PROMOTION OF ENVIRONMENTAL AND/OR SOCIAL CHARACTERISTICS – SFDR PRECONTRACTUAL DISCLOSURE
Product Name: Sekisui House Reit, Inc.
Sekisui House Reit, Inc. (“SHR”) promotes environmental or social characteristics, but does not have as its
objective a sustainable investment within the meaning of article 9(1) of Regulation (EU) 2019/2088 (“SFDR”). SHR
has no employees in accordance with the prohibition on having employees under the Act on Investment Trusts andInvestment Corporations of Japan, and relies on Sekisui House Asset Management Co., Ltd. (the “Asset Manager”)
to manage and operate the properties in SHR’s portfolio. SHR and the Asset Manager are hereinafter referred tocollectively as “we”, “us” or “our”.

Does this financial product have a sustainable investment objective?
☐ Yes
☒ No
☐ It will make a minimum of sustainable ☐ It promotes Environmental/Social (E/S)
investments with an environmental objective:
characteristics and while it does not have as its__%
objective a sustainable investment, it will have aminimum proportion of __% of sustainable
investments☐ in economic activities that qualify asenvironmentally sustainable under the☐ with an environmental objective in
EU Taxonomy
economic activities that qualify asenvironmentally sustainable under the☐ in economic activities that do not qualify
EU Taxonomy
as environmentally sustainable under the
EU Taxonomy☐ with an environmental objective ineconomic activities that do not quality as
environmentally sustainable under the
EU Taxonomy☐ with a social objective☐ It will make a minimum of sustainable
investments with a social objective: __%☒ It promotes E/S characteristics, but will not makeany sustainable investments

What environmental and/or social (“E/S”) characteristics are promoted by Sekisui House Reit, Inc.?
SHR has set a vision of “managing assets to better provide for people, society and the future”. We believethat addressing social issues through asset management that takes Environmental, Social and Governance (“ESG”)
into consideration will contribute to the realization of a sustainable society and enhance stakeholders’ trust, thereby
contributing to securing stable earnings over the medium to long term and maximizing unitholder value.
SHR does not have a specific index designated as a reference benchmark to determine whether SHR is alignedwith the environmental or social characteristics that it promotes.
We implement various environmental initiatives including the following:•

Addressing Climate Change. We aim to reduce energy consumption intensity of SHR’s portfolio by 10%
by 2028 compared to the level in 2018. As our medium term target, we aim to reduce the combined
amount of Scope 1 and Scope 2 greenhouse gas (“GHG”) emissions by 42% by 2030 compared to thelevel in 2021. We also aim to track and reduce Scope 3 GHG emissions. As our long term target, we aim

to achieve net zero emissions by 2050. We also aim not to increase waste emissions intensity above 2018
levels and reduce water use intensity by 5% by 2030 compared to the levels in 2018.
•

Reducing Energy Consumption and GHG emissions. We have installed LED lighting (at 71 properties
as of April 30, 2024, which are expected to reduce the annual electricity usage by 61.9% and the annual
CO₂ emissions by 757 tons with the transition thus far), and other equipment with low environmental
impact in SHR’s properties. We also have made other energy-saving investments, including solar power
generation panels (at 10 properties as of April 30, 2024), Low-e double-glazed windows with thermal
shielding and thermal insulation capability, flow control valves that prevent water overflow,
showerheads with water-saving features, and chargers for electric vehicles. In addition, with the longterm target of achieving net zero GHG emissions, we have worked on a variety of projects. For instance,
we have switched to renewable energy-sourced electricity, and the ratio of the properties using renewableenergy-sourced electricity in the entire portfolio was 85.5% (based on number of properties) as of April
30, 2024. SHR also has switched the contract for power supply to Sekisui House Owner Denki (Note) for
Hirokoji Garden Avenue, resulting in CO₂ emissions from electricity to be virtually zero. Furthermore,
SHR introduced virtual renewable energy through the purchase of non-fossil fuel energy certificates withtracking at the Non-fossil Fuel Energy Value Trading Market of the Japan Electric Power Exchange via
a broker. By purchasing the non-fossil fuel energy certificates corresponding to the electric power
consumption in the common area of the properties, CO₂ emissions from the electricity usage of theproperties have become virtually zero at certain properties. In addition, SHR has acquired validation
through SBTi (Science Based Targets initiative) in May 2023 regarding the medium term GHG reduction
target and already reduced the combined amount of Scope 1 and Scope 2 GHG emissions by 69.1% in
2023, compared to the level in 2021 as the base year. We also acquired our first ZEH (Net Zero Energy
House) property, Prime Maison Asakusa EAST in April 2024. This property received a 5-star rating, thehighest rank in BELS (Building-Housing Energy-efficiency Labeling System), and acquired certification
for ZEH-M which refers to a condominium that realizes significant energy conservation while
maintaining indoor environmental quality by introducing high efficient facilities and aiming to reduce
primary energy consumption by 20% or more throughout the building.
(Note) Sekisui House Owner Denki is a service in which the power supply company (Osaka Gas
regarding this Property) purchases surplus electricity from solar power generation from owners of houses
built by Sekisui House, Ltd. (the “Sponsor” or “Sekisui House”). This surplus electricity is purchased ata stable price even after the expiration of the feed-in tariff (FIT) system and sold to Sekisui House andothers, procuring electricity derived from renewable energy thus reducing the CO 2 emissions fromelectricity to virtually zero.

•

Biodiversity Conservation. We are committed to the “Gohon no Ki” (meaning five trees in Japanese)
Project, initiated by the Sponsor toward the creation of gardens and communities. Through this project,
we aim to co-exist with the surrounding nature by creating gardens with indigenous trees that are inharmony with Japan’s nature and climate. We replanted trees and other vegetation for Esty Maison
Kayaba and other residences. When replanting, in accordance with the Gohon no Ki Project, we confirm
the details of the replanting, such as the selection of native tree species and whether there are any nonnative species that require comprehensive measures.

•

Urban Revitalization/Urban Development (1). We, in cooperation with the Sponsor, aim to create
sustainable cities through the acquisition of environmentally-friendly properties developed by theSponsor, which is focused on developing properties using natural energy and adopting energy-saving
technologies. Prime Maison Gotenyama East, Prime Maison Gotenyama West, and Gotenyama SH
Building owned by SHR are properties planned and developed under Sekisui House’s large-scalecomplex development called the Gotenyama Project. It is not only a large-scale development that
advocates a sense of scale, but also is based on the revitalization of the original landscape of“Gotenyama”, which is rich in nature, and creating an expressive and intimate human-scale townscape.
In addition, the project focuses on environmental considerations and actively uses natural energy andadopts advanced energy-saving technologies. In the Gotenyama Project, more than 40% of the total
development area is covered with vegetation and plants through exterior planting and rooftop greenery.
Based on Sekisui House’s proprietary Gohon no Ki Project, which takes into account the ecosystem ofJapan’s original “Satoyama” landscape, a green network that is integrated with the greenery in thesurrounding area through the preservation of existing trees and planting over 26.4 thousand trees, mainly
indigenous species.
•

Urban Revitalization/Urban Development (2). We, in cooperation with the Sponsor, aim to create
sustainable cities through the acquisition of environmentally-friendly properties developed by theSponsor. Prime Maison EGOTANOMORI is a property planned and developed by the Sponsor throughthe EGOTANOMORI Project, a large-scale urban development project carried out on land owned by the
Urban Renaissance Agency. The property consists of five different buildings: Prime Maison
EGOTANOMORI EAST/WEST (rental condominiums for families), MAST ONE EGOTANOMORI(a rental condominium for students and single-persons), GRAND MAST EGOTANOMORI (serviced
housing for the elderly), and NICHII HOME Egotanomori (a paid nursing home with long term care).
The area where this property is located is blessed with a rich natural environment and has been designatedas a wide-area evacuation site in the Tokyo Metropolis. In the Nakano City urban planning master plan,
the area is considered to have sufficient evacuation routes and an environment that is harmonious withthe abundant greenery in the surrounding area, and is positioned to promote the supply of good housing
complexes, etc. In addition, the community was developed under the concept of creating a sustainablecommunity nurtured by multiple generations in order to take advantage of the many schools, medical
facilities, and facilities for the elderly in the area. We aim to develop a community that regenerates as
an area where diverse generations live together, including students, young family households starting toraise children, and elderly people who want a safe and comfortable life.

•

Promotion of Green Leases and Collaboration with Tenants and Property Managers. We, incollaboration with tenants and property managers, implement various environmental measures, such as
for energy conservation and CO2 reduction, at some of SHR’s properties. At Akasaka Garden City,
tenants are regularly convened to hold CO2 reduction promotion meetings, where energy consumption
and CO2 emissions are reported to each tenant, and energy conservation efforts are explained inconjunction with these reports to raise environmental awareness. We also enter into lease agreements,
which include provisions that require our tenants to cooperate with us in collecting energy consumption
data, obtaining green certifications and taking other environmental measures and engage in other ESG
efforts such as reduction of waste generated during renovation of buildings and use of building materials
that are environmentally-friendly (such lease agreements, the “Green Leases”), with our tenants. We
have set “achieving 70% or more of the portfolio with Green Leases by 2030” as one of our key
performance indicators (“KPIs” or individually, “KPI”) and, as of April 30, 2024, SHR has entered into
Green Leases with 34.2% of the tenants at its owned properties based on leasable area. In addition, byconducting and monitoring tenant satisfaction surveys via external evaluation agencies, we strive toimprove environmental awareness among tenants and suppliers.

We implement various social initiatives at SHR’s properties including:•Contribution to Local Communities. We take initiatives to harmoniously co-exist with local communities
by opening up Kid's Room and Dining Lounge of SHR’s properties and introducing share bikes and foodtrucks at some properties for tenants and local residents. Additionally, in order to deeply communicate
with tenants and local residents, we participate in events held by local communities in which our owned
properties are located. We have also installed disaster relief vending machines to allow anyone to getfree drinks during times of disasters or other emergencies, as well as AEDs.

•

Providing Safety, Security, and Comfort for Tenants. In preparation for typhoons, earthquakes, and otherdisasters which have caused enormous damage in recent years, we have installed and introduced disasterprevention facilities and equipment such as emergency power generators, disaster prevention centers andquake-absorbing structure in some of SHR’s properties, so that tenant businesses and residents feel safe.
Hommachi Minami Garden City takes business continuity into account by using seismic bracing
installed on each floor to absorb the forces that would act on the building in a major earthquake, and bysituating its mechanical room on the 3rd floor, above flood level. At HK Yodoyabashi Garden Avenue,
the floor level of the first floor has been raised by 0.5 m from the front road on the north side to prevent

flooding into the building, in readiness for flooding damage due to torrential rain, and flooding
countermeasures have also been implemented in the B1F parking lot, which is susceptible to damage
due to rainwater flowing in from the road. We have also equipped Prime Maison Shinagawa with solar
batteries, storage batteries, and emergency generators designed for emergency power supply system. We
conduct tenant satisfaction surveys, the findings of which are shared with property managers, building
managers and other related parties so that they can be responsive to tenants’ needs and improve theirservices.
•

Acquisition of Certification for Comprehensive Assessment System for Built Environment Efficiency(“CASBEE”) Wellness Office. Hommachi Minami Garden City and Akasaka Garden City have received“Rank A” of the Certification for CASBEE Wellness Office. Furthermore, the properties have also
received “S Rank” of the Certification for CASBEE for Real Estate, and are certified as “Rank A” ofCertification for CASBEE Smart Wellness Office, which can be obtained by combining eachcertification.

•

Creating Comfortable Workplace Environment for Employees. The Asset Manager, as a member ofSekisui House Group, has made efforts to reduce overtime work and increase the ratio of employees
taking annual paid leave, to promote better work-life balance. For example, the Asset Manager has
established an annual paid leave system that allows employees to take up to five days out of the eligible
leave period on an hourly basis, and flexible workdays that allow employees to shift their start and end
times at work, both of which are widely used for child rearing, family care and family events. The AssetManager has set average monthly work hours per person of 162 hours or less and a usage rate for annual
paid leave of 70% or more as KPI targets and, for the Asset Manager’s fiscal year ended January 31,
2024, the average monthly work hours per person was 160.0 hours and the usage rate for annual paid
leave was 79.5%. The Asset Manager has also established the Health Committee, which meets once amonth with an occupational physician. The Health Committee offers workshops to employees to help
them manage their health and safety in their workplaces. The Asset Manager also conducts stress checks
to protect employees from mental distress.

•

Promoting Diversity. The Sekisui House Group’s Human Rights Policy stipulates that the Group willcontinuously promote the creation of a corporate structure with zero tolerance for any discrimination orharassment based on birth, nationality, race, ethnicity, beliefs, religion, gender, sexual orientation,
gender identity, age, disabilities, preference, educational background, family, etc., in order to promote
diversity. As a member of the Group, the Asset Manager also implements initiatives for women, senior
employees and persons with disabilities to give them active participation opportunities in the work
environment in accordance with this policy.

•

Internal Reporting System. The Asset Manager operates a Compliance Hotline based on the
Whistleblower Protection Act of Japan to strengthen its compliance through early detection andcorrection of fraudulent actions. The Hotline accepts meeting requests or reports from all directors andemployees regarding any violation of law and is designed to appropriately deal with them. The
Compliance Officer or Internal Control Promotion Department investigates each case and takes
corrective action and implements measures promptly to prevent recurrence and discipline relevant parties
as appropriate. In addition, directors and employees of the Asset Manager, and directors and employeesof subcontractors and business partners with whom Sekisui House Group has ongoing business
relationships can also use the Sekisui House Group’s Compliance Helpline for handling consultation
regarding concerns pertaining to legal and corporate ethics infractions and transaction-related issues.

•

Respect for Human Rights. To ensure respect for the human rights of all stakeholders in our business,
we are continuously working to cultivate a corporate culture that prevents discrimination, harassment
and human rights violation based on international rules on human rights such as the United Nations’
Universal Declaration of Human Rights, the SDGs and the Ten Principles of the UN Global Compact.
The Asset Manager strives to ensure that there is no human rights violation, including harassment, by
creating a workplace where all employees can work enthusiastically and achieve growth according to
the Sekisui House Group’s Human Rights Policy, established by Sekisui House in April 2020. Alldirectors and employees of the Asset Manager take the human relations training once a year as a memberof Sekisui House Group.
•

Endorsement of “Advance”. The Asset Manager is committed to ensuring that all of its directors andemployees fulfill their responsibilities to respect human rights in accordance with the “Sekisui HouseGroup Human Rights Policy” formulated by Sekisui House. Believing that the objectives of “Advance”,
a human rights collaboration initiative established by the Principles for Responsible Investment (“PRI”)
that calls for action on human rights and social issues, are in line with the “Sekisui House Group Human
Rights Policy”, the Asset Manager has signed on as an endorser in March 2023.

•

Human Resource Development. The Asset Manager has made efforts to encourage employees to acquire
qualifications to develop expertise such as the ARES Certified Master, a certification received after
attending an educational program that teaches practical know-how in real estate and finance, and theAsset Manager covers the associated expenses incurred by employees. In addition, the Asset Manager
established the training system and this tiered professional development program builds leadership forraising organizational productivity by tailoring learning to the skills and requirements of each job level.
The Asset Manager has set the internal training participation rate of 100% and annual participation inexternal training events per person of 3.0 events or more, in each case by the end of the Asset Manager’s
fiscal year ending January 31, 2025, as KPI targets.
Unit

2021*

2022*

2023*

Average hours of training
Hours
14.5
12.6
15.5
per person
Average costs of training
Yen
27,794
11,21329,377per person
Internal training
%
100.0
100.0
100.0
participation rate
Number of external
training courses attended
Times
3.4
2.4
6.1
per person*The data aggregation period (i) except for the internal training participation rate is from February 1 toJanuary 31 of the following year of the year indicated, and (ii) for the internal training participation rateis from April 1 to March 31 of the following the year of the year indicated.
•

What sustainability indicators are used to measure the attainment of each of the E/S characteristics
promoted by Sekisui House Reit, Inc.?
We use the following indicators to measure the attainment of the E/S characteristics we promote:•Environmental certification of individual properties. To track the environmental performance of
SHR’s properties, we rely on certifications issued by third-party organizations, such as theDevelopment Bank of Japan’s (“DBJ”) Green Building Certification and Certification for CASBEE
for Real Estate. We have acquired two stars or more out of DBJ’s five-star ranking system for 35 of
SHR’s properties as of April 30, 2024. Concerning CASBEE, we have acquired B+ or more out of
CASBEE’s 4 rank ratings (S, A, B+ or B) for 62 of SHR’s properties, as of April 30, 2024.

•

ESG assessment of SHR. To track our ESG performance, we obtain third-party assessments, such as
GRESB Real Estate Assessment (“GRESB”), CDP Climate Change Assessment (“CDP”), MSCIESG Ratings, Corporate Sustainability Assessment by S&P Global (“CSA”) and FTSE Russel ESG
Rating. With respect to GRESB, in October 2023, we had acquired 3 Stars out of GRESB’s 5-Star
rating system. In addition, in October 2023, we had been awarded “Green Star” for having received
high marks for our environmental and sustainability efforts for seven consecutive years and acquired
the highest rating “A” out of its 5-scale ranking system based on disclosure assessment. With respect

to CDP, which is an international non-profit organization that manages a worldwide system for thedisclosure of environmental information by corporations and municipalities. Since its establishment
in 2000, CDP has been leading efforts to promote corporations to disclose their environmental
impact including reducing greenhouse gas emissions and protecting water resources and forests by
utilizing capital markets and corporate procurement. We participated in the CDP Climate Change
2023 category for the first time and received a score of “A-”, which is the second highest evaluation.
With respect to MSCI ESG Ratings, which investigate, analyze, and rate the extent to which
companies are appropriately managing the risks and opportunities related to ESG and provide acomprehensive corporate ESG rating of seven levels ranging from “AAA” to “CCC”, we acquired“AA” in May 2023. In addition, SHR is currently included in the MSCI Japan ESG Select Leaders
Index, an index composed of select companies with high ESG performance based on MSCI's
proprietary evaluation and scoring system among the companies in the MSCI Japan Investable
Market Index. With respect to the CSA which is designed to measure the performance of AsiaPacific sustainability leaders as identified by S&P Global through the CSA, constituent companies
with excellent sustainability performance are selected. In December 2023, SHR was selected as aconstituent of the Dow Jones Sustainability Asia/Pacific Index and for the first time in recognitionof SHR’s ESG efforts upon the 2023 review. With respect to the Sustainability Yearbook Member
which evaluates the major companies around the world based on ESG perspectives, we wereselected for the first time as one of the top 15% of companies with excellent sustainability
performance for the Equity Real Estate Investment Trusts (REIT) industry and published in the
Sustainability Yearbook 2024. With respect to the FTSE Russel ESG Rating which measures theperformance of companies that demonstrate strong ESG practices, we were selected as a constituentof the FTSE4Good Index Series in recognition of SHR’s ESG efforts upon the 2022 review. With
respect to the Sustainalytics ESG Risk Ratings which is an ESG Risk Rating measuring a company’s
exposure to industry-specific material ESG risks and how well a company is managing those risks
provided by Morningstar Sustainalytics, SHR was assessed to be at Negligible Risk in 2024.
•

Tracking of environmental performance data. The Asset Manager tracks and monitors data on CO2emissions, energy consumption, water use, generated waste and renewable energy power generationof the properties in SHR’s portfolio.
oEnergy consumption. The Asset Manager tracks and monitors energy consumption data
including total energy consumption (measured in MWh), breakdown between electricity
and fuel in energy consumption (measured in MWh) and energy consumption intensity(measured in MWh / m2), of the properties in SHR’s portfolio.
Unit
Total energy
consumption
Electricity
Fuel
Energyconsumption
intensity

o

MWh

MWh /
m2

2018*
(base year)

2021*

2022*

2023*

41,581

51,42951,04651,65228,152
13,24936,42315,00636,507
14,53936,274
15,378

0.174

0.165

0.160

0.159

CO2 emissions. The Asset Manager tracks and monitors CO2 emissions data including total
CO2 emissions (measured in t-CO2), Scope 1, Scope 2 and Scope 3 CO2 emissions(measured in t-CO2) and CO2 emissions intensity (measured in t-CO2 / m2), of theproperties in SHR’s portfolio.

Unit
Total CO2
emissions
Scope 1
Scope 2
Scope 3CO2emissions
intensityot-CO2 /
m2

2022*

2023*

14,833

8,939

17,321

764
4,362
9,707

795
1,734
6,410

791
793
15,737

0.048

0.027

0.034

Water use. The Asset Manager tracks and monitors water use data including total wateruse (measured in m3) and water use intensity (measured in m3 / m2), of the properties in
SHR’s portfolio.

Total wateruse
Rainwater
Publicwater
Water use
intensity

o

t-CO2

2021*
(base year)

Unit

2018*
(base year)

2021*

2022*

2023*

m3

780,360

819,330

866,107

940,719

3

2,509

2,416

3,400

2,478

m3

777,851

816,914862,707938,241

m3 / m 2

1.743

1.561

1.543

1.588

m

Generated waste. The Asset Manager tracks and monitors generated waste data including
total generated waste (measured in tons), breakdown among waste disposal methods oflandfill, incineration and recycle (measured in tons), and generated waste intensity(measured in kg / m2), of the properties in SHR’s portfolio.
Unit
Total generated
waste
Landfill
Incineration
Recycled
Reuse
Other
Generated
waste intensity

tons

kg / m2

2018*(base year)

2021*

2022*

2023*

1,055

696

884

759

357
197
501
-

57
230
351
39
18

10
346
523
4

22
359
368
11

7.455

3.288

4.236

3.618

(Note) Figures in the tables above are based on data* collected from the properties held asof the end of the year indicated, excluding certain properties due to data availability. In
addition, properties that were disposed of during the period are excluded. The relevant data
has been verified by a third party for the years 2022 and prior, and the same verification isunderway for the 2023 data.
*Data aggregation period is from January 1 to December 31 for year 2023. For the years
prior, the data aggregation period is from April 1 to March 31 of the following year of theyear indicated. For water, the data is aggregated from January of each year to the end of

December, from year 2022 onward. Additionally, waste data will continue to be aggregatedfrom April 1 to March 31 of the following year for all years indicated.
•

Principles for Responsible Investment (“PRI”): The PRI was established for the financial industry
in 2006 under the leadership of the then-United Nations Secretary-General, Kofi Annan, together
with an international network of investors. In 2019, the Asset Manager became a signatory andsupports the PRI by incorporating ESG consideration into its investment analyses and decisionmaking process. In 2023, the Asset Manager acquired the highest rating of “5 stars” in two categories,“Policy Governance and Strategy” and “Real Estate”, on PRI’s annual assessment.
Click here for ASSESSMENT REPORT.
Click here for PRIVATE TRANSPARENCY REPORT.

•

Task Force on Climate-related Financial Disclosures (“TCFD”): The TCFD was established by
the Financial Stability Board at the request of G20 to consider how financial institutions should
disclose climate-related information. Based on the TCFD recommendations, the Asset Manager
identified and disclosed the risks and the opportunities posed by climate change to the business in
2020, and further analyzed and conducted a scenario analysis in 2021, using future climate
projections published by international organizations and other sources as the main source of
information. In 2022, in addition to analyzing the financial impact of the identified risks andopportunities, the Asset Manager conducted an analysis using CRREM (Carbon Risk Real Estate
Monitor). In 2023, using the latest pathways, the Asset Manager updated the risk analysis for SHR’s
office buildings, which was conducted in 2022, and expanded the scope of analysis to the entire
portfolio.

•

UN Global Compact: Sekisui House Group, to which the Asset Manager belongs, has expressed its
commitment to respecting human rights in the Sekisui House Group’s Corporate Code of Conduct
and Corporate Ethics Guidelines. Sekisui House Group has also expressed support for the 10
principles of the UN Global Compact.

Principal Adverse Impacts
Does Sekisui House Reit, Inc. take into account principal adverse impacts on sustainability factors?
Yes, we collect on an ongoing basis select information on SHR’s existing portfolio regarding the principal
adverse impact indicators, including exposure to fossil fuels through real estate assets, exposure to energy-inefficient
real estate assets, GHG emissions, energy consumption intensity and waste production in operations. We aim to
manage the risk connected to principal adverse impacts from our investment decisions in several ways, including
general screening criteria and due diligence.
•

Exposure to fossil fuels through real estate assets. SHR does not invest in real estate assets involvedin the extraction, storage, transport or manufacture of fossil fuels.

•

Exposure to energy-inefficient real estate assets. We consider properties other than Green Certified
Assets (as defined below) to be energy-inefficient real estate assets. As of April 30, 2024, 16.5% of
SHR’s properties were not Green Certified Assets based on gross floor area. As described in moredetail above, we implement as appropriate measures to reduce the environmental impact of theseproperties, including by obtaining environmental certifications.

•

GHG emissions. Scope 1 GHG emissions generated by the properties in SHR’s portfolio were 2,473
t-CO2 (in 2020), 764 t-CO2 (in 2021), 795 t-CO2 (in 2022), and 791 t-CO2 (in 2023). Scope 2 GHG
emissions generated by the properties in SHR’s portfolio were 13,420 t-CO2 (in 2020), 4,362 t-CO2(in 2021), 1,734 t-CO2 (in 2022), and 793 t-CO2 (in 2023). Scope 3 GHG emissions generated bysuch properties in SHR’s portfolio were 9,707 t-CO2 (in 2021), 6,410 t-CO2 (in 2022), and 15,737
t-CO2 (in 2023). Total GHG emissions generated by the properties in SHR’s portfolio were 15,892
t-CO2 (in 2020), 14,833 t-CO2 (in 2021), 8,939 t-CO2 (in 2022), and 17,321 t-CO2 (in 2023). We
aim to reduce Scope 1 and Scope 2 GHG emissions by 42% by 2030 compared to the level in 2021
as the mid term target. We also aim to track and reduce Scope 3 GHG emissions. As the long term
target, we aim to achieve net zero emissions by 2050.
•

Energy consumption intensity. Energy consumption intensity of SHR’s properties was 0.161 MWh/ m2 (in 2020), 0.165 MWh / m2 (in 2021), 0.160 MWh / m2 (in 2022) and 0.159 MWh / m2 (in2023). We aim to reduce energy consumption by 10% or more between 2018 (0.174 MWh / m2) and
2028 based on intensity.

•

Waste production in operations. Total volume of waste generated by the properties in SHR’s
portfolio was 714 tons (in 2020), 696 tons (in 2021), 884 tons (in 2022) and 759 tons (in 2023) ofwhich 344 tons (in 2020), 351 tons (in 2021), 523 tons (in 2022) and 368 tons (in 2023) wererecycled.
(Note) Figures indicated above are based on data* collected from the properties held as of the endof the year indicated, excluding certain properties due to data availability. In addition, properties
that were disposed of during the period are excluded.

* Data aggregation period is from January 1 to December 31of the year indicated. For waste production,
the data is aggregated from April 1 to March 31.
We consider, both at the entity-level (i.e., the Asset Manager) and at the fund-level (i.e., SHR.), principal
adverse impacts of our investment decisions on sustainability factors. Under the Investment Trust Act of Japan, SHR
is prohibited from having any employees and is required to outsource asset management to a third party. Accordingly,
as discussed in detail elsewhere, any consideration at the fund-level of principal adverse impacts of our investment
decisions on sustainability is principally conducted by the Asset Manager, subject to the approval of our Board of
Directors. In addition to the Asset Manager’s contractual obligations to SHR under the asset management agreement,
the Financial Instruments and Exchange Act of Japan provides that the Asset Manager owes SHR a fiduciary duty inconducting its activities, including making investment decisions informed by sustainability considerations.
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 the principal adverse impacts of our investment decisions on the above sustainability factors
throughout all major steps of the investment decision and management process throughout the lifecycle of theproperties in SHR’s portfolio.
Investment Strategy
What investment strategy does SHR follow?
We believe that there is a growing need for real estate in locations that provide sustainable living to residents
and locations that can be sustainable bases of operation for tenants’ businesses. We also believe that there is demand
for real estate with high, basic functionality as residences, such as comfort and safety, and functionality desired bytenant businesses. By leveraging the Sponsor’s know-how on operation and management of real estate, we promote
environmental initiatives such as energy saving and safe living and business continuity for the benefit of residents andtenant businesses.
In line with the above investment strategy, we issue green bonds and green loans that take into consideration
ESG factors using our green finance framework.
•

Green Finance Framework. SHR’s green finance framework, which was established in 2022, is applicable toboth green bonds (Note 1) and green loans, under which certain environmentally-friendly investment projects(“Eligible Green Projects”) are evaluated and selected by the Sustainability Committee, which is chaired by theAsset Manager’s President & Representative Director and participated by all full-time directors, Compliance
Officer and heads of all department of the Asset Manager, in accordance with its Sustainability Policy andeligibility criteria described below. As of April 30, 2024, SHR’s portfolio included 96 Eligible Green Projects(83.7% of SHR’s portfolio based on gross floor area) based on SHR’s green finance framework.
(Note 1) Information about the former green bond framework that is applicable to the outstanding green bonds
issued prior to the green finance framework can be found on our website: [ https://ssl4.eirparts.net/doc/3309/tdnet/1656516/00.pdf] As of April 30, 2024, we had 94 eligible green projects (82.6% of
SHR’s portfolio based on gross floor area) based on our green bond framework.
oEligibility Criteria. A building that received a third-party certification described below at the borrowing
or payment date of green finance, and/or that is expected to receive such certification:▪

3, 4, or 5 Stars under the DBJ Green Building Certification;▪

B+, A or S rank under the CASBEE certification for Real Estate;▪

BELS Certification: 3 Stars, 4 Stars, 5 Stars; or▪

BELS Certification: following assessment of ZEH and ZEB
i. ZEH-M, Nearly ZEH-M, ZEH-M Ready, ZEH-M Oriented; orii. ZEB, Nearly ZEB, ZEB Ready, ZEB Oriented.

oManagement of Procured Funds. We intend to allot the funds procured through green bonds and green
loans towards Eligible Green Projects. As long as the outstanding green bonds or the green loan balance
exist, we will manage to ensure that the total amount of the outstanding green bonds and the green loanbalance does not exceed the Eligible Green Liability (Note). In addition, we will report that the total
amount of funds procured through green bonds and green loans has been fully allocated to Eligible Green
Projects and as long as the outstanding green bonds or the green loan balance exist, the allocated funds
will be tracked and managed internally on a portfolio basis. If all or part of the funds procured throughgreen bonds or green loans are not immediately allocated to Eligible Green Projects, we will identify
unappropriated funds and manage all or part of the funds raised in cash or cash equivalents until theunappropriated funds are allocated to Eligible Green Projects
Note: Eligible Green Liability is calculated by multiplying total acquisition price of Eligible Green Projects by LTV (total asset
basis) as of the end of the latest fiscal period.

oThird-party Eligibility Assessment. We acquired “Green 1(F)”, the highest rating in “Green Finance
Framework Evaluation” from JCR as a third-party evaluation of the Framework.

In order to implement initiatives continuously and systematically based on our Sustainability Policy, theAsset Manager has established the Sustainability Committee, which generally meets at least once every quarter, toestablish targets, monitor compliance, evaluate the effectiveness of measures undertaken, and discuss improvement
measures. To understand and address issues from the perspectives of different departments, we have also placed thedepartment of sustainability promotion under the Sustainability Committee to enhance planning and promotion of
ESG targets. The Sustainability Committee consists of the following members of the Asset Manager: Chief Executive
Officer (President and Representative Director), Chief Operating Officer (Director in charge of ESG Promotion
Department), full-time directors, Compliance Officer and heads of all departments.
•

What are the binding elements of the investment strategy used to select the investments to attain each of
the E/S characteristics promoted by Sekisui House Reit, Inc.?

A binding element of the investment strategy is the use of the proceeds of green bonds or green loans
under our green finance frameworks described above. Eligible Green Projects are evaluated and selected by theSustainability Committee, which is participated by the Asset Manager’s the President & Representative Director
as Chief Sustainability Officer, the Director in charge of ESG promotion as Chief Sustainability Operator, all fulltime directors, the compliance officer, and all heads of departments of the Asset Manager, in accordance with its
Sustainability Policy and eligibility criteria described above. When we select assets for investment in connection
with our green bonds and green loans, the properties must meet the eligibility criteria.
We may also acquire properties that might be qualified for 1 or 2 Stars under the DBJ Green Building
Certification or B under the CASBEE certification for Real Estate (together with Eligible Green Projects, “Green
Certified Assets”) and do not meet our Eligibility Criteria (described above). On the other hand, we were able toachieve the previous KPI target of achieving a portfolio of 70% or more of which constitutes Green Certified
Assets by 2022 based on gross floor area and aim to maintain the percentage at 70% or higher thereafter.
•

What is the committed minimum rate to reduce the scope of the investments considered prior to theapplication of that investment strategy?

Prior to SHR’s investment in a property, the Asset manager conducts due diligence on the property,
including environmental risk assessment, by investigating the history of use of hazardous substances such as
asbestos and PCB, geological conditions and soil contamination. We do not consider investing in properties that
do not meet the standards for soil contamination and other environmental contamination in accordance with the
Air Pollution Control Act and the Soil Contamination Countermeasures Act of Japan and other environmental
laws and ordinances. However, from time to time we acquire properties not meeting the standards as long as they
are deemed fixable promptly after acquisition. Also, we make investment decisions for properties outside Japanin accordance with the applicable environmental laws and ordinances in the respective jurisdictions and based onreasonable local practices.
•

What is the policy to assess good governance practices of the investee companies and Sekisui House Reit,Inc.?

SHR invests directly or indirectly through trust beneficiary interests in real estate and real estate-related
assets. Therefore, due diligence review (including the assessment of good governance practices) in relation toinvestee companies is not applicable.
We, along with the Asset Manager, have introduced the following measures to assess and enhance ourgovernance systems:•

Adoption of a decision-making process in conflict-of-interest transactions involving independent
outside experts. The Asset Manager has adopted frameworks that require (i) each decision regarding
a conflict-of-interest transaction to be made by the Investment Committee and Compliance
Committee, subject to the attendance and consent of external professionals who have no special
interest in any interested party such as the Sponsor; and (ii) preliminary review by the Compliance
Officer and the Internal Control Promotion Department, deliberation and resolution by theInvestment Committee and Compliance Committee, deliberation and approval by the Board of
Directors of the Asset Manager, and our consent based on deliberation and resolution of the Board.

•Internal audit system. The Asset Manager conducts annual internal audits every year. For the
implementation of internal audits, the Asset Manager will formulate an internal audit plan for eachbusiness year based on the internal audit rules, and then verify whether our operations are carriedout appropriately and efficiently in accordance with laws, regulations and internal regulations inaddition to verifying whether the corporate ethics standards (including corruption, bribery and fraud)are complied. The results are then reported to the Compliance Committee, President &Representative Director, and the Board of Directors, and a policy is in place to provide
recommendations or instructions for improvement to the relevant organizations and departments asnecessary. The Asset Manager also retains outside experts to conduct audits as necessary.

•Transparent and appropriate information disclosure. We take into consideration the transparencyof the information and the ease with which the shareholders will understand the information.

•

Promoting Diversity among Directors. Based on the belief that diversity is important to SHR, we
promote diversity in the composition of directors. The ratio of female directors is 50.0% as ofFebruary 2024.

•

Evaluation of the Effectiveness of SHR’s Board of Directors and the Asset Manager’s Board of
Directors. SHR and the Asset Manager set “enhancing the effectiveness of SHR’s Board of
Directors and the Asset Manager’s Board of Directors” as well as “conducting effectivenessevaluation questionnaire” as KPIs, and conducted self-evaluation. With this self-evaluation, we do
not only confirm whether the respective Boards of Directors fulfill their roles responsibly, but alsoenhance the effectiveness of the respective Boards of Director. Effectiveness evaluationquestionnaire is conducted once a year so that Executive Director, Supervisory Directors, Directors,
and Auditors can identify issues and make improvements based on the self-evaluation. In theprevious questionnaire, SHR’s Board of Directors and the Asset Manager’s Board of Directors
confirmed that their effectiveness was sufficiently ensured in terms of member composition,
frequency of meetings, number of agenda items, and the status of deliberation methods anddiscussions. On the other hand, it is recognized that strengthening the foundations for formulating
management policies and facilitating the management of meetings are issues to be addressed.

We make the following ongoing disclosures related to our green finance frameworks and Eligible Green
Projects:•

Green Finance Frameworko

Allocation Reporting.

oImpact Reporting. We annually disclose the following quantitative environmental
performance indicators as of March 31 on our website, as long as the outstanding green
bonds or the green finance balance exist.
▪

The number of Eligible Green Projects and acquired third-party Evaluations▪

Total floor area of Eligible Green Projects▪

Eligible Green Liability▪

The following quantitative indicators for Eligible Green Projects (with respect towhich we have energy management authority)•

Energy consumption•

CO₂ emissions•

Water consumption

Asset Allocation
What is the asset allocation planned for Sekisui House Reit, Inc.?
As of April 30, 2024, 83.5% of the properties in the portfolio based on gross floor area were Green Certified
Assets, and 16.5% were not Green Certified Assets. Our target is to maintain 70% or more of which constitutes Green
Certified Assets based on gross floor area.

83.5% is #1 Aligned with E/Scharacteristics#1B Other E/S characteristics

Investments of
Sekisui House Reit, Inc.
16.5% qualifies as #2 Other#1 Aligned with E/S characteristics includes the investments of the financial product used to attain the environmental
or social characteristics promoted by the financial product.
The sub-category #1B Other E/S characteristics covers investments aligned with the environmental or social characteristics that
do not qualify as sustainable investments.

#2 Other includes the remaining investments of the financial product which are neither aligned with the environmental
or social characteristics, nor are qualified as sustainable investments.
•

How does the use of derivatives attain the environmental or social characteristics promoted by Sekisui
House Reit, Inc.?
Not applicable.

To what minimum extent are sustainable investments with an environmental objective aligned with the EU
Taxonomy?
Not applicable.
•

Does the financial product invest in fossil gas and/or nuclear energy-related activities that comply with
the EU Taxonomy?
No. SHR does not invest in real estate assets involved in fossil gas and/or nuclear energy-related
activities.

•

What is the minimum share of investments in transitional and enabling activities?
Not applicable.

What is the minimum share of sustainable investments with an environmental objective that are not aligned with
the EU Taxonomy?
Not applicable.
What is the minimum share of socially sustainable investments?
Not applicable.

What investments are included under “#2 Other,” what is their purpose and are there any minimum environmental
or social safeguards?
As of April 30, 2024, 16.5% of the properties in SHR’s portfolio were not qualified as Green Certified Assets
based on gross floor area. As discussed in detail above, we invest in properties that have been subjected to ESG-related
due diligence review and risk assessment. We do not consider investing in properties that do not meet the standards
for environmental contamination in accordance with the applicable environmental laws and ordinances, unless deemedfixable promptly after acquisition.
Index as Reference Benchmark
Is a specific index designated as a reference benchmark to determine whether Sekisui House Reit, Inc. is alignedwith the environmental or social characteristics that it promotes?
Not applicable. SHR does not have a specific index designated as a reference benchmark to determine
whether SHR is aligned with the environmental or social characteristics that it promotes.
•

How is the reference benchmark continuously aligned with each of the environmental or social
characteristics promoted by Sekisui House Reit, Inc.?
Not applicable.

•

How is the alignment of the investment strategy with the methodology of the index ensured on a continuous
basis?
Not applicable.

•

How does the designated index differ from a relevant broad market index?
Not applicable.

•

Where can the methodology used for the calculation of the designated index be found?
Not applicable.

More Product-specific Information
Where can I find more product-specific information online?
More product-specific information can be found on the website: https://sekisuihousereit.co.jp/en/esg/index.html
Note Regarding the EU Taxonomy Regulation
As set out above, we promote certain environmental characteristics.
The Asset Manager is required, under Regulation (EU) 2020/852 (the “EU Taxonomy Regulation”), todisclose whether its assets are aligned with the environmental objectives formulated in the EU Taxonomy regulation.
The EU Taxonomy Regulation is to be complemented by technical standards and screening criteria. The technicalscreening criteria for the first two environmental objectives (climate change mitigation and climate change adaptation)
were adopted in December 2021 and amended in June 2023. The amended criteria apply as of January 1, 2024. The
technical screening criteria for the other four environmental objectives (sustainable use and protection of water andmarine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of
biodiversity and ecosystems) were adopted in June 2023. They apply as of January 1, 2024.

SHR invests in economic activities that are eligible under the EU Taxonomy Regulation in respect of climatechange mitigation and/or climate change adaptation. This means that screening criteria for these investments havebeen or will be developed. The Asset Manager expressly states that in view of the fact that the regulations are still
under development or have only recently been adopted and/or amended and the fact that, as a result thereof, data onalignment of our investments with these environmental objectives and climate related targets in line with EU
Taxonomy Regulation are not sufficiently available, the Asset Manager is not currently in a position to disclose on an
accurate and reliable basis to what extent our investments technically qualify as Taxonomy-aligned or“environmentally sustainable” within the specific meaning of the EU Taxonomy Regulation. SHR’s investments may
have a positive contribution to these environmental objectives and may therefore eventually be considered Taxonomyaligned, but at this stage, the Asset Manager is required to state that there is no minimum proportion of SHR’s
investments that qualify as such.
The Asset Manager further states that the “do no significant harm” principle applies only to those investments
underlying the financial product that takes into account the EU criteria for environmentally sustainable economic
activities. The investments underlying the other portion of this financial product do not take into account the EU
criteria for environmentally sustainable economic activities.

INTEGRATION OF SUSTAINABILITY RISKS IN THE INVESTMENT DECISIONS, AND THE IMPACT
OF SUCH RISKS ON THE RETURNS OF SEKISUI HOUSE REIT, INC. (SFDR ARTICLE 6 DISCLOSURE)
As described in further detail above, the Sustainability Committee generally meets at least once every quarter, toestablish targets, monitor compliance, evaluate the effectiveness of measures undertaken, and discuss improvement
measures, and makes updates in line with our sustainable investment objective. We have instituted a number of
initiatives, at both the portfolio level and the property level, to promote E/S characteristics. Such initiatives include
climate change initiatives and energy saving initiatives, which are described in detail above.
While sustainability issues will severely impact our business activities, we believe that such issues may also become
potential business opportunities to create new value for sustainable growth. Accordingly, we position our commitment
to sustainability as a top priority in our management strategies. We also believe that integrating sustainability factors
alongside traditional financial and operational metrics in our investment decision process helps us make a more holistic
assessment of risks and opportunities with respect to SHR’s properties and is commensurate with the pursuit ofsuperior risk-adjusted returns. We believe that our selection of “Prime Properties”, which are high-quality commercial
or residential properties suitable for sustainable business operation or living for tenants, reflects our holistic approach,as we review, with respect to each such property, the economic area, convenience, functionality/livability,
environmental consideration, business continuity plans/safety and brand.
Physical risks
The assets in which we invest are exposed to physical climate risks. These can manifest themselves
through, for example, floods, storms, heat, earthquakes and limited access to natural resources. This can meanthat the assets in which we invest become stranded assets. Specifically, for the assets in which the AssetManager managed, the following risks are particularly relevant. The risks are assessed by the TCFD 4 ℃
scenario and 1.5 ℃ scenario respectively. More information can be found on the website: https://sekisuihousereit.co.jp/en/esg/environmental/tcfd.html
Transition risks
The assets in which we invest are exposed to transition risks. These can manifest themselves through,for example, changes in regulations, technical developments and/or social developments. Such developments
may mean that the assets in which we invest become worthless. Specifically, for the assets in which the AssetManager managed, the following risks are relevant. The risks are assessed by the TCFD 4 ℃ scenario and 1.5 ℃
scenario respectively. The result in the assessment, the transition risks of the 4℃ scenario has not been includedin the following table because the impact was not significant. More information can be found on the website:
https://sekisuihouse-reit.co.jp/en/esg/environmental/tcfd.html
4℃ Scenario
Classiﬁcation

Physical risks

Acute

Risk and opportunity
factors, and ﬁnancial
impactReduced rents due toinability to operatebusinesses due toflooding
damagecaused by typhoons,
torrential rains, etc.
Increase repair costsduetoflooding
damagePeriodanticipatedAmount ofﬁnancial
implicationsMediumand long
term

(0.6)
billion yen

Mediumand long
term

(0.3)
billion yen

Countermeasures
Appropriate
response
based on monitoring offlooding risk
Implement measure suchas stocking emergency
power supplies andinstall tide and watergate barriers
Take out insurance

Identify
high-risk
properties
byquantitivel
yidentifyin
g physicalrisks and

4℃ Scenario
Classiﬁcation

Chronic

Risk and opportunity
factors, and ﬁnancial
impactIncrease electricity
costs due to increased
airconditioning
operation as a resultof chronically risingtemperatures

PeriodanticipatedMediumto longterm

Amount ofﬁnancial
implicatio
ns(0.01 to0.02)
billion yen

Countermeasures

Monitorusage
associated with weather
and temperature change
Optimize
HVAC
operation through highefficiency
airconditioning equipment
and building automation
systems (BAS), etc.
Thorough inspection of
HVAC equipment for
deterioration due toincreased operation

dispose ofsuchproperties
as needed
Incorporatequantitativ
e physicalrisk
information into preacquisitio
n property
evaluations

1.5℃ Scenario
Classiﬁcation

Transition risks

Policies,
laws andregulations

Risk and opportunity
factors, and ﬁnancial
impactDue to the introductionof carbon tax, tax
burdens corresponding to
GHG emissions will
increase operating costs

Periodanticipated

Amount ofﬁnancial
implications

Countermeasures

Mediumand long
term(0.1) billion
yen

Set reduction targets for
GHG
emissionsanddisclose progress against
targets

Physical risks

Increase in property
renovationcosts
asenergy regulations aretightened

Mediumand long
term(0.7) billion
yenTechnology

Increase in the cost of
introducing renewableenergy and energysaving technologies

Mediumand long
term(0.1) billion
yen

Reputation

Rising financing costs
due
toperceived
inadequacy of response
to climate change

Short,
medium andlong term(0.05)
billion yen

MarketDecreasedcompetitiveness and rent
income due to poor
environmental
performance of owned
properties

Medium tolong term(1.45 to 1.6)
billion yen

Reduced rents due toinability
tooperatebusinessesduetoflooding damage causedby typhoons, torrential
rains, etc.

Mediumand long
term(0.3) billion
yen

Increase repair costs due
to flooding damage

Mediumand long
term(0.1) billion
yen

Acute

Renovate properties for
improvedenergy-saving
performance
Procure renewable energy
Reallocate portfolio toincrease investment ratio inproperties with outstanding
environmental performance
Acquire ZEH and ZEB
properties
Collect information on newtechnologies and services
and add to portfolio
Convert owned properties to
ZEHs/ZEBs
Improve investor valuations
bystrengthening
information disclosure using
frameworks such as TCFD
Promote green financing
Identify needs throughtenant satisfaction surveys,
etc., and conduct energysaving renovations
Acquire ZEH and ZEB
properties
Acquire green certifications
Appropriate
Identify
response
high-risk
based
on properties
monitoringbyof flooding quantitively
risk
identifying
Implement
physicalmeasure
risks
and
such
as dispose ofstockingsuchemergency
properties
power
as needed
supplies and Incorporate
install tide quantitative
andwater physicalgate barriers riskTakeout information
insurance
into
pre-

acquisition
propertyevaluations

Chronic

Increase electricity costs
due to increased air
conditioning operation asa result of chronicallyrising temperatures

Mediumand long
term(0.01)
billion yen

Monitorusage
associatedwith weather
andtemperaturechangeOptimize
HVAC
operation
throughhighefficiency
airconditioning
equipment
and building
automation
systems(BAS), etc.
Thoroughinspection of
HVAC
equipment
fordeteriorationdue
toincreased
operation(Note) The amount of financial implications is the annual implications estimated by the Asset Manager based on theactual performance of SHR and other factors, and with reference to various parameters based on scenarios
presented by international organizations, etc. The accuracy of the figures is not guaranteed.

As a further step, we conducted a transition risk assessment analysis using the Carbon Risk Real Estate
Monitor (CRREM) for the portfolio (the portfolio excluding properties held as of March 2022 that was sold or decided
to be sold within one year). SHR will continue to take a strategic approach against climate change to both minimizerisks and maximize opportunities.

Social and governance risks
The assets in which we invest are exposed to social and governance risks as described below.
Bad governance risk: As prevention measures of conflicts of interest transactions, asset management
stipulates Rules for Transactions with Interested Parties concerning transactions between the Interested Parties of asset
management and us as an internal rule to exclude adverse effect of conflicts of interest. In addition, the Asset Manager
stipulates in the “Compliance Manual” that the Asset Manager prohibits fraudulent acts, such as money laundering,insider transactions trading, bribery, embezzlement for self-interest and other similar violations, and it will strictly
punish those who have committed such fraudulent acts. In addition, the Asset Manager is working to raise employee’s
awareness by conducting compliance training for all employees appropriately. With these efforts, this risk is assessed
as low for our assets.
Tax risk: Under tax law, investment corporations that meet certain requirements (conduit requirements) areallowed to include dividends of profits, etc. in their investment corporation's deductible expenses. However, if the
conduit requirement is not met, dividends of profits, etc. may not be included in deductible expenses, resulting in an
increased tax burden for us, which may adversely affect the amount of distributions to unitholders.