October 25, 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 (Subordinate Bonds)
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 on the acquisition (the“Acquisition”) of subordinate bonds (the “Subordinate Bonds”) issued by Haneda Hotel Development GK (the “GK”)
for the purpose of acquiring the real estate beneficiary interests in trust mainly comprised of HOTEL RELIEF
Premium Haneda as trust asset (the “Underlying Asset”). Details are as follows.
1． Significance of the Acquisition
In the belief that investment in mezzanine loan debt is an effective method to maximize unitholder value based on
the reasons below, SAR has been in search of suitable investment targets.
Investments in mezzanine loan debt:
1. Attractive investment alternative when real estate equity prices are expensive;
2. Increased revenue due to higher after-amortization yields of real estate portfolios;
3. Serves as an effective investment using current cash on hand (cash and deposits) for accretion;
4. Are judged most likely to assure repayment of principal and interest so typically considered lower
risk than investment in real estate equity.
This investment in mezzanine loan debt, which is the first such case by a listed real estate investment corporation(i.e. the acquisition of Subordinate Bonds), utilizes the cash on hand of SAR. As this is likely to contribute to theimprovement of portfolio earnings, it is believed this is an investment that seeks maximization of unitholder value
and embodies the posture of SAR towards asset management that is “discussing various measures to maximize
unitholder value by defying stereotypes and implementing said measures.”
When SAR invests in mezzanine loan debt, selected cases are those in which repayment of principal and interestof the mezzanine loan debt is very certain to be executed, and also of which the underlying assets (real estate,etc.) satisfy the investment criteria of SAR (Note 1). Furthermore, SAR requires that the amount of funds procured
through loans, including debt with higher repayment priority such as senior loan debt, is 85% or less of theappraisal value obtained by SAR regarding the underlying real estate, etc. The Asset Manager has judged that theSubordinate Bonds nearly satisfy all of these requirements.

1

Stance of SAR towards mezzanine loan debt investment (investment criteria)
Investment balance Investment balance after investment in debts such as mezzanine loans is 5% orless 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 orReal estate, etc. as underlying assets shall satisfy the investment criteria
underlying assets(location, asset type, price, etc.) of SAR (Note 1).
Maximum LTV
85%(Note 2)
PeriodOver 3 years, in principle
Interest rate
4% or higher, in principle(Note 1) For details of the investment criteria of SAR for real estate, etc., please refer to Attachment 2 at the endof this press release.
(Note 2) LTV is calculated using the amount including mezzanine loan debt which SAR considers as an investment
target and its senior debt as the numerator; and the appraisal value stated in the appraisal report SAR
has obtained regarding the underlying asset as the denominator.

2. Overview of the Acquisition(1) Planned acquisition asset(2) Name of asset to be acquired(3) Underlying Asset(4) Trustee of Underlying Asset(5) Trust period of Underlying
Asset(6) Amount of Subordinate
Bonds to be acquired(7) Issue price of Subordinate
Bonds(8) Expected interest rate (Note2)(9) LTV

Subordinate Bonds(400,000,000 yen of total issued amount 701,000,000 yen)Star Asia Mezzanine Loan Debt Investment Series 1
Real estate beneficiary interests in trust mainly comprised of HOTEL RELIEF
Premium Haneda as trust asset (Note 1)
Mitsubishi UFJ Trust and Banking Corporation
From October 31, 2017 to October 31, 2027
Total: 400,000,000 yen
400,000,000 yen
100 yen per 100 yen of face amount of each Subordinate Bond
Base rate (Note 3) +5.0%
Approximately 62.3% (Note 4)* The appraisal value of the Underlying Asset, which is used as the denominator for
calculating LTV, is 4,080 million yen.

(10) Contract date of Subordinate
Bonds transfer agreement(11) Planned acquisition date ofSubordinate Bonds(12) Interest payment date for
Subordinate Bonds(13) Final redemption date(14) Acquisition financing(15) Settlement method(16) Seller

October 25, 2017
October 31, 2017
Last day of February, May, August and November (Four times a year)(The first Interest payment date is November 30, 2017.)
October 31, 2023
Cash on handLump-sum settlement upon acquisition of Subordinate Bonds
Mizuho Securities Co., Ltd. (“Mizuho Securities”)

2

(17) Overview of Subordinate
Bonds structure

Underwriting

Haneda Hotel Development GK

Mizuho Securities

Senior Loan
1,840
million yen

The Underlying
Asset

Mezzanine
Subordinate Bonds

4,080

701 million yen

million yen(Appraisal value)

Class AClass B

SAR

Third party(Equity)

400 Million

Silent partnership

JPY

investment, etc.

1.

(18) Relationship between
SAR/the Asset Manager
and the GK*Based on information as of
October 25, 2017.

Mizuho Securities shall underwrite the entire amount of Subordinate
Bonds on October 31, 2017.
2. The GK shall acquire the real estate beneficiary interests in trust mainlycomprised of HOTEL RELIEF Premium Haneda as trust asset using thepayment for senior loans and the Subordinate Bonds on the same day.
3. SAR shall pay the entire amount of issued price of Subordinate bonds on
the same day and acquire them from Mizuho Securities.
* Between the bondholders, the will of SAR shall take precedence since SAR
holds the majority. There is no priority subordinate relationship between
bondholders, and bondholders are treated equally in redemption andinterest payment.
* The Subordinate Bonds are subordinated to senior loans in terms of interest
payment and redemption of principal. On the other hand, interest payment
and redemption of principal to Subordinate Bonds are prioritized over thosefor “equity,” in principle. Particularly with redemption of principal, evenwhen the value of underlying assets falls, “equity” is the first to incur loss,
and after all “equities” have incurred loss, then the Subordinate Bonds incurloss.
Capital relationship
There is no capital relationship to report
between SAR/the Asset Manager and the GK.
Personnel relationship
There is no personnel relationship to report
between SAR/the Asset Manager and the GK.
Furthermore, there is no personnel relationshipto report between associated persons andassociated companies of SAR/the AssetManager and associated persons and associatedcompanies of the GK.
Business relationship
There is no business relationship to report
between SAR/the Asset Manager and the GK.
Furthermore, there is no business relationshipto report between associated persons andassociated companies of SAR/the AssetManager and associated persons and associated3Related party statuscompanies of the GK.
There is no related party status to report
between SAR/the Asset Manager and the GK.

(Note 1) For overview of the Underlying Asset, please refer to 3. Reason for the Acquisition <Overview of the Underlying
Asset>.
(Note 2) SAR is scheduled to receive an up-front fee upon the acquisition of the Subordinate Bonds separately from thescheduled interest. 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/).
(Note 4) The figure indicates the ratio of (a) amount procured from the GK’s loans (Subordinate Bonds and non-recourse
loan) through a loan claim (non-recourse loan) to the subordinate beneficiary interests to (b) the appraisal
value indicated in the appraisal report obtained by SAR regarding the Underlying Asset upon acquisition of theSubordinate Bonds, rounded off to one decimal place.

3. Reason for the Acquisition
The Acquisition can expect to boost distributable profits since the acquisition will be conducted with SAR’s cashon hand, allowing SAR to receive interest income (expected return: more than 5%) from effective use of own funds.
Judging that investment in mezzanine loan debt, such as the Acquisition, realizes diversification of investment
targets and contributes to maximization of unitholder value, Asset Manager has decided on the Acquisition.
The Asset Manager recognized the following points upon deciding the acquisition of the Subordinate Bonds.
①

As planned interest rate of the Subordinate Bonds is more than 5% (please refer to 2. Overview of theAcquisition above.), securement of profits that surpass the after-amortization yield of real estate
portfolio can be expected.

②

The certainty of interest payment for the loan claim of the trust asset of the Subordinate Bonds is
assessed to be high since its rent income indicates not only stability but also growth potential as shownin the evaluation of the Underlying Asset below.

③

The appraisal value of the Underlying Asset SAR has acquired is 4,080 million yen, and LTV against theamount of the Subordinate Bonds and senior debts (approximately 2,539.8 million yen) calculated basedon this figure is 62.3%. Therefore, risk of loss while holding the Subordinate Bonds is judged to be low.

④

The Underlying Asset is a hotel that falls under the category of “middle-sized assets in the Tokyo area
(Note)” defined by SAR and is believed to have strong demand. In addition, since the loan can beredeemed at 62.3% of the appraisal value as explained in ① above, the certainty of redemption of theSubordinate Bonds through sale of the Underlying Asset or refinancing is judged to be high.

(Note) For the definition of “middle-sized assets in the Tokyo area,” please refer to Attachment 2 at the end. The same
applies hereinafter.

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

HOTEL RELIEF Premium Haneda

Type of specified asset

Real estate beneficiary interest in trust

Planned buyer

Haneda Hotel Development GK

Location

1-25-2 Minamikamata, Ota-ku, Tokyo

Use (Note 1)

Hotel

Structure (Note 2)

Reinforced concrete structure with 12 floors

4

Area

Land (Note 3)

Approximately 691m2

Building(Total floor area)(Note 4)

Approximately 2,874m2

Type of ownership Land
(Note 5)
Building
Construction completion
Earthquake PMLAppraisal value
Appraisal NOI
Appraisal obtained (Note 7)
by SAR (Note 6)
Appraisal date
Appraiser
Total number of end tenants
Occupancy rate
Special notation

Proprietary ownership (beneficiary interest in trust)
Proprietary ownership (beneficiary interest in trust)
September 20174.9% (Inspection body undisclosed)
4,080 million yen
181,468,086 yen
October 31, 2017
Japan Valuers Co., Ltd.
1
100.0%
Not applicable.

(Note 1)

”Use” indicates the use stated in the real estate registry.

(Note 2)

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

(Note 3)

”Land” is the entire land area of HOTEL RELIEF Premium Haneda stated in the real estate registry (rounded off tothe nearest whole number).

(Note 4)

“Building (Total floor area)” is the total floor area of HOTEL RELIEF Premium Haneda building stated in the realestate registry (rounded off to the nearest whole number).

(Note 5)

“Type of ownership” is the type of right held by the trustee of HOTEL RELIEF Premium Haneda.

(Note 6)

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

5

< Evaluation of the Underlying Asset by the Asset Manager >(1) Location
The underlying asset is a business hotel located approximately a 5-minute walk from Keikyu Kamata Stationon the Keikyu Line and approximately a 15-minute walk from Kamata Station on the JR Keihin Tohoku Line.
The Kamata area where the property stands features medium- to small-sized office buildings with shops
centering on Kampachi-dori Street and a residential area concentrated behind the office buildings. Recently,
several business hotels similar to the underlying asset have been constructed mainly in the area surrounding
Keikyu Kamata Station.
The property provides good transport convenience in offering access to the main business areas in Tokyo in
about 20 to 30 minutes as well as access to Tokyo International Airport in about 10 minutes, and thus has
a strong appeal to both business and leisure guests.
Operation of a free shuttle bus responding to early morning flights at Tokyo International Airport is alsoplanned to provide highly convenient services to all customer groups using the airport (including passengers
as well as airport staff).
(2) Hotel features
The hotel has a total of 120 rooms, comprised of 42 single rooms (approx. 14.1 to 14.2m2), 11 double
rooms (approx. 15.4m2) and 67 twin rooms (approx. 16.2 to 28.2m2), and provides multi-language tabletsin all rooms to accommodate all types of business and leisure guests.
In addition, with the aim to increase the ratio of female guests, the hotel offers female-friendly content(placing organic cosmetic amenities/aroma oils and eco-friendly down quilts in collaboration with famous
apparel brands, renting jogging and yoga wear, preparing breakfast using organic vegetables, gluten-freeingredients and other healthy food, etc.) to further strengthen its appeal.
(3) Tenants
Felice Co., Ltd. (“Felice”), the tenant-cum-operator of the underlying asset, has been operating four
hotels across Japan and plans to open new hotels in Akasaka, Tokyo and Shinsaibashi, Osaka in 2018 andonward.
Furthermore, with investment from Central Group, one of the largest conglomerates in Thailand, Felice also
engages in operation of café restaurants, hotel consulting, etc. in addition to hotel operation.
In regard to the underlying asset, Felice will also conduct highly competitive hotel operation, differentiating
itself from other hotels by bringing forth in particular the female-friendly concept while taking in bothbusiness and leisure guest demand in a balanced manner through full utilization of accumulated hotel
operation know-how.

6

4. Seller profile
Name
Location
Representative
Main businessdescription

Mizuho Securities Co., Ltd.
Otemachi First Square, 1-5-1 Otemachi, Chiyoda-ku, Tokyo
Tatsufumi Sakai, President & CEO(1) Purchase/sale of securities, market derivative transactions, foreign market
derivative transactions(2) Brokerage, agent, proxy for purchase/sale of securities, market derivativetransactions, foreign market derivative transactions(3) Brokerage, agent, proxy for consignment of purchase/sale of securities infinancial instruments exchange market/foreign financial instruments market;
or brokerage, agent, proxy for market derivative transactions or foreign
market derivative transactions in in financial instruments exchange
market/foreign financial instruments market(4) Over-the-counter derivative transactions; or brokerage, agent, proxy for overthe-counter derivative transactions(5) Brokerage for clearing of securities, etc.
(6) Underwriting of securities(7) Offering or private offering of securities(8) Secondary offering of securities(9) Handling of offering or secondary offering of securities; or handling of private
offering(10) Investment advisory/agency services(11) Investment management(12) Moneylending(13) Life insurance agent business(14) Banking agency services(15) In addition to the previous items, any business in which securities companies
are permitted to engage under the Financial Instruments and Exchange Act
and other law.
(16) Any and all businesses incidental or related to each of the above.
125.1 billion yen
July 1917
878,896 million yen
14,140,151 million yen

CapitalEstablishedNet assets
Total assets
Major shareholders andMizuho Financial Group Inc.: 95.80%
shareholding ratio
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

The seller is a securities company underwriting public offering of SAR
conducted on April 6, 2017. Besides this, there is no business relation toreport.

Related party status

The seller does not fall under the category of related party.

(Note)

The above is based on information as of June 30, 2017.
However, the information on Major shareholders and shareholding ratio is based on information asof March 31, 2017.

7

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

October 25, 2017

Contract date of the Subordinate Bonds
transfer agreement

October 25, 2017

Planned acquisition date of theSubordinate Bonds

October 31, 2017

7. Settlement method
The Acquisition is planned to be settled through lump-sum payment of the acquisition price on the planned
acquisition date.
8. Future outlook
Since the impact on the forecast for operating results for the 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/

8

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.
Low

Senior loan

Mezzanine loans are loans with middle risk and(relatively low-risk/low-return)

middle return which stand between seniorloans generally financed by banks and equity

Banks/trust banks/life insurance

investments by institutional investors, etc.

Risk / Return

companies/foreign banks, etc.
Mezzanine loan(relatively low-risk/low-return)Real estate etc.

Mezzanine loans are considered to beinvestments that assume an intermediate
position between equity and senior loans interms of the balance between risk and return.

Non-banks/non-life insurancecompanies/investment banks, etc.

SAR’s investment target

Equity (silent partnership investment, etc.)(relatively high-risk/high-return)
Institutional investors in Japan and abroad, etc.
High

9

<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 fora 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 repaymentof 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
management company 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 subordinationin 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 willingbuyer 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 the amount of senior loan debt and other debts which are prioritized overmezzanine loans and the amount of mezzanine loan debt, the principal and interest to be paid forthe mezzanine loan debt will be repaid in full to SAR, the mezzanine loan debt creditor.

10

(ii)

(iii)

(iv)

When the purchase price of the underlying real estate, etc. is below the total sum of the amountof senior loans and mezzanine loan debt in (i) above, SAR will not be able to receive the repayment
for the principal and interest of mezzanine loan debt in full if SAR has the SPC sell the real estate,etc. In such case, SAR shall consider preventing finalization of loss on mezzanine loan debt inpreventing senior loan creditors from disposing the real estate, etc. through foreclosure on thesubject real estate 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 thereal estate, etc. ends and the senior loan debt creditor gains the authority for disposition throughforeclosure for the subject real estate or other means. When considering this action, it is essentialthat SAR has the capability 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 thepolicy not to, in principle, execute debt financing beyond said limit. Therefore, when investing inmezzanine loan debt, 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 asnecessary through application of the commitment line as well.
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 orother means, 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 thefunds). However, if investment by SAR exceeds 50% of silent partnership investment, joint
investment with the sponsor group will be presupposed as such will not meet conduit
requirements in tax treatment.
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 ata lower 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,

11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.
(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 the rules of Tokyo Stock Exchange.

12

Attachment 2[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 underlying asset
but the total amount of mezzanine loan debt and its senior debt which are SAR’s investment
target will be considered as “price (standard).”13