout the lifecycle of the properties in our portfolio.

Please note that SFDR requirements, including the scope of their application to issuers outside the European Economic Area, continue to evolve. We are therefore taking a principles-based approach to compliance with the SFDR disclosure standards, which are subject to change.

2. Description of principal adverse sustainability impacts

Nearly all types of economic activity have the potential to impact various PAI indicators, both positively and adversely. We aim to manage the risk connected to PAI from our investment decisions in several ways, including general screening criteria, due diligence and our ESG initiatives. Some of the PAI indicators listed below are currently already being monitored and reported. As the availability of data improves, it is our intention that more indicators will be added.

Table 1

Principal adverse sustainability impacts statement

Indicators applicable to investments in real estate assets

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Adverse		Impact in	Impact in
sustainability	Metric	Explanation	Actions taken
2022	2022
indicator
Fossil	17.	Share of	N/A	N/A	We do not	N/A
fuels	Exposure	investments in			invest in real
	to fossil	real estate			estate assets
	fuels	assets involved			involved in the
	through	in the			extraction,
	real estate	extraction,			storage,
	assets	storage,			transport or
		transport or			manufacture of
		manufacture of			fossil fuels.
		fossil fuels
Energy	18.	Share of	As of June 30,	As of	To track the	We implement
efficiency	Exposure	investments in	2022, 12.3%	December 31,	environmental	as appropriate
	to energy-	energy-	of our	2021, 15.3%	performance of	measures to
	inefficient	inefficient real	properties	of our	our properties,	reduce the
	real estate	estate assets	were not	properties	we rely on	environmental
	assets		"Eligible	were not	certifications	impact of our
			Green Assets"	"Eligible	issued by third-	properties
			(as defined to	Green Assets"	party	following
			the right)	(as defined to	organizations,	acquisition,
			based on total	the right)	such as the	including by
			leasable floor	based on total	green building	obtaining
			area.	leasable floor	certification of	environmental
				area.	the	certifications
					Development	such as DBJ
					Bank of Japan	green building
					("DBJ"),	certification or
					Comprehensive	CASBEE for
					Assessment	Real Estate
					System for	certification
					Built	through an
					Environment	acquisition of
					Efficiency	"BIZCORE"
					("CASBEE")	series
					certification,	properties with
					and other	relatively high
					equivalent	environmental
					certifications.	performance.
					We call our
					properties that
					has acquired
					one of (i) DBJ
					Green Building
					Certification
					and (ii)
					CASBEE for
					Real Estate
					certification as
					"Eligible Green
					Assets."

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Table 2

Additional climate and other environment-related indicators

Adverse
sustainability	Adverse sustainability impact (qualitative or quantitative)	Metric
impact
	Indicators applicable to investments in real estate assets
Climate	18. GHG emissions	Scope 1 GHG
change		emissions generated
	Scope 1 GHG emissions generated by properties were 4,230 t-CO2	by real estate assets
	(in 2018), 4,089 t-CO2 (in 2019), 3,577 t-CO2 (in 2020) and 4,164	Scope 2 GHG
	t-CO2 (in 2021). Scope 2 GHG emissions generated by properties	emissions generated
	were 39,827 t-CO2 (in 2018), 38,888 t-CO2 (in 2019) , 33,222 t-	by real estate assets
	CO2 (in 2020) and 26,323t-CO2 (in 2021).	From 1 January
	Total GHG emissions generated by properties were 44,057 t-CO2	2023, Scope 3 GHG
	(in 2018), 42,978 t-CO2 (in 2019), 36,799 t-CO2 (in 2020) and	emissions generated
	30,487 t-CO2 (in 2021).	by real estate assets
	Scope 3 GHG emissions generated by properties are not	Total GHG
	applicable.	emissions generated
	We aim to achieve a 46% reduction in CO2 emissions (intensity)	by real estate assets
	from our portfolio by 2030 compared with 2013 levels.
Energy	19. Energy consumption intensity	Energy consumption
consumption		in GWh of owned
	Energy consumption of owned properties was 128,178 MWh (in	real estate assets per
	2018), 122,695 MWh (in 2019), 109,293 MWh (in 2020) and	square meter
	110,536 MWh (in 2021).
	We aim to reduce energy consumption by installing eco-friendly
	equipment such as LED lighting, which reduces electronic usage,
	and operating energy-saving air conditioning systems in high-
	efficiency methods. As of June 30, 2022, JEI had installed LED
	light bulbs in 88.6% of common areas of our portfolio, and had
	already installed energy-saving air conditioning systems in all of
	our portfolio.

Table 3

Additional indicators for social and employee, respect for human rights, anti-corruption and anti-bribery

matters

JEI has no employees in accordance with the prohibition on having employees under the Act on Investment Trusts and Investment Corporations of Japan, and relies on the Asset Manager to manage and operate the properties in our portfolio. Accordingly, additional indicators for social and employee, respect for human rights, anti-corruption and anti-bribery matters in this PAI statement pertain to the Asset Manager and the tenants of the properties in our portfolio, to the extent available.

SOCIAL AND EMPLOYEE, RESPECT FOR HUMAN RIGHTS, ANTI-CORRUPTION AND ANTI-

BRIBERY MATTERS

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Adverse
sustainability	Adverse sustainability impact (qualitative or quantitative)	Metric
impact
	Indicators applicable to investments to the Asset Manager or tenants
Social and	5. Lack of grievance/complaints handling mechanism related to	Share of investments in
employee	employee matters	investee companies
matters	We have established a system which enables employees to	without any
	grievance/complaints
	anonymously seek consultation or file complaints at our office	handling mechanism
	regarding any employee matter such as harassment. Under this	related to employee
	system, an employee may consult with or file a complaint to the	matters
	Compliance Officer, Business Planning Department Manager
	and/or outside counsel, and it will be reported to our	Aa of June 30, 2022, all
	Representative Director. After reviewing facts, a disciplinary
	of the Asset Manager's
	action will be taken if necessary. In addition to this system,
	employees were
	employees may use a feedback box at our office to provide their
	provided
	feedback anonymously on their work environment and business
	grievance/complaints
	operation. Such feedback is discussed among the President and
	handling mechanism
	other relevant personnel to decide on appropriate measures.
	related to employee
		matters.
Human Rights	6. Insufficient whistleblower protection	Share of investments in
		entities without policies
	We have established a whistleblower system and implemented a	on the protection of
	compliance channel which enables officers and employees to	whistleblowers
	anonymously contact outside lawyers and our compliance officer
	to report a compliance violation. Once outside lawyers or our	All of the Asset
	compliance officer receives a report, necessary investigation and	Manager's officers and
	appropriate measures will be taken by our compliance officer and	employees are provided
	investigation team.	whistleblower protection.
	.
Anti-corruption	15. Lack of anti-corruption and anti-bribery policies	Share of investments in
and anti-bribery		entities without policies
	When entering into a lease contract with a tenant, we confirm, in	on anti-corruption and
	accordance with our internal rules, that the tenant is not an anti-	anti- bribery consistent
	social force and has no relationship with anti-social forces. In	with the United Nations
	addition, we conduct a periodic anti-social check of each tenant	Convention against
	once a year.	Corruption
		We have confirmed that
		there are no tenants that
		fall under the category of
		antisocial forces in our
		properties.

For descriptions of actions which JEI takes and will take with respect to the PAI indicators, please refer to our ESG website with respect to JEI: https://www.excellent-reit.co.jp/ja/esg/

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3. Description of policies to identify and prioritize principal adverse sustainability impacts

Subject to data availability, we monitor the selected PAI indicators for the existing properties in our portfolio.

Prior to our investment in a property, we conduct due diligence review of the property, including ESG due diligence, which includes selected PAI indicators. The due diligence findings related to selected PAI indicators are reported and reviewed prior to the investment decision.

JEI has established a sustainability finance framework and a green finance framework to provide investors with investment opportunities of environmental and/or social significance. Proceeds obtained through sustainability bonds or sustainability loans will be used to acquire properties that are classified as Eligible Sustainability Projects, or refinance or redeem existing bonds issued to acquire Eligible Sustainability Projects, which will be projects selected by the Asset Manager's Sustainability Committee that meet the following criteria: (i) properties that have received, or are expected to receive, one of DBJ Green Building certification (3-star rating or better) and CASBEE Real Estate certification (B+ ranking or better) within the three years prior to the financing date or within the remaining term of the loan or bond, and (ii) properties that meet or exceed a given standard with respect to community disaster prevention, childcare support or socio-economic advancement and empowerment that help to address social issues. On the other hand, proceeds obtained through green bonds or green loans will be used to acquire properties that are classified as Eligible Green Projects, which will be specified assets (other than Eligible Sustainability Projects) that have received, or are expected to receive, one of DBJ Green Building certification (3-star rating or better) and CASBEE Real Estate certification (B+ ranking or better) within the three years prior to the green finance issuance date, or that meet the following eligible criteria: funds will be used for repayment of loans obtained to acquire Eligible Green Projects, or funds for redemption of bonds (including Green Bonds). In addition, proceeds obtained through green finance are allocated as funds for renovations that aim to make a property achieve a 20% or more reduction in GHG emissions or energy consumption, or to obtain green building certifications.

For further information, please refer to our ESG website: https://www.excellent-reit.co.jp/ja/esg/

4. Engagement policies

Due diligence and screening

As part of due diligence review prior to investment in a property, the Asset Manager conducts environmental assessment and evaluation of earthquake resistance and probable maximum loss. The Asset Manager also reviews each property's green building certification and environmental performance including CO2 emissions at the time of acquisition. In addition to the review of environmental issues discovered through due diligence review, we evaluate risks associated with climate change and environmental issues. Furthermore, we review each property's green building certification at the time of acquisition to confirm the status of acquiring the certificates.

The Asset Manager's investment decision-making process involves assessment of material ESG-related risks and opportunities to ensure that our investment strategy is sustainable. With each acquisition opportunity, JEI and the Asset Manager review ESG-related due diligence findings and risk assessment. These findings and assessment are required to be considered by the Asset Manager's Compliance Committee, Investment Committee and Board of Directors before a final decision is made on the investment.

In addition, we monitor and track energy consumption, greenhouse gas emissions, water usage and waste amounts at our properties.

Engagement

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