CODE

3468
May 10, 2019
Real Estate Investment Trust Securities Issuer
Star Asia Investment Corporation
Representative: Atsushi Kato, Executive Director(Code: 3468)
Asset Management Company

Star Asia Investment Management Co., Ltd.
Representative : Atsushi Kato, President and CEO
Contact : Akiko Kanno, Director and CFO

Supplementary Explanatory Material

TEL: +81-3-5425-1340

Regarding Today’s Timely Disclosure (1)~Proposal Material from the Star Asia Group to all unitholders of Sakura Sogo REIT Investment Corporation ~＜Today’s Timely Disclosure ＞⚫
⚫

「Notice Concerning Proposal for Merger between Sakura Sogo REIT Investment Corporation and Star Asia Investment Corporation」「Supplementary Explanatory Material Regarding Today’s Timely Disclosure (2) ~Explanatory Material to all unitholders of Star Asia
Investment Corporation ~ 」

This document was drafted by Lion Partners GK and presented to the unitholders of Sakura Sogo REIT Investment Corporation.
Refer to today’s Supplementary Explanatory Material 2 regarding the “Notice Regarding the Proposal for Merger of Star Asia
Investment Corporation and Sakura Sogo REIT Investment Corporation by the Star Asia Group” and the relevant press release
for the material drafted by Star Asia Investment Corporation and Star Asia Investment Management and presented tounitholders of Star Asia Investment Corporation

Unitholders of Sakura Sogo REIT
Investment Corporation

Proposal for Merger of Sakura Sogo REIT Investment
Corporation and Star Asia Investment Corporation
May 10, 2019

Contents
1．Proposal for Merger

P. 4

2．How a Merger will Benefit SSR’s Unitholders

P.13

3．Post Merger Growth Strategy

P.24

１．Proposal for Merger～Proposal of a Merger Between SSR and SAR ～Proposal for Merger (1)Improving Unitholder Value through a Merger with SAR
As a unitholder of Sakura Sogo REIT (SSR), we would like to propose a merger between SSR and Star Asia
Investment Corporation (SAR) to significantly improve SSR’s unitholder current and future value
We are confident that the proposed merger will benefit all of SSR’s unitholders
SSR’s Current Status

Advantages of Merger with SAR

Declining DPU

Higher/Stabilized DPU✓ Lowered its DPU forecast for FP2018/12 from ¥2,700
to ¥2,600 as it sold properties but did not acquire
assets in June 2018, resulting in a decline of revenue
from the next financial period (announced in August
2018)✓ Higher DPU as a result of improved operational
efficiencies and lower management costs byleveraging economies of scale✓ Due to the significant impact of tenant departures, SSR
lowered its DPU forecast for FP2019/12 to ¥2,427,
which is a substantial reduction from the initial DPU
target (approximate 10% decline)

Proposal for
MergerLower AUM

Expansion of AUM✓ NO follow-on offerings✓ Sold two properties but only acquired one property
since IPO, resulting in a negative AUM growth rate of 2.2% on an acquisition cost basis

High Cost Operations✓ Asset management fee of 0.55 - 0.56% per annum ishigher than J-REIT average✓ Average borrowing interest is 0.87%, exceeding thatof SAR(0.63%)✓ Increased flexibility in investments taking themarket environment into consideration andbeing strategic investors (active management)

Proposal of a mergerof unitholders,by unitholders,and for unitholders✓ Operating revenue and distribution payments
stabilized through expanded AUM and adiversified portfolio✓ Continued external growth, leveraging pipeline
support from Star Asia Group

Lower Operational Costs✓ Lower asset management fee✓ Lower average interest rate

Poor Corporate Governance/Alignment

Maximization of Unitholder Value(Non-unitholder oriented asset management)(Unitholder oriented and aligned asset management)✓ Does not distribute gains on sales of properties tounitholders except for some part (FP2018/6)✓ The asset manager receives property sale fees despite
SSR lowering its financial forecast✓ In view of the standard of unit price, seeks tomaximize unitholder value by considering andimplementing unique, flexible, and diverse
initiatives

5

Proposal for Merger (2)Merger between SSR and SAR
We, as one of the largest unitholders of SSR, strongly believe that given the current underwhelming situation of
SSR, a merger between SSR and SAR is clearly the best decision to maximize unitholder value
We aim to improve market valuation and target sustainable growth by leveraging the increase in AUM due to themergerPost Merger REIT, Pipeline Support and Asset Management

Diversified REIT

56bn

AUM: ¥

Number of properties:

17

Target properties: offices, retail properties,
residences, and others

158.4bn
Number of properties:

51

Diversified REIT

102.3bn

AUM: ¥

Number of properties:

Pipeline Support fromStar Asia Group

AUM:

34

Target properties: offices, retail properties,
residences, logistics facilities, hotels, andstudent accommodations

Target properties: offices,
retail properties,
residences, logistics facilities,
hotels, student
accommodations, and others➢

Provides pipeline support forexternal growth➢

Provides warehousing function➢

Provides experience to generateinternal growth

Asset Management by Star Asia
Investment Management➢ Continues to execute active
management strategy tomaximize unitholder value

Accelerate
Growth to
Maximize
Unitholder
Value

Why a Merger with SAR?
Common Features of SSR and SAR
1. Diversified REIT◼

Post-merger growth strategies can be implemented without significantly changing investment strategies as SSR
and SAR have highly-compatible, diversified portfolios of mid-sized properties

2. Same level of AUM within the J-REIT sector
Among 63 J-REITs, SSR’s and SAR’s AUM are relatively on the same level. With Merger, DPU can be increased, as
AUM will increase through a merger with SAR◼ Unitholders of both SSR and SAR can enjoy benefits from a merger as both REITs are similar in valuation (DPU yield)◼

6

Proposal for Merger (3)Sakura Sogo REIT’s Corporate Actions that are Contrary to
its Basic Principles
Sakura Sogo REIT’s basic principles (Excerpt from disclosure documents)
The basic philosophy of the Investment Corporation is to leverage its core feature as a diversified REIT, to securea stable income over the medium to long-term and maximize unitholder value by building a portfolio which theInvestment Corporation believes to be optimal in light of the real estate investment environment and pursuingboth cash-flow growth and stability.

Confomall Sapporo
Gains on sales¥142million

Disposal Date

6/28/2018

Disposal Price¥ 1,640million

Purchasing Price¥ 1,400million

Terminatedagreement for
proposedacquisition of aproperty portfolio

Costly preparation
for an overseas
follow-on offering

Sold

◼

Gains from sale ofConfomall, whichwere supposed to be
distributed to theinvestors were used
to offset fees paid toprofessional service
providers◼

Revenue projections
have been lowered
due to the sale of theproperty

Gains from Sale
Not
distributed

FailedBroken Deal Costs(Professional Fees)

What does “Maximize Unitholder Value” mean for Sakura Sogo REIT Investment Corporation?

Validation results of the above corporate actions
Decrease in AUM

Cash-flow growth（Growth）
Cash-flow stability（Stability）*More detailed information on Page 21

Downward revision ofrevenue projections
Use of gains from sale tooffset professional costs

Destruction ofUnitholder Value
7

Proposal for Merger (4)Overview of Merger Process
In order to consummate the merger, convening of two general unitholders meetings is scheduled for the purpose of (1) replacing theexecutive director and asset manager of Sakura Sogo REIT Investment Corporation and (2) approval of the merger.
◼ We would like for unitholders to vote for the agenda items proposed by the Star Asia Group at the first Sakura Sogo REIT Investment
Corporation general unitholders meeting requested by the Star Asia Group (see the next page for details)◼

SSR:
Current Issues
SSR’s unitholder value
has been significantly
impaired

Improvement measures:
Proposal for merger
We would like to propose amerger between SSR and SAR
to address the current issues

Merger Process

May 2019

Strategic rationale of the merger

Declining DPU① A merger that maximizes
unitholder value

Lower AUM

② Proposal of a merger byutilizing rights granted tounitholders

High Cost Operations
Poor Corporate
Governance/Alignment（ Non-unitholder oriented asset
management ）Solutions to the current issues
 Leverage economies of scale Improve operational efficiency

Jul 2019

General unitholders
meeting (1)(SSR)
 Change of executive
director
 Change of asset
manager

The merger is expected
to generate the following
benefits

Higher/Stabilized
DPU

Expansion of AUM

Negotiation with SAR in preparation for the merger
contract closure

About
Sep 2019

Merger Agreement
General unitholders
meeting (2)(SSR/SAR) Reduction of asset management
fee by reducing AM fee rate Strong Pipeline support fromthe Star Asia Group

Calling for a generalunitholders meeting
Proposal of a merger

Benefits of Merger
with SAR Approval of themergerAbout
Feb 2020

MergerLower Operational
Costs
Maximization ofUnitholder Value(Unitholder oriented and aligned
asset management)

8

Proposal for Merger (5)About agenda items of SSR’s general unitholders meeting◼ Lion Partners GK, a Star Asia Group Company, called for an SSR general unitholders meeting on May 10,2019 to deliver our proposal to replace the current Executive Director and Asset Manager as an interim
step towards the ultimate goal of a merger between SSR and SAR◼ Based on the following proposal, we respectfully seek for you to submit a proxy letter to Lion Partners GK
or vote FOR the proposed agendas

May 2019

We would like to ask you to take one of the following actions:

Calling for a general unitholders
meeting
Proposal of a merger

1.Provide us with anauthorization letter(POA)c. 2months

Jul 2019

General unitholders
meeting (SSR)

2.Vote for our
proposals at theunitholders’ meetings

3.Vote for our
proposals by sending
the voting forms

Agenda items to be submitted to SSR’s general unitholders meeting,and the rationale for each
Change of executive director

Negotiation Regarding the Conditionsof Merger Agreement-

Agenda 1 Dismissal of the current executive director
Agenda 2 Appointment of new executive director✓

About
Sep 2019

Merger agreement

We propose the removal of the existing Executive Director and theappointment of Toru Sugihara (see page 11 for details),
Representative Director of Lion Partners GK (an SSR unitholder), as
the new Executive Director in order to depart from non-unitholder
oriented asset management

Change of asset manager
About
Nov/Dec 2019

General unitholders meeting toapprove the proposed merger(SSR/SAR)-

Agenda 3 Terminate the contract with the current asset manager
Agenda 4 Enter into an agreement with a new asset manager✓

About
Feb 2020

MergerEnter into a new agreement with Star Asia Investment Management(SAR’s asset manager) which has a strong track record of deliveringand maximizing unitholder’s value
9

(Reference) Negotiation on Conditions of the Merger Agreement~ Negotiation on optimal and fair conditions for unitholders of SSR and SAR◼ Toru Sugihara was appointed as the new executive director at SSR’s general unitholders meeting. If theasset management entrustment contract with Star Asia Investment Management is approved, then we will
negotiate conditions to conclude a merger agreement◼ SSR and SAR shall independently mandate advisors to negotiate the best conditions for unitholders of both
SSR and SAR and to ensure fairness to all unitholders
May 2019

Negotiation Regarding the Conditions of Merger Agreement

Calling for a general unitholders
meeting
Proposal of a merger

Members of SSR’s board of directors meetingc. 2months

July 2019

General unitholders meeting(SSR)

New Executive Director (Toru Sugihara): One person
Supervisory Directors (Shigeru Kaneda, Hirotaka Isayama): Twopeople✓✓Negotiation Regarding theConditions of Merger Agreement

It is necessary to receive approval from SSR’s board of directors toconclude a merger agreement
SSR’s board of directors consists of an executive director and two
independent auditors and supervises the execution of duties of theexecutive director

Mandate of an independent advisor
September
2019

Merger agreement-

SSR will mandate an advisor who represent SSR’s unitholders
SAR will do the same✓

Nov – Dec
2019

SSR and SAR shall independently mandate advisors to avoid onesided merger conditions and ensure fairness to all unitholders

General unitholders meeting toapprove the proposed merger(SSR/SAR)

Ensure fairness for all unitholders of SSR and SAR
February
2020

Merger
10

Proposal for Merger (6)Introduction of our nominee for the new Executive Director
We would like to propose removal of the existing Executive Director and appointment of Toru Sugihara,
Representative Director of Lion Partners GK (a Star Asia Group ), as the new Executive Director in order to departfrom non-unitholder oriented asset management

Our nominee for the new Executive Director of SSR
Toru Sugihara
Representative Director of Lion Partners GK (Star Asia Group Company)（Former Director and CFO of Star Asia Investment Corporation）
Ever since the creation of the J-REIT market, I have focus on and desired its growth from the standpoint of a securities firm and as a REIT sponsor. Since June
2015, I have worked as a REIT asset manager to win the trust of investors as widely as possible through the optimal management of assets. Based on a deep
understanding of the systems and history of the J-REIT market I am conducting corporate action through an unprecedented use of the unitholders’ right to call fora general unitholders meeting in order to benefit the J-REIT market and its investors and to aid further market development
This proposal is a call for a general unitholders meeting, aiming for a merger for unitholders by minority unitholders, which would be a first for the J-REIT market,
and it is my strong conviction that the proposal will undoubtedly benefit all unitholders

Bio
April 1991

Joined Nomura Securities Co., Ltd.

Involved in ECM, DCM, and investment trust sales activities for retail and corporate investors in the ShinUrayasu and Ueno branch offices
In 2000, became responsible for the real estate sector, and was involved in IPOs/POs of companies and
J-REITs, securitization of real estate, and origination of private real estate funds

October 2006

Joined Barclays Securities Japan Limited

Provided and arranged non-recourse real estate loans as an officer responsible for the Japanese realestate sector. Involved in the origination and restructuring of CMBSs

July 2012

Joined Kenedix, Inc.

Developed investment proposals relating to real estate, real estate loans, etc. Originated bridge funds forthe group’s REIT

February 2015 Joined the Tokyo Branch of Star Asia Management Japan Ltd.

Joined the company as an officer responsible for planning and implementation of group strategies

June 2015

Seconded to Star Asia Investment Management Co., Ltd. as Executive
Seconded to Star Asia Investment Management as an officer responsible for origination of J-REITs
Director and CFO

August 2015

Director and CFO of Star Asia Investment Management Co., Ltd.

Achieved IPO for the company as planned by negotiating with authorities, developing investment policies,
and funding by way of investment corporations. After the IPO, executed three capital increases anddeveloped proposals for mezzanine loan investments

April 2019

Representative Director of Lion Partners GK (Star Asia Group
Company)

Responsible for making the proposal to realize the first merger of J-REITs by minority unitholders forunitholders

11

Proposal for Merger (7)Introduction of new asset management company candidate and proposals
concerning the new asset management agreement

We would like to consummate a new asset management entrustment agreement with Star Asia Investment
Management.
Star Asia Investment Management has a strong track record of generating and maximizing unitholder value as
the asset manager of SAR (see page 19 for details)
If the replacement of the asset manager is approved at SSR’s general unitholders meeting, then we would like topropose that employees of Sakura Real Estate Funds Management transfer to Star Asia Investment Management
Star Asia Group’s proposal for
Employees of Sakura Real Estate Funds Management

Key members of Star Asia Investment Management- If the above proposed agenda is approved at SSR’s generalunitholders meeting, we would like to propose that employees of
Sakura Real Estate Funds Management transfer to Star Asia
Investment Management upon replacing the asset manager inorder to maintain consistency with current asset management

Name

Atsushi Kato

Position

President and CEO

Bio

After entering Nomura Real Estate Development
Co., Ltd., he worked for Showa Ota Ernst & Young,and then entered Nomura Securities Co, Ltd. Afterbeing involved in the asset finance businessincluding support in establishing J-REITs, he joinedStar Asia Investment Management Co., Ltd

Organization chart of Star Asia Investment Management after the merger-

This is a draft organization of Star Asia Investment
Management during the period from the effective date of
the new asset management entrustment agreement to themergerShareholders’ Meeting

Board of Directors
Investment Committee

Satoshi Obara

Position

Director and CEO
After joining Nissho Iwai Corporation (current:
Sojitz Corporation) , he worked for Morgan
Stanley Capital K.K where he engaged inacquisition and asset management of private
funds. After entering Hulic Co.,Ltd, he engaged
in REIT management at Hulic REIT Management
Co.,Ltd

Bio

Compliance Committee
President and CEO
Compliance Officer

New
SSR Investment
Management DivisionName

SAR Investment
Management Division

Finance
Management Division

Name

Akiko Kanno

Position

Director and CFO (General Manager of the FinanceManagement Department)
Involved in IR, legal, management planning tasks,
etc. at Fujita Corporation. Thereafter, involved instartup work for an overseas base of the GMO
Internet Group and oversaw management
departments of several overseas bases

Bio

12

2． How a Merger will Benefit SSR’s Unitholders

How a Merger will Benefit SSR’s Unitholders (1)Improving unitholder value--Growth in DPU and Market Cap
Post Merger DPU-

Post Merger Market Cap

The post-merger REIT will aim to increase the DPU by ¥100 in the
short term and increase it further in the medium to long term
through cost reductions (lowering the asset management fee rate,etc.)

Current

SSR¥2,427

Post-merger
Short-term DPU
growth targetc. ¥100*-

Post-merger market cap will increase by 3.0x to ¥87.8bn (total)
Improved trading volume/liquidty and expansion of theunitholder base can be expected
Post-merger market cap
Enhance our Positionin the J-REIT market(¥100m)Further accelerated
SAR
58.6bnSSR
29.2bnLowering asset
management fee rate, etc.
(About 25% reduction ofasset management fee, etc.)(Note 2)

Short-term
Note1: Provisional calculation in case of a merger under the condition of the unit price as of the endof April, 2019, and on pre-unit splits basis
Note 2: As of May 10, 2019, a roughly 25% reduction of asset management fee which is currently
paid by Sakura Sogo REIT Investment Corporation to Sakura Real Estate Management is envisagedby bringing it in line with the fee paid by Star Asia Investment Corporation to Star Asia Investment
Management

Medium- tolong-term

Post Merger DPU Growth Scenario
Short-term cost synergies➢ Medium to long-term synergies(Aiming for reducing ¥100m
or more)➢-Lower asset management fee
About 25% reduction of asset
management fee
Reduction in remuneration for
directors
Reduction in costs for generaladministration/asset custody
Reduction of professional service fees,etc.

87.8bn(grand total)

Lower cost of debt (incl. bank loans)
Reduction in asset management costs asa result of increased AUM (economies ofscale)
Improved profitability of assets as aresult of active management by Star
Asia Group

Note 1: As of the end of April, 2019
Note 2: REITs with market caps of less than ¥120bn are included in the above graph◼

Benefits of a Larger Market Cap✓

Increased trading volume and liquidity✓

Stability in unit price✓

Acquisition of credit rating✓

More likely to be included in major REIT indices✓

Increased visibility in the institutional investor
community✓

Expansion of unitholder base

14

How a Merger will Benefit SSR’s Unitholders (2)Improvement of Unitholders value: Increase in AUM, Portfolio reinforcement
An expanded AUM will improve SSR’s position in the J-REIT market

Portfolio Quality and progress of dispersion

-

-

-

SSR’s current AUM is ¥56bn (on an acquisition price basis)
Post-merger, the total AUM will be ¥158.4bn (increase by around 2.8x), andenhancement of the market position can be expected
Increased potential for obtaining a credit rating and inclusion into several indexes-

The ratio of properties located in the Tokyo area where revenues are expected tostably grow will increase. Portfolio quality is also expected to significantly improveas a result of an increased ratio of medium-size office and residential assets(particularly attractive categories from an investor demand perspective)
More proactive asset replacement, which maximizes unitholder value, will bepossible as the number of liquid properties will increase
By the progress of portfolio dispersion, stability will be improved(¥100m)(¥100m)Ratio of Properties in the Tokyo Area
Tokyo area

Other

Tokyo area AUM will
Increase by 3.5x

Post-merger asset size
¥158.4bn（Based on acquisition prices）

36 properties¥106.6bn

11 properties¥30.8bn
SAR¥102.3bn

SSR

Post-merger

Ratio of Office/Residential Assets

SSR¥56.0bn(¥100m)OfficeResidential

RetailLogistics

Hotel

Other

（Based on acquisition prices）

Office/residential AUM will
increase by 2.6x

Rating / Inclusion in major indices
JCR rating

●

●●●●

●

●●●

FTSE EPRA/NAREITMSCI Small Cap●●●●●●●●
●●●●

●

●

●●

●●●●●●●●● represents a JCR rating of AA-, and ● represents a JCR rating of A-, A or A+
Note 1: As of May 29, 2019 （Based on acquisition prices）
Note 2: 29 REITs with AUM of less than ¥220bn are displayed in the above graph

29 properties¥82.0bn

11 properties¥31.1bn
SSR

Post-merger

15How a Merger will Benefit SSR’s Unitholders (3)Comparison between SSR’s and SAR’s Asset Management Track Record Since IPO（1）If SSR’s asset manager is replaced with Star Asia Investment Management, improvementin unit price performance can be expected(Listed on September 8, 2016)-2.2%¥57.3bn(18 properties)¥56.0bn(17 properties)(Listed on April 20, 2016)

AUM growth+66.5%¥61.4bn(18 properties)¥102.3bn(34 properties)

1

Number of properties
acquired after IPO

0

Number of follow-on offerings
conducted after IPO

3

10.7%

Market cap growth rate

79.3%

3.8%

Total returns(per annum)

9.1%

5.2%

Ratio of same-boat
investment by the Sponsor

17.9%

0.55～0.56%

Asset management fee/year-end total asset ratio(per annum)

0.42～0.49%

0.87%/4.3 years

Average interest rate /20

0.63%/4.4 years

borrowing period of debt
Notes：AUM growth: Based on acquisition prices since IPO
Number of properties acquired after IPO: Gross total of properties acquired since IPO. Assets acquired at the time of the IPO are excluded (18 properties for each)
Number of follow-on offerings conducted after IPO: Assets acquired at the time of the IPO are excluded
Number of follow-on offerings conducted after IPO: Excludes IPO
Market cap growth rate: From the closing price of the IPO date to the end of April 2018
Total returns(per annum): Calculated based on total DPU from the IPO through the latest FP and increase/decrease from the IPO price as of April 29, 2019
Ratio of same-boat investment by the Sponsor: As of the latest fiscal period end“Asset management fee/year-end total asset ratio (per annum)” is calculated based on asset management fees (excluding acquisition and transfer fees) which are stated in the investment report
Average interest rate/borrowing period of debt: As of the latest fiscal period end, weighted average based on the debt amount16

How a Merger will Benefit SSR’s Unitholders (4)Comparison between SSR’s and SAR’s Asset Management Track Record Since IPO（2）If SSR’s asset manager is replaced with Star Asia Investment Management, then post-merger REIT will tacticallymanage assets by focusing on stability and growth of DPU

SSR’s historical DPU

SAR’s historical DPU➢ DPU decreased due to failure to close property acquisition deals,
professional service fees related to the planned follow-on offeringthat never took place, etc.
DPU (A) (¥)
Assumed DPU (¥)➢ Solid track record of delivering shareholder returns by actively
replacing assets and securing gain on property sales

Professional service fees
for the planned follow-on
offering that never took place(If not for this fee payment,
DPU would have increasedby ¥409)

DPU (A) (¥)

Assumed DPU (¥)

DPU decreased by ¥38 fromthe initial forecast (Note 1) due
to decrease in revenue as aresult of asset sale

Average of FP2 to FP6（Actual）¥3,621

Average of FP2 to FP5（Actual）¥2,937 (Note 3)

FP2

FP3

FP4

FP5

FP6

FP7

FP2

FP3

FP4

FP5

FP6

FP7

FP8

Note 2
Note 1: Announced in May 2018
Note 2: As Sakura Sogo REIT Investment Corporation’s FP4 covers four months, DPU is calculated with the following formula((Total historical DPU – gain on property sales + related costs including issuance cost of investment units) x (6 / 4) + gain on property sales related costs including issuance cost of investment units) / total number of issued investment units as of the end of FP4

Note 3: The average was computed assuming that FP4 DPU was ¥2,763 (actual DPU was ¥1,848)
Note 4: DPUs of SSR and SSA with “*” include capital gains

17How a Merger will Benefit SSR’s Unitholders (5)Comparison of Corporate Actions (including Sponsor Support)
between SSR and SAR Since IPO（1） ~ Asset Management for SSR ~Galileo Group only has a 2.6% stake in SSR, which it acquired upon IPO, and has only provided limited support
since the IPO

2016

2017

2018

IPO

Established as an investment corporation
March: Delisting from ASX
was approved by the generalshareholders meeting ofGalileo Japan Trust

April: Galileo Group andNippon Kanzai invested in SSR
upon its establishment

Galileo Group/SSR

Galileo Group has 100% voting rights in the asset
manager and makes decisions as a shareholder of
the asset manager

2019

September: 18 properties owned by Galileo Japan were transferred to
SSR Galileo Group and Nippon Kanzai each have a 2.61% stake in SSR(8,700 units), which has remained unchanged since IPO (Note1,Note2)

Pipeline support

Asset replacement

Change of fiscal period

April: Signed pipeline
support agreements with
two real estate companies
outside of the group

July: Paid dividends
using gain on property
sales (¥260m)

May: Fiscal period ends
were changed fromFebruary/August toJune/December

Asset transfer
June: Announced
transfer of Confomall
SapporoAsset Manager

Sakura Real Estate
Funds Management
Galileo Group (100% voting rights)
Nippon Kanzai (no voting rights)
Assetmanagement
entrustment
contract
REIT

Sakura Sogo REIT

The Asset Manager has not Implemented any Sponsor Support(excluding internal growth) for the REIT

Note 1: Investment through Tokyo Capital Management, a fully-owned subsidiary of Nippon Kanzai
Note 2: Investment through Galaxy JREIT Pty Limited, a fully-owned subsidiary of Galileo Sydney Holdings Pty Limited

18

How a Merger will Benefit SSR’s Unitholders (6)Comparison of Corporate Actions (including Sponsor Support)
between SSR and SAR Since IPO（2） ~ Asset Management for SAR ~We made a same-boat investment of ¥9.7bn in SAR, thereby expanding group functions and maintaining its
commitment to supporting the growth of SAR (holding ratio: 17.9％)
2016

2017

2018

2019

Affiliated companies and functions of Star Asia GroupStar Asia Group/Star Asia Investment Corporation

Fund management
function

Financing function forwarehousing

Asset management
functionStar Asia Management (sponsor)

Star Asia Capital CopeStar Asia Asset Advisors

Improved real estatedevelopment function
Development function

July and August 2016
Granted preferential negotiationrights (six properties in total)

Listing of SAR
April 201615 of 18 portfolio properties wereacquired from the sponsor

内部成長

1st follow-on offering
March 20174 of 6 new properties wereacquired from the sponsor

External growth

Operation

Star Asia Sogo Kaihatsu

GSA Star Asia

August 2018

July and September 2017
Improved terms of sponsor
support agreement

External growthStudent accommodation
development/operation
function

Granted preferential negotiation rights forfour properties (incl. developed property)
・HAKUSAN HOUSE・Nishi-Sugamo Project

外部成長

2nd follow-on offering
January 2018
4 of 6 new properties wereacquired from the sponsor

External growth・Shimotakaido
Project
外部成長・Amusement Media Gakuin Shinkan

3rd follow-on offering
August 2018
5 of 6 new properties wereacquired from the sponsor

External growth

External growth

1st asset replacement

2nd asset replacement

3rd asset replacement

December 2016
Used gain on sale of¥0.15bn to pay distributions
to unitholders

February 2017

July 2018

August 2018

Used gain on sale of ¥1.51bn to pay
distributions to unitholders over two
financial periods and retained a
portion of the earnings

Used gain on sale of ¥0.82bn topay distributions to unitholders
over two financial periods

Replaced properties using proceedsfrom the 3rd follow-on offering

1st Mezzanine loan debt investment

4th asset replacement（Gain on property sales ¥0.19bn）

2nd～4th Mezzanine loan debt investment

October 2017
First J-REIT to invest in
mezzanine loan debt, diversifying
profit opportunities to pursue
unitholder valueFirst J-REIT

2nd Mezzanine loan debt investment : December 2017
3rd Mezzanine loan debt investment : December 2018
4th Mezzanine loan debt investment : January 201919

How a Merger will Benefit SSR’s Unitholders (7)Investment Unit Price Chart of the Two REITs Since IPO
SSR’s unit price has been trending downwards since it announced that it lowered its forecast as SSR failed toclose acquisition deals even with sellers with whom it concluded pipeline support agreements
（pt）

（￥）

TSE REIT Index(Right axis)

SAR(Left axis)

SSR(Left axis)

Announced
change in FP

SSR announced that it lowered its forecast
due to the failure to close property
acquisition deals
Increase in operating revenue due to the gainon sale of Confomall Sapporo (¥142m), offset
by the increase in operating expenses(¥136m) related to incomplete investment
transactions

IPO price¥100,000

IPO price¥91,000

Announced the transfer ofConfomall Sapporo
Percentage change in unit price from the revision date of theforecast to April 26, 2019
- 4.36%(Reference) TSE REIT Index percentage change during the same period＋ 6.78%
2019/4/26
Source: QUICK data

20

How a Merger will Benefit SSR’s Unitholders (8)Example of SSR’s Asset Management Lowering DPU
Our opinions about failure to acquire property from sellers with whom it concluded
pipeline support agreements
We believe that it was not unitholder friendly management to use gains on sale of Confomall Sapporo (¥428/unit)
for preparation of a unit issue that was not completed and the gains were used to pay professional fees
Excerpts from SSR’s IR presentation on financial results for FP4 ended June 30, 2018

SAR’s opinions as a unitholder◼ FP4 (operating period: 4 months) – forecast vs. actual

SSR explained that professional service fees were
payments for legal, tax, accounting, and property appraisal
experts related primarily to the preparation of a overseas
follow-on offering. If SSR closed the property
acquisition deals and conducted the follow-on offering
as planned, then it would have been able to return
more to unitholders (¥428/unit)Despite the large amount of professional service feesthat arose, the maximum rate of 1% for property
sales commission has been received. In addition, we
do not believe that it was unitholder-friendly
management to reduce the management fee in FP1
and FP2 due to IPOGiven the fact that it failed to close acquisition deals evenwith sellers with whom it concluded pipeline support
agreements and could not refund capital gains tounitholders, we highly doubt Sakura Real Estate Funds
Management’s ability to effectively negotiate property
acquisitions and to manage properties

On May 10, 2018, during FP4, SSR suddenly released
notices concerning the change in its fiscal periods andrevisions to its distribution forecast. Such important
notices should have been announced further inadvance given impact to unitholders

FP4 forecast
Announced
on May 10

Comments

FP4 actual Difference

Operating revenue

1,628

1,768

140

Operating expenses

926

914

(12)

Operating profit

702

854

152

Non-operating
expenses

102

239

137

Ordinary profit

600

615

15

Net profit

600

615

15

DPU (¥)

1,801

1,848

47

◼

◼

Operating revenue increased by¥140m primarily due to ¥142m
gain on sale of Confomall Sapporo
Non-operating expenses increasedby ¥137m primarily due toprofessional service fees of ¥136m
for incomplete investment deals◼ FP5 – Forecast vs. adjusted forecast
FP5 forecast
FP5 adjusted
announced
Difference
forecast
on May 10
Operating revenue

2,429

2,361

(68)

Operating expenses

1,368

1,333

(35)

Operating profit

1,061

1,028

(33)

Non-operating
expenses

161

161

0

Ordinary profit

900

867

(33)

Net profit

900

866

(33)

DPU (¥)

2,700

2,600

(100)

Comments◼

Rental revenue and expenses bothdecreased due to the sale ofConfomall Sapporo (Management
fee also decreased due to thedecrease in rental revenue)

We do not believe that the current Executive
Director and asset manger manage operations
based on unitholders’ benefit
21

(Reference) Benefits of Merger (1)Improving Valuation from Market Cap Increase
A certain correlation is observed between market cap and Market valuations
When the market cap increases with a merger, then market valuations are expected to improve

Distribution of P/NAV and market cap of 63 J-REITs

Distribution of DPU yield and market cap of 63 J-REITs

Source: QUICK data
Note: Market cap and DPU yields in the above charts are as of the end of April 2019, and NAV figures used in the calculation of P/NAV are as of the end of March 201922

(Reference) Benefits of Merger (2)Impact of the Merger on Unit PriceIn the five most recent mergers, the merging REITs received solid investor support andexperienced a surge in unit price on the day following the announcement of the merger
Unit price performance in five most recent M&A deals (20 business days after the announcement)(1) Nomura Real Estate Group’s three REITs(Announcement date: May 27, 2015)(2) Daiwa House Group’s two REITs(Announcement date: April 15, 2016)(Announcement date: May 26, 2016)

REIT Index
(NMF)

(NOF)

(NRF)

(Announcement date: November 10, 2017)
REIT Index(KDR)

REIT Index(DHR)(4) Kenedix Residential Next and Japan Senior Living(3) Nomura Real Estate Master Fund and Top REIT

(DHI)REIT Index
(NMF)

(TOP)

(5) Sekisui House Group’s two REITs(Announcement date: January 24, 2018)
REIT Index(JSL)

Note: Indexed unit prices with X being the announcement date23

3. Post Merger Growth Strategy
Sponsor Support from Star Asia Group
Active Management by Star Asia Investment Management主の効果・メリットPost Merger Growth Strategy (1)Commitment of Sponsor Support by Star Asia GroupStar Asia Group is expanding its business operations and promises to continuously provide thevarious support which has been offered to SAR to the post-merger REIT
Malcolm F. MacLean IV
Managing Partner

Taro Masuyama
Managing Partner

Star Asia Group, LLC

Fund management

Development, operation,and management ofstudent accommodation*As of March 31, 2019. Including officers and employees of the affiliatedentities
Development
functions

OverseasStar Asia
Asset
Management,
LLC

Star Asia
Management
Limited(Sponsor)

GSA Star
Asia Japan
Limited(50% investment)

Domestic

Star Asia
Investment
Management
Co., Ltd.

Star Asia
Management
Japan Tokyo
BranchGSA Star Asia

Star Asia
Sogo Kaihatsu
Co., Ltd.

Develops, manages,
and operates student
accommodations, inwhich SAR invests, andprovide resources forexternal growth
Properties withpreferential negotiationrights owned by SAR◼ HAKUSAN HOUSE◼ Shimotakaido Project

Provides resources for
SAR by developing
properties, in which
SAR may invest
Properties withpreferential negotiationrights owned by SAR◼ Nishi-Sugamo Project*Also involved inseveral otherdevelopment projects

Provides know-how
contributing to SAR’sinternal growth◼ Support by
Construction
Management
Department◼ Provides advice
based on abundant
experience in realestate-related debt
investment

Overview of Star Asia Group• Main Offices: Tokyo, New Jersey (US)• Number of officers and employees: 393 people (*)• Star Asia Management Limited is registered as aninvestment advisor with the US Securities andExchange Commission

Warehousing,Same-boat investment

Sourcing functions

Real estate operationand management

Star Asia
Japan Special
Situations FundStar Asia
Asset
Management
II, LLC

Asset owning
SPC

Asset owning
SPC

Star Asia
Asset Advisors
Co., Ltd.

Holds SAR’s
investment units(97,000 units/¥9.7bn)
Silent partnershipinvestment inproperties withpreferential negotiationrights owned by SAR◼ Urban Park Mitsuike
Koen◼ Urban Park
Tokiwadai Koen
◼ OHA Building

Supports SAR’s
external growthStar Asia Groupcurrently manages
funds with AUM of¥35.7bn as of January
31, 2019

Star Asia Capital Corp Limited

Supports asset
management of
warehousing funds andformation of bridge
funds

Has capacity to acquire
over ¥100bn ofproperties andcontinues to focus onproperty acquisitions

25

Post Merger Growth Strategy (2)Commitment of sponsor support by Star Asia GroupStar Asia Group’s Accumulated Investment
in real estate and related assets in Japan

AUM of Sponsor Group

Hotel
30.7%

(¥100m)Investment
Target Area

Asset Type■Real estate property ■Real estate-related dept investment – real estate-related assets
Over ¥340bn

Other
15.1%

Office25.1%

35,795
Million
百万円yenMillion yen
Tokyo area
84.9%

Retail
24.4%

Residential
19.7%

As of January 31, 2019 (on an appraisal value basis)
Excluding properties with preferential negotiationrights owned by SAR

List of Preferential Negotiation Rights
Properties for which
SAR holds preferential
negotiation rights

Star Asia Group’s Blue-Chip Investor Base
Investors Location

Residence

EU 2%
欧州

Nishi-Sugamo Project

Other
5%

Mutual funds 4%
Listed financial
institutions 5%

Japan
日本 3%
Bunkyo-ku

Tachikawa-shi

Suginami-ku

OHA Building

Student accommodation

アジア
Asia
（日本を除く）(Excluding
Japan)
6%
6%

Investment
funds 8%HAKUSAN HOUSE

米国
U.S.
84%
84%

Investors

Residence
Urban Park Tokiwadai Koen

Yokohama-shi
Hodogaya-ku

Residence
Urban Park Mitsuike Koen

Foundations
30%

Family offices 5%

GSA second development
project

Yokohama-shi
Tsurumi-ku

Pensionfunds 3% Other 5%

PE funds 5%

Student accommodation
OfficeInvestors Type

Kita-ku

University
endowments
28%

Real estate-related
funds 8%Location

Investment
ratio

Total assets undermanagement(trillion
yen)

1

A. Endowment fund

U.S.

20.1%

2.2

2

B. Foundation

U.S.

10.2%

2.6

3

C. Foundation

U.S.

7.0%

6.5

4

Real estate-related fund

Asia

5.6%

1.5

5

E. Foundation

U.S.

5.4%

6.2

26

Post Merger Growth Strategy (3)Overview of Star Asia Investment Corporation, which is Managed
by Star Asia Investment Management
Characteristics and Investment Policy of SAR
Characteristics

Investment target area, ratio of asset type
and primary asset of SAR
Investment target area and ratio of asset type

1. A Diversified REIT
Portfolio developed with diversified assets located mainly in the Tokyo Area(Note)

Stability-driven

middle-size assets :100%

54.9%

Residence
Office14.9%

2. Steady and Accretive GrowthPursuit of internal growth by the Asset Manager with abundant experience

Growth potential-driven

45.1%

34.8%
Total asset
acquisition price

Ratio of Tokyo area :74.0% Other:26.0%

102.3
billion yen

and know-how as well as external growth based on asset managed

Hotel
Logistics facility

performance by the Star Asia Group

20.1%

30.2%

As of the end of April, 2019

3. Initiatives Focusing on Unitholder Value
Constant, “out-of-the-box” active management(Note)“Tokyo area” refers to Tokyo’s 23 wards, Kawasaki city and Yokohama city for office properties and retail facilities, andTokyo and three prefectures of Kanagawa, Saitama and Chiba for residential properties, logistics facilities and hotels.

Primary Assets of SAR
OfficeResidence

Logistics facility

Hotel

Honmachibashi Tower

Urban Park Daikanyama

Funabashi Logistics

Best Western Tokyo
Nishikasai Grande

Amusement Media
Gakuin Shinkan

Urban Park Azabujuban

Baraki Logistics

Hotel WBF Fukuoka
Tenjin Minami

Investment Policy

Prioritized, focusedinvestment in theTokyo area
Investment ratio of 70%of
higer in the Tokyo Area

Achieving income
stability andgrowth throughdiversification ofasset types

Investment
primarily in middlesize assets(Note)：(Note)“Middle-size assets” refer to real estate,etc. with acquisition price less than 10
billion yen, and “large-size assets” refer toreal estate, etc. with acquisition price of 10
billion yen or more. 。

27

Post Merger Growth Strategy (4)Star Asia Investment Management will Manage Assets
to Maximize Unitholder ValueStar Asia Investment Management is implementing active management by, for example, being the first
J-REIT to invest in mezzanine loan debt and replacing assets four times in three years since being listed
We promise that the post-merger REIT will manage assets to maximize unitholder value
Asset Acquisition History
Assets acquired from Star Asia Group‘s pipelines
Acquired 28 properties which Star Asia Group initially invested in by utilizing special situation
investments and leveraging a wide range of relationships
Total acquisition
price

¥

91bn

(Ratio of properties
acquired from thesponsor: 82.1%)

Honmachibashi
Tower

Urban Park
Daikanyama

Baraki
Logistics

Utilized warehousing function
Total acquisition
price

¥

Urban Park
KoenjiFour investments series(Star Asia Mezzanine Loan Debt Investment Series)

Four asset replacements

Four investments from October 2017 onwards
Series 1

Series 2(Underlying asset)
Haneda Hotel
Development GK(Underlying asset)
Sasazuka South
Building

Higashi-KobeCenter Building

Four asset replacements from December 2016 onwards
1st asset replacement

2nd asset replacement

Transfer

Acquisition

Transfer

Acquisition

Urban Park
Yoyogikoen

Urban Park
Gokokuji

Oak MinamiAzabu

Baraki
Logistics(Redeemed)

Acquired nine properties through the asset manager’s own network

Urban Park
Kashiwa

Asset Replacement

Best WesternTokyo Nishikasai
GrandeAssets acquired through the asset manager’s own network

Urban Park
Gokokuji

Mezzanine Loan Debt Investment

19.9bn(Ratio of properties
acquired fromthird parties:
17.9%）

Continued external growth by acquiring properties
from Star Asia Group and through Star Asia
Investment Management’s own network

Series 3（裏付不動産）The Royal Garden
Residence白金台

Series 4(Underlying asset)
Premier Kaigan
Building

3rd asset replacement

4th asset replacement

Transfer

Acquisition

Transfer

Acquisition

Hakata-eki
Higashi 113
Building

Hotel WBF
Fukuoka Tenjin
Minami

Urban Park
ShinYokohama

GLANSITAKIHABARA

Invest in debt by using it’s own
funds to increase profits available
for distribution

Estimated capital gains of ¥2,690mn

Increase capital and investment budget
through the merger

Continue to consider asset replacement
opportunities to strengthen the portfolio

Star Asia Investment Management will conduct
active management to generate and maximize
unitholder value for ALL unitholders

28

Post Merger Growth Strategy (5)Post Merger External Growth Target
The post-merger REIT will aim to achieve ¥200bn in AUM by leveraging sponsor support from Star Asia
Group and Star Asia Investment Management’s ability to develop properties
We already strive to acquire properties, which will be resources for future external growth

Aim tofurtherincrease
asset size

Properties with preferential negotiation rights owned by SAR at this time

1,584
HAKUSAN HOUSE

Nishi-Sugamo Project

Urban Park Tokiwadai Koen

OHA Tachikawa
Building

Amount of preferential negotiation rightsof the above three properties:¥8,450mn

Shimotakaido Project

Upon listing

Urban Park Mitsuike Koen

FP1

FP2

FP3

(Note)

FP4

FP5

FP6

(Note)

After merger

Note: As Oak Minami Azabu (quasi co-ownership 51%) held at the end of FP3 and the Hakata Eki Higashi 113 bldg. (quasi co-ownership 51%) held at the end of FP6 were transferred at the start of the following FPs, they havebeen removed from the FP-end balances

29

Disclaimer<Inquiries regarding this material>
Lion Partners GK◼ Tel: 03-4577-7871◼ E-mail: info＠starasia-lp.com◼ Video concerning this material：
https://www.youtube.com/channel/UCYasJn4xrns2fhyZFKMAELw◼

This document has been prepared solely for the purpose of providing information relating to Lion Partners GK’s proposal of a merger
between SSR and SAR, and not for offering, soliciting or selling any specific product◼

Copying, reprinting or any other use of the contents of this document without prior approval is strictly prohibited. This document includes
charts, graphs, data, etc. publicized by third parties. It also includes descriptions related to analysis, judgments and other opinions byStar Asia Group