Financial Results for the 4th Fiscal Period (“FP4”)
Sakura Sogo REIT Investment Corporation (Securities code: 3473)

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)

Contents
Section 1 – The Sponsors
Overview of Sponsors
Features of the Investment Corporation
Sponsor Support Structure
Sponsor Overview - Nippon Kanzai Group
Sponsor Overview - Galileo Group
Galileo Group – Development Capability
Portfolio Investment Guidelines
Section 2 – Fiscal Period 4 (“FP4”) Financial Results
FP4 Financial Results
FP5 and FP6 Forecasts
DPU Forecast vs Actual

Sakura Sogo REIT Investment Corporation

4
5
6
7
9
10
11

13
14
15

Section 3 – FP4 Key Initiatives to Enhance U/holder Value
Capital Management
17
Section 4 – JREIT Sector & Peer Comparison
JREIT Sector
JREIT Peer Comparison
JREIT Index Movement post IPO

19
20
21

Section 5 – Key Performance Indicators (KPI’s)
Portfolio KPI’s
Portfolio Sector Analysis
Office – Rent Reviews / Renewals
Financial KPI’s
Portfolio Summary
Breakdown of Major Tenants

23
24
25
26
27
28

Section 6 – Management Key Priorities
Management Key Priorities
Part A – Internal GrowthPart B – External GrowthPart C – Capital Management
Overview of Borrowings
Status of Unitholders

31
32
37
39
40
41

Appendix
Balance Sheet and Statement of Income
Income and Expenditure by Property for FP4
Property – Appraisal & Yield Analysis
Portfolio Map
Overview of the Investment Corporation
Disclaimer

43
44
46
48
49
50

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)2

Sakura Sogo REIT Investment Corporation

Section 1 – The Sponsors

Sakura Sogo REIT Presentation Material for FP3 (Six months ended 28 February 2018)3

Overview of Sponsors

Sakura Sogo REIT Investment Corporation

Galileo GroupThe Nippon Kanzai Group, established in 1965, is headed by

The Galileo Group is an independent Australian real estate and funds

Nippon Kanzai Co. Ltd., one of the major companies involved inbuilding management and operation in Japan, offering a full-line ofmanagement business with an extensive track record in real estate
investment and development in Australia, Japan and the U.S. Galileo

real estate management services. It is entrusted with the
management and operation of a variety of buildings including officehas significant real estate capital markets experience with seniorpersonnel having been directly involved in the IPO and ongoingbuildings, condominiums and retail facilities in major cities acrossJapan. Through its business operations, it has acquired extensive

management of 9 listed REITs for over 20 years. The Group
commenced operations in Japan in 2006.

know-how in management and operation of buildings of various
sizes, asset types and location.
Total Revenue1

Galileo Group Total Global Acquisitions and Developments 2

96.5bn542.6bn￥￥

Revenue from Building Maintenance & Residential Management 1￥

84.0bnREIT Track Record
2003

ASX listed REIT: Galileo Shopping America Trust% Revenue from Building Maintenance Operations 1

2006

ASX listed REIT: Galileo Japan Trust

87.0%

2016

TSE listed REIT: Sakura Sogo REIT

1 As at end of March 2018
2 As at end of July 2018

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)4

Features of the Investment Corporation

Sakura Sogo REIT Investment Corporation

The philosophy of Sakura Sogo REIT Investment Corporation (hereinafter “SKR”) is to leverage its investment mandate as a diversified REIT1 ,to achieve stable income over the medium- to long-term and maximize unitholder value2 by building a portfolio, which SKR believes to be optimal
while taking into account prevailing real estate market conditions.

An independent Australian real estate developer and funds
management group with an extensive track recordin real estate capital markets

A TSE 1st section listedbuilding management and operations company
with a history of over 50 years in Japan

Core Features and Strengths
Cash flow growth and stability through diversification by location, type of asset and tenant
Growth through internal initiatives and pursuit of acquisition opportunities
Unique property sourcing capabilities of Galileo Group3 and Nippon Kanzai Group4
Leverages Nippon Kanzai Group’s know-how in property management

1 A “diversified REIT“ is a real estate investment corporation which invests in a range of different asset types and locations in order to mitigate risk.
2 The "maximization of unitholder value" means achieving stable distribution growth, enhancing investment unit values and placi ng highest priority on the interests of the unitholders (not the Sponsors or other third parties).
3 Refers to a corporate group consisting primarily of Galileo Sydney Holdings Pty Limited (hereinafter “Galileo”) and in additi on Galaxy JREIT Pty Limited and Werrett Family Pty Ltd. The same applies hereafter.
4 Refers to a corporate group comprised of Nippon Kanzai Co., Ltd. (hereinafter “Nippon Kanzai”) and in addition 15 consolidated subsidiaries including Tokyo Capital Management Co., Ltd. (“Tokyo Capital Management”), Japan Property Solutions Co.,

Ltd. (“JPS”), Three-s Inc. and Nippon Kanzai Environment Service Co., Ltd., 26 affiliated companies accounted for by the equity-method and 2 other affiliated companies (as of the end of March 2018). The same applies hereafter.

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)

5

Sponsor Support Structure

Sakura Sogo REIT Investment Corporation

Leverage off of the complementary skill sets of Nippon Kanzai Group and Galileo Group
Sakura Real Estate Funds Management, Inc. (“the Asset Management Company”) receives extensive support for external and internal growth based on
the Sponsor Support Agreements executed with Nippon Kanzai Group’s core companies and Galileo Group1

Support Provided
Sales information on properties held and granting first rights of refusal
Information on external properties

External Growth Support

Warehousing functions
Information on the real estate transaction market and results of market analysis
Joint ownership of opportunities
Advice on investment strategies and global offerings
Advice on the management and operation of properties

Internal Growth Support

Support and cooperation with sourcing, redevelopment and renovations
Staff secondment and other human resource support

Same Boat Investment by the Nippon Kanzai Group and Galileo Group
Both sponsors2 acquired investment units of the Investment Corporation at the time of IPO in order to align their interests with those of the unitholders’.
As a result, each owns 2.6% of investment units issued and outstanding (5.2% in total by both sponsors)

Investment by Nippon Kanzai Group

Investment by Galileo Group

1 "Nippon Kanzai Group’s core companies" refers to Nippon Kanzai, Tokyo Capital Management and Japan Property Solutions
2 "Sponsors" refers to Nippon Kanzai,Tokyo Capital Management and Galileo which have executed Sponsor Support Agreements

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)

6

Sponsor Overview - Nippon Kanzai Group

Sakura Sogo REIT Investment Corporation

Nippon Kanzai Co. Ltd. – Main History

Galileo GroupApr 2014
Oct 1965

Current Chairman Takeshi Fukuda
founded Nippon Kanzai Co., Ltd.

Mar 1988

Commenced comprehensive management
services for high-rise “intelligent” buildings

Feb 1989

Went public as an over-the-counter issue
designated by Japan Securities Dealers
Association.

Apr 1976

Changed Tokyo Office to “Corp HQ”, andHQ (Nishinomiya) to “Registered Office”

Jun 2000

PFI business consignment, special purpose company establishedAug 2000

Commenced building diagnosis (due diligence) services

Mar 2001

Listed on 1st section of the Osaka Securities
Exchange

Feb 2002

Listed on the 1st section of theTokyo Stock Exchange

Commenced operation maintenance work of
public sewage treatment plants

Sales as at
end Mar ‘18￥96.5 billion

May 2003

Established Asset Management businessJul 2004

Launched private fund for institutional investors

Dec 2006

Launched A-REIT with Australian investor Galileo

Jul 1990

Entrusted with management of a land trust building through a proposal-type competition

Nov 1993

Listed on 2nd section of the Osaka Securities Exchange

Aug 1996

BEST System, a life-long building management system toenhance property values, was introduced to the market

Source: Nippon Kanzai Co., Ltd.
Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)7

Sponsor Overview - Nippon Kanzai Group

Sakura Sogo REIT Investment Corporation

Nippon Kanzai Group, established in 1965, is a corporate group headed by Nippon Kanzai Co., Ltd., a company in Japan involved in the building
management and operation business that also offers a full line of real estate management services.

Historical Trend of Revenue and Revenue Breakdown1
Building Management and Operation
Temporary Staffing
Other

Environmental Facility Management
Real Estate Fund Management

Composition of Net Revenue for Management and Operation
Services2
Office 22.9%
Residential 21.3%(\m)

96,478100,000

Retail 17.3%
Welfare & Medical Facilities 10.3%

80,000Government Facilities 8.7%
60,00040,000

Educational & Culture Facilities 6.6%
Factories & Warehouses 3.8%

36,453

Hotel & Inns 3.2%
20,000Sports Facilities 1.8%
Other 4.1%

0
FY1999FY2002

FY2005

FY2008FY2011FY2014FY2017(unaudited)

Geographical Breakdown of Building Management and Operation1

Geographical Breakdown of Residential Management1(¥b)
Hokkaido
1.7

Kinki
18.6
Kyushu /Okinawa
3.5 Chugoku
1.5

Shikoku
1.0

Chubu
4.7

：Nippon Kanzai

Tohoku0.5

Kyushu /Okinawa
3,096

：NKJ3

(units)Hokkaido
4,250

Tohoku120

Chugoku
2,623

U.S.
Manages approx. 70k
residence in southern
California
Kanto
17.2

Source: Nippon Kanzai Group
1 As of the fiscal period ended March 31, 2018
2 Based on the net revenue of Nippon Kanzai (unconsolidated) as of the fiscal period ended March 31, 2017.
3 NKJ Holdings, a wholly-owned residential property management subsidiary of Nippon Kanzai Group

Shikoku
331

Kinki
61,791

Chubu
3,062

Kanto
19,212Australia
Manages approx. 200k
residence mainly in Sydney

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)8

Sponsor Overview – Galileo Group

Sakura Sogo REIT Investment Corporation

As an independent real estate developer and fund management group based in Australia, Galileo group has managed significant real estate inAustralia, Japan and the U.S. It has listed 2 A-REITs on the Australian Stock Exchange and 1 J-REIT on the Tokyo Stock Exchange. In addition, its
management team has been involved in the listing process and management of an additional 6 A-REITs.

Cumulative Acquisitions and Developments (including sold properties) in Australia, Japan and the U.S.1
(¥b)

600
500
400
300
200
100
0

280.9

316.1

319.5

347.4

347.4

351.5

2007

2008

2009

2010

2011

392.6

401.0

2012

2013

453.0

469.4

2014

2015

531.3

542.6

542.6

2016

2017

30
Jun
2018
2018

207.7
63.6

86.0

2003

2004

2005

2006

Acquisitions by Asset Type (U.S. / Japan)2
Office
14.9%

Other 4.0%
Residential 4.9%

Total Acquisitions and Developments by Area2
Developments¥164.1b

Acquisitions¥378.5bDevelopments by Asset Type (Australia)2
Other
14.0%

Retail
5.5%

Japan
Australia

Retail
76.2%

Total

Total

¥378.5b

Total¥542.6b¥164.1bU.S.

Residential
80.5%

Source: Galileo Group
1 Cumulative figures from 2003 to the end of June 2018 including sold properties.
2 Based on currency exchange rates as of 31 July 2018 (AUD/JPY 82.21, USD/JPY 111.01)
Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)9

Galileo Group – Development Capability

Sakura Sogo REIT Investment Corporation

Galileo Group - impressive development track record
▪
▪
▪
▪
▪

Delivered some of Australia’s most attractive and successful residential apartment and land subdivision projects
Equity partnerships with a number of leading Australian financial institutions and superannuation funds
Land and construction financing with a range of major Australian banking institutions
Galileo considering opportunities to expand development operations in Japan
Japan focus - development of small / mid size assets. Potential pipeline for Sakura Sogo REIT (“SKR”)

Examples of current / recent key projects in Australia
King & Phillip

Metro Residences

Arlington Grove

The Residences

Arena

Palisade

Location

SydneyLocation

SydneyLocation

SydneyLocation

SydneyLocation

Brisbane

Location

SydneyApartments

104

Apartments

553

Apartments

246

Apartments

87

Apartments

191

Apartments

245

Value

¥30bn

Value

¥44bn

Value

¥19bn

Value

¥28bn

Value

¥9bn

Value

¥14bn

Completion

2020

Completion

2015

Completion

2018

Completion

2014

Completion

2015

Completion

2018

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)10

Portfolio Investment Guidelines

Sakura Sogo REIT Investment Corporation

Overview▪
▪
▪
▪

Flexible investments possible with respect to asset type and location enabling the Asset Management Company to enhance unitholder value
Able to reduce portfolio concentration risks by aiming to diversify the portfolio by sector, location, tenant and lease type
Ongoing review of real estate market trends to identify potential new, and optimize existing revenue streams
Pursue opportunities to actively recycle capital to enhance unitholder returns

Investment Ratio by Asset Type1
Investment Ratio by Asset TypeGrowthOffice30～60％
Residential
10～30％

Characteristics of Asset Type▪
▪

During economic expansion, up-side potential can be capitalized on
By targeting office buildings of a B-grade standard or above for investment, it is possible
to pursue a large number of investment opportunities that offer relatively high liquidity
and tenant diversity▪ Rental demand and rent rates are relatively stable irrespective of economic changes andtenants are diversified making residential housing suitable as a medium to long-term
stable investment▪

Retail30～60％

Other
0～20％

Stability

Areas with stable population, expected to support ongoing retail sales that result insecure rental income▪ A long-term stable cash flow possible via lease agreements with a tenure of at least
three years or more which do not allow for early termination▪

The potential and value of each individual property will be identified and the goal will be
to conduct flexible property acquisition and investment

Investment Ratio by Location2
Tokyo Metropolitan Area
Approx. 50%

Regional Major Cities
Approx. 40%

Other
Approx. 10%

1 SKR may consider properties which do not fulfill some of the above criteria and acquire if it believes this is in the best interests of unitholders.
2 The ratios above are target ratios over the medium to long-term which depending on the real estate market and future property acquisitions may temporarily exceed or fall below the target ratios.

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)11

Sakura Sogo REIT Investment Corporation

Section 2 – FP4 Financial Results

Sakura Sogo REIT Presentation Material for FP3 (Six months ended 28 February 2018)12

FP4 Financial Results

Sakura Sogo REIT Investment Corporation

FP4 – Forecast and Actual
Unit: ￥mil
1

FP4 Actual

Variance

Operating revenue

1,628

1,768

140

▪

Operating revenue increased by ¥140m primarily due to gain onsale of Confomall Sapporo of ¥142m

Operating expenses

926

914

(12)

▪

Operating profit

702

854

152

Non-operating expenses

102

239

137

Ordinary profit

600

615

15

Operating expenses increased by ¥12m:- ¥20m decrease includes savings from retendering electricity
supplier contracts and lower than forecasted makegood costs
due to fewer than forecasted resi cancellations- ¥5m increase in non-deductible consumption tax associatedwith disposition of Confomall Sapporo

Net profit

600

615

15

▪

1,801

1,848

47

Non-operating expenses increased by ¥136m:- Professional service fees for investment transaction that was
not completed

FP4 Forecast

Distribution per unit (DPU) (¥)

Comment

FP4 vs. FP3 Actuals2
Unit: ￥mil

FP3 Actual

FP4 Actual

Variance

Operating revenue

2,400

2,426

26

Operating expenses

1,357

1,341

(16)

Operating profit

1,043

1,084

41

Non-operating expenses

151

153

2

Ordinary profit

892

931

39

Net profit

891

930

39

Comment▪

Rents for office increased. Rent revenue for Yoyogi increased
due to full period contribution. Utilities revenue decreased by
due to seasonal usage fluctuations.

▪

The difference of ¥16 million yen in operating expenses include
expenses not relating to leasing that have been adjusted by amultiple of 6/4 even though these amounts would not fluctuate
due to the number of days in the FP

1

Due to the resolution of the second general meeting of investors held on May 31, 2018, the fiscal year end has changed from the end of February and August to the end of Juneand December. Furthermore, the fiscal year ending June 2018 has a four-month settlement period from 1 March 2018 to 30 June 2018. FP4 financial forecast for the 4 month
period was announced on 10 May 2018.
2 FP3 and FP4 Actuals have been adjusted to exclude gains on sale of assets in both FP3 and FP4. FP4 Actuals adjusted for “one off” investment transaction costs and multipliedby 6/4 in order to provide a “like for like” comparison with FP3 Actual.
Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)13

FP5 and FP6 Forecasts

Sakura Sogo REIT Investment Corporation

FP5 – Forecast vs. Adjusted Forecast
Unit: ￥mil
1

FP5 Revised Forecast

Variance

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)

2,700

2,600

(100)

FP5 Forecast

Distribution per unit (DPU) (¥)

Comment▪

Due to the sale of Confomall Sapporo, rental revenue andexpenses both decreased.

▪

Repayment of debt ¥1.4b, reduction in AM fees due to the sale▪

FP5 Revised Forecast reflects:- Decreased rent revenue and expenses- Higher interest expense from extending ¥6b loan term to 4.5
years from 2 years- Reduction in AM fees as a result of the sale

Forecast for FP5 and FP6 (fiscal periods ending 31 December 2018 and 30 June 2019)
Unit: ￥mil

Unit: ￥mil

FP5 Forecast

Operating revenue

2,361

Operating expenses

1,333

Operating profit

1,028

FP6 Forecast

Comment▪
▪

Stabilized NOI and investment
corporation expenses for 17
assets post sale of Confomall
Plan to repay ¥1.4b out of a
¥7.4b loan which matures end
August ‘18 and refinance ¥6.0b.
Interest costs increasing in FP5
due to extending ¥6.0b loan
term to 4.5 years from 2 years.

2,325
1,296
1,029
162

Non-operating expenses

161

Ordinary profit

867

Net profit

866

866

2,600

2,600

Distribution per unit (DPU) (¥)

Annualized DPU yield

2

Comment▪

Compared to FP5, utilities
revenue and utilities expenses
will decline due to seasonal
fluctuations, however, net profit
and DPU is expected to remainunchanged.

867

5.7%

1

The previous fiscal periods of the end of February and August were changed to the end of June and December by resolution of the second general meeting of investors held on 31
May 2018. FP5 Forecast after the change of fiscal periods was announced on 10 May 2018.
2 Annualized DPU yield based on the closing price of ¥90,800 on 13 August 2018 and using the aggregate forecast DPU for FP5 and FP6 (¥5,200).
Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)14

DPU – Forecast vs Actual

Sakura Sogo REIT Investment Corporation¥ per unit

3,600

3,330

3,460

3,300
3,000

2,863

2,803

2,702 2,700

2,700

2,700

2,700

2,600

2,600

Note: 4 months only

2,400
2,100

1,800 1,801 1,848

1,800

1,529

1,500
1,164

1,200
900
600
305
300
0

FP1

FP2

FP3
Forecast

FP4
Updated Forecast

FP5

FP6

Actual1 Apr 2016 - 28 Feb 2017

1 Mar 2017 - 31 Aug 2017

1 Sep 2017 - 28 Feb 2018

1 Mar 2018 – 30 Jun 2018

1 Jul 2018 - 31 Dec 2018

1 Jan 2019 – 30 Jun 2019

▪

▪

▪

▪
▪

▪

▪

▪

▪

Savings ininvestment unit
issuance costs
Annual building
inspection
contingency not
required
Lower than forecast
costs for audit, tax
and accounting▪

Increase inoccupancy
Savings inoperating expenses▪

Includes net
realized gain onsale of Sannomiya(¥261m)Management fee
waiver based on
NOI ended FP2

Four month FP only.
Increase of ¥48 perunit from initial
forecast due to therecording of gain onsale of Confomall andexpenses related to an
investment transactionthat was notcompleted▪
▪

Revised DPU
reflects decrease in
NOI from sale ofConfomall
Represents
stabilized DPU
Improved LTV withrepayment of ¥1.4b
short-term

Represents
stabilized DPU

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)15

Sakura Sogo REIT Investment Corporation

Section 3 – FP4 Key Initiatives to Enhance Unitholder Value

Sakura Sogo REIT Presentation Material for FP3 (Six months ended 28 February 2018)16

Capital Management

Sakura Sogo REIT Investment Corporation

FP4 Sale of Regional Mixed Use asset at attractive premium
Confomall Sapporo
NOI Yield 1

4.8%

Post dep’n NOI yield2

3.1%

Realised gain

¥142m

Build dateMar 2003

Acquisition date

9 Sep 2016

Date of sale

28 Jun 2018

Sale price¥1.640bn

Appraisal value¥1.440bn

Acquisition price¥1.400bn

Book value¥1.429bn

Portfolio weighting to Greater Tokyo Area 53.7% to 55.0%

Premium to September 2016 acquisition price

Upgrade to FP4 DPU (¥1,801 to ¥1,848)

Proceeds used to repay short term borrowings (31 August 2018)■ Repayment Schedule
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0

FP4
30 June 2018

46.2

Post planned repayment
31 August 2018

44.9

Difference-1.3
Borrowing capacity assuming
LTV 50% (¥ bil)

FP4

2019

2020

2021

2022

2023

1 NOI Yield equates to appraisal NOI / sale price
2 NOI Yield post dep’n equates to appraisal NOI less depreciation / sale price

2.6%

LTV (%)

FP3

2018

17.1%

FP4
30 June 2018

4.6

Post planned repayment
31 August 2018

6.0

Difference

1.4

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)17

Sakura Sogo REIT Investment Corporation

Section 4 – JREIT Sector & Peer Comparison

Sakura Sogo REIT Presentation Material for FP3 (Six months ended 28 February 2018)18

JREIT Sector

Sakura Sogo REIT Investment Corporation

JREIT Sector▪
▪
▪
▪

Total market capitalization as at end June 2018 of JPY12.6 trillion
59 JREIT’s as at end June 2018 with 2 new entrants in 2018
The volume of IPOs and POs has decreased relative to the level of activity over the past 5 to 6 years
The DPU yield gap of larger vs smaller REIT’s remains wide
JREIT DPU Yields – Spread with JGBs still attractive2

Number of Listed JREITs and Market Capitalisation1(¥ Trillion)
14.0

70
Market Cap. (LHS)

12.0

60

No. of Listed REITs (RHS)
10.0

50

8.0

40

6.0

30

4.0

20

2.0

10

(%)
12.0

J-REIT Distribution Yield (Weighted Average)

10.0

JGB Yield (10 Years)
Spread

8.0
6.0

0.0
01/09

0
03/09

05/09

07/09

09/09

11/09

13/09

15/09

18/06
17/09

IPO
Value
(USDm)

Volume

2012
2013
2014
2015
2016
2017
2018

PO

4
6
6
5
7
2
2

2,512
4,085
2,145
1,085
2,766
892
421

Volume

11
37
30
35
30
25
18

IPO+POValue(USDm)

1,970
6,749
5,239
6,336
4,947
4,084
3,106

Value
(USDm)

Volume

15
43
36
40
37
27
20

2.0
0.0
-2.0
03/09

4,482
10,834
7,383
7,421
7,713
4,976
3,527

J-REIT
Total
MarketCap(USDm)

2.0%

13/09

15/09

18/03
17/09
18/07

4.0%

3.0%

0
4 Source: Capital IQ

11/09

6.0%

Note: Exchange rate as of 30 June 2018 (1 USD=¥110.76)

3 Source: ARES

09/09

7.0%

5.0%

2 Source: Bloomberg

07/09

8.0%

40,74868,747
95,50895,344
109,456
103,603
113,717

1 Source: ARES

05/09

JREIT DPU Yields – Significant gap between small and large cap JREITs 4

Number of Listed JREITs and Market Capitalisation3
Year

4.0

200

400

600

800

1,000

Market Cap. JPY Billion

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)

19

JREIT Peer Comparison

Sakura Sogo REIT Investment Corporation

JREIT Peer Comparison1▪
▪
▪
▪

SKR undervalued compared to Diversified and Small Cap REIT peers
SKR’s forecast DPU yield is 100 basis points (“bps”) higher than Diversified REITs and 50bps higher than Small Cap REITs as at 31 July 2018
Based on current trading price SKR’s implied NOI cap rate is 5.4%, 90 bps higher than Diversified REITs
SKR has a greater proportion of its portfolio (by value) located in Tokyo’s central five wards relative to:- The average for Diversified REITs- The average for Small Cap REITs
Annualised DPU Yield1
6.0%

Price / Net Asset Value2

5.7%
4.7%

5.0%

5.2%

1.20

1.00

4.0%

1.02

0.96

0.80

3.0%

0.60

2.0%

0.40

1.0%

0.20
0.00

0.0%
SKR

Diversified REITs

Diversified REITs Small Cap REITs% of Portfolio located in Tokyo Central Five Wards3
50.0%

5.4%
4.5%

5.0%

SKR

Small Cap REITs

Implied Capitalization Rate2
6.0%

0.94

5.1%

4.0%

44.6%
35.7%

40.0%

30.0%

3.0%

15.5%

20.0%

2.0%

10.0%

1.0%
0.0%

0.0%

SKR

Diversified REITs Small Cap REITs

1 Source: SMBC Nikko Securities Inc.- calculated using data obtained from Capital IQ

SKRDiversified REITs Small Cap REITs

3 Source: J-REIT DB – Weighted average calculated using AUM of each J-REIT

2 Source: SMBC Nikko Securities Inc.

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)

20

9/8

JREIT Index movement post IPO1
(JPY) (a)104,000(b) (c)(d)(e)(f)(g) (h)(i)(j)

35,000(k)(m)(Units)35,00030,000 30,000

30,00025,000 25,000

Historical low
Sep. 8: JPY 73,300
Dividend yield: 7.75%

Offer price:
JPY 91,000(l)

35,000
Historical highJanuary 16: JPY 101,900
Dividend Yield: 5.92%

Notice99,000
concerning capital
recycling transaction.
Refer slide 12

99,00094,000104,000

Sakura Sogo REIT Investment Corporation

25,000 July 31, 2018

94,000

SKR: JPY 91,300(100.3%)1
20,000 Dividend yield2:
5.85%

20,000 20,000

89,00089,00015,000 15,000
Historical low of ending priceNovember 14: JPY 75,400
Dividend Yield: 7.53%

84,0001,768.31pt(96.5%)

84,00010,000 10,000
79,00079,00015,000 TSE REIT INDEX:

10,0005,000 5,000

5,000

74,0000074,000 2017/1/28
2016/9/8
2016/11/18
2017/1/28
2017/4/9
2016/11/18
2016/11/18
2017/1/28 2017/4/9
2017/4/9 2017/6/19
2017/6/19 2017/8/29
2017/8/29 2017/11/8
2017/11/8 2018/1/18
2018/1/18 2018/3/30
2018/3/30 2017/6/19
2016/9/7
2016/12/2
2017/2/27
2017/5/24
2017/8/19
2017/11/13
2018/2/8
2018/5/5

TradingTrading
VolumeVolume
of SKRof SKR

Trading Volume of SKR

SKR

TSEREIT

Released revision of earnings forecast and interim financial results.
Announced execution of pipeline support agreements by asset
management company.
Released Financial Results for the 1st fiscal period.

(i) (Mon) Oct. 16 2017

Released Financial Results for the 2nd fiscal period.

(j) (Wed) Dec. 13 2017

FOMC announced lifting federal funds target rate by 25 basis points, to a
1.25 to 1.50 percent range.

Announced acquisition of “Abode Yoyogi Parkside”.

(k) (Mon) Apr. 16 2018(l) (Thu) May. 10 2018

SKR included in TSE REIT INDEX.

(c) (Mon) Nov. 14, 2016(f) (Mon) Jul. 31, 2017

TSEREITTSEREIT

Announced debt refinancing of short and long term borrowings.
Announced of completion of disposition of “Royal Hill Kobe Sannomiya II”.

SKR listed on the stock market.

(b) (Mon) Oct. 31, 2016(e) (Thu) Apr. 13, 2017

SKR

2017/11/8(g) (Mon) Aug. 28 2017(h) (Mon) Sep. 11 2017(a) (Thu) Sep. 8, 2016(d) (Mon) Apr. 3, 2017

SKR

0
2017/8/29
2018/7/31

Announced disposition of “Royal Hill Kobe Sannomiya II”.
Released revision of operating and distribution forecasts for the fiscal
periods ending Aug. 2017 and Feb. 2018. (JPY 2,700, JPY 3,460)(m) (Thu) June. 28 2018

Financial Results for the 3rd Fiscal Period
Notice Concerning the Change of Fiscal Period
Notice Concerning Disposition of Domestic Trust Beneficiary Right of“Confomall Sapporo”

1 As of 31 July 2018. Indexation by using SKR offer price (JPY 91,000).
2 Dividend yield calculated using current DPU forecast for FP5 & FP6 (JPY 1,848 and JPY 2,600 respectively) and July 31 st 2018 SKR closing price (JPY 91,300)

Source: Bloomberg
Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)21

Sakura Sogo REIT Investment Corporation

Section 5 - Key Performance Indicators

Sakura Sogo REIT Presentation Material for FP3 (Six months ended 28 February 2018)22

Portfolio KPI’s

Sakura Sogo REIT Investment Corporation

Overview
Real estate market conditions remain robust. According to CBRE Tokyo office vacancy continued to fall and was 1.1% as at Q2 2018.
▪ Increase of 0.2% in portfolio appraisal value excluding Confomall Sapporo. Office continued to be the strongest sector with a 0.4% increase▪ Continued high level of occupancy across the portfolio▪ Continued upward rent reviews in the office portfolio

Portfolio Value
Appraisal Value (￥bn)1

Book Value (￥bn)1

Unrealized Gain (￥bn)1@ FP3
28 February 2018 / excl Confomall

60.543 / 59.103

57.673 / 56.260

2.870 / 2.843@ FP4
30 June 201859.24656.239

3.007

Variance

2.1% / 0.2%

2.5% / 0.0%

4.8% / 5.8％
NK Building

Portfolio PerformanceOccupancy (%)2

NOI Cap Rate (%)1,2

NOI (¥bn)1,2@ FP3
28 February 2018 / excl. Confomall

98.4 / 98.6

5.2 / 5.2

3.133 / 3.052@ FP4
30 June 2018

98.7

5.2

3.060

Variance

0.3 / 0.1

0.0 / 0.0

2.3% / 0.3%

Office Market Rents3

Office Passing Rents4

Tokyo Office Vacancy (%)5

@ FP3
28 February 201816,295

15,7701.5@ FP430 June 201816,295

15,828

1.1

Variance

0.0%

0.4%

0.4

Office Market Trends

Suroy Mall Chikushino

Hiei Kudan Building

1 Number of assets as at end of FP3 is 18, number of assets as at end of FP4 number is 17 post disposition of Confomall Sapporo on 28 June 2018
2 As per independent appraisals dated February 2018 and June 2018
3 Weighted average office market rents (¥/tsubo/month) as per independent appraisals dated February 2018 and June 2018
4 Weighted average office passing rent (¥/tsubo/month) as per office lease agreements reflected in independent appraisals dated February 2018 and June 2018
5 Source: CBRE Market Overview Japan Office Q2 2017 and Q4 2017. Vacancy rate represents “All Office Grades” (Grade A, Grade A-minus and Grade B)
5 Source: CBRE Market Overview Japan Office Q4 2017 and Q2 2018. Vacancy rate represents “All Office Grades” (Grade A, Grade A-minus and Grade B)

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)23

Portfolio - Sector Analysis
UpdatedSakura Sogo REIT Investment Corporation

OfficeRetailResidential

Other1@ FP3
28 Feb 2018 / excl. Confomall@ FP4
30 Jun 2018

100.0

98.8

96.5

97.9 / 100.0

100.0

99.0

96.6

100.0

Variance

0.0

0.2

0.1

2.1 / 0.0

OfficeRetailResidential

Other1@ FP3
28 Feb 2018 / excl. Confomall@ FP4
30 Jun 2018

15,770

4,845

4,636

4,525 / 3,970

15,828

4,841

4,633

3,970

Variance

0.4%

0.0%

0.0%

12.3% / 0.0%

OfficeRetailResidential

Other1@ FP3
28 Feb 2018 / excl. Confomall@ FP4
30 Jun 201826.76023.120

6.645

4.018 / 2.578

26.87023.130

6.665

2.581

Variance

0.4%

0.0%

0.3%

35.8% / 0.1%

OfficeRetailResidential

Other1@ FP3
28 Feb 2018 / excl. Confomall@ FP4
30 Jun 2018

4.3

5.8

6.0

6.0 / 6.1

4.3

5.8

6.0

6.2

Variance

0.0

0.0

0.0

0.2 / 0.1

Occupancy (%)1

Passing Rents1

Appraisal Values (¥bn)2

NOI Cap Rates (%)2

1 Confomall Sapporo was included as at end of FP3 and excluded as at end of FP4 post disposition on 28 June 20182 ￥per tsubo per month reflecting in place passing rents
3 As per independent appraisals dated February 2018 and June 2018

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)24

Office - Rent Reviews / Renewals

Sakura Sogo REIT Investment Corporation

New Leases / Lease renewals

Rent reviews
Number of rent reviews% of office portfolio reviewed
Number of rent increases
NRA with rent increase (tsubo)4

Number of leases expiring

12

5.2

Number of leases renewed

111

Number of leases cancelled

1

30.2

Average rent increase (%)

3.3

Total increase in annual office rent (¥m)

0.2

91.7

Tenant retention rate (%)1

Office portfolio tenant movement in / out (Tsubo)
400
200

273

0
-200

225

214

-74

-61

97
-97

FP2

FP3

FP4

-518

-400
-600
FP1

Move in area

Move out area

Average % change - replacement tenant vs previous passing rent2
10.0%
7.6%

5.0%
0.0%

6.7%

3.6%
-8.9%

-5.0%
Hiei Kudan Building

Seishin Building

Tsukasamachi Building-10.0%
FP1

FP2

Average increase in rent
1
2

FP3

FP4

Average decrease in rent

Tenant retention rate is the # of office leases that renewed in the period / # leases expiring in the period
FP4 average decrease in rent was attributed to previous tenant occupying space for a limited time as a show room for condominium sales. Rent of new tenant is inline with market rent. Also,
as at end July 2018 (FP5), 2 vacated units totaling roughly 190 tsubo were contracted at 9.4% higher than previous tenants.
Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)25

Financial KPI’s

Sakura Sogo REIT Investment Corporation

Overview▪ LTV increased by 0.3% at the end of FP4 due to the sale of Confomall Sapporo. However, the LTV after debt repayment at the end of August will
decrease to 44.9%, 1.0% lower than the LTV as at end FP3▪ Average loan duration post refinance at the end of August is expected to be 2.91 years, an increase from 2.12 years as at the end of FP3▪ Net asset value per unit unit increased by 0.4% due to rise in appraisal values▪ Estimated stabilized DPU is maintained at 5.7%

Balance SheetLTV (%)

Ave. loan maturity (years)

Total Liabilities (￥bn)@ FP3
28 February 2018

45.9

2.45

32.7

@ FP4
30 June 2018

46.2

2.12

32.8

Variance

0.3

0.33

0.3％

Net Equity (￥bn)

NAV (￥per unit)

Total Assets (￥bn)@ FP3
28 February 2018

29.25

96,470

63.19

@ FP4
30 June 2018

29.25

96,88062.75

Variance

0.0%

0.4%

0.7%

Seishin Building

Urban Plaza Imazato

Investment Units
Unit Price (¥ per unit)

Annualized DPU yield (%)

P/NAV

@ FP3
28 February 2018

94,5001

5.71

0.98

@ FP4
30 June 2018

90,8005.72

0.94

Variance

3.9%

0.0%

4.1%
Suroy Mall Nagamine

1 Annualized DPU yield based on unit price of ¥94,500 as at 12 April 2018 and the aggregate of FP4 and FP5 DPU Forecasts announced on 16 April 2018
2 Annualized DPU yield based on aggregate of current FP4 and FP5 DPU Forecasts and closing price on 13 August 2018 of ¥90,800

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)26

Portfolio Summary

Sakura Sogo REIT Investment Corporation

At 30 June 2018 (post disposition of Confomall Sapporo)

17

No. of properties

98.6

Average occupancy %Total appraised value ¥m59,246

Average NOI yield %1

5.2

Total book value ¥m56,239Average NOI yield post depreciation %1

4.3

Portfolio Diversification

Lease type (by income)■ Investment Ratio by Asset Type■ Investment Ratio by Location
Other
7.4%

Other
4.3%

Standard Japanese leases %55.7

Non-cancellable leases %2

44.3

Residential
11.7%
Office44.0%

Major
Regional
Cities37.6%

Tokyo
Metropolitan
Area
55.0%

WALE3 of non-cancellable leases (years)

7.4

Retail40.0%

1 Calculated based on 30 June 2018 independent appraisals.
2 Includes leases that can be cancelled by paying cancellation penalties
3 Weighted average lease term to expiry

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)27

Breakdown of Major Tenants

Sakura Sogo REIT Investment Corporation

At 30 June 2018 (excluding Residential portfolio)■ By leaseable area1■ By rent per annum 2

Information & Communications
5.4%

Information & Communications
7.5%

Medical, Welfare, Fitness
5.4%
Wholesale & Retail
61.3%

Other
6.9%

Service
9.7%

170 tenants

Manufacturing
10.6%

Other
12.4%

170 tenants¥3.5 bn/p.a.

145,514㎡
Manufacturing
11.4%

Wholesale & Retail
42.9%

Service
12.9%

Manufacturing
13.7%

Industry
Wholesale & Retail
Manufacturing
Service
Other
Medical, Welfare, Fitness
Information & Communications
Total

Leased area (m2)
89,14816,601
14,095
9,974
7,883
7,812
145,514

Industry
Wholesale & Retail
Information & Communications
Service
Other
Manufacturing
Medical, Welfare, Fitness
Total

Rent (¥mil p.a.)
1,502
481
453
435
374
266
3,511

1 Indicates the ratio of leased area (including storage, but excluding car park( with respect to the total leaseable area.
2 Indicates the ratio of all-in rent revenue (including storage) from each tenant with respect to total portfolio rent revenue excluding residential portfolio.

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)28

Breakdown of Major Tenants

Sakura Sogo REIT Investment Corporation

At 30 June 2018 (excluding residential portfolio)■ By leaseable area
TenantProperty

Leased area(m2)

% of total portfolio Lease expiry dateleaseable area

1

Type of lease2(%)
Seiyu GK
Nagasakiya Co., Ltd.
Non-disclosure

4

Mr. Max

Seiyu Minakuchi

23,814.90

16.4

Non-disclosure

La Park Kishiwada

15,249.10

10.6

18-Oct-34

44

Non-disclosure
03-Jul-27

Funabashi Hi Tech Park I

Non-disclosure

Non-disclosure

4Standard
Standard

4

Non-disclosure

Suroy Mall Chikushino

7,997.10

5.5

Sakoda Co., Ltd.

Suroy Mall Chikushino

44

Non-disclosure

Nobuta Enterprises

La Park Kishiwada

7,555.90

5.2

19-Jul-27

Fixed term

Edion Corporation

Suroy Mall Chikushino

4,955.70

3.4

03-Jul-27

Fixed term

Sanki Co., Ltd.

La Park Kishiwada

4,281.60

2.9

22-Jul-23

44

Non-disclosure

4

Vinxus Corporation

Funabashi Hi Tech Park II

Non-disclosure

Non-disclosure

NK Building

Non-disclosure

4

Fixed term
4

Fixed term

Fixed term

Non-disclosure4

Non-disclosure4

Non-disclosure4

Non-disclosure

4% of total portfolio Lease expiry daterent revenue

Type of leaseNon-disclosure

2,927.37

2.0■ By rent revenue
TenantProperty

Asset Type

3(%)
Nagasakiya Co., Ltd.

RetailNon-disclosure4

Non-disclosure
Non-disclosure

18-Oct-34

Standard

Seiyu Minakuchi

RetailNon-disclosure

4

Vinxus Corporation

NK Building

OfficeNon-disclosure

4

Nobuta Enterprises

La Park Kishiwada

RetailNon-disclosure 4

Non-disclosure
03-Jul-27

Non-disclosure

4

La Park Kishiwada

4

Suroy Mall Chikushino

RetailNon-disclosure

4

Mr. Max Co., Ltd.

Suroy Mall Chikushino

RetailNon-disclosure4

Non-disclosure4

Non-disclosure

Non-disclosure

4Standard
Non-disclosure

19-Jul-27

4Non-disclosure

4

Fixed term
4

Fixed term
Fixed term

4

Non-disclosure 4

Funabashi Hi Tech Park I

OtherSpectris Co., Ltd.

Tsukasamachi Building

Office2.530-Sep-18

Standard

Jorudan Co., Ltd.

Seishin Building

Office2.4

31-Jan-20

Standard

Retail

403-Jul-27

Fixed term

Edion Corporation

Suroy Mall Chikushino

Non-disclosure

4

1 Indicates the leased area (including storage, but excluding car park) indicated in each lease agreement pertaining to each tenant as at 30 June 2018.
2 Indicates the ratio of leased area with respect to the total leaseable area.
3 Indicates the ratio of all-in rent revenue (including storage) from each tenant with respect to total portfolio rent revenue excluding residential portfolio.
4 Tenant would not allow disclosure

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)29

Sakura Sogo REIT Investment Corporation

Section 6 - Management Key Priorities

Sakura Sogo REIT Presentation Material for FP3 (Six months ended 28 February 2018)30

Management Key Priorities

Sakura Sogo REIT Investment Corporation

External Growth▪

Identifying off market investment
opportunities leveraging off sponsor
relationships▪

Add to existing pipeline support
network▪

Foster relationships with mid-scale
developers

Capital Management▪

Explore opportunities to recycle
assets which can:Internal Growth

Enhance Unitholder
Value

▪

- Upward rent reviews particularly
in office- Increase distributions- Creating new revenue streams;
e.g. contracting rooftop
telecommunications antenna- Enhance portfolio characteristics▪

▪

Carefully manage borrowings to
mitigate maturity risk and minimize
ongoing cost of debt▪

Cumulative investment scheme for
the Asset Management Company
directors and employees to furtheralign interest with unitholders

Actively pursue growth▪

Utilize the expertise of Nippon
Kanzai to ensure buildings are wellmaintained while minimizing costs

Strategic capital expenditure initiativesto:- Maintain high occupancy- Minimize downtime on vacant space- Enhance revenue through current andfuture rent reviews

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)31

Sakura Sogo REIT Investment Corporation

Part A - Internal Growth Initiatives

Sakura Sogo REIT Presentation Material for FP3 (Six months ended 28 February 2018)32

Internal Growth

Sakura Sogo REIT Investment Corporation

Office▪ Successful track record of achieving rent increases in office assets▪ Uplift of 3.3% for a rent review, ¥0.2 mil p.a.
▪ Based on independent appraisals, over 75% of office floor space is at or below assessed market rent
Rent Gap1

14.7%

> 20%

13 tenants
1,035 tsubo

10.1%> 10% < 20%

9 tenants
714 tsubo

54.2%

between 0% - 10%

40 tenants
3,825 tsubo

Monitor / consider upward rent revisions for tenants with a rent gap ofless than 10%

21.0%

less than 0%

19 tenants
1,478 tsubo

Maintain sound relationships and ensure building services meet tenant
expectations
Focus on high level of tenant retention – target > 80%

Will continue to pursue rent increases for tenants in this category

79.0%

4th Fiscal Period

3rd Fiscal Period

2nd Fiscal Period

1st Fiscal Period
7

11.6

8.2

6

14.4

9.2

1

14.7

11.0

1

3.3

0.2

Number ofincreases

Averageincrease (%)

Amount p.a.
(¥ mil)Number ofincreases

Averageincrease (%)

Amount p.a.
(¥ mil)Number ofincreases

Averageincrease (%)

Amount p.a.
(¥ mil)Number of
Increases

Averageincrease (%)

Amount p.a.
(¥ mil)1 Average passing rent vs. assessed market rent based on net rentable area from independent appraisals dated 30 June 2018

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)33

Internal Growth

Sakura Sogo REIT Investment Corporation

OfficeResidential

Tsukasamachi Bldg

EV enhancement

Matsuya Residence Sekime Achieving higher rental rates for new tenants

Undertook major EV renewal works which will further contribute to tenantsatisfaction and enhance asset value

Differentiated subject property from neighboring properties by reducing tenant
initial costs (no longer requiring TSD and key money as lease conditions)while revisiting and further promoting the strengths of subject property; e.g.
good natural sunlight, well known primary school right across the street andonsite carpark facilities. Also, currently undertaking large-scale refurbishment
works on the external walls which will approve the appearance and level ofsafety of the property while making it more competitive from a leasing
standpoint.
••

BeforeAfter

Market rent within this area and assessed rent by independent appraiser isbetween ¥5,100 and ¥5,300 per tsubo/mth
During the period 7-units were retenanted at rents roughly 5% higher thanprevious tenants; ¥5,600 and ¥6,400 per tsubo/mth

Retail
La Park Kishiwada

Effective utilization of common area space

Converted portion of idle common area space into rentable storage for an
existing tenant. Increase in revenue is approx. ¥1 million p.a.

BeforeAfter

La Park Kishiwada

Increased vending machine revenue

Renegotiated terms with vending machine operators while adding one new
vending machine and changing one other. Forecast annual increase inrevenue is approx. ¥340k based on May and June 2018 actuals

BeforeAfter

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)34

Internal Growth

Sakura Sogo REIT Investment Corporation

Internal Growth Initiatives
Nippon Kanzai Group (“NKZ”) has been involved in identifying and implementing initiatives across the portfolio to assist in achieving internal growth.
▪ Property management consolidation- PM operations for 7-office properties, 1-retail property and 2-industrial properties were entrusted to Japan Property Solutions Co., Ltd. (“JPS”)▪ Initiatives for internal growth including specific works:- Kishiwada floor polishing: Enhanced appearance and brightness (via reflection of floor) without undergoing major floor tile replacement works
which contributed to attracting a new tenant- Re-tendered building maintenance service agreements for 10 properties resulting in a cost reduction by ¥3.6m p.a.
- Proposal for installation of outdoor rooftop antenna at Seishin and Azabu Amerex. Estimate revenue increase of in income of ¥610k p.a.
▪ Examples of past initiatives:- Seishin: Identifying reusable parts and equipment utilized for renewing HVAC facilities; cost reduction of approx. ¥2.0m.
- Seiyu: prudent planning and maximum efforts made to split up rooftop waterproofing construction works into 4 separate phases which helped
avoid negatively affecting customers- Takadanobaba: Timer added to HVAC facilities for managing after hours electricity usage resulting in a cost savings of approx. ¥1.0m p.a.
Portfolio

Property Management Consolidation

NKZ consolidated its property management business to group company JPS to further strengthen its property management platform and tenant leasing
services by leveraging off its experience, know-how and nationwide network. JPS currently provides property management services to 10 Sakura Sogo REIT
assets.
JPS is a property management company that was established 15 years ago and with 278 properties currently under management nationwide. Last year, afterparent company NKZ’s strategic decision to consolidate the group’s PM business it became a more comprehensive PM company covering a wide range ofasset types including logistics facilities, retail facilities, hotels, etc. in addition to office buildings. JPS maintains five business locations, including the Tokyo
head office, in Nagoya, Osaka, Hokkaido and Kyushu which allows it to cover and flexibly manage a wide area.

Corporate Information (as at April 2018)
Establishment: 2 August 2002
Shareholder: Nippon Kanzai Co., Ltd. (100％)
Employees:
96
Licenses:
Takken, Architecture level 1, Specific Construction,
Security business, Appraisal business
Seishin Building

Seiyu Minakuchi

Funabashi Hi Tech Park II

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)35

Internal Growth

Sakura Sogo REIT Investment Corporation

NOI Enhancement
Through various proactive initiatives, expected to enhance NOI by in total over ¥25m from FP1 through FP5 (forecast).

Properties

Action

Revenueincrease

Execute agreement with rooftop antenna telecommunications provider
Renovation of HVAC resulting in lower forecasted expenses
Re-tender casualty insurance for portfolio¥0.6m p.a.

(forecast)2-office properties
La Park Kishiwada
17-properties

Converted unused space for tenant into storage space
Renegotiated terms with vending machine operators
Renegotiated building maintenance service agreements¥1.8m p.a.
¥0.3m p.a.

FP4

La Park Kishiwada
La Park Kishiwada
10-propertiesNK Building
Office portfolio
La Park Kishiwada
La Park Kishiwada

Renegotiated terms with rooftop antenna telecommunications provider
Re-tendered electricity service provider
Re-tendered electricity service provider
Renegotiated terms with gas supplier¥1.0m p.a.

Azabu Amerex
La Park Kishiwada
Shin Yokohama Nara
Takadanobaba AccessConfomall Sapporo

Negotiated new lease terms for carpark spaces
Added telecommunications mobile antenna
Converted unutilized space to rental storage
Attached timer to HVAC facilities for managing after hours electricity usage
Installed LED lighting¥2.2m p.a.
¥0.9m p.a.
Y0.1m p.a.

La Park Kishiwada
2-office properties
Shin Yokohama Nara

Tenant repositioning and new leases
Introduced lunchtime food service vendors
Installed LED lighting in the lobby¥0.6m p.a.
¥2.3m p.a.

FP5

FP3

FP2

FP1

Cost
reduction¥0.1m p.a.
tbd

¥3.6m p.a.

¥3.0m p.a.
¥7.0m p.a.
¥0.9m p.a.

¥1.0m p.a.
¥0.5m p.a.

¥0.3m p.a.

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)36

Sakura Sogo REIT Investment Corporation

Part B - External Growth Initiatives

Sakura Sogo REIT Presentation Material for FP3 (Six months ended 28 February 2018)37

External Growth

Sakura Sogo REIT Investment Corporation

Pipeline Support Agreements• Enhance investment opportunities through direct channels• Pipeline Support Agreements will provide preferred negotiationrights for SKR• Five existing Pipeline Support Agreements have been executed:• Three entered into by the Nippon Kanzai Group• Two directly by the Asset Management Company (“AM”)

Summary of
Pipeline
SupportAgreements

Preferential provision of information

Through an existing pipeline support agreement between Liv Groupand the AM, the AM is considering acquisition of a property located in
the Kanto area introduced by Liv:
• 2-year old distribution centre• Asset is single tenanted to a TSE listed corporate• Over 60,000m2

SKR is granted preferential access to information of disposition properties owned by the respective Pipeline
Support Partner

Counter
PartiesCompany

Liv Co., Ltd.

Company

Listed on TSE 2nd section1

Location

Minato-ku, Tokyo
Development, land
subdivision, brokerage

Location

Minato-ku, Tokyo
Real Estate sales,
brokerage, leasing mgt.

Business

Business

Medium-term Goal for Assets Under Management
Galileo Sponsor – Future Developments▪ Galileo Group is a very successful developerin Australia and is investigating development
opportunities in Japan with an immediate
focus on the Tokyo Metropolitan Area
▪ Potential future developments would provide
attractive acquisition opportunities for SKR▪ Refer to slide 10 for more details of Galileo
developments in Australia

1 The company would not allow disclosure.

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)38

Sakura Sogo REIT Investment Corporation

Part C - Capital Management

Sakura Sogo REIT Presentation Material for FP3 (Six months ended 28 February 2018)39

Overview of Borrowings post planned refinance 31 Aug 2018
Borrowings

Sakura Sogo REIT Investment Corporation

Loan cost and duration (at 31 August 2018)
Loan amount(¥ mil)Type

LenderInterest rate

Maturity date

Average duration (Years)

31-Aug-18

Short term A Syndicate of lenders with
Sumitomo Mitsui Banking
Corporation:
Sumitomo Mitsui Banking
Corporation, Shinsei Bank, Limited,
Resona Bank, Limited,Long term Aozora Bank, Ltd.,ORIX Bank Corporation,
The Nishi-Nippon City Bank, Ltd.,The Bank of Fukuoka, Ltd,
Sumitomo Mitsui Trust Bank, Limited
Total

900 (planned)

Base Rate +0.2%(floating)

30-Aug-19

4,000

0.71096% (fixed)

30-Aug-19

6,000

0.81842% (fixed)

31-Aug-20

6,000

0.93842% (fixed)

31-Aug-21

5,600

Base Rate +0.8%(floating)

31-Aug-22

5,100 (planned)

tbd (fixed)

28-Feb-23

2.12 → 2.91

Debt Ratio - Term
Short term
25.5% → 17.8%

27,600Long term
74.5% → 82.2%

Collateral: Unsecured and unguaranteed

Interest Rate Ratio

Repayment Schedule
8,000
7,000

Floating interest
rate
24.1 → 23.6%

6,000
5,000
4,000

FP3

3,000

FP4

2,000

Fixed interest
rate
75.9% → 76.4%

1,000
0
2018

2019

2020

2021

2022

2023
Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)40

Status of Unitholders

Sakura Sogo REIT Investment Corporation

No. of Investment Units by Investor Type

100%

8,161

2.5%

6,819

2.0%

42,70412.8%

42,65012.8%

Main Unitholders

Securities firms

Foreigners
80%

21,514

6.5%

21,632

6.5%

Rank

at 30 June 2018

Name

Number ofUnits Owned

Percentage
Share (%)1

1

The Master Trust Bank of Japan, Ltd.

27,454

8.24

2

Japan Trustee Service Bank, Ltd.

22,083

6.63

3

JP Morgan Bank (Ireland) Plc 380423

14,5584.37

4The Nomura Trust and Banking Co., Ltd.
(Investment account)）

12,032

3.61

5

Galaxy JREIT Pty. Ltd. (Galileo Group)

8,700

2.61

5

Nippon Kanzai Co., Ltd.

8,700

2.61

7

Credit Suisse Securities (Europe) Ltd. PB
Omnibus Client Account

6,802

2.04

8

Trust & Custody Services Bank, Ltd. (Securities
Investment Trust Account)

6,790

2.04

9

Kinki Sangyo Credit Union

5,587

1.68

10

Japan Trustee Service Bank, Ltd. (Trust
Account 9)

2,785

0.84

Other domestic corporations

80,05024.0%

81,846

24.6%

Financial institutions

60%

Individuals/others

40%

180,57254.2%

180,054

54.1%

20%

1 Percentage share is the number of units owned expressed as a percentage of total investment

0%
Feb '18

Jun '18

units issued (rounded down to second decimal place).

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)41

Sakura Sogo REIT Investment Corporation

Appendix

Sakura Sogo REIT Presentation Material for FP3 (Six months ended 28 February 2018)42

Balance Sheet and Statement of Income

Balance Sheet at 30 June 2018
AssetsSakura Sogo REIT Investment Corporation

Statement of Income
Unit: ￥mil

Unit: ￥mil

6,177

Operating revenue

1,768

Cash and deposits

1,664

Cash and deposits in trust

4,257

Leasing business revenue
Other leasing business revenue
Capital gain from real estate disposition
Operating expenses

1,400
225
142

Expenses related to rent business

718

Asset management fee

117
21

Current assets

Other
Non-current assets
Property, plant equipment
Intangible fixed assets
Investments and other assets
Total assets

254
56,57555,568688
318
62,752

Operating accounts payable
Short-term loans payable
Repayment long term loan within one year
Accounts payable – other

Directors’ compensation

4
52

Other operating expenses
Operating profit

854

153

Non-operating expenses

238

1,400
6,000
311

Interest expenses

74

Borrowing related expenses

27

Liabilities
Current liabilities

Asset custody fee/Administrative service fees

913

8,261

Advances received

Other costs associated with issuance of investment units
Ordinary profit (loss)

136

356

Other
Non-current liabilities

39

Net profit (loss) before income taxes

615

24,621

Net profit (loss)

615

21,600

Unappropriated retained earnings

615

Long-term loans payable

Tenant leasehold and security deposits in trust
Total liabilities
Net Assets
Total unitholders’ equity
Unitholders’ capital

615

3,021
32,882
29,87029,254615

Surplus
Total net assets

29,870Total liabilities and equity

62,752

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)43

Income and Expenditure by Property for FP4

Sakura Sogo REIT Investment Corporation(122 operating days)

Unit: ￥’000

OF-01

OF-02

OF-03

OF-04

OF-05

OF-06

OF-07

RT-01

RT-02

Seishin
BuildingNK
Building

Tsukasamachi
Building

Takadanobaba
AccessAzabu Amerex
Building

Hiei Kudan
Building

Shin Yokohama
Nara Building

La Park
Kishiwada

Suroy Mall
Chikushino

Operating revenue fromreal estate leasing

159,985

81,66874,456

68,841

46,18045,00354,540333,817200,489

Leasing businessrevenue

145,02272,744

66,72258,141

42,59043,29345,089256,831

196,016

Other Leasing businessrevenue

14,962

8,924

7,734

10,699

3,589

1,710

9,451

76,985

4,473

Operating expenses fromreal estate leasing

32,84722,43916,53423,055

13,403

12,427

16,945

185,471

50,351

Management fees

8,391

8,503

6,538

10,181

5,191

7,028

6,151

86,71427,010Utilities expenses

9,221

5,815

3,924

5,114

2,256

14

4,481

63,925

2,546

Insurance premium

161

106

98

119

61

89

111

844

457

Repair & Maintenance

308

204

413

704

462

276

356

610

325

Trust Fees

600

600

500

500

250

500

600

1,233

500

13,836

7,051

4,918

6,014

5,076

4,449

5,146

29,652

13,117

328

158

141

420

104

68

99

2,490

6,394

127,137

59,22957,92245,78532,77632,57537,594

148,346

150,137

9,428

4,646

5,505

6,198

1,615

1,800

6,569

27,517

24,832

117,708

54,582

52,41739,586

31,161

30,77531,025

120,828

125,305

Property Tax
Other expenses
Leasing NOI

Depreciation
Operating income (loss)
from real estate leasing

1

1 includes leasehold rent

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)44

Income and Expenditure by Property for FP4

Sakura Sogo REIT Investment Corporation(122 operating days)

Unit: ￥’000

RT-03

RT-04

RS-01

RS-02

RS-04

RS-05

OT-01

OT-02

OT-03

Seiyu
Minakuchi

Suroy Mall
Nagamine

Shiroi
LogimanMatsuyaResidence
SekimeUrban Plaza
ImazatoAbode Yoyogi
Parkside

Funabashi HiTech ParkⅠ

Funabashi HiTech Park Ⅱ

Confomall
Sapporo1

Operating revenue fromreal estate leasing

Non-disclosure

122,263

91,78959,544

26,434

46,573 Non-disclosure Non-disclosure

46,415

Leasing businessrevenue

Non-disclosure

101,40785,24852,62324,85228,473 Non-disclosure Non-disclosure

38,384

Other Leasing businessrevenue

Non-disclosure

20,856

6,541

6,920

1,582

18,099 Non-disclosure Non-disclosure

8,030

Operating expenses fromleasing business

23,96438,80841,84819,391

9,641

3,676

4,411

3,634

22,551

Management fees

4,026

10,631

17,334

9,060

4,418

1,749

660

660

4,642

Utilities expenses

0

17,257

6

1,877

341

134

0

0

7,139

Insurance premium

358

178

430

171

82

26

82

52

184

2

938

12,731

4,340

2,149

76

0

0

748

Trust Fees

500

500

839

250

250

333

600

600

490

Property Tax

7,883

8,737

9,325

3,499

2,156

1,234

3,057

2,175

8,888

3

564

1,180

192

243

121

11

147

457

Non-disclosure

83,45549,94040,152

16,79242,896 Non-disclosure Non-disclosure

23,86330,40012,211

13,036

7,804

4,016

3,080

2,221

9,464

Non-disclosure

71,24336,90332,347

12,77539,816 Non-disclosure Non-disclosure

14,399Repair & Maintenance0

Other expenses
Leasing NOI

11,196

Depreciation
Operating income (loss)
from real estate leasing

6,557

1 Confomall Sapporo disposed on 28 June 2018
2 Capex expenditure only
3 Includes leasehold rent

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)45

Property – Appraisal & Yield Analysis

Sakura Sogo REIT Investment Corporation
at 30 June 2018
OfficeAsset Type

Retail

No.

OF-01

OF-02

OF-03

OF-04

OF-05

OF-06

OF-07

RT-01

RT-02

Property Name

Seishin
BuildingNK
Building

Tsukasamachi
Building

Takadanobaba
AccessAzabu Amerex
Building

Hiei Kudan
Building

Shin Yokohama
Nara Building

La Park
Kishiwada

Suroy Mall
Chikushino

Shinjuku-ward,Tokyo

Chiyoda-ward,Tokyo

Chiyoda-ward,
Tokyo

Shinjuku-ward,
Tokyo

Minato-ward, Tokyo

Chiyoda-ward,
Tokyo

Kohoku-ward,
Yokohama

Kishiwada city,
Osaka

Chikushino, Kyushu

Address

Appraisal @ FP3
(¥bn)

8,850

3,980

4,040

3,510

2,270

2,090

2,020

6,640

7,790

Appraisal @ FP4
(¥bn)

8,860

4,000

4,050

3,540

2,290

2,110

2,020

6,640

7,790

3.9

4.4

4.5

4.6

4.2

4.6

5.3

6.0

5.6

3.9

4.4

4.4

4.6

4.2

4.6

5.4

6.0

5.6

NOI Yield @ FP3
post depr (%)

3.6

4.1

4.1

4.1

4.0

4.4

4.5

4.7

4.7

NOI Yield @ FP4
post depr (%)

3.6

4.0

4.0

4.0

4.0

4.4

4.4

4.7

4.7

NOI Yield
FP3 (%)@NOI Yield
FP4 (%)@

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)

46

Property – Appraisal & Yield Analysis

Sakura Sogo REIT Investment Corporation
at 30 June 2018

RetailAsset Type

No.

RT-03

Residential

RT-04

RS-01

RS-02

Other

RS-04

RS-05

OT-01

OT-02

Total
(17 properties)

Property Name

Seiyu
Minakuchi

Suroy Mall
Nagamine

Shiroi
LogimanMatsuya Residence
SekimeUrban Plaza
ImazatoAbode Yoyogi
Parkside

Address

Minakuchi,
Shiga

Kumamoto city,
Kumamoto

Shiroi city,
Chiba

Osaka city,
Osaka

Osaka city,
Osaka

Shibuya-ward,
Tokyo

Funabashi Hi-Tech Funabashi Hi-Tech
ParkⅠ
Park Ⅱ

Funabashi city,
Chiba

Funabashi city,
Chiba

Appraisal @ FP3
(¥bn)

4,220

4,470

2,160

1,930

945

1,610

1,800

778

59,103

Appraisal @ FP4
(¥bn)

4,230

4,470

2,160

1,930

945

1,630

1,800

781

59,246

NOI Yield @ FP3
(%)

6.0

5.6

6.9

6.4

5.9

4.2

6.1

6.2

5.2

NOI Yield @ FP4
(%)

6.0

5.6

6.9

6.4

5.9

4.2

6.1

6.2

5.2

NOI Yield @ FP3
post depr (%)

4.0

4.8

5.2

5.2

4.7

3.6

5.1

5.5

4.3

NOI Yield @ FP4
post depr (%)

3.8

4.8

5.1

5.1

4.7

3.7

5.0

5.4

4.3

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)47

Portfolio Map

Sakura Sogo REIT Investment Corporation

OF-01 Seishin Bldg

OF-02 NK Bldg.

OF-03 Tsukasamachi Bldg

OF-04 Takadanobaba Access

RT-01 La Park Kishiwada

RT-02 Suroy Mall Chikushino

RT-03 Seiyu Minakuchi

RT-04 Suroy Mall Nagamine

OF-05 Azabu Amerex Bldg

OF-06 Hiei-Kudan Bldg

OF-07 Shin-Yokohama Nara Bldg

Chiba

Coming soonTokyo
RS-01 Shiroi Logiman

RS-02 Matsuya Residence Sekime

RS-04 Urban Plaza Imazato

RS-05 Abode Yoyogi Parkside

RS-02

RT-02

RT-01

RT-03

RS-04

RS-01

OF-02
OF-04
OF-03
OF-01
OF-06
RS-05
OF-05

OT-02
OT-01

Kanagawa
OF-07

RT-04
OT-01 Funabashi Hi-Tech Park Ⅰ

OT-02 Funabashi Hi-Tech ParkⅡ

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)48

Overview of the Investment Corporation

Sakura Sogo REIT Investment Corporation

Schematic Diagram of the Investment Corporation’s Structure
Sponsor / Parent Company of Asset Management
Company

Investment Corporation❷

Asset Custody Company/Administrator ofUnitholder Registry/General Administrator related
to the operation of the administrative institution

Galileo Sydney Holdings Pty Limited

Sumitomo Mitsui Trust Bank, Limited.

❸
Sakura Sogo REIT Investment

Asset Management Company❶

Sakura Real Estate Funds Management, Inc.
❸
SponsorNippon Kanzai Co., Ltd.
Tokyo Capital Management Co., Ltd.

General Administrator for Accounting Affairs❹
General Meeting ofUnitholders

Kaneyama & Associates

Board of Officers
Executive Officer: Makoto Muranaka
Supervisory Officer： Hirotaka Isayama
Supervisory Officer： Shigeru Kaneda
Accounting Auditor
PricewaterhouseCoopers Arata❶ Asset Management Entrustment Agreement❷ Asset Custody Entrustment Agreement / Entrustment
Agreement for Administrator of the Investment Unitholder
Registry / Entrustment Agreement for Clerical
undertakings (Institution services）❸ Sponsor Support Agreement❹ Business Entrustment Agreement

Overview of Asset Management Company
Trade Name

Sakura Real Estate Funds Management, Inc.

Date of Incorporation

July 7, 2015

Stated Capital

101.52 million yen

Shareholder Composition

Galaxy JREIT Pty Limited 50%
Tokyo Capital Management Co., Ltd. 50%(based on voting rights: Galaxy JREIT Pty Limited 100%)

Principal Lines of Business

Discretionary Investment Business,management of Investment Corporation’s assets

Officers

6 Directors (2 Full-time Directors), 1 Statutory Auditor

Financial Instrument Business
Registration

Reg. No.: Director of Kanto Local Finance Bureau (FI) No. 2907
Member of Investment Trusts Association, Japan

Real estate agency business license

License No.: Tokyo Metropolitan Governor (1) No. 98232

Approval as Entrustment - Based
Agency Services for Transactions

Approval No.: Minister of Land, Infrastructure,
Transport and Tourism No. 100

General Meeting of Unitholders
Statutory Auditor
Board of Directors
Investment Committee

Compliance Committee

Representative Director and Chairman / Representative Director and President
Compliance Officer

Investment Division

Finance and Planning Division

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)49

Disclaimer

Sakura Sogo REIT Investment Corporation

This presentation material has been prepared solely for the purpose of providing information, and not for soliciting investments in certain products.
The presentation material includes, in addition to a description of Sakura Sogo REIT Investment Corporation (hereinafter the “Investment Corporation”), charts, data, etc.
prepared by Sakura Real Estate Funds Management, Inc. (hereinafter the “Asset Management Company”) based on data and indices published by third parties.
Furthermore, it includes present analysis, judgements and other opinions of the Asset Management Company regarding such information.
The contents of the presentation material have not been audited, and their accuracy nor integrity is guaranteed. The analysis and judgement by the Asset Management
Company are its current opinions and the contents may be modified or repealed without any advance notice.
The Investment Corporation or the Asset Management Company bear no responsibility with regard to the accuracy of the data or indices published by third parties(including data based on real estate appraisal reports).
The content of this presentation material include statements on forecast and future operating results. Such statements are based on the information available at the timeof preparation of this presentation material and certain assumptions for unforeseeable factors, and thus do not guarantee future operating results of the Investment
Corporation and may differ from actual operating results.

Sakura Sogo REIT Presentation Material for FP4 (Four months ended 30 June 2018)50