Director［ Kibe-log ］

Representative Executive OfficerPresident and CEOKibe Kazunari#４

The secondary market of infrastructure will bring moreinvestment
This is Kazunari Kibe, the President and CEO of INFRONEER Holdings Inc.
Thank you very much for your continuing to visit Kibe-log.

INFRONEER has been focusing on “de-contracting” and sits in a unique position in our primary business domain, theconstruction industry. Recently, I have felt that we have been increasingly able to reach out to investors and many otherpeople to promote and share our thoughts and business strategies with them more than before. Your continued support
would be highly appreciated as I would like to push our company and our current business strategies in this direction
without any hesitation.

The difficulty maintaining and renewing infrastructure without
utilizing a PPP (Public Private Partnership) scheme.
First and foremost, I would like to talk about the importance of the secondary market in the industry, especially so when we
aim to expand the infrastructure business in Japan.

As I mentioned in the first Kibe-log(https://www.infroneer.com/en/topics/blog_assets/entries/40/PDF_FILE/kibelog_en.pdf) titled “The future of thegeneral construction industry proposed by INFRONEER Holdings Inc.”, we have been expanding our business domainfrom our conventional contracting business. We have been developing our concession business by obtaining operatingrights for social infrastructure projects. These projects such as airports, water and sewage systems, toll roads, etc. involvethe initial construction as well as the continued operation, maintenance, and management of such projects.

In the past, we had won the operating rights of domestic concession projects such as the Sendai Airport and the Aichi
Prefectural Toll Road. This past year, the consortium led by Maeda Corporation along with other companies have acquired
the priority negotiation rights in both the improvement and operation of the Aichi Prefectural Gym Project under the systemof BT + C (Build Transfer Concession) as well as the operation and maintenance of the Osaka City Industrial Water Supply-1-

Specified Operation Project. We utilized the PPP (Public Private Partnership) scheme for both cases.

Winning one or two projects annually is not a bad pace for us given the current market situation. The market supply ofprojects is never great in number. However, I feel that the speed of PPP penetration in Japan is still too slow in comparison
with the markets in Europe and the United States.

It is indispensable for a depopulated Japanese society to introduce and utilize private funds in order to accelerate the speedof improvement and the renewal of decrepit social infrastructure. In other words, the aging social infrastructure cannot be
maintained without aggressive utilization of PPP.

If we compare the current situation with ten years ago when we started infrastructure business, PPP has gained more market
acceptance and recognition. However, the national government and the local governments still have negative opinions about
any aggressive utilization of PPP for management of social infrastructure.

As we showed in the concession of the Aichi Toll Road project, there are more opportunities to enhance efficiency inoperation and offer improvement of services by introducing the expertise of private companies in the operation, maintenanceand management of public infrastructure.
I think that the national and the local governments should consider introducing PPP more seriously into their infrastructure
improvement projects.

There is another reason why PPP projects don’t see the same adoption in Japan compared to over sea markets. Alongside thehesitancy from government bodies to utilize PPP for public works exists, there is also the issue of a lack of secondary markets
where one can trade infrastructure projects whose operating rights are sold to private companies.

Why can the concession operators take more risk on development
projects?
As you know, REITs are the listed funds which own income-producing properties. Thanks to the introduction of REITs, thedevelopment of real estate has become more active in last 20 years.

The listed REITS are so-called the final form of REIT.

There are many unlisted private funds in the real estate industry.

These private funds generally grow their size by adding self-developed properties or by acquisitions of income-producing
properties developed by the real estate companies.

Sometimes the funds accumulate a track record and achieve an IPO (Initial Public Offering) or in some other cases, the funds-2-

can sell their properties in the portfolio to REITs and realize the profits as capital gain.

In either case, the properties developed by the real estate companies or private funds will be ultimately acquired by the REITs
through sales transactions.

What makes this large flow of the properties to the REITs possible is the difference of each investors’ preference of risk vsreturn.

There are various risks in the development of real estate such as fund procurement, purchasing of land, construction, leasingup of the property after completion, etc. Considering all possible risks associated with the development of properties, it is not
too unreasonable for developers to seek for a return on the project to be around 10% or even 20%.

On the other hand, what is the expected return for an REIT investor?

Of course, the higher the better but I assume that

under circumstances of super low interest rates they are quite satisfied with current level of moderate return as long as theproperties keep generating stable profit.
At the moment, the average yield of REITs is around 3%.

Under the current situation of excessive liquidity, there are no better investments available in the market and the REIT
investors are happy with the current yield. If REITs are welcomed to pay only 3% yield to the shareholders, REIT could buy
more properties with higher acquisition prices based on the profit return method like DCF.

Considering the above, real estate companies and private funds can take higher risks in developments because REITs, final
purchasers of properties, are willing to purchase those properties even with a lower return on investment.

I believe we need to watch the market trend carefully because an overly aggressive movement toward this direction mightcause an over-heated market just like what happened before the financial crisis. Also, what I am talking about now is basedon theory and generalizations, remembering that each property has its own individual qualities.

But I hope you understand the importance of the role REITs play in the real estate market. The real estate companies can
supply “products” also known as income-producing properties into the real estate market with a sense of security thanks to
the listed REITs and their liquidity in the stock market.

Pension funds should invest in infrastructure.
The same products flow can be seen in the infrastructure funds that invest in renewable energy related facilities. Seven-3-infrastructure funds had been listed in the market since February 2016, which was when the first infrastructure fund which
had solar power plants was listed. Among these infrastructure funds, there are some facilities which were built by the starterof the fund and some facilities which were developed by a third party. There are many investors who want to invest in
renewable energy power plants in order to contribute to our carbon-neutral society but cannot take large risks in thedevelopment and the construction of said power plants. The developers of infrastructure projects who take such risks forinvestors can contribute to renewable energy through their investment in publicly listed infrastructure funds. Thanks to theIPO and the secondary market, the investors who cannot take the risks of development can invest in renewable energy.

INFRONEER plans to divest two renewable energy facilities in the 2021 and 2022 fiscal years. Some people have asked why
we want to sell these facilities now, especially when there is great focus into the investments of carbon-neutral projects. As I
mentioned before, we ourselves are investors who want to develop the renewable energy facilities from greenfield. We canrealize a carbon-neutral society by constructing solar power plants and supplying renewable energy to the community. I
believe this is the way we can contribute to society.

Let me talk about PPP for infrastructure. Currently the SPCs (Special Purpose Company) that operate, maintain and manage
the projects are owned by a company in the consortium when we proceed with a PPP infrastructure project.

In the case of the Aichi Toll Road, the majority of shares of the Aichi Road Concession Company, SPC for operation, is heldby Maeda Corporation. However, in oversea markets, pension funds are the primary investors in the infrastructure, which
generates long-term stable cashflow and has less co-relation with conventional assets such as stocks.

In Canada for example, large pension funds have been aggressively invested in infrastructure. Infrastructure investments
account for an average 10% of their portfolio. Investments in the infrastructure of OMERS (Ontario Municipal Employee’s
Retirement System) accounts comes close to 20% of their portfolio.

Thanks to the strong appetite from these pension funds, the unlisted infrastructure funds successfully raised 98 billion dollars
in total, a record-high in 2019.

[Reference]・Survey research on the infrastructure investment(https://www.nensoken.or.jp/wp-content/uploads/R1-3.pdf)

The GPIF (Government Pension Investment Fund) in Japan had stated that they invest 5% of its total assets in alternativeassets (such as infrastructure, private equity and real estate). At the moment however, there are not enough infrastructure
projects in the market. As I mentioned there was a record-high fund raising by the unlisted infrastructure funds. The wellbalanced development and divestment are necessary for the global infrastructure market to expand going forward.

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Development of a high-quality “infrastructure product” is a prerequisite for further growth but it is crucial to develop thesecondary market where the invested projects are divested. This is the reason why European and American companies havebeen aggressively promoting PPP projects taking on more risk in the development of infrastructure.

INFRONEER is aiming to be like them. We have grown our skills and knowledges in the construction and development ofinfrastructure, and we are proud of our expertise in engineering. Based on our experience, we are willing to take risks, develop
social infrastructure, and make them long-term income-generating projects as well as maintain their operation andmanagement but eventually sell out the equity to our investors such as pension funds.

If we can make this ecosystem work, it would be able to accelerate the improvement and the renewal of aging infrastructure
and ultimately improve the pension financing as well.

GPIF has begun showing their interest in infrastructure investment. We need to generate more projects for their futureinvestment.

I promise INFRONEER will be a pioneer to develop such market.

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