Securities Code: 3468

October 25, 2017
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 the Acquisition of Mezzanine Loan Debt
-Star Asia Mezzanine Loan Debt Investment Series1 (subordinate bonds)-1

Why Invest in Mezzanine Loan Debt?
■ SAR will invest in mezzanine loan debt as a measure to pursue maximization of unitholder value based on the following ideas:

1

Attractive investment alternative when real estate equity
prices are expensive

2

Increased revenue due to higher after-amortization yieldsof real estate portfolios

3Serves 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 thaninvestment in real estatepursuePursuemaximization
maximizationof unitholder
of unitholdervaluevalue

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SAR Investment in Mezzanine Loan Debt Series1
Structure of Investment in Mezzanine Loan Debt andEffect of Investing in Mezzanine SAR is expecting the following points upon deciding the acquisition of the Subordinate Bonds
 SAR continuously considers the implementation of measures

Haneda Hotel Development GK＜Senior Loan＞＜The Underlying
Asset ＞

Appraisal NOI
181
million yen

differentiating investment
scheme from real estate players,
as a supplemental investment todirect investment, undercompetitive market circumstance
Effective use of cash on hand(cash and deposits)

1,840
million yenRELIEF Premium
HanedaAppraisal Value
4,080
million yen

Effect of investing in Mezzanine

Effect of increase in DPU (forecast)Third PartyMezzanine
SubordinateBonds
301millionyen

SARMezzanine
Subordinate Bonds*： Effect of increase in DPU (forecast) is calculated as bellow
Interest／Total number of investment units issued（414,300unit)
However, there is a risk of early repayment before final redemption date

3M TIBOR +5.0%

400million yen
use cash on hand
Approximately+24*

Condition of investment in mezzanine loan debt
(subordinate bonds)
 LTV：62.3%
400 million yen ：SAR Mezzanine Subordinate Bonds
301 million yen ：Third Party Mezzanine Subordinate Bonds
1,840 million yen ：Senior Loan
Total 2,541 million yen
The percentage of Appraisal value of 4,080million yen is 62.3%

400million yen＜Equity＞
Silent partnership investment, etc.

Expected return： The risk of principal loss is estimated to be low

The Underlying Asset is Business Hotel at Ota-ku, Tokyo Meeting the investment criteria of SAR
Final redemption date：Oct 31st, 2023
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Effectiveness of Investments in Mezzanine Loan Debt
Creation of new investment opportunities corresponding to the real estate market states■ Investments in mezzanine loan debt that can diversify revenue-generating opportunities by avoiding competition are considered to bean effective method to pursue maximization of unitholder value under competitive real estate market circumstance
HighEffectiveness of investments in mezzanine
loan debt

Competitive real estate market
Diversification of revenue-generating
opportunities through investment
in mezzanine loan debt

Competitive environment for acquiring real estate■ Secured revenue surpassing the afteramortization yield of the real estate
portfolio under competitive real estatemarket circumstance■ Depreciation
expenses
werenot
deducted from the interest income andthe amount of distributable profits
increased■ Effective use of cash on hand

Due to intensification ofcompetitive environment■ Decrease in acquisition cap rate
■ Expansion of needs formezzanine loans

Less competitive real estate market
Securement of profitability throughdirect investments in actual real estate■ Acquisition cap rate increased
due to the decrease in real estate
price and acquisition of higher
profitability became possible due
to direct investments in actual realestate

Due to the relaxation ofcompetitive environment■ Increase in acquisition cap rate
■ Expansion of acquisition
opportunity of real estate

LowTime• Supplemental investment to direct investment• When the competitive environment is severe,
it may be difficult to acquire properties thatsatisfy SAR’s investment criteria and which
SAR wants to acquire at the preferred price.
• Yield• Secured revenue surpassing the afteramortization yield of the real estate portfolio
under an environment where competition foracquisition is intensifying• The yield based on mezzanine loan debts
with LTV of 85% is 4.1% when setting theappraised value as 100 and the NOI yield as
3.5%• Having a lower risk than equity•Repayment of principal and interest issubordinated to senior loan and superior
to equity•Even if collateral assets’ value is lost,
especially in case of repayment ofprincipal, equity is lost initially, and thenprincipal of mezzanine loan debt begins
to be lost4

Risk and Return of Investment in Mezzanine Loan Debt
Procured funds and risk/return in properties owned by SPC (Concept)■ Investment in mezzanine loan debt is considered as an investment with middle risk and middle return. SAR will invest in mezzanine
debt to be deemed by the Asset Management Company as investment with higher possibility of repayment.
HighEquity investment■ Risk:Middle to high

■ Return: Middle to highMezzanine loan debts■ Players: Large in number■Repayment priority: Lowest■ Risk: Middle■ Return: Middle■ Players: Limited (Leasing companies,
non-banks, life and non-life
insurance companies, etc.)■ Repayment priority: Lower than seniorloans

ReturnSenior loan debts■ Risk: Low■ Return: Low■ Players: Banks, Trust banks, Life
insurance companies,etc.
■ Repayment priority: TopLow

LowRiskHigh5

What is Mezzanine Loan Debt?
General real estate finance structure
utilizing mezzanine loans

SAR’s ideas on investments in mezzanine loan debt (investment criteria)
SAR’s ideas on investments in mezzanine loan debt

Property holding by SPC

Senior loan

Collateralassets(Meeting theinvestment
criteria of SAR)

MezzanineloanEquity■ Mezzanine loans are loans borrowed when theamount of senior loan is less than the preferredborrowing amount and when equity investors (inproperties) seek to increase the efficiency ofinvestments■ As for repayment priority, mezzanine loans arelower than senior debt, also called senior loans,but are prioritized over equity■ The interest rate of mezzanine loans is higher
than that of senior loans

Conditions of investment in mezzanine loan debt

Upper limit ofLTV:
85%
Calculated bydividing theamount includingmezzanine loanand senior debt by
the appraisal value
to be obtained bySAR

1. SAR will invest in mezzanine loan debt which is financed to the SPC
holding only real estates, and the repayment resource should be
limited to the property and its cash flow
2. Regardless of the form, such as loans (including the real estate
beneficiary interests in trust) and social bonds, SAR will invest only inmezzanine loan debt which is regarded as a loan with certaininterests
3. The repayment priority is subordinated to senior loan and prior toequity (silent partnership investment, etc.)

Investment criteria■ Collateral real estate should meet the investment criteria (location, asset
type, price, etc.) of SAR

In principle,equity investors
should not be
parties thatshare a special
interest with SAR■ The balance of investments in debts such as mezzanine loans should bemaintained at 5% or less of total assets of SAR at the end of the immediately
preceding fiscal period. (However, it will be separate consideration will be given
when there is a large fluctuation in total assets such as through acquisition andsale of properties during the period.)■ Upper limit of LTV:85%
LTV= (Amount including mezzanine loans that are the investment target of SARand senior debts) ÷ (appraised value to be obtained by SAR)
■ Interest rate: 4% or more in principle
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Continuing Actions for Maximization of Unitholder Value and Changein Investment Unit Price
Measures conducted since IPO and unitholder return■ SAR has proactively implemented measures aiming to maximize unitholder value and has progressed differentiation from existing J-REITs. SAR
considers investments in mezzanine loan debt as a measure contributing to the maximization of unitholder value in the current real estate market
and therefore decided to conduct such investments in J-REITs for the first time. SAR will continue to proactively maximize unitholder value and aim
to increase the investment unit price.
Amount of return ofunitholder value

Urban Park Gokokuji(Acquisition)

Amount per unit:

368 yenMarch 17, 2017
Announcement of “Notice Concerning Issuance of New
Investment Units and Secondary Offering of Investment Units”
And “Notice Concerning Acquisition of Real Estate BeneficiaryInterests in Trust and Lease Contract with New Tenants”
105,000

Implementing various measures forunitholder return since our listing

Gain on sale: 150 million yen
Asset replacement through PO

Amount of return of unitholder
value (schedule)

Total:
Baraki Logistics, etc.
(Acquisition)

Gain on sale: 152 million yen(schedule)

Acquisition of newincome opportunity

Mezzanine loan debt
400 million yen
Interest rate: 5.0%

February 28, 2017
Announcement of “NoticeIssuance price Concerning Acquisition
upon listing:and Transfer of Real
Estate Beneficiary
100,000 yen
Interests in Trust”

100,000

152 million yen

Amount per unit:
Oak Minami-Azabu
Building (Sale)

TSE
REIT index *1 ※1
東証リート指数

110,000

Total: 150 million yen
Urban Park
Yoyogikoen (Sale)

Investment
unit price (yen)
投資口価格（円）(yen)

Asset replacement

3,680 yenAmount of internal reserve (schedule)

Total: 110 million yen
Amount per unit: 266 yen

95,00090,000Effect of increase in DPU(forecast)approx. +24 yen *85,000(+0.4%～+0.5%)

December 5, 2016
Announcement of “Notice Concerning
Acquisition and Transfer of Real Estate
Beneficiary Interests in Trust”* refer to page3
80,000Continue to consider
various for maximizationof unitholder value(Listing date)
April 20, 2016(End of 1stfiscal period)
July 31, 2017(End of 2ndfiscal period)
January 31, 2017(End of 3rdfiscal period )July 31, 2017

*1: TSE REIT index is relativized based on the closing price of SAR’s investment units as of April 20, 20167

Disclaimer• This document has not been prepared for the purpose of solicitation of acquisitions of investment securities and conclusion of contract for
financial instruments transaction. We caution investors to undertake investment at their own decision and responsibility.
• A loss may occur due to the fluctuation in the price of real estate investment securities caused by fluctuations in the real estate market
price, the price of real estate investment trust securities market and other securities markets, the level of interest rate as well as priceand appraised value of real estate that are backing investment securities. A loss may occur due to the fluctuation in the price of realestate investment securities when there is a change in the situation concerning the business and property of Star Asia Investment
Corporation, the issuer of real estate investment securities, and Star Asia Investment Management Co., Ltd., the Asset Management
Company managing those assets.

• This document is neither a governmental and ministerial ordinance based on the Financial Instruments and Exchange Act and the Act on
Investment Trusts and Investment Corporations nor a disclosure material and management report based on the rules of the Tokyo Stock
Exchange and other related rules.
• The information provided in this document is indicated based on the information held by Star Asia Investment Management Co., Ltd. asof the date of this document, but it does not guarantee its accuracy, integrity, certainty, validity and fairness. Furthermore, please notethat such information may be changed or deleted without any prior notice.

• This document includes descriptions based on the forecast of the future as of now based on certain assumptions. Such descriptions areimpacted by the change in future assumptions, occurrence of risks or fluctuations in uncertain factors, and do not guarantee the futurefinancial results of Asia Investment Management Co., Ltd.
• Copying, reprinting or any other use of the contents of this document without prior approval is strictly prohibited.

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