Sun Frontier Fudousan : Corporate Governance Report June 22, 2022

Corporate Governance

Sun Frontier Fudousan Co., Ltd.

Last Updated: June 22, 2022

Sun Frontier Fudousan Co., Ltd. Seiichi Saito, President Representative Director Contact: Takeshi Hirahara, General Manager of Corporate Planning Division Tel: [phone] Securities Code: 8934 https://www.sunfrt.co.jp/

The status of the Company's corporate governance is as follows.

I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information

1. Basic Views

The Group's basic policy for corporate management is that all officers and employees should set "the right thing to do as a human being" based on high ethical standards as a criterion for business execution and practice it.

Based on this, we recognize that it is an important mission of management to contribute to society through business activities and to pursue profit fairly, and to build firm trust from stakeholders such as shareholders, customers and employees, business partners, partner companies, the environment, and local communities by continuously increasing corporate value over the long term..

Based on this recognition, the Company is working to strengthen its corporate governance with the below basic policies:

（１） improving transparency and ensuring fairness,

（２） swift decision-making and business execution,

（３） thorough accountability,

（４） timely and appropriate information disclosure, and

（５） enhancement of compliance awareness.

At the 23rd Annual General Meeting of Shareholders Meeting held on June 21, 2022, the Company obtained approval for the necessary Company's Articles of Incorporation change and made the transition from a company with Audit & Supervisory Board to a company with Audit & Supervisory Committee. By adopting this corporate governance system, Audit & Supervisory Committee Members, who is in charge of audit and supervision of execution of duties of directors, will become a member of the Board of Directors, thereby strengthening the supervisory function of the Board of Directors and further enhancing corporate governance. In addition, by enabling Board of Directors to broadly delegate decisions on business execution to directors, we aim to speed up decision-making on business execution. At the same time, we aim to achieve sustainable growth and increase corporate value over the medium to long term by focusing on important management decisions such as management plans by Board of Directors.

[Reasons for Non-compliance with the Principles of the Corporate Governance Code]

All principles are described based on the code revised in June 2021.

[Supplementary Principle 2-4 (1) Ensuring Diversity in the Company, including the Promotion of Active Participation of Women]

The Group assigns employees to managerial positions based on performance and aptitude, regardless of gender, nationality, or mid-career recruitment. As of March 31, 2022, the number of women in managerial positions in the Group as a whole was 35 out of the total of 162 positions (unit managers and above) and accounted to 21.6%. In the future, we plan to establish policies and set measurable targets in our Sustainability Management Plan and make them public.

[Supplementary Principle 3-1 (iii) Initiatives for Sustainability]

The Group established the "Sustainability Committee" in October 2021 with the aim of contributing to the realization of a sustainable society and increasing corporate value over the medium to long term, through stronger promotion of activities that contribute to the resolution of social issues based on Management Principle and Corporate Philosophy. The Group reviewed and formulated the Sustainability Policies and announced them in March 2022.

In addition, the Group supports the TCFD recommendations and is preparing for disclosure in line with the TCFD recommendations in Annual Securities Report that are scheduled to be submitted in June 2023.

[Supplementary Principle 4-1 (iii) Successor Plan]

Although the Group has not established a specific successor plan for the Representative Director, the Company aims to foster successors by giving authority and responsibility to the General Managers and accumulating experience in a climate of friendly competition.

[Supplementary Principle 4-3 (ii) and Supplementary Principle 4-3 (iii) Roles and Responsibilities of Board of Directors (3)]

Given that the appointment and dismissal of the Representative Director is the most important strategic decision making, the Board of Directors appoints a person who has excellent personality and insight, is well-respected, and has a wealth of experience after giving due consideration to the objectivity, timeliness, and transparency of the appointment procedures, and sufficient discussions within the Board of Directors.

[Supplementary Principle 4-10 (i) Voluntary Nomination and Compensation Committee]

As a voluntary advisory body of Board of Directors, in order to improve the objectivity and transparency of the procedures concerning the appointment and dismissal of officers and the officers' remuneration, the Company has established a voluntary Nomination and Compensation Committee consisting of two or more members of Chairman- Representative Director, President-Representative Director and Outside Directors. For details, please refer to "II 1. Organizational Composition and Operation [Voluntary Committee]" of this report. From now on, we will consider making Outside Directors the majority of the members of the committee.

[Disclosure Based on the Principles of the Corporate Governance Code] [Principle 1-4 Cross-shareholdings]

As a basic policy, the Group does not hold cross-shareholdings unless the significance of such holdings is fully recognized.

The case where the significance of holding is fully recognized is the case where it is judged to contribute to the maintenance and improvement of the Company's corporate value.

In the event that the Group holds cross-shareholdings, the Group shall exercise its voting rights after comprehensively judging the pros and cons of such shareholdings, taking into consideration whether the issuing company has established an appropriate governance system and makes appropriate decisions that will lead to an increase in corporate value over the medium to long term, and from the perspective of improving the Company's corporate value.

If the Group judges that it cannot approve the proposal, the Group may consider the necessity of selling.

[Principle 1-7 Related Party Transactions]

In order to protect the interests of shareholders, the Group endeavors to prevent officers and employees of the Group from engaging in transactions that are contrary to the interests of the Group and its shareholders.

The directors of the Company shall not pursue their own interests or the interests of third parties against the interests of the Company, and even if they do not intend to do so, the supervisors shall not conduct conflict of interest transactions or competitive transactions without the approval of the Board of Directors. With regard to transactions between related parties, the relevant officers shall be excluded from the quorum of the resolution as specially interested parties, and the resolution shall be adopted in the Board of Directors. The Company shall verify after the fact that such transactions have been carried out properly and report this to the Board of Directors.

The Company also conducts quarterly investigations of all officers, including those of the Company and its subsidiaries, to confirm whether there is any transaction between related parties.

[Principle 2-6 Function as an asset owner of corporate pension]

The Company does not have a corporate pension system. When considering the adoption of a corporate pension system, the Company will make personnel and management efforts so that the corporate pension can function as an asset owner, considering that the management of the reserve fund of the corporate pension will affect the stable asset formation of employees and the financial condition of the Company.

[Principle 3-1 Enhancement of Information Disclosure]

The Group's Company policy, Management Principle and management plans are available on the Company's website.

• Company policy and Management Principle and such https://www.sunfrt.co.jp/en/company/concept_comp.html
• Medium-termmanagement plan https: https://www.sunfrt.co.jp/en/ir_info/ir_prospects/
• Sustainability https://www.sunfrt.co.jp/en/sustainability/

Please refer to "I 1. Basic Views" of this report for the Group's basic views on corporate governance.

（２）

（３）

（４）

（１）

With respect to remuneration of directors, who are not Audit & Supervisory Committee members, the remuneration amount and stock remuneration, which consist of a performance-linked portion and a fixed portion based on rank, are determined for internal director. With respect to outside director, the appropriate fixed remuneration amount is determined from the viewpoint of ensuring independence, based on the Board of Directors' resolution, within the framework approved by the General Meeting of Shareholders. This decision was made by the Board of Directors after consultation to the Nomination and Compensation Committee with two or more members from Chairman-Representative Director, President-Representative Director and Outside Directors.

In selecting a director, the Group assumes that the following requirements are met, in addition to satisfying the requirements stipulated in laws and regulations and the Articles of Incorporation, not being applicable to reasons for disqualification stipulated in the Regulations for Officers, and not having been involved with anti-social forces at present and in the past

（１） Has empathy with the Company Policy, Management Principle, and Corporate Philosophy of the Group, and has the intention to contribute to the progress and development of society through the Group's business management

（２） Has excellent personality, knowledge, and insight, and has a high law-abiding spirit and ethics

（３） Has objective judgment capabilities, insight, and foresight

In addition to the preceding paragraph, the Company requires the following qualifications in selecting outside directors. （１） Has a high level of insight, a wealth of practical experience, or experience of playing a leading role in any field

such as corporate management, internal control, legal compliance, finance/accounting, finance, legal profession, administration, crisis management, and education

（２） Has the ability to understand the Group as a whole, the ability to understand essential issues and risks, and is expected to contribute to frank, active, and constructive deliberations in the Board of Directors, etc.

（３） Has no direct interests with the Representative Director and directors, and is independent from the Company's general shareholders without the risk of causing conflicts of interest with general shareholders

In addition, the Company has established the following requirements according to each position and role: Outside directors shall be able to provide advice and support for the sustainable growth of the Company and objective management supervision and judgment from a practical viewpoint based on a wealth of experience in corporate management and specialized fields

Full-time directors shall be familiar with the Group's industry trends and related regulations and the Group's business model, and shall have abundant practical experience in their respective specialized fields

Also, they are appointed with the aim of further enhancing the neutrality and independency of the audit system from a company-wide perspective

Outside directors, who is an Audit & Supervisory Committee Member, are able to express their opinions on audits objectively from a neutral standpoint

As a full-time Audit & Supervisory Committee Member, the Director is well-versed in the organization, business, and business processes of the Company, appropriately collects information from within the Company, and is capable of conducting highly effective audits

The Board of Directors deliberates on proposals to be submitted to the annual general meeting of shareholders in light of the above requirements, and appoints the appropriate persons as candidates for directors.

In addition, the Board of Directors will deliberate on proposals to be submitted to the annual general meeting of shareholders in light of the above requirements, and if individual directors no longer meet the requirements or are likely to fail to meet the requirements, they will not be selected as candidates for reappointment as directors at the end of their terms of office.

The reasons for the election of candidates for director are disclosed in the annual general meeting of shareholders convocation notice.

[Supplementary Principle 4-1 (i) Scope of delegation to management]

In order to further strengthen the supervisory function of the Board of Directors and to speed up management decision- making, in June 2022 we made the transition to a Company with Audit & Supervisory Board Committee. With the exception of matters specified by laws and regulations as matters to be determined exclusively by Board of Directors and important matters specified by the Board of Directors Regulations, Board of Directors delegates important business execution decisions to directors, thereby focusing on making important business basic policy decisions and supervising business execution.

[Principle 4-9 Independence Standards for an Independent Outside Director]

The Group has judged that the Independence Standards established by the Companies Act and the Tokyo Stock Exchange are appropriate as the Group's standards, and has selected candidates for independent outside directors based on these standards.

[Supplementary Principle 4-11 (i) Preconditions for ensuring the effectiveness of the Board of Directors and Audit & Supervisory Committee]

When nominating candidates for directors and Audit & Supervisory Committee members, the Company selects a wide range of candidates from both inside and outside the Company and elects candidates with excellent personality, insight and high management ability for the Board of Directors. In particular, independent outside directors are nominated from persons who have abundant experience and knowledge in various fields and who are capable of fulfilling their roles and responsibilities from a professional and objective viewpoint, such as providing advice to enhance corporate value over the medium to long term and supervising management. The selection criteria for executive directors are that they are familiar with the Group's industry trends and related regulations, the Group's business model, and have a wealth of practical experience in their respective specialized fields.

Director's expertise and experience (skill matrix) are disclosed on the Company's website.

https://www.sunfrt.co.jp/en/sustainability/esg_governance.html

For policies and procedures regarding the election of directors, please refer to the above (Principle 3-1: Enhancement of Information Disclosure).

[Supplementary Principle 4-11 (ii) Concurrent Positions of Directors]

The status of concurrent positions of officers is disclosed in the notice of the Annual General Meeting of Shareholders.

[Supplementary Principle 4-11 (iii) Board of Directors Effectiveness Evaluation]

The Company analyzes and evaluates the effectiveness of Board of Directors in order to improve the functions of Board of Directors. To be more specific, we conduct surveys targeting directors and auditors on general matters related to Board of Directors, including the composition and operation methods of Board of Directors, the status of deliberations, and the status of support systems for directors and auditors. The results of these analyses are then evaluated in Board of Directors. In order to obtain frank opinions from the survey subjects, we conduct an anonymous questionnaire survey and entrust the collection, tabulation and analysis of the survey results to an external organization.

As a result of this year's survey, we have determined that the effectiveness of the Board of Directors has been largely secured. In response to the survey results, "the number and quality of items to be deliberated in Board of Directors" and "the timing of the provision of Board of Directors materials" were listed as issues in the operational aspects. Future challenges included further enhancing discussions of Board of Directors on management strategies for the entire Group from a medium- to long-term perspective. Going forward, the Company will strive to improve corporate governance through the resolution of issues identified in this evaluation, and further promote management aimed at sustainable enhancement of corporate value.

[Supplementary Principle 4-14 (ii) Director training policies]

Although the Company has not established the "Policy for Training for Directors" in a clear form, the Company has stated as a part of Management Principle to "Contribute to the prosperity of mankind and society with a spirit of symbiosis." For this reason, the Company provides ample training opportunities for officers and employees to acquire the knowledge necessary to fulfill their roles and responsibilities, and bears the expenses for them.

The Company also holds seminars and participates in external seminars at the request of each officer.

[Principle 5-1 Policy for Constructive Dialogue with Shareholders]

The Group has the Corporate Planning Division as the department in charge of IR.

For shareholders and investors, the Company holds financial results briefings once every half year, and also holds field tours of Replanning properties and hotels, small meetings, etc.

Moreover, the Company has established the following policy regarding constructive dialogue with shareholders so that such dialogue will contribute to the sustainable growth of the Company and the improvement of corporate value over the medium to long term.

（１） We will disclose information to all stakeholders, including shareholders and investors, in a fair and timely manner, and place importance on direct communication by the Representative Director.

（２） The Corporate Planning Division will serve as the IR contact point and promote organic coordination with related departments.

（３） Provide a wide range of means of dialogue, including financial results briefings, briefings for individual investors, field tours, and small meetings.

（４） The Corporate Planning Division will report the status of the dialogue to the Representative Director and, if necessary, to the Board of Directors.

（５） The Company shall establish rules for the prevention of insider trading and make them known to all employees.

2. Capital Structure

		Foreign Shareholding Ratio		From 10% to less than 20%
[Status of Major Shareholders]
		Name/Company Name	Number of Shares	Percentage
					Owned	(%)
		HOUON Co.,Ltd			17,957,500	36.83
		The Master Trust Bank of Japan, Ltd. (Accounted in trust)	3,932,000	8.06
		Tomoaki HORIGUCHI			3,016,100	6.19
		SKAWAGOE Co., Ltd.			1,566,400	3.21
		Custody Bank of Japan, Ltd. (Accounted in trust)	1,516,600	3.11
		THE BANK OF NEW YORK MELLON 140044	1,015,900	2.08
		STATE STREET BANK AND TRUST COMPANY 505103	493,740	1.01
		Keiko Horiguchi			416,500	0.85
		SSBTC CLIENT OMNIBUS ACCOUNT	401,137	0.82
		NORTHERN TRUST CO.(AVFC) SUB A/C NON TREATY	394,722	0.81
		Controlling Shareholder (except for		---
		Parent Company)
		Parent Company		None
		Supplementary Explanation

The status of major shareholders is as of March 31, 2022. In addition to the above, the Company holds 144 treasury shares.

3. Company Attributes

Listed Stock Market and Market Section

Fiscal Year-End

Type of Business

Number of Employees

(consolidated) as of the End of the

Previous Fiscal Year

Sales (consolidated) as of the End of the Previous Fiscal Year

Number of Consolidated

Subsidiaries as of the End of the

Previous Fiscal Year

Tokyo Prime

March

Real Estate

500 or more and less than 1,000

From JPY10 billion to less than JPY100 billion

From 10 to less than 50

1. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholder
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2. Other Special Circumstances which may have Material Impact on Corporate Governance

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