Securities Code3468

July 23, 2018
Real Estate Investment Trust Securities Issuer
Star Asia Investment Corporation
Representative: Atsushi Kato, Executive Officer(Code: 3468)
Asset Management Company
Star Asia Investment Management Co.,Ltd.
Representative: Atsushi Kato, President and CEO
Contact: Toru Sugihara, Director and CFO
TEL: +81-3-5425-1340

Supplementary Material
Concerning Acquisition and Transfer (Asset Replacement) ofReal Estate Beneficiary Interests in TrustImplementation policy for Asset Replacement■ Articulated the implementation policy for asset replacement as a part of active management pursuing maximization of unitholders’ value

Future revenue contribution of the assets to be replaced (strengthen SAR’s portfolio)

1•••Periodic evaluation of future revenue contribution for all owned assets (i.e. stability and growth potentialof earnings, future estimate of the life-cycle costs, such as repair costs and capital expenditures, and.
balance between sales price)
Comparison of assets available for acquisition and future revenue contribution of currently owned assets
Existence of real estate investors with different valuation bases for owned assets

Real Estate Market Conditions by Asset Type２••

Evaluation of investment environment for each investment asset type given the macro economic
environment and analyzing which asset types are most attractive for investment based on such.
evaluation
Detailed consideration of asset type exposures that should be increased or decreased in the portfolio

Maximizationofunitholders’valueby Asset
Replacement

Level of the investment unit price of SAR

3•••

Comparison between market indices such as the Tokyo Stock Exchange REIT Index and the trend of theinvestment unit price of SAR. prices and NAV per unit (Note) of SAR
Comparison between the level of investment unit
Calculation of gains and losses on sales of assets through asset replacement and the impact of the returnto existing unitholders(※) NAV: Abbreviation of Net Asset Value
NAV = Amount of Net assets-amount of Book value of owned real estate + Appraisal value of owned real estate1

Asset Replacement announced today
Transfer：Hakata-eki Higashi 113 Building ／ Acquisition：Hotel WBF Fukuoka Tenjin Minami
 Expected realization of gain on sale due to the planned sales price which is approximately 37.7% higher than its appraisal value (※1) andexpected realization of gain on sale for two consecutive fiscal periods through two separate sales
 Acquire the hotel located in the center of Fukuoka City with expectation of the growth in the profitability (Currently fixed rent scheme,
but will be changed to a fixed + profit-linked variable rent scheme in the foreseeable future) reflecting a expected increase of inbounddemandAssets to be Acquired
Hotel WBF Fukuoka Tenjin Minami

Assets to be Transferred
Hakata-eki Higashi 113 Building
Expect the transfer price with significantly exceeding theappraisal value as a result of the sales activities collaborated
Acquisition Price : 1,885 million Yen
with the Sponsor GroupAssetReplacement

Appraisal Value (※1): 2,070 million
Yen

Acquisition contributing to the revenue by the increase of
inbound demand and expected lower maintenance andmanagement costs
Appraisal Value：
1,990 million Yen

Planned Transfer Price：
2,850 million Yen
NOI yield after
depreciation
3.0% (※3)
Year of construction
30 years

49% quasi-co-ownershipinterest （※2)

51% quasi-co-ownershipinterest（※2)

401 million Yen

418 million Yen(Estimated gain on sale)(Estimated gain on sale)

Expected repair
expenses (※5）
172 million Yen

Planned Acquisition Price：
1,970 million Yen

Appraisal NOI yield
after depreciation
3.9% (※4)

Enhancement of the portfolio
strength and Realization ofgain on sale
Total expected gain on sale:
820 million Yen

Year of construction

1 year

Expected repair
expenses (※5)
0 million Yen【Consideration points for the asset replacement】
6th Fiscal
PeriodTo be transferred on
December 3, 2018
Returning a gain on saleto unitholders:Recording a gain onsale in the 6th and7th fiscal period

①853 Yen per unit (※6)
7th Fiscal
PeriodScheduled to be transferred on February 1, 2019

Estimated gain on sale in the 7th fiscal period
418 million Yen

②Conclude Hakata-eki Higashi 113 Building is highly beneficial and should be transferred rather
than continued holding
Expects that it will be able to capture inbound demand that is expected to increase in thefuture with its location in the Tenjin area
Expected growth in investment attractiveness backed by the steady growth of foreign visitors
and the easing of competition with private lodging due to the enforcement of the Residence
Lodging Business Act (the New Private Lodging Business Act)The Fukuoka-City, the center of the Kyushu region where the Assets to be Acquired, “HotelWBF Fukuoka Tenjin Minami" is located, is within good access from Fukuoka Airport andHakata Port, and is also geographically close to Asian countries such as China, Korea andTaiwan※1:As of the end of January 2018
※2:The type of asset is a beneficiary interest in trust and the quasi-co-ownership interest will be sold in two separate sales※3:Calculated by the total amount of NOI after depreciation of the 3rd and the 4th fiscal period divided by the planned transfer price※4:Calculated by the amount of the appraised NOI in Appraisal Report as of July 1, 2018 minus depreciation estimated by asset management company divided by the planned acquisition price※5:Total amount of the next 5 year’s repair costs estimated by a third party specialized agency※6:Calculated by the estimated gain on sale (401 million yen) which will be realized in the 6th fiscal period divided by the total number of SAR’s investment units (470,624 units)outstanding as of July 23, 20182

Maximization of unitholders’ value through Asset Replacement
 Since its listing, SAR has been pursuing the maximization of unitholders’ value through two times “asset replacement” (as announced onDecember 5, 2016 and February 28, 2017) as a part of active management strategy
 SAR expects to realize a gain on transfer and the enhanced portfolio as a result of the third asset replacement as well
 SAR and the Asset Manager will continue to consider implimentation of asset replacement as an important measure of active
management for the maximization of unitholders’ value
Considerations based on implementation
policy for asset replacement.
Asset replacement to an asset expected tocontribute more on stability of earnings

Real estate investors
with different valuation bases

Asset replacement to an asset expected
to have more revenue growth potential

First asset replacement

Second asset replacement

Third asset replacement(this deal)

3rd Fiscal
Period

4th Fiscal
Period～～6th Fiscal
Period

7th Fiscal
PeriodTransferred

AcquiredTransferredAcquired

To be transferred

To be acquired

Urban Park
Yoyogi Koen

Urban Park Gokokuji

Oak Minami Azabu

Baraki Logistics

Hakata-eki Higashi
113 Building

Hotel WBF Fukuoka
Tenjin Minami

Total gain on sale:
152 million Yen

Total gain on sale:
1.51 billion Yen

3rd fiscal period gain on sale:
152 million Yen
Gain per unit(※1): 367 Yen

3rd fiscal period gain on sale:
746 million Yen
Gain per unit(※1): 1,801 Yen

Considering
future asset replacements

SAR will continue toconsider asset
replacement as ameasure to pursue themaximization ofunitholders’ value.

Estimated total gain on sale:
820 million Yen (estimate)

4th fiscal period gain on sale: 771 million Yen
Gain per unit(※1): 1,826 Yen
Retained earnings: 110 million Yen
6th fiscal period gain on sale:
approximately 401 million
Yen(estimate) (※2)
Gain per unit(※1): 853 Yen
Gain on sale to be expectedin the 7th fiscal period as well

Portfolio after the asset replacement
Number of Properties: 29
Unrealized gain (※3): 7.3 billion Yen※1: The gain per unit on the 3rd and 4th fiscal period is calculated by each period’s gain on sale divided by the total number of investment units outstanding as of the end of each fiscal period. The gain per unit
on the 6th fiscal period is calculated by the estimated gain on sale divided by the total number of investment units outstanding (470,624 units) as of July 23, 2018.
※2: Estimated gain on sale in the 6th fiscal period is due to the transfer of 49% quasi-co-ownership interest of Hakata-eki Higashi 113 Building. Rest of 51% quasi-co-ownership interest of Hakata-eki Higashi
113 Building will be transferred in the 7th fiscal period.
※3: Unrealized gain after the asset replacement is calculated by the total unrealized gain of 4th fiscal period (difference between the total appraisal value and the total book value at the end of such fiscal period)
minus the unrealized gain attributed to Hakata-eki Higashi 113 Building transfer, plus the difference between the planned acquisition price and the appraisal value of Hotel WBF Fukuoka Tenjin Minami.
However, there is no assurance that SAR will be able to realize such unrealized gain.

3

Pursuing the “maximization of unitholders’ value”
by continuous implementation of active management strategy
 SAR has been pursuing the maximization of unitholders’ value through various measures such as flexible asset replacement andinvestment in mezzanine loans (SAR is the first J-REIT to invest in mezzanine loans) as a part of active management strategy
 SAR will continue to consider and implement active management, through spirit of no constraint with conventional concepts, considering
the level of investment unit price
July 23, 2018
Beginning of 5th fiscal period(29 properties)(Yen)
130,000December 5, 2016
First asset replacement
TransferredFebruary 28, 2017
Second asset replacement

AcquiredTransferred

Acquired

120,000
Urban Park
Yoyogi Koen

Urban ParkGokokuji

Oak Minami
Azabu

Total gain on sale:
152 million Yen

Portfolio’s
total appraisal value (※1)

93,633
million Yen

Portfolio’s
total unrealized gain (※2)

6,600
million Yen

Unrealized gain
per unit (※3)

Baraki Logistics

Third asset replacement(this deal)
To be transferred

To be acquired

Hakata-eki
Higashi 113 Building

Hotel WBF Fukuoka
Tenjin Minami

Estimated total gain onsale: 820 million yen

14,025 Yen(estimate)

Total gain on sale:
1.51 billion Yen

112,412 Yen

111,884 Yen

110,000

109,727 Yen
107,492 Yen
100,000
October 25, 2017
First announcement of
the decision to invest in
mezzanine loans
Series 1: 400 million Yen

90,000

本投資法人

SAR unit price

東証REIT指数

TSE REIT Index (※4)

December 20, 2017
Second announcement of
the decision to invest in
mezzanine loans
Series 2: 340 million Yen

1口当たりNAVSAR
NAV per unit

80,000（Listing date）
April 20, 2016（End of 1st fiscal period）
July 31, 2016（End of 2nd fiscal period）
January 31, 2017（End of 3rd fiscal period）
July 31, 2017(End of 4th fiscal period）
January 31, 2018

※1: Calculated by the sum of total appraisal value (as of the end of 4th fiscal period)of 23 properties held as of the end of 4th fiscal period and total appraisal of SAR value as of November 1, 2017 of 6 properties SAR
has acquired at the beginning of 5th fiscal period.
※2: Portfolio’s total unrealized gain on the 4th fiscal period is calculated by the difference between the total appraisal value of SAR’s entire portfolio (29 assets) and the total book value of SAR’s 23 assets at the end of
4th fiscal period and the total acquisition price of 6 properties SAR has acquired at the beginning of 5th fiscal period.
4※3: Calculated by portfolio’s total unrealized gain divided by the total number of SAR’s investment units (470,624 units) outstanding as of July 23, 2018.
※4: TSE REIT Index is relativized based on the closing price of SAR’s investment units (98,300 yen) as of April 20, 2016.

■Disclaimer
This document has been prepared to provide information, and not for soliciting and inviting investments in orrecommending transaction of certain products. SAR does not guarantee the accuracy or completeness of theinformation provided in this document although effort has been made to provide correct information based on
information available to SAR. Moreover, please note that the contents of this document are subject to change or
removal without prior notice. Duplication and reproduction, etc. of the contents contained in this document without
prior consent is prohibited. This document includes graphs, data, etc. publicly disclosed by third-parties. Furthermore,
the document also includes analysis, judgement and other opinions by Star Asia Investment Management, Co,. Ltd.
concerning such information. This document discusses future expectations, identifies strategies, contains projectionsof our results operations or financial condition, or states other forward-looking information based on certain
assumptions, estimates and projections, Known and unknown risks, uncertainties and other factors could cause ouractual results, performance or achievements to differ materially from those contained or implies in any forwardlooking
statement. We cannot give any assurances that the expectations expressed in these forward-looking statements willturn out to be correct.
Copying, reprinting or any other use of the contents of this document without prior approval is strictly prohibited.