1. TBLI Conference Asia 2011 Workshop 9 Research and Innovation - in the Field of Responsible Property Investment in Japan September 15 th , 2011 Masato Ito The Sumitomo Trust and Banking Co., Ltd.

2. Todays Contents

• What is Responsible Property Investment

• Recent Survey Regarding RPI

• RPIs Potential to Make Added Value

• Activities for Innovating Japanese Property Market

3. What is Responsible Property Investment

• Responsible Property Investment is an approach to property investment that recognizes Environmental, Social, and Governance considerations along with more conventional financial objectives.

• UNEP Finance Initiative Property Working Group aims to encourage property investment and management practices that achieve the best possible environmental, social and financial results.

4. Recent Survey regarding RPI (1) - From Investors Point of view

• Japan Real Estate Institutions Research June 2009

Realization of those less-important environmental efficiency should be required. Earthquake Resistance Maintenance Management Energy & Water Saving Recycled Materials Reducing Garbage

5. Recent Survey regarding RPI (2) - From Tenants Point of View

• The Sumitomo Trust s Research (Entrusted to STB Research Institute, July 2009) Tenants place much importance on Energy Saving, CO2 Reduction and Reducing Garbage as well as High-speed Communications Lines, OA Floors and Electrical Socket Capacity.

High-speed Communications lines Electrical Socket Capacity Energy Saving OA Floors Reducing Garbage CO2 Reduction

6.

• The Sumitomo Trust s Research (Entrusted to STB Research Institute, July 2009) How much are you willing to pay in addition to the current rents if you can save your utilities as much as 5% of the rents as a result of the renewal of the building?

Researches Regarding Added Value (3) - Tenants are willing to pay Why are you willing to pay over 5% (more than you saved)? (Image Improvement) (Labors Efficiency Improvement) (Labors Creativity Improvement) (Considering Environmental Risk) (Others)

7. Recent Survey Regarding RPI in Japan (4) - From Office Workers Point of View

• The SumitomoTrusts Research (Entrusted to STB Research Institute, April 2010)

Office workers place much importance on vegetations in terms of creativity. Their consciousness of biodiversity has also been growing. Office elements which affects work efficiency and creativity Vegetation areas Appropriate width of working space Comfortable temperature and humidity Comfortable temperature and humidity Working space with a fine view Work Efficiency Creativity

8. Recent Survey Regarding RPI in Japan (5) - Japanese RPI Survey-1 Survey of Responsible Property Investment(RPI) Summary Report , March/2010, Ministry of Land, Infrastructure, Transport and Tourism

9. Recent Survey Regarding RPI in Japan (5) - Japanese RPI Survey-2 Drivers of RPI Survey of Responsible Property Investment(RPI) Summary Report , March/2010, Ministry of Land, Infrastructure, Transport and Tourism

10. Recent Survey Regarding RPI in Japan (5) - Japanese RPI Survey-3 Barriers of RPI Survey of Responsible Property Investment(RPI) Summary Report , March/2010, Ministry of Land, Infrastructure, Transport and Tourism

11. RPIs Potential to make added value (1) Net income that real estate produces Capitalization rate(*) Three aspects of real estate valuation Expense characteristics Marketability Profitability Two major elements of income approach Countermeasures from environmental consideration Deduce worth of environmental value-added components The income approach" that reflects "profitability" of real estate tends to be emphasized Value indicated by Income approach (*) ( Real estate yield ) * In the case of direct capitalization (description upcoming )

12. RPIs Potential to make added value (2) Cash Expenses Net income Cost of New Tenants Utilities Leasing & Mgt Maintenance Gross Income Taxes & Insurance Added value Net Income Cost of New Tenants Utilities Leasing & Mgt Maintenance Taxes & Insurance Decreases by Energy Saving Decreases by Improvement of Durability Net Income Increases If there is a reduction of property taxes If the total income increases A note on environmental value added for real estate (Masato Ito) On the occasion tenth anniversary commemorative article for Tokyo Association of Real Estate Appraisers, 2005 Value added by Increasing Net Income Conventional Properties RPI Properties

13. RPIs Potential to make added value(3) Marketability environmental Capitalization rate Risk Free Rate Added value Environmental depreciation Depreciation Risk premium marketability Other Risk Free Rate When Durability of a building increases Green Real Estate will not be affected by future taxation and regulations thanks to its environmental nature. Image Improvement Effect thanks to environmental consideration A note on environmental value added for real estate(Masato Ito) On the occasion tenth anniversary commemorative article for Tokyo Association of Real Estate Appraisers, 2005 Environmental value-added means risk premium reduction Other Conventional Properties RPI Properties

14. Activities for innovation(1) Sustainability-related Policy in Japan

• Tokyo-ETS - The world s first urban cap and trade program to cover office buildings. -It covers 1,400 facilities and 40% of commercial and industrial sector s emissions.

• The Bill of the Basic Act on Global Warming Countermeasures - Establish domestic emission trading scheme within around one year after coming into force of the Basic Act.

• New subsidy schemes Projects for installation of advanced CO2 reduction facilities and systems Projects for ultra long-term houses

• Dissemination of CASBEE

15. Activities for Innovation (2) Utilizing Green Building Rating system-1

• What is CASBEE? Comprehensive Assessment System for Building Environmental Efficiency

http://www.ibec.or.jp/CASBEE/english/methodE.htm

16. Activities for Innovation (2) Utilizing Green Building Rating system-2 Towards launching a very simple version of CASBEE

• Creating simple, comparable, compatible system

• Covering common metrics

• Connecting to property appraisal

Rating Systems in the World (e.g. BREEAM, LEED, Green Star) Common Metrics 6 items Current CASBEE approx. 110 items 1/10/2010 Masato Ito Image of very simple version of CASBEE 10-20 items

17. Activities for Innovation (2) Utilizing Green Building Rating system-3 In future, rating systems could be

• Sharing Common Metrics

• Including each country s particular items

• Connecting to property appraisal

• Coexisting of For DfE version and For Investors version

Rating Systems for DfE in the World Common Metrics CASBEE for DfE 1/10/2010 Masato Ito CASBEE for Investors Rating Systems for Investors

18. Activities for Innovation (2) Utilizing Green Building Rating system-4 In Japan CASBEE is beginning to discuss with market participants a short form version of CASBEE metric (the CASBEE for Market Promotion tool.) In the US and Europe, LEED and BREEAM are also beginning to roll out short-form versions of their better known measurement schemes, for existing stock. This study argues that environmental property metrics users and suppliers must bridge the gap that separates them to successfully measure the environmental performance of property portfolios and related improvement activities.

19. Activities for Innovation (3) Fujisawa Sustainable Smart Town

• Aiming to realize Panasonic' concept of a safe, secure and sustainable smart town.

• Aiming to reduce carbon dioxide emissions by 70 percent, compared to the 1990 levels.

• Developing real estate assessment indices that facilitate market acceptance of environmentally-conscious urban development as real estate value.

( News Release by Panasonic Corporation, May 26, 2011)

20. The Sumitomo Trust s homepage on Sustainable Real Estate http://www.sumitomotrust.co.jp/csr/innovation/real-estate/01english.html