CODE

3468
August 7, 2019
Real Estate Investment Trust Securities Issuer
Star Asia Investment Corporation
Representative: Atsushi Kato, Executive Director(Code: 3468)
Asset Management Company

Star Asia Investment Management Co., Ltd.
Representative : Atsushi Kato, President and CEO

Supplementary Explanatory Material

Contact : Akiko Kanno, Director and CFO
TEL: +81-3-5425-1340

Regarding Today’s Timely Disclosure
Proposal for Merger between Sakura Sogo REIT Investment Corporation and Star Asia Investment Corporation
Merger Ratio ~ Star Asia Group’s Unitholder-Friendly Concept＜Timely Disclosure to Be Announced Today＞「 Supplementary Explanatory Material Regarding Today’s Timely Disclosure Proposal for Merger between Sakura Sogo REIT Investment
Corporation and Star Asia Investment Corporation Merger Ratio ~ Star Asia Group’s Unitholder-Friendly Concept」

This document was drafted by Lion Partners GK and presented to the unitholders of Sakura Sogo REIT Investment Corporation.

This is an English translation of the announcement in Japanese dated August 7, 2019. However, no assurance or warranties are given for thecompleteness or accuracy of this English translation.

Unitholders of Sakura Sogo REIT Investment Corporation

Proposal for Merger between Sakura Sogo REIT Investment
Corporation and Star Asia Investment Corporation

Merger Ratio ~ Star Asia Group’s Unitholder-Friendly
Concept
August 7, 2019

Message from Star Asia Group/Lion Partners GK
to All Unitholders of Sakura Sogo REIT Investment Corporation◼ Star Asia Group currently holds 16,896 units of Sakura Sogo
REIT Investment Corporation (about 5.1%, trade basis) and
97,000 units of Star Asia Investment Corporation (about 17.9%),and is expected to be the largest unitholder of the merged REIT
◼ We are confident that the merger of SSR and SAR will be in thebest interest of and maximize value for the investors in both
REITs. Star Asia Group will also continue to be incrediblycommitted to the growth of the merged REIT
◼ This document contains our approach to the merger ratio
between Sakura Sogo REIT Investment Corporation and Star
Asia Investment Corporation◼ We kindly ask all the unitholders to support Lion Partners GK’s
(LPGK) proposals at both general meetings of unitholders
scheduled for August 30th1Merger Ratio ~ Star Asia’s Proposal is Much More Attractive (1)We consider this merger ratio as highly
rational, considering SSR’s enterprise value
Adjusted unit price of SSR based on themerger ratio to the left is ¥101,728~◼

Merger ratio

1: 0.88~◼

(Note1)-

Unit price performance for the last six months vs. the merger ratio of 1:0.88 (SSR)
0.90

Further accelerationc. ¥ 2,539~
Short-term DPU growthc. ¥ 100~ (Note 6)¥ 2,427
Normalized DPU
Growth after the
Merger

3.4% or higher

Basis date for calculation (8/5): 0.85

0.84

Average for the last 5 business days: 0.84

0.82

Post-Merger

Merger Ratio

0.88
0.86

Average for the last 1 month: 0.81

Short-term Medium(Note 5)
to longterm

Merger
proposal(May. 10)

Average for the last 3 months: 0.80

0.80(Note 5)

We calculated normalized DPU, which we will
deliver to SSR’s unitholders, based on themerger ratio on the assumption that short-term
measures such as cost reduction will be
implemented
We will further increase the DPU in the medium
to long term by implementing our strategies
such as active management by Star Asia
Investment Management

Post-Merger DPU (for SSR’s unitholders)

When the merger ratio which is calculated by the investment unit weighting method
based on unit price by August 7, 2019 is compared to 1:0.88, the unit price will be
3.4% or higher than closing price on August 7, 2019
We will determine the ultimate merger ratio based on historical unit priceperformance and a merger ratio calculated by a financial advisor and other third
parties
Each director of SAR has confirmed the content of the assumed merger ratio andagreed to provide such information to investors-¥2,539 ~◼

◼

Concept for the Merger Ratio-

SAR’s post-merger(normalized) DPU

Average for the last 6 months: 0.80

Measures for DPU growth

0.78
0.76

◼ Short Term Measures (Note 7)

0.74

0.72
0.70
2019/02/06 2019/03/06

2019/04/06

2019/05/06

2019/06/06

2019/07/06

SSR’s net assets appraised by Lion Partners at fair value◼ SSR’s portfolio assets appraised by Star Asia Group¥63.0bn (Note2)=> + ¥2.1bn (+3.4%) vs. SSR’s latest appraisal value◼ SSR’s net assets per unit calculated based on the above
appraisal value¥104,000/unit (Note 3)=> + ¥6,500/unit vs. SSR’s assumed NAV (Note 4) per unit

2019/8/5

Reduction of asset management fees =>c. ¥40mn/FP

Reduction of leasing costs=>c. ¥40mn/FP

Reduction of other operation costs=>c. ¥20mn/FP=>

c. ¥100mn/FP(Note 8)

Total reduction of short-term costs◼ Mid to Long Term Measures for DPU growth
Cost reduction (loanrelated costs, etc.)

Continued active
management

Maximize growth withrobust property
pipeline✓ As of today, SSR holds preferential negotiation rights for 10
properties(More detailed information on Page 6)2

Merger Ratio ~ Star Asia’s Proposal is Much More Attractive (2)Merger Ratio Calculated by SAR（Appendix） Merger Ratio Proposed by MIRAI Corporation

Adjusted unit price of SSR based on the merger ratio：

Adjusted unit price of SSR based on the merger ratio:

1 : 0.88

1：1.67¥101,728~/unit¥94,856~/unit(※)(※)Based on the Disclosure document of SSR & MRI(2019/8/5)

Unit price performance for the last six months vs. the merger ratio of
1:0.88 (SSR)

Unit price performance for the last six months(MRI) vs. the merger ratio of
1:1.67 (SSR)

0.90

1.90

Merger Ratio

0.88
0.86
0.84
0.82

3.4% or higher

Basis date for calculation (8/5): 0.85
Average for the last 5 business days: 0.84

1.85

1.80

Average for the last 1 month: 0.81

Average for the last 3 months: 1.79
Average for the last 6 months: 1.77

Average for the last 3 months: 0.80

0.80

1.75

Average for the last 5 business days: 1.73

Average for the last 6 months: 0.80

Basis date for calculation (8/6): 1.72

0.78
1.70

0.76
0.74

1.65

Average for the last 1 month: 1.71

2.8% or lower

Merger Ratio

0.72
0.70
2019/02/06 2019/03/06

2019/04/06

2019/05/06

2019/06/06

2019/07/06

2019/8/5

The merger ratio which is calculated by the market average
price method
Merger Ratio
The premium to the
The adoption periodof unit price（SSR/SAR)
proposal ratio

1.60
2019/02/06 2019/03/06

2019/04/06

2019/05/06

2019/06/06

2019/07/06

The merger ratio which is calculated by the market average
price method
Merger Ratio
The adoption period
The premium(discount) toof unit price
the MRI’s proposal ratio（SSR/MRI)

Basis date for calculation

0.85

+3.4%

Basis date for calculation

1.72

▲2.8%

Average for the last fivebusiness days
Average for the lastbusiness month
Average for the last threemonthsAverage for the last six
months

0.84

+4.3%

1.73

▲3.7%

0.81

+8.1%

1.71

▲2.5%

0.80

+9.7%

1.79

▲6.5%

0.80

+9.8%

Average for the last fivebusiness days
Average for the lastbusiness month
Average for the last threemonthsAverage for the last six
months

1.77

▲5.9%

SSR：Sakura Sogo REIT Investment Corporation

SAR：Star Asia Investment Corporation

2019/8/5

SSR：Sakura Sogo REIT Investment Corporation

MRI：MIRAI Corporation

3

Merger Ratio ~ Star Asia’s Proposal is Much More Attractive (3)Post-merger DPU based on the assumed merger ratio calculated byStar Asia Group (Normalized DPU/for SSR’s investors)¥2,539~Post-merger DPU based on the assumed merger ratio proposed by
MIRAI Corporation (Normalized DPU/for SSR’s investors)¥2,355(※)(Note 5)

Star Asia Proposal-Post-merger DPU (for SSR‘s investors) Mirai Proposal-Post-merger DPU (for SSR‘s investors)
DPU excluding revenue
売却益を除く1口当たり分配金
from property sale

Revenue from property sale
売却益
per unit

Gain of ¥477 can be realize
through asset replacementwith the sponsor

Post-merger
Further acceleration

DPU excluding revenue
売却益を除く1口当たり分配金
from property sale

Revenue from property sale
売却益
per unit

¥477

¥324

¥376

¥350

¥2,348¥2,363¥2,355

(※)

(※)

(※)

¥2,427¥2,539¥2,427

DPU, net of one-time gains on property sale, will
be lower than pre-merger levels
Merger proposal(May.10)

Short-term

Medium tolong term

Merger proposal(May.10)

FP ended
FP ended
October
2020
April 2020

Averageof two FP➢ Star Asia Group intends to support SAR's asset replacement strategy. It also continually
evaluates the value of all assets held by the group. A gain of approximately ¥920
million can be realized if “Alphabet Seven” is replaced with different properties.
➢ We estimate an additional increase of approximately ¥477 in DPU, if the asset isdisposed after the merger and the profit from the sale is recognized over 2 fiscal
periods.
➢ In the case of asset replacement, we will conduct a broad search for potential buyers
and seek the highest disposition price possible➢ DPU, net of gains on property sale, will be lower than pre-merger levels.

SSR’s NAV per unit estimated by Star Asia Group

SSR’s NAV per unit calculated based on MIRAI’s press release※Post-merger DPU is calculated by multiplying the merger ratio, by the number
obtained by deducting the profit on property sale per unit from post-merger DPU foreach fiscal period disclosed by SSR and MRI.
“Average of two FP” is the average of FP ended April 2020 and October 2020.

¥104,000¥97,405(note 3)(Note 4)

FP ended
December 2018

Star Asia Group’s
Assessment value (Note 3)¥97,405(Note 4)

¥83,580(※)

FP ended
December 2018

Post-merger NAV
4(※) Calculated by multiplying the merger ratio by the post-merger NAV disclosed by SSR and MRI

Post-Merger Growth Strategy:
Post-Merger Portfolio Management Strategy
SAR will maintain its investment policy after the merger and continue to strive to maximize unitholder value

Investment Policy (Post-merger)◼

A portfolio predominantly in Tokyo metro area◼

Focus on mid-sized assets◼

Stability and growth through diversification ofasset types◼

Commitment of the Star Asia Groupa(Star Asia Group’s estimated ownership in post-merger
entity: c. 13.4%)(Note 9)

Post-merger portfolio

SAR’s Views on Each Asset TypeSpecific Management Policy

OfficeOfficeMiddle-sized office buildings are lesssusceptive
to oversupply of officebuildings expected in the future, and SAR
forecasts that supply and demand willcontinue to remain tight

Focuseson
middle-sized
officebuildings in urban areas with highpopulation density predominantly in theTokyo metro area, and seeks growththrough aggressively increasing rent

RetailRetailThere are increasing concerns over deteriorating
business environment for primarily suburban
brick-and-mortar stores selling non-essential
goods on the back of the rise of e-commerce
and the shift in consumer values towards
services and experiences over material goods

Not an investment target for the time being.
Intends to replace suburban and regional retailfacilities in the future, and focuses on urban
retail facilities after conducting analyses of tradeareas to assess their growth potential, etc.
based on factors such as population in the tradearea and demographics

Post-merger portfolio
Total assets of ¥159.9bn (basedon acquisition price)
Assets in the Tokyo area:

67.6％

Other: ¥2.4bn,
1%

Retail:¥22.5bn,
14%
Residential:¥21.8bn, 14%

Office:¥61.8bn, 39%

Logistics:¥31.0bn, 19%
Hotel:¥20.5bn,
13%

Residential

Residential

This is the most stable asset type, andhas growth potential as rents have been
increasing in the current environment

Invests in competitive properties inlight of strong demographic fundamentals
based on the mid- to long-term
macroeconomic environment. Increasing
rent levels

Logistics

Logistics

SAR predicts stable revenue from logistics
facilities with high tenant demand in theTokyo metro area bordering strong
population centers

Continue to focus on logistics facilities in
the Tokyo metro area (in particular,
within 30km of Tokyo Station) which
are easy to find new tenants

Hotel

Hotel

While both business and tourism demand can be
captured in urban centers, the primary demandfor hotels in regional cities is tourism, so there isa risk of fluctuation in revenue due to changes inthe tourism environment, and supply of newhotelsInvests solely in urban hotels geared
towards business travelers, and prioritizes
the stability of the portfolio, keeping theratio of variable lease contracts at
10% or lower (Note 10) in principle

5

Post-Merger Growth Strategy
Post-merger Portfolio Value onan Acquisition Price Basis:¥159.9bn (estimate)

SAR’s
Abundant Pipeline of Properties(Total c.¥62.5bn)

A variety of action plans can be employed
As the main scenario, SAR aims to achieve AUMof ¥200bn in the very short term

Properties with Preferential Negotiation Rights and Star Asia Group’s Pipeline

Future action plans➢ Properties in (1) are stable and have set minimum selling prices and yields exceeding SAR’s current
portfolio. Properties in (2) are still in development or lease-up and will be considered for acquisition
once the revenue stabilizes➢ After the merger, SAR will leverage its preferential
negotiation rights and the sponsor’s abundant pipeline tosteadily grow its asset base and seek to improve theprofitability and stability of its portfolio, aiming toachieve AUM of ¥200bn in the very short term

Total Appraisal: ¥13.6bn (Note 11)(1) SAR has Preferential Negotiation Rights
Tachikawa OHA bldg.

Nishi-Ikebukuro 1Chome bldg.

Greater Tokyo
area

Tokyo area

OfficeUrban Park Mitsuike Koen

Urban Park Tokiwadai Koen

Tokyo area Residential

RetailAvg. appraised cap rate: 4.9% (Note 12)

Tokyo area

Residential

Chrysantheme-ichigao
Tokyo area Residential

Avg. cap rate after depreciation: 4.3% (Note 13)(2) SAR has Preferential Negotiation rights

Total Appraised Value: ¥17.6 bn (Note 14)

HAKUSAN HOUSE

Shimotakaido Project

Nishi-Sugamo Project

Hakata Office Project

URBAN CENTER Midosuji

Under development by
GSA Star Asia

Under development by
GSA Star Asia

Under development byStar Asia Sogo Kaihatsu

Under development byStar Asia Sogo Kaihatsu

Owned by theSponsor’s fund

Other Properties Managed by the Sponsor Group

35.1%

28.7%

OfficeTokyo area

20.0%

12.9%

17.7%

Logistics
Hotel

Gain on sales

Return to SSR
unitholders

Sales proceeds

Enhance SSR’s
portfolio by acquiringproperties for which
SAR has preferential
negotiation rights

Replace
SSR’s assets

Other

Residential

80.0%

Example of the properties
managed by Star Asia Group
Higashiougijima Center (Logistics)

where
future➢ When replacing assets, SAR will seek to secure gains onsales of properties to pursue the maximization ofunitholder value through special dividends• Depending on the circumstances, properties can besold to Star Asia Group for flexible asset replacement• Star Asia Group evaluates SAR’s portfolio as having c.
11.0%(Note 17) in unrealized gains compared to thebook value as of the end of fiscal period ended
January 2019
➢ If Star Asia Asset Management becomes SSR’s asset
manager, there is an option before the merger toreplace SSR’s assets with the properties in (1) to the left

Total Appraised Value: ¥31.3 bn (Note 15)

Retail5.6%➢ It will actively consider replacing assets
management
foreseesadecreaseincompetitiveness6

Commitment of the post-merger growth by Star Asia GroupAs a leading real estate investment firm, Star Asia Group, whose Code of Conduct begins with “Clients/Investors First," has provided
investors with investment opportunities that have exceeded their expectations◼ As we have continuously met and exceeded the expectations of investors for several years, we continue to manage our funds with ahigh degree of investment freedom. We have used these funds to uncover and execute on a wide range of investment opportunities,
including equity and debt backed by real estate, and have generated a successful track record of high returns to investors◼ After the merger between Sakura Sogo REIT and Star Asia Investment Corporation, Star Asia Group will continue to be duly
committed to mobilizing its group resources to support and grow Star Asia’s only REIT
◼ Star Asia Group’s post-merger “same boat” investment in the REIT will be about 13.4% (Note 9); We believe that this significant
ownership demonstrates our perfect alignment with unitholders and incentivizes Star Asia to always maximize value for unitholders◼

Overview of Star Asia Group
Malcolm F. MacLean IV
Managing Partner•••

Taro Masuyama
Managing Partner
Star Asia Group, LLC

Support from Star Asia Group
◼
◼
◼
◼
◼
◼

Fund management
Asset management
Acquisition sourcing
Special situation investing
Warehousing function
Same boat investment function, etc.

Main Offices: Tokyo, New Jersey (US)
Number of officers and employees: 393 people (*)
Star Asia Management Limited is registered as aninvestment advisor with the US Securities and Exchange
Commission*As of March 31, 2019. Including officers and employees of the below entities

Operation

Development◆ Star Asia Sogo Kaihatsu
Co., Ltd.
◼ Property development◆ GSA Star Asia

◆ KACHIKAIHATSU
CO.LTD.

◼ Developing andoperatingstudent
accommodation
properties◼ Hotel development

Unwavering Support from the Star Asia Group, which continues to expands
its business lines
Contribution to external and internal growth of Star Asia Real Estate Investment Corporation

Post Merger Growth7

Implementation of Active Management by SAR- Actual Results, Change in Investment Unit Price, and Growth of Assets from the Time of Listing
Investment

Investment

Investment
in mezzanine
loan debt 3
December 20, 2018

in mezzanine
Implementation of Continuous in mezzanine
loan debt 1
loan debt 2
Active Management
October 25, 2017 December 20, 2017
1st asset
replacement
December 5, 2016

2nd asset
replacement
February 28, 2017

3rd asset
replacement
July 23, 2018

1st follow-on
offering
March 17, 2017
Offer price: ¥96,720

IPO
April 20, 2016(¥)

4th asset
replacement
August 21, 2018

1st acquisition ofsilent partnership
equity interest
November 28, 2018

1st acquisitionof real estate
January 24, 2019

2nd follow-on
offering
January 12, 2018
Offer price: ¥106,724

Investment
in mezzanine
loan debt 4
January 24, 2019

2nd acquisition of silent
partnership equity interest
February 26, 2019

3rd follow-on
offering
August 21, 2018
Offer price: ¥101,985

Proposal for Merger
by Star Asia GroupMay 10, 2019(¥100mn)
1,200

120,000

SAR’s unit price (left)
110,000900

TSE REIT index
SAR’s AUM (right)

Offer price at IPO:
¥100,000

100,000

600

300

90,000End of 1stFP¥61.4bn

80,000
16/4

16/6

16/8

End of 2ndFP¥61.4bn
16/10

16/12

17/2

End of 3rdFP¥75.3bn (Note 13)
17/4

17/6

17/8

17/10

End of 4thFP¥75.3bn
17/12

18/2

End of 5thFP¥86.0bn
18/4

18/6

18/8

End of 6thFP¥101.3bn
18/10

18/12

19/2

End of 7thFP¥102.3bn 0
19/4

19/6

19/8

8

Process of the Merger of SSR and SAR◼ Below is the schedule for the result when the merger between SSR and MIRAI Corporation is rejected following thepassage of the replacement of the executive officer (to Mr. Toru Sugihara) and the asset management company (toStar Asia Investment Management) at the investors' meeting to be held on August 30.

Expected shortest schedule

General Unitholders Meeting
August30, 2019①②

Meeting convened by Lion
Partners (GUM No.1)
Meeting convened by SSR (GUM
No.2)

Negotiation Regarding theConditions of Merger Agreement

10月～
11月頃

Merger Agreement

11月～
12月頃

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

2020年
2月頃

- The merger process between SSR and SAR starts if “Asset managementagreement with Star Asia Investment Management and the appointment of
new executive officer, Toru Sugihara, are approved at GUM No.1” and“Merger between SSR and MIRAI is rejected at GUM No.2”.

- Based on the merger ratio we are proposing, the final merger ratio will be
determined by taking into account the unit price and the expected dividend
per unit after the merger.
- Independent financial advisors will be appointed to ensure fairness toinvestors of both REITs.

- The merger agreement must be approved by the board of directors, which ismade up of 1 executive officer and 2 independent supervisory officers.
- Information on the merger ratio and other conditions will be disclosed toinvestors upon the conclusion of the merger agreement.
- We will allow for a sufficient period of time for the investors to review the
proposal before concluding the merger agreement.

- Both SSR and SAR will hold a unitholders' meeting for the merger approval.
- The approval of the merger will be decided through a special resolution in thesole discretion of the investors.

Merger9

Note1: Calculation is based on the closing price of investment units of Star Asia Investment Corporation (SAR) as of August 5, 2019.
Note2: The appraisal value of the assets in the current portfolio of Sakura Sogo REIT (SSR) is calculated by Star Asia Group, using the simplified appraisal value provided by amajor real estate appraiser.
Note3: Net asset value (NAV) per unit calculated under certain assumptions on the basis of the valuation by Star Asia Group.
Note4: NAV per unit from “Execution of Merger Agreement by and between MIRAI Corporation and Sakura Sogo REIT Investment Corporation - Supplementary Material for thePress Release Dated August 5, 2019” released by SSR
Note5: Post-merger normalized DPU is calculated to be 2,886 yen, based on the estimated profit and loss statement considering the synergies. SSR’s DPU is calculated based on
the DPU of the merged REIT and the merger ratio.
Note6: Calculated by subtracting the SSR's projected FP8 DPU of 2,427 Yen (published on February 14, 2019) from the cruising DPU (the amount equivalent to SSR’s DPU prior tothe merger) of the merged REIT.
Note7: Calculated by Star Asia Group based on the comparison of past results of SSR and SAR.
Note8: Calculated on the assumption that the costs, such as executive compensation and general administrative, will be reduced by the merger.
Note9: Number as of August 5, 2019. Calculated as follow: 97,000 SAR units held by Star Asia Group, plus 16,113 SSR units held by LPGK, multiplied by the merger ratio, divided
by the expected total number of outstanding investment units of the REIT after the merger.
Note10: Percentage of variable rent to total income from the hotel portfolio of the merged REIT.
Note11: Amount determined by adding the price of the properties for which the preferred negotiation price or the desired purchase price are stated in the preferential negotiation
contracts, and the acquisition price that Star Asia Group is to pay for the properties for which the price is not stated in the contracts.
Note12: The yield determined by dividing the sum of NOI estimates, which are calculated by Star Asia Group based on the information of the properties as of June 2019, by the
total amount of preferred negotiation price of each properties.
Note13: The rate of return on each property with priority negotiation rights (1) calculated by subtracting the sum of depreciation costs assumed by Star Asia Group from the above
estimated NOI by "Total amount of preferred negotiation price"Note14: The sum of the appraisal value of the properties. For properties not yet appraised by real estate appraiser, the acquisition price of Star Asia Group is applied.
Note15: Sum of the most recent appraisal values of properties managed by Star Asia Group (excluding properties for which SAR holds preferential negotiation rights).
Note16: Used appraisal value for 1 property not owned at the end of January 2019.
Note17: Calculated by subtracting the portfolio book value at the end of January 2019 from the total estimated acquisition value calculated by Star Asia Group, divided by the bookvalue at the end of January 2019.
Note18: Properties that were scheduled to be transferred at the beginning of the following fiscal year are excluded from the calculation (acquisition price basis).

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

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

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