Kenedix Retail REIT Corporation

Securities Code:3453

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  3. Governance Structure

Governance Structure

Decision-making flow for investment management

As an asset management company of KRR, Kenedix Real Estate Fund Management, Inc. ("the Asset Manager") establishes management guidelines of the Retail REIT Department ("the Management Guidelines"), and sets forth basic investment management guidelines including investment policy, related party transaction rules, distribution policy and disclosure policy, regarding the asset management of KRR.
Furthermore, as set forth in the Management Guidelines, the Asset Manager creates asset management plans, medium-term business plans and annual business plans. It also makes acquisition decisions according to investment policy and related party transaction rules set forth in the Management Guidelines.
The decision-making flow for implementing and revising the Management Guidelines and asset management plans as well as acquiring and disposing assets are shown below in "Managing conflicts of interests". Pursuing highly transparent decision-making flow pursuant to these policies and rules enhances KRR’s governance over the Asset Manager.

Managing conflicts of interests

Where deemed appropriate or in the case of a related-party transaction, the compliance officer submits proposals to the compliance committee for its review and approval, prior to submission to the asset management committee under the Retail REIT Division Related-party Transactions Rules.


(Note) Transactions within the scope of insignificance criteria are excluded from the decision-making process above.

Roles of outside members in managing conflicts of interests

The outside member of the Asset Management Committee of Retail REIT Department within the Asset Manager is a real estate appraiser who is not a special related party of the Kenedix Group. The outside member of the Compliance Committee of the Asset Manager is a lawyer who is not a special related party of the Kenedix Group. Two-thirds vote including votes from the outside member and the Head of Retail REIT Department is necessary for a resolution by the Asset Management Committee. As for the Compliance Committee, unanimous vote is necessary. These rules enhance management of conflicts of interests.

Introduction of DPU-linked and unit performance-linked management fee structures

KRR has adopted DPU-linked as well as investment unit performance-linked asset management fee structures to provide further incentives to enhance unitholder value.

Method for calculating
Subject of calculation Rates
Asset management fee Total assets 0.27%
(annual rate)
Net income × DPU 0.0013%
Investment unit performance fee KRR's excess return × Market capitalization 0.1%
Acquisition fee (Note 2) Acquisition price 1.0%
Disposition fee Disposition price 0.5%
Merger fee Appraisal value of assets to be succeeded 1.0% (maximum)
(Note 1) The table above shows an outline of KRR's management fee structures. For details, please refer the press release "Notice Concerning Changes to the Articles of Incorporation and Appointment of Directors" dated May 17, 2018.
(Note 2) Includes acquisition of buildings through expansion or reconstruction.

Executive pay

The criteria and timing for payment of remuneration to directors of KRR shall be as follows.

(1) KRR shall pay monthly remuneration to executive directors at an amount decided by the board of directors, up to an amount equivalent to 800,000 yen per month for each executive director, no later than the last day of the relevant month.
(2) KRR shall pay monthly remuneration to supervisory directors at an amount decided by the board of directors, up to an amount equivalent to 500,000 yen per month for each supervisory director, no later than the last day of the relevant month.

The Kenedix Group's business model that benefits from our growth

J-REIT assets constitute the majority of Kenedix Group AUM. Because of the importance of the J-REIT business to the Kenedix Group, we believe that our sound growth is in line with their interests.

Efforts to ensure compliance

■Promoting compliance

The Asset Manager considers that one of the most important challenges in management is to ensure that compliance duties are fulfilled. With this in mind, the Asset Manager has a framework whereby compliance is promoted under the leadership of the board of directors, the Compliance Officer and the Compliance Committee. The board of directors determines basic policies in conjunction with the company-wide promotion of compliance, and has the authority to request, if necessary, that the Compliance Officer and Compliance Committee report on progress in the promotion of compliance. The board of directors also discusses and decides on the appointment of outside members of the Compliance Committee, outside members of the asset management committees of the respective departments, and a compliance officer.

■Role of Compliance Officer

The Compliance Officer works on the establishment of compliance system in the Asset Manager and the creation of a corporate culture that abides by laws and regulations, as well as rules.
The Compliance Officer ensures that the necessary relevant documents are prepared in conjunction with the presentation of such an agenda as the establishment/change of management guidelines and asset management plans for the respective departments and the acquisition of individual assets, and conducts preliminary examinations regarding whether there are any serious problems in terms of compliance, such as the violation of laws and regulations. The Compliance Officer also administers matters regarding compliance in the Asset Manager as a chairperson of the Compliance Committee. Specifically, the Compliance Officer is assigned with duties such as drafting and improvement of compliance manuals and compliance programs, as well as periodical provisioning of instructions/training to executives and employees and the inspection of compliance with laws and regulations, based on compliance programs. The formulation and revision of compliance manuals and compliance programs, which are drafted by the Compliance Officer, are put into practice subject to the decision of the board of directors after being discussed and resolved at the Compliance Committee meetings. Compliance programs are formulated every business year, and the progress is reported promptly to the board of directors by the Compliance Officer.

■Important matters concerning compliance

Important matters concerning compliance are discussed/decided at the Compliance Committee meetings and reported to the board of directors. The Compliance Department, as a supporter of the Compliance Officer, shall provide every possible support for the duties of the Compliance Officer according to the instructions by the Compliance Officer.

■Auditing system

The Head of the Internal Audit Department of the Asset Manager carries out an internal audit annually pursuant to the internal audit regulations, and produces an internal audit report that accurately reflects the issues found and raised in the internal audit. The person in charge of internal audits shall share such an internal audit report with the President & CEO and the board of directors without delay. The audited departments shall develop and implement remedial programs for issues raised in the internal audit report without delay, factoring in the significance of such issues. The person in charge of internal audits shall administer the progress of corrective measures taken by the audited departments regarding the issues, confirm the achievement of such measures, and ensure that the result is reflected in subsequent internal audit plans.
The board of directors or a person in charge of internal audits shall have outside experts conduct an external audit if such an audit is considered necessary to verify appropriateness of the business operations of the Asset Manager, or for any other reasons.

■Counter-measures against bribery and corruption

The Asset Manager has stipulated in its employment regulations and the compliance manual that it shall not engage in any misconduct such as bribery, embezzlement and money laundering. Any individual who has committed such misconduct shall be subject to stringent actions.

■Whistle-blowing system

The Asset Manager has established a whistle-blowing system applicable to all employees and its operation. It is aimed at preventing and detecting early contravention to laws and regulations and scandals through misconduct or harassment of any kind, enhancing the company's self-cleaning process, controlling reputational risks and securing its social credibility. Employees are obliged to notify, declare to or consult with any of the contacts established in the company, the parent company or outside attorneys. Those who have proactively cooperated with the notification or investigation are subject to protection.

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