December 20, 2017
For Immediate Release
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: Toru Sugihara
Director and CFO
TEL: +81-3-5425-1340

Notice Concerning Acquisition of Mezzanine Loan Debt
-Star Asia Mezzanine Loan Debt Investment Series 2 (Subordinate Beneficiary Interest)Star Asia Investment Corporation (“SAR”) announces that Star Asia Investment Management Co., Ltd. (the “AssetManager”), to which SAR entrusts the management of its assets, has decided today to invest in mezzanine loan
debt. (For SAR’s definition of mezzanine loan debt investment, please refer to “<Attachment> 2. Definition of
mezzanine loan debt targeted by SAR” at the end of this press release). Details are as follows.
Specifically, subordinate beneficiary interest (the “Subordinate Beneficiary Interest”) of trust with loan claims to
GK Japan B Asset (the “GK”) as main asset in trust, which holds trust beneficiary interest (the “Collateral Asset”)
with Sasazuka South Building as main asset in trust, will be acquired (the “Acquisition”).
This will be SAR’s second mezzanine loan debt investment following acquisition of mezzanine load debt alreadyconducted by SAR as announced in “Notice Concerning Acquisition of Mezzanine Loan Debt (Subordinate Bonds)”
dated October 25, 2017 (the “Series 1”), which was the first mezzanine loan debt investment by a listed real estate
investment corporation.
SAR regards diversification of revenue-generating opportunities such as this as a differentiation strategy in pursuitof maximization of unitholder value. Going forward SAR will continue to discuss measures to create newinvestment opportunities corresponding to the state of the real estate market, without being bound by previous
examples.
1. Overview of the Acquisition(1) Planned acquisition asset(2) Name of asset to beacquired(3) Trustee(4) Trust period(5) Collateral asset for loan
claims(non-recourse
loan) as asset in trust(6) AmountoftheSubordinate BeneficiaryInterest

Subordinate Beneficiary Interest: Subordinate beneficiary interest of trustwith loan claims (non-recourse loan) to the GK as main asset in trust,which holds the Collateral Asset as collateral asset.
Star Asia Mezzanine Loan Debt Investment Series 2
Shinsei Trust & Banking Co., Ltd. (”Shinsei Trust”)
From December 22, 2017 to December 20, 2024
Collateral Asset: Trust beneficiary interest with Sasazuka South Building as
main asset in trust (Note 1)
334,500,000 yen

1(7) Planned acquisition priceof the Subordinate
Beneficiary Interest(8) Planned dividend yield(Note 2)(9) LTV of loan claims (nonrecourse loan) as asset in
trust(10) Contract date ofSubordinate BeneficiaryInterest transfer
agreement(11) Planned acquisition dateof Subordinate
Beneficiary Interest(12) Dividend payment dateof Subordinate
Beneficiary Interest(13) Final redemption date(14) Acquisition financing(15) Settlement method(16) Seller(17) Overview of Subordinate
Beneficiary Interest
structure334,500,000 yen (excluding acquisition expenses, etc.)

Base rate (Note 3) +5%
Approximately 69.6% (Note 4)* The appraisal value of the Collateral Asset, which is used as thedenominator for calculating LTV, is 2,800 million yen.
December 20, 2017

December 22, 2017

Last day of 1, 4, 7 and 10 (Four times a year)(The first dividend payment date is April 27, 2017.)
December 22, 2023 (Note 5)
Cash on handLump-sum settlement upon acquisition of the Subordinate BeneficiaryInterest
Shinsei Bank, Ltd. (“Shinsei Bank”)
Operator: GK Japan B Asset (GK)GK

Collateral Asset
Sasazuka South
Building
2,800 million
yen(Appraisal
value)

Shinsei Trust[Borrowing]
Non-recourse
loan[Lending]
Non-recourse
loanApproximately
1,948.5
million yen

Approximately
1,948.5
million yen(Preferential
beneficiaryinterest)
Approximately
1,614
million yen
Shinsei Bank
(Subordinate
BeneficiaryInterest)
334.5
million yen
SAR(Equity)
Silentpartnershipinvestment, etc.

1.

2.

3.

Loan (non-recourse loan) as asset in trust of the Subordinate
Beneficiary Interest will be executed by Shinsei Trust to the GK basedon cash in trust of approximately 1,948.5 million yen to be provided
by Shinsei Bank to Shinsei Trust on December 22, 2017.
On the same day, the loan claims to the GK will be deemed as
beneficiary interest with preferential subordinate structure by Shinsei
Trust and will be granted to Shinsei Bank.
Of the beneficiary interest granted to Shinsei Bank, SAR plans to2

(18) Relationship between
SAR/the Asset Manager
and the GK* Based on information as ofDecember 20, 2017.

(Note 1)acquire the subordinate portion (the Subordinate Beneficiary Interest)
from Shinsei Bank. The GK plans to acquire the Collateral Asset using
the payment for silent partnership investment, etc. and the borrowing(non-recourse loan) from Shinsei Trust on the same day.
4. Dividend for the Subordinate Beneficiary Interest will be conductedbased on the interest for the borrowing (non-recourse loan), which ispaid to Shinsei Trust by the GK.
* The Subordinate Beneficiary Interest is subordinated to preferential
beneficiary interest in terms of dividend payment and redemption ofprincipal. On the other hand, dividend payment and redemption ofprincipal to Subordinate Beneficiary Interest are prioritized over thosefor “equity,” in principle. Particularly with redemption of principal,
even when the value of the Collateral Asset falls, “equity” is the first
to incur loss, and after all “equities” have incurred loss, then theprincipal of the Subordinate Beneficiary Interest incurs loss.
CapitalThere is no capital relationship to report between
relationship
SAR/the Asset Manager and the GK.
Personnel
There is no personnel relationship to report between
relationship
SAR/the Asset Manager and the GK. Furthermore,
there is no personnel relationship to report between
associated persons and associated companies of
SAR/the Asset Manager and associated persons andassociated companies of the GK.
Business
There is no business relationship to report between
relationship
SAR/the Asset Manager and the GK. Furthermore,
there is no business relationship to report between
associated persons and associated companies of
SAR/the Asset Manager and associated persons andassociated companies of the GK.
Related party
There is no related party status to report between
status
SAR/the Asset Manager and the GK.

For overview of the Collateral Asset, please refer to 2. Reason for the Acquisition <Overview of the Collateral
Asset>.

(Note 2)

SAR is scheduled to receive an up-front fee upon the acquisition of the Subordinate Beneficiary Interest
separately from the scheduled dividend. The up-front fee will be offset with the acquisition expenses, etc.
and the remaining amount, if any, will be recorded as revenue.

(Note 3)

Base rate is JBA 3-month JPY TIBOR. The Japanese yen TIBOR by JBA can be confirmed on the website of the
JBA TIBOR Administration (http://www.jbatibor.or.jp/english/rate/). For each interest calculation period,
the rate announced at 11 a.m. (Tokyo time) two business days prior to the last day of the previous calculatio nperiod of the relevant calculation period (The first date is December 20, 2017) will be applied as the baserate.

(Note 4)

The figure indicates the ratio of (a) amount procured from the GK’s loans through a loan claim (non-recourse
loan), which is the main trust asset of trust pertaining to the Subordinate Beneficiary Interest to (b) theappraisal value indicated in the appraisal report obtained by SAR regarding the Collateral Asset uponacquisition of the Subordinate Beneficiary Interest, rounded to one decimal place.

(Note 5)

The final redemption date of the Subordinate Beneficiary Interest is December 22, 2023. However,Subordinate Beneficiary Interest may be redeemed in line with early repayment of loans from Shinsei
Shintaku due to the sale of the Collateral Asset and other reasons.

32. Reason for the Acquisition
The Acquisition will not only realize diversification of investment targets, but also likely boost distributable profits
since it will be conducted with cash on hand held by SAR, allowing SAR to receive dividend income (planned
dividend yield: more than 5%) from effective use of own funds. Therefore, SAR has decided on the Acquisition
judging that such will contribute to maximization of unitholder value. For the stance of SAR concerning mezzanine
loan debt investment (investment criteria), please refer to “<Attachment> 3. Stance of SAR towards mezzanine
loan debt investment (investment criteria)” at the end of this press release. The Asset Manager recognized thefollowing points upon deciding the acquisition of the Subordinate Beneficiary Interest.
①

The appraisal value of the Collateral Asset SAR has acquired is 2,800 million yen, and LTV against theamount of the Subordinate Beneficiary Interest and senior debts (approximately 1,948.5 million yen)calculated based on this figure is 69.6%. Therefore, risk of loss while holding the Subordinate BeneficiaryInterest is judged to be low.

②

The Collateral Asset is an office building that falls under the category of “middle-sized assets in the Tokyo
area (Note)” defined by SAR and is believed to have strong liquidity. In addition, since the loan can beredeemed at 69.6% of the appraisal value as explained in ① above, the certainty of redemption of theSubordinate Beneficiary Interest through sale of the Collateral Asset or refinancing is judged to be high.

③

The certainty of interest payment for the loan claim of the trust asset of the Subordinate BeneficiaryInterest is assessed to be high since its rent income is highly stable as shown in the evaluation of the
Collateral Asset below.

④

As planned dividend yield of the Subordinate Beneficiary Interest is “base rate + 5%” (please refer to 1.
Overview of the Acquisition above.), securement of profits that surpass the after-amortization yield ofreal estate portfolio can be expected.
(Note)For the definition of “middle-sized assets in the Tokyo area,” please refer to <Attachment> 4. Investment
criteria for real estate, etc. at the end of this press release. The same applies hereinafter.

Overview of Collateral Asset and evaluation of Collateral Asset by the Asset Manager are as follows.
<Overview of Collateral Asset>
Property name

Sasazuka South Building

Type of specified asset

Real estate beneficiary interest in trust

Planned buyer

GK Japan B Asset

Location

1-64-8 Sasazuka, Shibuya-ku, Tokyo

Use (Note 1)

OfficeStructure (Note 2)

Steel-framed reinforced concrete structure
B1F/8F

Area

Land (Note 3)
Building (Total floor area)(Note 4)

Approximately 1,001.89 m2
Approximately 5,559.59 m2

Type ofLand
ownership
Building(Note 5)Construction completion

January 1992

Earthquake PML

6.4% (Inspection body undisclosed)

Proprietary ownership
Sectional ownership

4

Appraisal
obtained bySAR (Note 6)

Appraisal value

2,800 million yen

Appraisal NOI (Note 7)
Appraisal date

124,512,414 yen
円
November 1, 2017

Appraiser

The Tanizawa Sōgō Appraisal Co., Ltd.

Total number of end tenants
Occupancy rate (Note 8)
Special notation

8 (As of October 31, 2017)100.0% (As of October 31, 2017)
Not applicable.

(Note 1)

“Use” indicates the use stated in the real estate registry, and may differ from the present state.

(Note 2)

”Structure” indicates the structure stated in the real estate registry of the building.

(Note 3)

“Land” is the entire land area of Sasazuka South Building stated in the real estate registry and may differ fromthe present state. The land which the planned buyer plans to acquire is approximately 95% of co-ownershipinterest.

(Note 4)

“Building (Total floor area)” is the total floor area of Sasazuka South Building stated in the real estate registry
and may differ from the present state. The building which the planned buyer plans to acquire is sectional
ownership in the 1st to 7th floors (8th floor excluded) and accompanying common areas under agreement.

(Note 5)

“Type of ownership” is the type of right held by the trustee of Sasazuka South Building.

(Note 6)

Items other than the indicated above that are stated in the appraisal report SAR has obtained are notdisclosed as consent has not been obtained from the planned buyer of the Collateral Asset.

(Note 7)

”Appraisal NOI” indicates the amount of net operating income (NOI) obtained through direct capitalization
method, stated in the real estate appraisal report.

(Note 8)This figure indicates the ratio of total leased area to the total leasable area based on the information provided
by the seller of the Subordinate Beneficiary Interest, rounded to one decimal place.

<Evaluation of the Underlying Asset by the Asset Manager>(1) Location
The Collateral Asset is a multi-tenant office located approximately a 5-minute walk from Daitabashi Stationon the Keio Line and approximately a 7-minute walk from Sasazuka Station on the same line, standing along
Koshu Kaido Street. There are small and medium office buildings with shops along Koshu Kaido Street near
the Collateral Asset, and its location is close to the Shinjuku sub-center area. For this reason, a substantial
amount of tenant demand is expected, including needs for subsidiary offices/branch offices of companies
headquartered in the area and needs for headquarters of small to medium companies which have clientsin the area. Furthermore, since the area connects to the Metropolitan Expressway (near Eifuku IC) and isclose to Koshu Kaido Street, Kan-nana-dori Street and Yamate-dori Street, access by car is excellent, which
exhibits strong appeal to companies, etc. that use cars for business.
(2) Architectural performance
The Collateral Asset is a medium-sized office building with total floor area of approx. 1,633 tsubo, and meets
criteria for “middle-sized assets in the Tokyo area” which SAR views as the main investment target. Forlease space on the standard floor is around 167 tsubo with a ceiling height of around 2.6 m and floor loadof 300kg/m2. In terms of facilities, it is equipped with raised floors, 4 elevators and 27 parking spaces,
satisfying specifications/facilities demanded by tenants in general, and thus providing sufficient appeal totenants from all business types.

5(3) Tenant
Because the Collateral Asset offers a relatively low rent compared with offices in the Shinjuku sub-center
area, it houses branch offices of listed companies headquartered in the area as well as headquarters of ITrelated companies. In addition, since the asset stands near residential areas, such as the wards of Nakano
and Suginami, medical-related companies are also among the tenants. These tenants are most likely to stayover the medium to long term due to locational features of the Collateral Asset and other reasons, and thus
high and stable occupancy rates are expected to continue going forward.
3. Seller profile
Name

Shinsei Bank, Ltd.
Nihonbashi Muromachi Nomura Building
Location
2-4-3 Nihonbashi-Muromachi, Chuo-ku, Tokyo
Representative
Hideyuki Kudo, Representative Director, President
Main business description (1) Acceptance of deposits and installment savings, extending loans,discounting bills and notes and exchange transactions(2) Guarantee of obligations, acceptance of bills and notes and any otherbusiness incidental to the banking business mentioned in the precedingitem(3) Underwriting of, handling of offering and placing of, and sale and purchaseof Japanese government bonds, municipal bonds, government-guaranteedbonds, handling of private offering and other securities, etc.
(4) In addition to the previous items, any business in which banks are permitted
to engage under the Banking Act, the Secured Bond Trust Act, the Company
Bond Registration Act and other laws(5) Any other business incidental or relating to the businesses mentioned in anyof the foregoing items
Capital512.2 billion yen
Established
December 1, 1952
Net assets
807,944 million yen
Total assets
8,051,781 million yen
Major shareholders andSATURN IV SUB LP (JPMCB 380111)
shareholding ratio
11.76%
Relationship with SAR or the Asset Manager
Capital relationship
There is no capital relationship to report.
Personnel relationship

There is no personnel relationship to report.

Business relationship

SAR has debt financed by the seller as of December 20, 2017.

Related party status

Not applicable.

(Note) The above is based on information as of March 31, 2017.

4. Transaction with interested person, etc.
The acquisition of the Subordinate Beneficiary Interest is not a transaction with an interested person, etc. underthe Act on Investment Trusts and Investment Corporations (Act No. 198 of 1951）or interested person, etc. definedin the “Rules on Transactions with Interested Parties” set forth by the Asset Manager.
5. Schedule for the transaction
Decision date of the Acquisition

December 20, 20176

Contract date of the Subordinate Beneficiary Interest
transfer agreement

December 20, 2017

Date of drawdown from Shinsei Trust to the GK

December 22, 2017

Planned acquisition date of the Subordinate BeneficiaryInterest

December 22, 2017

(Note) The Acquisition will be conducted on the assumption that the GK acquires the Collateral Asset on December 22,
2017 using the borrowings from Shinsei Trust and payment for silent partnership investment, etc.

6. Settlement method
The Acquisition is planned to be settled through lump-sum payment of the acquisition price on the planned
acquisition date.
7. Future outlook
Since the impact of the acquisition of the Subordinate Beneficiary Interest on the forecast for operating results forthe 4th fiscal period ending January 31, 2018 (August 1, 2017 to January 31, 2018) and the 5th fiscal period ending
July 31, 2018 (February 1, 2018 to July 31, 2018) announced on September 13, 2017 is minimal, there is no change
to the forecast.

* Star Asia Investment Corporation website address: http://starasia-reit.com/en/

7

<Attachment>
1. About investment in mezzanine loan debt
<What are mezzanine loans?>
When real estate is liquidated using a special purpose company (the “SPC”), the SPC will generally procure funds
for acquisition of real estate, etc. through silent partnership investment and other capital-like funds (equity) as
well as through liabilities-like funds (debt) such as loans and issuance of corporate bonds. As a mean ofprocurement for liabilities-like funds, in addition to loans issued by banks and other financial institutions, there
are cases where loans that have been subordinated in repayment priority, etc. are executed by non-banks, nonlife insurance companies, investment banks, etc. Loans that have been subordinated in repayment priority, etc.
explained above are referred to as mezzanine loans, and loans prioritized over mezzanine loans are called seniorloans. In exchange for being subordinated to senior loans in repayment priority, etc., mezzanine loans are provided
with higher interest rates than senior loans. Therefore, when principal is repaid as scheduled, mezzanine loans cangenerate higher revenue compared with senior loans. On the contrary, when the entire amount of principal ofsenior loans or mezzanine loans has not been repaid due to reasons such as a decrease in revenue from collateralor underlying real estate, etc., and a drop in the price of real estate, etc., payments for senior loans will beprioritized and as a result, payment for principal and interest of mezzanine loans will not be undertaken asscheduled. However, since payment for mezzanine loans is prioritized over payment for equity in principle, evenwhen the price of real estate, etc. falls, principal of equity will incur loss first and the principal of mezzanine loans
will not incur loss until all equities have incurred loss. Therefore, mezzanine loans are considered to be safer thanequity.
As explained above, repayment for mezzanine loans is subordinated to that for senior loans. Therefore, if thesenior loans creditor is allowed to immediately foreclose when the SPC does not make repayment for senior loans
or mezzanine loans on the planned repayment date or loses the benefit of time for senior loans or mezzanine
loans, the senior loans creditor will prioritize collection of its own claims. Since such may result in loss to mezzanine
loans, in case of said event, a mezzanine loans creditor is generally granted with, for a set period of time thereafter,
authority to instruct the SPC to sell the real estate for a price (or higher) that enables repayment of the entire
amount of senior loans, or authority to purchase senior loans debt.

8

<Method of investing in mezzanine loan debt and risk management>
When SAR invests in mezzanine loan debt, the following are the most common cases in which SAR is assumed toincur loss; (a) the property is sold for a price less than the sum total of the amount of debt prioritized overmezzanine loan debt, such as senior loan debt, etc. (the “Amount of Senior Loans”) and the amount of mezzanine
loan debt (Note), and (b) SAR acquires the property for such a price. (In addition, SAR could incur loss when theprice of real estate, etc. underlying the mezzanine loan debt falls and recording of allowance for doubtful accounts
becomes necessary at period-end valuation.) Upon investing in mezzanine loan debt, SAR sets the maximum
amount procured through loans, including the Amount of Senior Loans, at 85% of the appraisal value SAR obtains
regarding the underlying real estate, etc. to avoid, to a certain degree, the aforementioned risk of the property
price falling. Furthermore, in order to prevent loss from mezzanine loan debt investment to the best extent
possible, SAR in general employs the following means for managing risk. In the following explanation, it is assumed
that SAR is holding mezzanine loan debt while the SPC is holding real estate, etc. and the acquisition funds for realestate, etc. have been procured through a senior loan, mezzanine loan and equity.
(Note) Normally, the sales period initiated by a senior loan creditor is set to occur after the sales period initiated by amezzanine loan creditor. During the mezzanine loan sales period, the mezzanine loan creditor will try to sell for a
price that enables repayment of both the senior loan and the mezzanine loan, and if the period ends without
success, the senior loan creditor assumes the sales activities. In such as case, it is possible that the sale may beconcluded for a price at which the senior loan may be repaid in part or in full, albeit insufficient for repayment of
the full amount of the mezzanine loan.

(I) Basic scenario
When the SPC has been able to sell the real estate, etc. for a price equal to/higher than the sum total of theAmount of Senior Loans and the amount of mezzanine loans before the planned repayment date for the seniorloan debt and mezzanine loan debt, or able to refinance with an amount equal to/higher than the said amount,the principal and interest of the senior loans and the mezzanine loans will be repaid. In such case, the principal
and interest to be paid for the mezzanine loan debt will be repaid in full to SAR, the mezzanine loan debt creditor.
(II) Risk scenario
When the SPC does not make repayment for senior loans or mezzanine loans on the planned repayment date, orloses the benefit of time for senior loans or mezzanine loans, SAR will choose an action from among the following
measures.
(i)

In cases with real estate liquidation, the planned repayment date may be set to roughly one to two
years before the final repayment date of senior loans and mezzanine loans. The asset managementcompany entrusted with asset management by SPCs, equity investors, mezzanine loan debt
creditors, senior loan debt creditors, etc. carry out sales activities for the real estate, etc. held by the
SPC during the period from the planned repayment date to the final repayment date. The authority
to sell the real estate, etc. is generally granted in order of decreasing subordination in repayment
priority. SAR shall consider repayment of senior loans and collection of mezzanine loans by seeking
a buyer for the underlying real estate, etc. and having the SPC sell to the willing buyer within the
period in which SAR, the mezzanine loan debt creditor, is granted the authority to sell the property.
When the buyer purchases the real estate, etc. for a price equal to/higher than the sum total of theamount of senior loan debt and other debts which are prioritized over mezzanine loans and theamount of mezzanine loan debt, the principal and interest to be paid for the mezzanine loan debt
will be repaid in full to SAR, the mezzanine loan debt creditor.
(ii) When the purchase price of the underlying real estate, etc. is below the total sum of the amount ofsenior loans and mezzanine loan debt in (i) above, SAR will not be able to receive the repayment forthe principal and interest of mezzanine loan debt in full if SAR has the SPC sell the real estate, etc.

9In such case, SAR shall consider preventing finalization of loss on mezzanine loan debt in preventing
senior loan creditors from disposing the real estate, etc. through foreclosure on the subject realestate or other means by refinancing senior loans or purchasing senior loan debt before the period
in which the mezzanine loan debt creditor is granted the authority to sell the real estate, etc. ends
and the senior loan debt creditor gains the authority for disposition through foreclosure for the
subject real estate or other means. When considering this action, it is essential that SAR has thecapability to procure funds to purchase the senior loan debt. SAR sets the upper limit of LTV(interest-bearing liabilities as a percentage of total assets) at 60% and abides by the policy not to, in
principle, execute debt financing beyond said limit. Therefore, when investing in mezzanine loandebt, SAR shall consider having the SPC continue with management by keeping LTV at a lower level,
and if a commitment line has been set, by executing debt financing as necessary through applicationof the commitment line as well.
(iii) SAR shall consider preventing finalization of loss on mezzanine loan debt by preventing senior loancreditors from disposing the real estate, etc. through foreclosure on the subject real estate or othermeans, by refinancing senior loans. This will be executed through SAR becoming an equity investor
by shifting the amount of mezzanine loan debt to silent partnership investment (SAR will invest in
the SPC through silent partnership, etc. and the SPC repays mezzanine loans using the funds).
However, if investment by SAR exceeds 50% of silent partnership investment, joint investment withthe sponsor group will be presupposed as such will not meet conduit requirements in tax treatment.
(iv) SAR shall acquire the underlying real estate, etc. from the SPC, and the SPC will repay senior loans
using the proceeds. As is with (ii) above, SAR’s capability to procure funds for acquiring the realestate, etc. will be crucial. Therefore, when investing in mezzanine loan debt, SAR will keep LTV at alower level and consider setting a commitment line as is with the case in (ii) above.

<Major risks of mezzanine loan investment>(a) Risk related to mezzanine loan structure
In general, risk of default for mezzanine loan debt is higher than that for senior loan debt sincemezzanine loan debt is subordinated to senior loan debt in repayment priority while a higher interest
rate is provided.
(b) Risk of real estate price falling
In general, the mezzanine loan takes a form of non-recourse loan in which the SPC is financed andonly the underlying real estate, etc. and revenue from the underlying real estate, etc. serves asallowance. Therefore, when foreclosure, etc. are executed as a result of debt default by the SPC, partof/the entire principal and interest of mezzanine loan debt may not be repaid if the price of theunderlying real estate, etc. falls below the amount invested by equity investors and the proceeds fromthe sale, if sold, does not reach the total amount of principal and interest of senior loan debt andmezzanine loan debt and other expenses payable by the SPC.
(c) Risk related to underlying real estate, etc.
The sources for payment of interest and principal of mezzanine loan debt are rent and other revenues
from the underlying real estate, etc. as well as proceeds from the sale of the real estate, etc. Therefore,
when rent revenue, etc. from the real estate, etc. declines due to a decrease in the occupancy rateand such, or risks such as liquidity of the real estate are exposed, such may adversely affect thepayment for principal and interest of mezzanine loan debt.

10

(d) Liquidity risk
Mezzanine loans have lower liquidity compared with stocks and other securities that are traded at theestablished secondary market such as a financial instruments exchange, and thus transfer to a third
party at the timing and price SAR regards appropriate may be difficult. Furthermore, even if a transfer
is executed, SAR may have no choice but to execute such transfer at a price lower than what it
considers appropriate.
(e) Risk of SPC
Related agreements concluded by the SPC generally includes non-recourse loan covenant andprovisions concerning limited covenant of right to file compulsory seizure and right to file bankruptcy
proceedings. However, there seems no definite preceding court cases judging whether thesecovenants will be acknowledged as agreements that would be valid in the execution proceedings orbankruptcy proceedings, as provided in the covenants. Therefore, if validity of these covenants isdenied in actual execution proceedings or bankruptcy proceedings for the SPC, execution proceedings
or bankruptcy proceedings for the SPC may be conducted in a manner not intended by the relatedagreements, and thus may adversely affect the execution of right by mezzanine loan debt creditors.
(f) Risk of delisting
If mezzanine loan debt exceeds 5% of total assets at the end of each calculation period and the figure
does not improve to 5% or less within one year, delisting is possible since such circumstance fall under
the delisting criteria specified in the rules of Tokyo Stock Exchange.
2. Definition of mezzanine loan debt targeted by SAR
Mezzanine loan debt of which acquisition SAR considers as an investment target are loan claims, etc. that satisfy
the following conditions.
① Debt which is financed to an SPC, etc. holding only real estate and operating no other business, and ofwhich repayment resource is limited to the property owned by the SPC, etc. and cash flow generated
from the property.
② Regardless of the form (such as loans and corporate bonds), debt which is regarded as a loan, etc. witha fixed interest (including trust beneficiary interests).
③ Debt which is subordinated to senior debt (senior loans, etc.) and prioritized over equity investment
such as investment in silent partnership in terms of repayment order.
3. Stance of SAR towards mezzanine loan debt investment (investment criteria)
Investment balance Investment balance after investment in debts such as mezzanine loans is 5%
or less of total assets at the end of the immediately preceding fiscal period.
(However, if total assets drastically fluctuate due to property
acquisition/disposition during the fiscal period, the matter shall be discussed
separately.)
Collateral asset
Real estate, etc. as collateral or underlying assets shall satisfy the investment
criteria (location, asset type, price, etc.) of SAR (Note 2).
Maximum LTV
85%(Note 3)

Interest rate
(Note 1)

4% or higher, in principle

Mezzanine loan debts are loan claims for a special purpose company, etc. which holds the real estate,etc. considered as collateral or underlying asset as well as other claims, and are subordinated to seniordebt (senior loans, etc.) and prioritized over equity investment such as investment in silent partnershipin terms of repayment order, etc.

11

(Note 2)

For details of the investment criteria of SAR for real estate, etc., please refer to “<Attachment> 4.
Investment criteria for real estate, etc.” at the end of this press release.

(Note 3)

LTV is calculated using the amount including mezzanine loan debt which SAR considers as aninvestment target and its senior debt as the numerator; and the appraisal value stated in theappraisal report SAR has obtained regarding the collateral asset as the denominator.

4. Investment criteria for real estate, etc.
Main investment criteria of SAR for real estate, etc. are as follows.
Use:
Office, retail, residential, logistics facility and hotel
Investment target areas:
Area category
Tokyo Area

Asset type (Use)
Office, retail facility
Residence, logistics facility
and hotel

Osaka Area
Nagoya Area
Fukuoka Area
Sapporo Area
Other governmentdesignated cities(Note 1)Price:All asset types

Target area
Greater Tokyo, Kawasaki-shi and
Yokohama-shi
Tokyo, Kanagawa, Saitama and Chiba
Osaka-shi, Osaka (Note 1)
Nagoya-shi, Aichi (Note 2)
Fukuoka-shi, Fukuoka (Note 3)
Sapporo-shi, Hokkaido
Sendai-shi, Miyagi
Niigata-shi, Niigata
Kyoto-shi, Kyoto
Sakai-shi, Osaka
Kobe-shi, Hyogo
Hiroshima-shi, Hiroshima
Kitakyushu-shi, Fukuoka

This includes neighboring areas of Osaka-shi, Osaka for residential and logistics facilities.

(Note 2)This includes neighboring areas of Nagoya-shi, Aichi for residential and logistics facilities.

(Note 3)This includes neighboring areas of Fukuoka-shi, Fukuoka for residential and logistics facilities.

Middle-sized assets (under 10 billion yen) will be the main investment target.
In mezzanine loan debt investment, however, not the transaction price of the collateral asset
but the total amount of mezzanine loan debt and its senior debt, which are investment targetsof SAR, will be considered as “price (standard).”12