Risk Disclosure

Summary 
As with all investments, participation in our joint ventures involves risk, some of which may be beyond the control of JY Group, the manager and the board of directors. If these risks materialize, they may reduce or even suspend dividends to joint venture participants and may also decrease the value of the investment itself. Participation in our joint ventures may result in losses of both return and principal. Before deciding to participate in our joint venture opportunities, you should carefully consider your personal circumstances, risk preferences, and potential risks. 

The following list of risks is not exhaustive and is based on our current understanding of key risks in the commercial real estate investment field, including property investment risks, including the risk of property value and income decline; property development risks; trust investment risks, including restrictions on investment liquidity, investment period, and risks associated with the use of leverage; general investment risks, including fluctuations in the economy and the market affecting asset returns and values. 

We will provide further elaboration on these risks in the following section. Prior to investing, you should carefully read this information and obtain independent professional investment advice to determine if any specific investment opportunity is suitable for your overall investment portfolio. 

Valuation and sale price 
The sustained value of a property is influenced by a variety of factors, including supply and demand, capitalization rates, rent, lease terms, real estate market and macroeconomic conditions, among others. We cannot guarantee that a property will necessarily achieve capital gains or that the ultimate sale price of a property will exceed its valuation. 

Property income 
Property income is largely dependent on whether tenants can pay rent in accordance with their lease agreements. There is a risk of tenant default, and as property owners, we also face the risk of being unable to provide the minimum service standards specified in the lease. The occurrence of either risk will lead to a decrease in rental income and generate additional expenses, such as the cost of re-leasing or legal proceedings. 

In addition, the risk of decreased property income arises when agreements or government regulations require us, as property owners, to provide rent deferrals or rent reductions. 

Finally, shop vacancies will also have an adverse impact on the net rental income, dividends, trust compliance with debt covenants, and investment value. If leasing, renewals, and vacancy rates perform lower than expected, property income may be reduced, leading to a decrease in dividends and property valuation. 

Forecast risks 
All investments carry the risk of forecasted returns not meeting expectations. The risk of forecasted returns not meeting expectations exists for any investment. 

Forecasts or target returns are based on assumptions, including tenant, income, expenses, capital expenditures, and other factors, and these assumptions may prove to be incorrect. As a result, forecasted or targeted returns may not be achieved. 

Capital expenditure 
If capital expenditures exceed expectations, this may result in higher financing costs and lower dividends. 

Market conditions 
The sustained value of a property is affected by the overall condition of the real estate market. For example, an increase in supply or a decrease in demand in any real estate market, or changes in capitalization rates, may constitute a risk to property investments. 

Non-liquidity of property 
The natural attribute of direct property investment is illiquidity. At the same time, our joint investment system usually has a lock-up period, during which the property cannot be sold without the agreement of all investors. Joint investors should carefully consider the impact of illiquidity on their investment risks. 

Environmental factors 
Environmental factors may have an adverse impact on property income and valuation, including the discovery of environmental pollution, the remediation of environmental pollution, and underestimation of environmental restoration costs. 

For example, the government may require the trust to restore the environment of the property, and the cost may be enormous. It should be noted that environmental risks may occur due to the trust itself, the previous owner of the property, or other third parties. 

Technology 
Technological advancements and changes may lead to shifts in tenant demands and expectations, which could potentially have a negative impact on their willingness to renew or enter into new leases, thus increasing the trust’s leasing risk. 

Property development risk 
The development of properties may introduce additional risks, including timing, completion, and vacancy costs. For example, completion deadlines may be delayed due to unforeseen factors such as contractor default or force majeure, and development costs may exceed expectations or result in substantive losses. Any actual occurrence of these risks may have a negative impact on the financial performance of the trust. 

Our strategy to reduce development risk is to avoid construction and pre-sale environments. After obtaining height and volume ratio indicators for planning, we sell development rights, or cooperate with developers in the form of equity investment based on approvals, allowing them to provide funding to complete construction and sales without further investment from the trust while receiving development income. 

Funding risk 
The trust obtains commercial loans from financial institutions to acquire properties and uses the properties as collateral. The presence of leverage has an amplifying effect on any fluctuations in property valuations. Any default on the loan contract may result in the lender taking possession of the collateral and liquidating it, the lender demanding the trust to repay the principal before the loan maturity, which may force the premature sale of the property at a lower price before conditions are favorable, the financial institution may require the trust to inject additional capital, which may result in the trust requiring investors to increase their investment, and the financial institution may require the trust to suspend or cease distribution of dividends. If the trust refinances its existing debt, the refinanced loan terms (including interest rates and fees) may be less favorable than the previous loan terms. Interest rates may rise and have a significant adverse impact on the trust’s financial and distribution status. 

Non-diversified investment 
Generally, the more diversified the property portfolio, the more it can help to spread the investment risk. However, a trust typically only invests in a specific, single property and does not invest in new properties during its term. Therefore, a trust itself does not provide opportunities for a diversified investment portfolio. 

Joint venture 
Trusts typically do not acquire 100% ownership of a property, but instead purchase it through joint ventures with institutional investors. Therefore, when selling the trust’s share of the property, there is a risk that the buyer may request a discount for non-100% property rights. In addition, the sale may include the joint venture partner’s right of first refusal, which may impact the sales process and price. 

Economy and market conditions 
Any changes in economic and market conditions can potentially affect asset returns and values, thus impacting dividends and valuations. Such changes can include interest rates, exchange rates, stock and bond markets, inflation, consumer spending, employment, supply chain disruptions, as well as the performance of domestic and international economies. 

Interest rate and inflation 
High levels of inflation and interest rates may have a negative impact on the trust, including reduced dividends and lowered valuations. Additionally, this factor may also have an adverse effect on the trust’s borrowing leverage from financial institutions. 

Epidemics, natural phenomena, terrorist attacks, and force majeure events 
Although the future impact of COVID-19 and other potential pandemics cannot be predicted, it is certain that the overall macro economy will be negatively affected by these factors, which in turn will affect property valuations and the profitability of the trust. Other natural phenomena, terrorist attacks, and force majeure events such as droughts and floods may also have a negative impact on the trust’s earnings and valuations. 

Insurance 
Any losses not covered by insurance will affect the financial performance of the trust. At the same time, any growth in insurance premiums will also affect the financial performance of the trust. In addition, if the trust fails to comply with insurance policies or defaults, it will affect the trust’s ability to obtain compensation from insurance companies. Moreover, most insurance policies require the trust to pay a deductible before receiving any compensation. 

It should be noted that specific events may not be covered by the insurance policies in which the trust invests. If the trust is affected by these events, it will not be able to obtain compensation from the insurance company. The occurrence of these specific events may lead to an increase in future insurance premiums. 

Third-party 
The trust may have legal contracts with many third parties, such as property management, leasing, maintenance, cleaning, energy, and others. If a third party fails to fulfill its obligations under the terms of its contract, it will have a negative impact on the trust. 

Litigation 
During the normal course of business, a trust may become involved in potential litigation or disputes. Any significant litigation or disputes may have an adverse impact on the trust’s valuation and property income. 

Law and regulation 
Changes in laws, regulations, or government policies may have adverse effects on the trust’s property investments and operations, thereby affecting the trust’s financial performance and valuation. 

Taxation 
Changes in tax laws and tax policies may have a negative impact on the financial performance of the trust and the return on investment for investors. We recommend that coinvestors obtain professional tax and legal advice, but tax advisors cannot predict changes in future tax policies. 

Non-liquidity of investment 
Neither JY Group, the Trust, the Trustee Company nor any other co-investor has an obligation to redeem the investment units of any investor. Therefore, co-investment itself is illiquid.