[Translation]
Securities Code: 8984
June 2, 2016
To our unitholders
Daiwa House Residential Investment Corporation
2-4-8, Nagatacho, Chiyoda-ku, Tokyo
Jiro Kawanishi, Executive Director

Notice of Convocation of the 10th General Meeting of Unitholders
We hereby give notice of and invite you to attend the 10th General Meeting of Unitholders(the “General Meeting of Unitholders”) of Daiwa House Residential Investment Corporation(“DHI”), which will be held as set out below.
If you are unable to attend, you may exercise your voting rights with a voting form. In
that case, please consider the “Reference Documents for the General Meeting ofUnitholders” set out below, indicate your approval or disapproval on the enclosed voting
form, and then return the form so that it arrives to us by no later than 6:00 P.M. on June
16, 2016 (Thursday).
In accordance with Article 93, Paragraph 1 of the Act on Investment Trusts and Investment
Corporations (Act No. 198 of 1951, as amended) (the “Investment Trusts Act”), DHI has set
forth the provisions for “deemed approval” in Article 15 of DHI’s current Articles ofIncorporation. Therefore, please note that if you are unable to attend the General
Meeting of Unitholders and do not exercise your voting rights with the voting form, youwill be deemed to have approved each of the proposals being discussed at the Meeting,and the number of voting rights you hold will be counted in the number of voting rightsof unitholders present.
(Excerpt from DHI’s Articles of Incorporation)
Article 15

Deemed Approval

1.

If a unitholder is not present at a general meeting of unitholders and does not exercise
its voting rights, the unitholder will be deemed to have approved the proposals
submitted to the general meeting of unitholders (excluding, if multiple proposals are
submitted and such proposals conflict with each other, any of such proposals).

2.

The number of voting rights represented by the unitholders who are deemed to haveapproved the proposals under the preceding paragraph shall be included in the numberof voting rights represented by the unitholders present.

1Meeting Details
1.

Time and Date: June 17, 2016 (Friday) 10:00 A.M.

2.

Location: “Room J” Bellsalle Tokyo Nihombashi 4F, Tokyo Nihombashi Tower,
2-7-1 Nihombashi, Chuo-ku, Tokyo(Please see “the “Map to the 10th General Meeting of Unitholders”
at the end of this notice.)3.

Matters for the General Meeting of Unitholders
Matters to be Resolved
Proposal No. 1: Approval of the Absorption-Type Merger Agreement with
Daiwa House REIT Investment Corporation
Proposal No. 2: Partial Amendments to the Articles of Incorporation

N.B.
(i)

On the day of the Meeting, please submit the enclosed voting form to the reception desk
at the meeting venue.

(ii)

It is possible for another unitholder who holds voting rights to attend the General
Meeting of Unitholders as a proxy. If a proxy will attend in your place, please submit
a document evidencing the authority of the proxy together with the voting form to thereception desk at the meeting venue.

(iii) The method to make known any amendments to the matters in the Reference
Documents for the General Meeting of Unitholders
If it becomes necessary to amend matters in the Reference Documents for the General
Meeting of Unitholders during the period until the day prior to the General Meeting ofUnitholders, the amended matters will be posted on DHI’s website at
http://www.daiwahouse-resi-reit.co.jp/.
(iv) After the closing of the General Meeting of Unitholders, a management performancebriefing will be held on the same day by DHI’s asset manager, Daiwa House AssetManagement Co., Ltd. (the “Asset Manager”) at the same venue. DHI kindly asks thatyou also attend the briefing.

2

Reference Documents for the General Meeting of Unitholders
Proposals and Reference Matters
Proposal No.1
1.

Approval of the Absorption-Type Merger Agreement with Daiwa HouseREIT Investment Corporation

Reasons for the Absorption-Type Merger

As of April 15, 2016, DHI has agreed to implement an absorption-type merger (the “Merger”)
with DHI as the surviving corporation and Daiwa House REIT Investment Corporation(“DHR”; collectively with DHI, the “Investment Corporations”) as the absorbed corporation,with the effective date being September 1, 2016, and has executed a merger agreement (the“Merger Agreement”) with respect to the Merger.
The asset managers of the Investment Corporations—DHAM, the asset manager for DHI, andDaiwa House REIT Management Co., Ltd. (“DHRM”), the asset manager for DHR—are bothwholly-owned subsidiaries of Daiwa House Industry Co., Ltd. (“Daiwa House Industry”), andhave worked to develop their own track records in asset management with the support of the
Daiwa House Group (consisting of Daiwa House Industry and its 142 consolidated
subsidiaries, 2 unconsolidated subsidiaries, 25 equity-method affiliates and 2
non-equity-method affiliates, as of March 31, 2016; the same hereinafter).
DHI first listed on the Tokyo Stock Exchange (the “TSE”) REIT market in March 2006 as
BLife Investment Corporation, dealing in residential and commercial properties. It beganwith a portfolio of 14 properties with a total acquisition price of JPY 32.0 billion, and hassince continued to operate for 20 fiscal periods. In December 2008, Daiwa House Industry
became its main sponsor, and on April 1, 2010 it absorbed New City Residence Investment
Corporation. DHI adopted its current trade name on December 1, 2011, and amended its
articles of incorporation to specialize in residential investment. With its diversified
residential portfolio and stable cash flow, DHI has been able to grow steadily to date bycombining property acquisitions aided by the continual support of the Daiwa House Group
with proactive property acquisitions from outside the group, and has used its retained earnings
to actively update its property portfolio. In the ten years since it first listed on the TSE,
DHI’s investments have grown to 142 properties with a total acquisition price of JPY 256.3
billion.
DHR first listed on the TSE REIT market in November 2012 as an investment corporation
dealing in logistics and commercial properties, specifically high-performance logistics
properties and specialty retail complexes, with a portfolio consisting of 24 properties with a
total acquisition price of JPY 114.5 billion. DHR has continued to operate for 7 fiscal
periods since then, and its investments have grown to 41 properties with a total acquisition
price of JPY 203.7 billion in the three years since its listing as DHR works to secure stable
cash flow through long-term fixed contracts and grow externally with property acquisitions
focusing on the Daiwa House Group’s strong pipeline.
The Investment Corporations have used their individual strengths to work towards securing
stable income over the medium to long term and steadily growing their assets, with the aim ofsustainably increasing unitholder value. However, each faces its own challenges: DHI’s
LTV ratio remains high, and its portfolio specialized in residential properties offers limited3

opportunities for internal growth, while DHR has relatively limited available strategies for
efficiently swapping out investments and achieving internal growth at its positioning in thelogistics REIT sector and its current portfolio size. It was with this in mind that theInvestment Corporations first agreed to begin negotiations for a merger as one option foraddressing these challenges and promoting the future growth of both corporations. After
careful deliberations, the Investment Corporations determined that the Merger was the mosteffective strategy for maximizing unitholder value based on secured cash flow and improved
and stable distribution through solid growth of the portfolio. As such, the Investment
Corporations have executed the Merger Agreement. The Investment Corporations expect thefollowing to result from the Merger: (i) enhanced external growth potential and further
internal growth opportunities through the shift to a diversified REIT, (ii) improvement of theposition in the J-REIT market and asset-management flexibility through scale enhancement,and (iii) acceleration of growth leveraging the value chain of the Daiwa House Group’s
integrated capabilities, among other positive effects.
The surviving corporation after the Merger will shift to a diversified REIT that invests in new
types of properties, such as hotels, office buildings, in addition to those that the Investment
Corporations have dealt in to date. Its policy will be to leverage the Daiwa House Group’s
integrated capabilities to enhance its growth potential, improve the profitability and quality of
its portfolio, and achieve sustainable external growth and stable distributions.
We humbly request the understanding of our unitholders with respect to the purpose of the
Merger, and ask that you approve the Merger Agreement.
2.

Outline of the Absorption-Type Merger Agreement

As described in Schedule 1.
3.

Outline of Matters Listed in Article 194(1)(i) through (iii) of Ordinance for
Enforcement of the Act on Investment Trusts and Investment Corporations(1) Matters concerning the adequacy of the provision for matters concerning the number ofinvestment units of the surviving corporation to be delivered upon the absorption-typemerger by the surviving corporation to the unitholders of the absorbed corporation inlieu of the investment units thereof, or the method for calculating such number ofinvestment units and the total amount of capital of the surviving corporation, and theallotment of investment units of the surviving corporation made to the unitholders of theabsorbed corporation(i) Matters concerning the adequacy of the provision for matters concerning the numberof investment units of the surviving corporation to be delivered upon theabsorption-type merger by the surviving corporation to the unitholders of theabsorbed corporation in lieu of the investment units thereof, or the method for
calculating such number of investment units and the allotment of investment units ofthe surviving corporation made to the unitholders of the absorbed corporation
A. The number of investment units of DHI or the amount of cash allocated to each
investment unit of DHR

4

DHI(surviving corporation)

DHR(absorbed corporation)

1

2.2

Allotment of investment
units under merger

Note 1: Number of new investment units of DHI to be issued upon the
Merger: 771,540 units (planned)
Note 2: Fractions less than one unit will be generated for the number ofinvestment units to be issued through the allotment, to the unitholders
of DHR, of 2.2 units of DHI per unit of DHR. Those fractional units
less than one unit will be sold through a market transaction inaccordance with statutory provisions, and the proceeds from the salewill be delivered to the unitholders who hold fractions in proportion to
the size of their holdings of fractions.
Note 3: In addition to the above investment units, in lieu of cash distributions
to the unitholders of DHR for DHR’s fiscal period ending on the day
immediately preceding the effective date of the Merger, DHI plans tomake a payment upon the merger that will be equivalent to the cash
distributions of DHR for that fiscal period (a merger payment equal tothe distributable profit amount of DHR as of the day immediately
preceding the effective date of the Merger divided by the number ofinvestment units after deducting the number of investment units heldby unitholders other than the Allotted Unitholders (defined below) of
DHR from the number of outstanding investment units of DHR as ofthe day immediately preceding the effective date of the Merger), to its
unitholders (excluding unitholders who have requested the purchase of
their investment units in accordance with Article 149-3 of theInvestment Trusts Act (the “Allotted Unitholders”)) entered in orrecorded on the final unitholders register of DHR as of the day
immediately preceding the effective date of the Merger, within areasonable period after the effective date of the Merger.
B. Basis of Calculation
For the purpose of determining the merger ratio to be adopted in the Merger,
and with a view to ensuring fairness, DHI and DHR each appointed afinancial advisor for the Merger and requested each financial advisor toperform a financial analysis of the merger ratio. DHI appointed Nomura
Securities Co., Ltd. (“Nomura Securities”), and DHR appointed Mitsubishi
UFJ Morgan Stanley Securities Co., Ltd. (“Mitsubishi UFJ Morgan Stanley
Securities”).
Nomura Securities
Nomura Securities performed a financial analysis of the merger ratio foreach of DHI and DHR, adopting (i) average market investment unit priceanalysis, as investment units of both DHI and DHR are listed on the TSE
and the market investment unit price is available, (ii) comparable similar
investment corporation analysis, as DHI and DHR are comparable to several

5listed investment corporations and the investment unit value may beanalogically inferred by comparing them thereto, (iii) discounted cash flow
analysis (“DCF Analysis”) in order to reflect future business activity in thefinancial analysis, and (iv) the adjusted net asset value approach, in order toreflect the effect on net assets of changes in market value andexchangeability into cash. A summary of the financial analysis performedby Nomura Securities is as follows.
Financial Analysis
Approach
Average market
investment unit priceanalysis
Comparable similar
investment
corporation analysis
DCF Analysis
Adjusted net asset
value approach

DHI

DHR

1

1.98 - 2.10

1

2.12 - 2.50

11

2.10 - 2.51
2.11

Concerning the average market investment unit price analysis, the financial
analysis date was set at April 14, 2016, and the closing prices on thefinancial analysis date, and the simple averages of closing prices for the
one-week, one-month, three-month, and six-month periods up to thefinancial analysis date were employed. Please refer to Note 1 below for
more detailed information regarding the assumptions and disclaimers for the
analysis of Nomura Securities.
In the future profit plan of DHI and DHR which Nomura Securities referred
to as the basis for the DCF Analysis, there is no fiscal period in which a
considerable increase or decrease in profits is expected.
Mitsubishi UFJ Morgan Stanley Securities
Mitsubishi UFJ Morgan Stanley Securities conducted its analysis of themerger ratio for each of DHI and DHR, comprehensively taking into
consideration the analysis results based on (i) investment unit price analysis
as a method of analysis based on the investment unit price formed in the
securities market, as investment units of DHI and DHR are listed on theTSE, (ii) analysis by comparison to similar investment corporations as amethod of analysis based on the investment unit value of other listed
investment corporations conducting business similar to that of DHI and
DHR, (iii) the dividend discount model as a method of analysis ofinvestment unit value based on dividends which unitholders of DHI andDHR are expected to receive in the future, (iv) DCF Analysis as a primarymethod of analysis of investment unit value based on the mid-to-long term
future business activities of DHI and DHR, and (v) the net asset value
approach as a method of static analysis of investment unit value, whichreflects the market value of assets held by DHI and DHR. A summary of
the analysis performed by Mitsubishi UFJ Morgan Stanley Securities is asfollows.

6

Financial Analysis
Approach
Investment unit priceanalysisAnalysis bycomparison to similar
investment
corporations
Dividend discountmodel
DCF Analysis
Net asset value
approach

DHI

DHR

1

1.79 - 2.14

1

2.10 - 2.31

1

1.97 - 1.98

11

2.14 - 2.54
2.16

Concerning the investment unit price analysis, taking into account the recent
market trading trends of the investment units of DHI and DHR, the financial
analysis date was set at April 14, 2016 and the merger ratio was analyzed
based on the closing prices for one-month, three-month, six-month, andtwelve-month periods up to the financial analysis date. Please refer toNote 2 below for more detailed information regarding the assumptions anddisclaimers for the analyses of Mitsubishi UFJ Morgan Stanley Securities.
In the future profit plan of DHI and DHR which Mitsubishi UFJ Morgan
Stanley Securities referred to as the basis for the DCF Analysis, there is no
fiscal period in which a considerable increase or decrease in profits is
expected.
Note 1
Nomura Securities has generally used information provided by DHI andDHR and publicly available information in order to conduct the merger ratio
analysis.
Nomura Securities has not conducted any independent
verification of the accuracy or completeness of the materials andinformation, but rather has assumed that all such materials and information
are accurate and complete. In addition, Nomura Securities has not madeany independent valuation, appraisal, or assessment of the assets or
liabilities (including off-balance-sheet assets and liabilities and any othercontingent liabilities) of DHI and DHR, nor has Nomura Securities
requested any such valuation, appraisal, or assessment from a third-party
institution. Further, Nomura Securities has assumed that the financial
projections (including profit plan and other information) provided by DHI
and DHR have been prepared in a reasonable manner on the basis of thebest estimates and judgment currently available by the management of eachof DHI and DHR.
Note 2In analyzing the above merger ratio, Mitsubishi UFJ Morgan Stanley
Securities has relied on the information provided by DHI and DHR andpublicly available information assuming that all such materials andinformation are accurate and complete, without independent verification of
the accuracy or completeness of those materials and information. In
addition, Mitsubishi UFJ Morgan Stanley Securities did not make any

7independent valuation, appraisal, or assessment of the assets or liabilities(including off-balance-sheet assets and liabilities and any other contingent
liabilities) of DHI and DHR, nor has Mitsubishi UFJ Morgan Stanley
Securities requested any such appraisal or assessment from a third-party
institution. Further, Mitsubishi UFJ Morgan Stanley Securities has
assumed that the financial projections provided by DHI and DHR have been
prepared in a reasonable manner to reflect the best currently available
estimates and judgments by the management of each of DHI and DHR.
The analysis of the above merger ratio by Mitsubishi UFJ Morgan Stanley
Securities was based on the above information that was available as of April
14, 2016.
Mitsubishi UFJ Morgan Stanley Securities has prepared its analysis solely
for the board of directors of DHR for the purpose of deliberating the Merger
and the analysis may not be definitively relied upon or used for any otherpurpose or by any other third party. In addition, Mitsubishi UFJ Morgan
Stanley Securities will not provide any opinion or recommendation on
voting by any of the unitholders of DHI or DHR with respect to the Merger
or any other proposed transaction.
C. Process of Calculation
DHI and DHR determined the above-mentioned merger ratio to be appropriate
and executed the Merger Agreement after comprehensively taking into accountthe financial results, status of assets and liabilities, future prospects of the business,
synergies to be created by the Merger, and the results of the financial analysis
conducted by Nomura Securities and Mitsubishi UFJ Morgan Stanley Securities(the financial advisors for DHI and DHR), and discussing and negotiating at
length.
D. Relationship with the Financial Advisors
Neither Nomura Securities nor Mitsubishi UFJ Morgan Stanley Securities falls
under the definition of an “Affiliated Party” of DHI or DHR as set forth in Article
67(4) of the Ordinance on Accountings of Investment Corporations (Cabinet
Office Ordinance No. 47 of 2006, as amended) (the “Ordinance on Accountings ofInvestment Corporations”) and has any significant interest to note in connection
with the Merger.
E. Measures to Ensure Fairnessa.

Measures to Ensure Fairness in the Course of Considering Pros and Cons of
the Merger and the Merger Ratio
In the course of considering the Merger, each of the Investment
Corporations has reported, in a timely manner, the progress of deliberations
to its board of directors, which consists of one executive director and two
supervisory directors, whose independence from any asset managementcompany has been ensured under the Investment Trusts Act. Further,
important matters to be considered have been deliberated and approved by
the board of directors of DHI and DHR.

8

Furthermore, DHI has appointed Mori Hamada & Matsumoto and DHR has
appointed Anderson Mori & Tomotsune, as legal advisors for the Merger,
and DHI and DHR have received advice on matters including theprocedures for the Merger, and the method and procedures for making
decisions.
b.

Measures to Ensure Fairness in Determination of the Merger Ratio
As described in items B. through D. above, DHI and DHR requested theirrespective financial advisors to conduct a financial analysis regarding themerger ratio. In determining the appropriate merger ratio, DHI and DHR
considered various factors including the financial analyses conducted bytheir respective financial advisors.
In order to ensure the fairness of the Merger, DHI has retained Nomura
Securities, which is an independent third party financial advisor, for its
unitholders, and obtained a merger ratio analysis report, in which analysesof the allotment of investment units under the Merger were conducted froma financial viewpoint under certain assumptions. Given the above, theboard of directors of DHI has determined that measures for ensuring thefairness of the Merger were adequately implemented.
In order to ensure the fairness of the Merger, DHR has retained Mitsubishi
UFJ Morgan Stanley Securities, which is an independent third party
financial advisor, for its unitholders, and obtained a merger ratio analysis
report, in which analyses of the allotment of investment units under the
Merger were conducted from a financial viewpoint under certain
assumptions. Given the above, the board of directors of DHR has
determined that measures for ensuring the fairness of the Merger wereadequately implemented.
It is to be noted that neither DHI nor DHR obtained a fairness opinion fromthe respective financial advisor to the effect that the merger ratio isfinancially suitable for unitholders of the Investment Corporations.

c.

Using an Independent Financial Advisor
In order to receive advice in deliberating the Merger and other support in
implementing the Merger, DHI used Daiwa Securities Co. Ltd. (“Daiwa
Securities”) as an independent financial advisor in addition to the
independent third party financial advisor mentioned in b. above to which
DHI requested the calculation of the merger ratio. It is to be noted that
DHI did not obtain a merger ratio analysis report or a fairness opinion from
Daiwa Securities.

(ii)

Matters related to the adequacy of provisions regarding matters related to the total
amount of capital of the surviving corporation
The total amount of capital and amount of capital surplus of DHI are to be
increased in the Merger as follows; provided, however, that DHI and DHR may
change those amounts upon agreement through consultation considering the9financial condition of DHI and DHR on the day immediately preceding theeffective date.
A. Unitholders’ capital:

0 yen

B. Capital surplus: the amount obtained by deducting the amount set out in A.
above from the amount of increase or decrease in the unitholders’ equity, etc., set
out in Article 22(1) of the Ordinance on Accountings of Investment Corporations(2)Matters related to the absorbed corporation(i)

Details of financial statements, asset management reports, and financial
statements of cash distributions pertaining to the most recent fiscal period
As described in Schedule 2.

(ii)

Details of disposition of material assets, assumption of significant obligations, or
any other event materially affecting the status of an investment corporation’s
assets that has occurred after the last day of the most recent fiscal perioda.

As of April 15, 2016, DHRM has executed with DHAM, a merger
agreement to implement an absorption-type merger with DHAM as thesurviving company and DHRM as the absorbed company, subject to thecondition precedent that the Merger takes effect, effective as of September 1,
2016.

b.

As of April 15, 2016, DHR has executed a purchase agreement with Daiwa
House Industry (and with Daiwa House Industry and DO Shin-toshin
Development Tokutei Mokuteki Kaisha with respect to Naha Shintoshin
Center Building (Daiwa Roynet Hotel Naha-Omoromachi)) for two logistics
properties (D Project Hibiki Nada and D Project Morioka II), onecommercial property (Sports Depo Golf 5 Ogura Higashi Inter Store), andone multi-purpose property (office, hotel and commercial) (Naha Shintoshin
Center Building (Daiwa Roynet Hotel Naha-Omoromachi)) to be acquiredon September 28, 2016; provided, however, that assets to be acquired by
DHR (i.e. DHI after the Merger) will be acquired on the condition that theMerger takes effect and the partial amendments to DHI’s articles ofincorporation described in Proposal No. 2 becomes effective under thepurchase agreement.

(3)Matters related to the surviving corporation(i)

Details of disposition of material assets, assumption of significant obligations, or
any other event materially affecting the status of an investment corporation’s
assets that has occurred since the last day of the most recent fiscal periodaAs of April 15, 2016, DHAM has executed with DHRM, a merger
agreement to implement an absorption-type merger with DHAM as thesurviving company and DHRM as the absorbed corporation, subject to thecondition precedent that the Merger takes effect, effective as of September 1,
2016.

b.

As of April 15, 2016, DHI has executed a purchase agreement with Daiwa

10

House Industry for two residential properties (Castalia Ningyocho III (Note)and Royal Parks Umejima) to be acquired on September 28, 2016; provided,
however, that assets to be acquired by DHI will be acquired on the condition
that the Merger takes effect and the partial amendments to DHI’s articles ofincorporation described in Proposal No. 2 becomes effective under thepurchase agreement.
Note: The current name of the residential property is Roygent Ningyocho,
but we use this name in light of the fact that the name is planned to bechanged to Castalia Ningyocho III after the acquisition of the property
by the surviving corporation after the Merger.
c.

As of April 15, 2016, DHI executed a new basic agreement on pipeline
support, etc. (the “New Basic Agreement”) between DHI, DHAM, andDaiwa House Industry that will take effect as of the effective date of the
Merger subject to the Merger taking effect. Upon the effectiveness of the
New Basic Agreement, the existing basic agreement on pipeline support, etc.
(the “DHI Existing Basic Agreement”) between these parties will be expired.
The New Basic Agreement is an agreement that integrates the substantive
content of the DHI Existing Basic Agreement and the memorandum on
pipeline support executed by DHR and DHRM with Daiwa House Industry,
and that also covers hotels, offices, and healthcare facilities which are
additional targets of pipeline support as a result of the expansion of
investment targets of the surviving corporation resulting from the Merger.

d.

DHI repaid borrowed funds amounting to 7,600 million yen which becamedue and payable on March 31, 2016, and borrowed funds for refinancing
from the following institutions.
Amount ofborrowed
funds(unit:
millionyen)

LenderSumitomo Mitsui Trust
Bank, LimitedAozora Bank, Ltd.
The Norinchukin Bank
Chiba Bank, Ltd.
Sumitomo Mitsui Banking
Corporation
Mizuho Bank, Ltd.
The Shizuoka Bank, Ltd.
The Bank of Fukuoka, Ltd.
e.

Interest
rate

Drawdown DateRepayment DateRepayment Method

Collateral

Base rate(the JBA
Japanese
Yen
7,600
TIBOR
(1
month))+0.20%

March
31, 2016

March 29,2019

Lump-sum
repayment

Nocollateraland noguarantee

On April 15, 2016, DHI executed an amended agreement to extend therepayment date for the short-term borrowed funds amounting to 10,000
million yen due and payable on April 28, 2016.

11

The terms of the borrowing after the amendment thereby are as follows:

LenderMizuho Bank, Ltd.
The Bank ofTokyo-Mitsubishi UFJ, Ltd.
Sumitomo Mitsui Trust Bank,
LimitedSumitomo Mitsui Banking
Corporation

Amount ofborrowed
funds (unit:
million yen)
3,250

Interest rate

Drawd
own
Date

Repa Repay
yme ment
Collateral
nt
Metho
Date
d

Base rate (theJBA Japanese
Yen TIBOR
1,750 (1 month))+0.175%
1,750

May
1,
2015

April
28,
2017

3,250

12

LumpNosum
collateralrepay
and noment guarantee

Proposal No. 2 Partial Amendments to the Articles of Incorporation
1.

Reasons for the Amendments(1)

To change the trade name due to the shift to a diversified REIT upon the merger (the“Merger”) of DHI and Daiwa House REIT Investment Corporation (“DHR”) (relating to
Article 1 of the proposed amendments)(2)

To increase the total number of investment units authorized to be issued in preparation
for providing smooth financing through issuance of additional investment units inconnection with the future business expansion of DHI as it is expected that the total
number of DHI’s investment units issued and outstanding will increase and therefor thenumber of investment units available to DHI from among the total number ofinvestment units authorized to be issued will decrease as a result of the Merger (relating
to Article 5, Paragraph 1 of the proposed amendments).

(3)

To add logistics facilities, commercial facilities, and hotels as targets for investment by
DHI and to change the main regions for investment due to the shift to a diversified
REIT upon the Merger, where DHI has to date mainly invested in residential property(relating to Article 30, Paragraph 1 of the proposed amendments).

(4)

To add specified assets (meaning those provided for in Article 3 of the Order for
Enforcement of the Act on Investment Trusts and Investment Corporations (Cabinet
Order No. 480 of 2000, as amended)) to be managed by DHI following the Merger(relating to Article 31, Paragraph 4, Item 7 of the proposed amendments and Paragraph
5, Item 2, Item 4 and Item 5 of the proposed amendments).

(5)With respect to the asset management fees payable to the Asset Manager, to (i) deduct
the amount equivalent to unamortized positive goodwill from the definition of the total
amount of assets in the asset management fee 1 for the purpose of avoiding any effecton the amount of fees that might be caused by the positive goodwill that is expected tobe generated by the Merger, and (ii) amend the provisions in the acquisition and salefees to adjust the maximum rate applicable to the calculation of acquisition and sale fees
to match that of DHR, which is lower than that of DHI, in order to establish an
appropriate fee level after the Merger that is consistent with the interests of theunitholders, taking into consideration a balance between such acquisition and sale fees
and the fee level before the Merger (relating to the Attachment).

(6)

In addition to the above, to adjust the number of provisions in preparation for theestablishment of new provisions and to delete unnecessary provisions, change andclarify expressions, or modify the wording of the Articles of Incorporation of DHI for
the purpose of the Merger.

(7)

To specify in the supplementary provisions that the amendments in (1) through (6)above are subject to the Merger taking effect (relating to Article 41 of the proposed
amendments).

13

2.

Content of the Amendments

The details of the amendments are as described below.
(The amended parts are underlined.)
Current Articles of Incorporation

Proposed Amendments

Article 1 Corporate Name
The name of the investment corporation(the “Investment Corporation”) is
Daiwa House Residential Investment
Corporation and is expressed as “Daiwa
House
Residential
Investment
Corporation” in English.

Article 1 Corporate Name
The name of the investment corporation(the “Investment Corporation”) is
Daiwa
House
REIT
Investment
Corporation and is expressed as “Daiwa
House REIT Investment Corporation” inEnglish.

Article 5 Total Number of Investment Article 5 Total Number of Investment
Units Authorized to be Issued
Units Authorized to be Issued
5.1
The total number of units 5.1
The total number of units
authorized to be issued by theauthorized to be issued by theInvestment
Corporationis
Investment
Corporationis
4,000,000.
8,000,000.
Paragraphs 5.2 and 5.3
Paragraphs 5.2 and 5.3(Omitted)(Same as Current Provisions)
Article 16 Record Date
Article 16 Record Date
16.1
If the Investment Corporation 16.1
If the Investment Corporation
convenes the general meeting of
convenes the general meeting ofunitholders pursuant to theunitholders pursuant to theprovisions of the first sentence ofprovisions of the first sentence ofArticle 9.3, the unitholders or
Article 9.3, the unitholders
registeredinvestment
unit
registered or recorded in the final
pledgees registered or recorded
unitholders register as of the end
in the final unitholders registerof August 2015 and thereafter as
as of the end of August 2015 andof the end of August of every
thereafter as of the end of August
second subsequent year shall beof every second subsequent year
the unitholders entitled toshall be the unitholders or
exercise their voting rights at theregisteredinvestment
unit
general meeting of unitholders
pledgees entitled to exercise
convened by the Investment
their voting rights at the general
Corporation.
meeting of unitholders convenedby the Investment Corporation.
Paragraph 16.2
Paragraph 16.2
(Omitted)(Same as Current Provisions)
Article 30 Investment Policy
Article 30 Investment Policy
30.1
The Investment Corporation 30.1
The Investment Corporation
shall mainly invest in (i) Realshall mainly invest in (i) Real
Estate (meaning the assets
Estate (meaning the assets
defined in Article 31.2; the samedefined in Article 31.2; the same
hereinafter) used mainly forhereinafter) used mainly forresidential facilities located inlogistics facilities, residential

14

Current Articles of Incorporation

Proposed Amendments

the greater Tokyo area and othergovernment-designated cities inJapan and the surrounding areasof those cities and (ii)Real-Estate-Backed Securities(meaning the assets defined in
Article
31.3;
the
same
hereinafter) backed by Real
Estateusedmainlyforresidential facilities located insuch greater Tokyo area andothergovernment-designatedcities in Japan and thesurrounding areas of those cities.

facilities, commercial facilities,
and hotels located in the threemajor metropolitan areas (thegreater Tokyo area (Tokyo,
Kanagawa, Saitama, and Chiba
prefectures), the greater Nagoya
area (Aichi, Gifu, and Mie
prefectures), and the greater
Osaka area (Osaka, Kyoto,
Hyogo, Nara, andShiga
prefectures)) and the rest of
Japan
and
(ii)
Real-Estate-Backed Securities(meaning the assets defined in
Article
31.3;
the
same
hereinafter) backed by Real
Estate used mainly for logistics
facilities, residential facilities,
commercial facilities, and hotels
located in such three major
metropolitan areas and the rest ofJapan.
The
Investment
Corporation may invest in otherRealEstateandReal-Estate-Backed Securities.
Paragraphs 30.2 through 30.4
(Same as Current Provisions)Paragraphs 30.2 through 30.4
(Omitted)
Article 31 Types, Purpose, and Scopeof Specified Assets to be Managed
Paragraphs 31.1 through 31.3
(Omitted)
31.4
The Investment Corporation may
invest in the following specified
assets in addition to the Real
Estate and Real-Estate-Backed
Securities listed in Article 31.2
and Article 31.3:
Items (1) through (6)(Omitted)(New Provisions)31.5

Article 31 Types, Purpose, and Scopeof Specified Assets to be Managed
Paragraphs 31.1 through 31.3
(Same as Current Provisions)
31.4
The Investment Corporation may
invest in the following specified
assets in addition to the Real
Estate and Real-Estate-Backed
Securities listed in Article 31.2
and Article 31.3:
Items (1) through (6)(Same as Current Provisions)(7)
rights to operate public
facilities, etc. (meaning
those provided for in
Article 3(xii) of theInvestment Trusts Act
Enforcement Order).
The Investment Corporation may 31.5
The Investment Corporation may
invest in the following noninvest in the following non
specified assets incidental to thespecified assets incidental to the15Current Articles of Incorporation

Proposed Amendments

investment in Real Estate:
Item (1)(Omitted)(New Provisions)(2)

investment in Real Estate:
Item (1) (Same as Current Provisions)(2)
movables (meaning, of the
movables provided for in
the Civil Code (Act No. 89
of 1896, as amended),facilities, equipment, orother things attached to thereal estate for structural
reasons or for use);
(3)
(Same
as
Current
Provisions)(4)carbon dioxide equivalentquotas under the Act on
PromotionofGlobalWarming Countermeasures(Act No. 117 of 1998, as
amended) or other similar
rights, or emission credits(including greenhouse gas
emission credits); and(5)other rights and assets thatneed to be acquired and thatare incidental to theinvestments in Real Estate
andReal-Estate-Backed
Securities
Paragraph 31.6
(Same as Current Provisions)(Omitted)(New Provisions)(3)

other rights that need to beacquired and that are
incidental
totheinvestments in Real Estate
and Real-Estate-Backed
Securities
Paragraph 31.6
(Omitted)(New Provisions)

Section XII
Supplementary
Provision(New Provisions)

Article 41 Effectiveness ofAmendments
Any amendment to these Articles ofIncorporation will take effect on
September 1, 2016, the effective date of
the absorption-type merger under the
Merger Agreement dated April 15, 2016
between the Investment Corporation as
the surviving corporation and thepre-merger
Daiwa
House
REIT
Investment Corporation as the absorbed
corporation (the “Merger”), subject tothe effectiveness of the Merger. This
supplementary provision is to be deleted
after the effective date of the amendment
to these Articles of Incorporation.

16

Current Articles of Incorporation

Proposed Amendments

Attachment
Attachment
Asset Management Fees Payable to Asset Asset Management Fees Payable to AssetManagerManager(Omitted)(Same as Current Provisions)
Fee

Asset
management
fee 1(asset-b
ased
fee)
Asset
management
fee 2(profitbasedfee)Acquisi
tion
and
sale
fees

Calculation
method(Omitted)

Timingofpayment(Omitted)(Omitted)(Omitte
d)

1.
If
the
Investment
Corporationacquires or sells
Real Estate orReal-Estate-Backed
Securities(excluding thosethat fall under 2.
below):
Not to exceed theamountcalculatedbymultiplying theacquisitionorsale price of theReal Estate orReal-Estate-Backed Securities by
0.8%.3

By theend ofmonth
followin
g
the
month
in whichthe Real
Estate orReal-Est
ate-Backed
Securities areacquiredor sold.

Fee

Timingofpayment
Asset(Same as Current (Samemanage Provisions)asment
Current
fee 1
Provisio(asset-b
ns)
ased
fee)
Asset
(Same as Current (Samemanage Provisions)asment
Current
fee 2
Provisio(profitns)
based
fee)
Acquisi 1.
If
the By thetion
Investment
end ofandCorporation
month
sale
acquires or sells followin
feesReal Estate or gthe
Real-Estate-Back monthed
Securities in which(excluding those the Realthat fall under 2. Estate or
below):
Real-Est
Not to exceed the ate-Bac
amountked
calculated
by Securiti
multiplying the es are
acquisitionor acquired
sale price of the or sold.
Real Estate orReal-Estate-Backed Securities by
0.5%.32.
If
theInvestment
Corporationacquires or sells
Real Estate or

Calculation
method2.
IftheInvestment
Corporationacquires or sells
Real Estate or17Current Articles of Incorporation

Proposed Amendments

Real-Estate-Backed
Securities
from or to aninterested party:
Not to exceed theamountcalculatedbymultiplying theacquisitionorsale price by
0.4%.3

Real-Estate-Backed
Securities
from or to aninterested party:
Not to exceed theamountcalculatedbymultiplying theacquisitionorsale price by
0.25%.3

3. (Omitted)

Mergerfee

1

3
4(Omitted)‘Total asset value’ means the amountcalculated in accordance with either(i) or (ii) below with respect to eachaccounting period2:(i) Total asset value for the First
Accounting Period (as defined
below)The total asset value recordedon the balance sheet as at the
Fiscal Period Closing Date
immediately preceding the First
Accounting Period (provided
that said balance sheet isapproved under Article 131(2)of the Investment Trusts Act)

(ii)
2

(Omitted)

3.
(Same
as
Current
Provisions)
Merger (Same as Current (Samefee
Provisions)as
Current
Provisions)1‘Total asset value’ means the amountcalculated in accordance with either(i) or (ii) below with respect to eachaccounting period2:(i) Total asset value for the First
Accounting Period (as defined
below)The total asset value (minus theamountequivalenttounamortized positive goodwill)recorded on the balance sheet asat the Fiscal Period Closing Date
immediately preceding the First
Accounting Period (provided
that said balance sheet isapproved under Article 131(2) of
the Investment Trusts Act)(ii) (Same as Current Provisions)
2(Same as Current Provisions)
3(Same as Current Provisions)
4(Same as Current Provisions)(Omitted)(Omitted)(Omitted)(Omitted)18

Reference Matters
If any of the proposals submitted to the General Meeting of Unitholders conflicts with any of
the others, the provision of “deemed approval” which is provided for in Article 93, Paragraph
1 of the Investment Trusts Act and Article 15 of the current Articles of Incorporation will not
apply to any of such proposals. None of Proposal No. 1 and Proposal No. 2 above
constitutes such a conflicting proposal.
End

19[Translation]
Schedule 1

MERGER AGREEMENT

15 April 201620

MERGER AGREEMENT
Daiwa House Residential Investment Corporation (“DHI”) and Daiwa House REIT
Investment Corporation (“DHR”) enter into this merger agreement (the “Agreement”) as
follows in relation to the merger between DHI and DHR (the “Merger”).
Article 1

Method of the Merger

In accordance with the provisions of this Agreement, DHI and DHR shall implement anabsorption-type merger with DHI as the surviving corporation and DHR as the absorbed
corporation under Article 147 of the Act on Investment Trusts and Investment Corporations(Act No. 198 of 1951, as amended; the “Investment Trusts Act”).
Article 2

Names and addresses of merging parties

The names and addresses of the surviving corporation and the absorbed corporation are as
follows.
(1)(2)

Name and address of the surviving corporation
Name:

Daiwa House Residential Investment Corporation

Address:

2-4-8, Nagatacho, Chiyoda-ku, Tokyo

Name and address of the absorbed corporation
Name:

Daiwa House REIT Investment Corporation

Address:

2-3-6, Nihonbashi Kayabacho, Chuo-ku, Tokyo

Article 3

Method for calculating the number of investment units to be issued andallotted at the time of the Merger and matters regarding the allotment

3.1

At the time of the Merger, DHI shall issue new investment units in such number as iscalculated by multiplying by 2.2 the aggregate number of investment units of DHR
owned by the unitholders entered in or recorded on the final unitholders register of
DHR as of the day immediately preceding the effective date of the Merger (the“Effective Date”) (excluding DHI, DHR, and the unitholders of DHR who haverequested the purchase of their investment units in accordance with the provisions ofArticle 149-3 of the Investment Trusts Act; the “Allotted Unitholders”), and shall allot
and deliver to the Allotted Unitholders 2.2 investment units of DHI per one investment
unit of DHR owned by the Allotted Unitholders.

3.2

In the case of the preceding paragraph, if there is any fraction of less than one
investment unit in the investment units of DHI to be allotted to the Allotted Unitholders,
DHI shall treat such fraction in accordance with the provisions of Article 149-17 of theInvestment Trusts Act.

Article 4

Matters regarding the total unitholders’ capital of the surviving corporation

The amount by which the total unitholders’ capital and the capital surplus of DHI will
increase upon the Merger shall be as follows; provided, however, that DHI and DHR may

21

change such amount upon agreement through consultation, taking into consideration thefinancial conditions of DHI and DHR on the day immediately preceding the Effective Date.
(1)

Unitholders’ Capital: 0 yen(2)Capital Surplus: The amount obtained by deducting the amount set out in the preceding
item from the amount of increase or decrease in the unitholders’ equity, etc., set out in
Article 22, Paragraph 1 of the Ordinance on Accountings of Investment Corporations(Cabinet Office Ordinance No. 47 of 2006, as amended)

Article 5

Effective Date

The effective date of the Merger is September 1, 2016; provided, however, that DHI and DHR
may change the Effective Date upon agreement through consultation, if necessary in order tocomplete the procedures for the Merger or for any other reason.
Article 6

General meeting of unitholders

6.1

DHI shall hold a general meeting of unitholders on June 17, 2016 or a date separately
agreed on and determined by DHI and DHR, and request such general meeting ofunitholders to approve (i) this Agreement, in accordance with the provisions of Article
149-7, Paragraph 1 of the Investment Trusts Act, (ii) changes to the articles ofincorporation dated as of the Effective Date as set out in the Schedule subject to theMerger taking effect, and (iii) other proposals separately agreed on by DHI and DHR.

6.2

DHR shall hold a general meeting of unitholders on May 27, 2016 or a date separately
agreed on and determined by DHI and DHR, and request such general meeting ofunitholders to approve (i) this Agreement, in accordance with the provisions of Article
149-2, Paragraph 1 of the Investment Trusts Act, (ii) termination of the asset
management agreement with Daiwa House REIT Management Co., Ltd. as of theEffective Date subject to the Merger taking effect, and (iii) other proposals separately
agreed on by DHI and DHR.

Article 7

Post-merger trade name and related entities, etc. of DHI

7.1

DHI’s post-merger trade name shall be Daiwa House REIT Investment Corporation.

7.2

DHI’s asset manager (which shall mean an asset manager as referred to in Article 2,
Paragraph 21 of the Investment Trusts Act; the same hereinafter), asset custodycompany (which shall mean an asset custody company as referred to in Article 2,
Paragraph 22 of the Investment Trusts Act; the same hereinafter), administrative agent(which shall mean an administrative agent as referred to in Article 2, Paragraph 23 of
the Investment Trusts Act to which the services set out in each item of Article 117 of theInvestment Trusts Act shall be entrusted; the same hereinafter), and accounting auditor
shall not be changed upon the Merger; provided, however, that the agreement with the
Bank of Tokyo-Mitsubishi UFJ, Ltd., which is DHR’s administrative agent ofinvestment corporation bonds (the “DHR’s Investment Corporation Bonds
Administration Agreement”), shall be succeeded to by DHI upon the Merger, and the
Bank of Tokyo-Mitsubishi UFJ, Ltd. shall become an administrative agent of DHI.

7.3

Subject to the effectiveness of the Merger, DHR shall, upon the Effective Date,terminate DHR’s asset management agreement with its asset manager, asset custody22

agreement with its asset custody company, administration agreements with its
administrative agents (excluding the DHR’s Investment Corporation Bonds
Administration Agreement), audit agreement (excluding audits of DHR’s financial
statements required under the Financial Instruments and Exchange Act (Act No. 25 of1948, as amended) for its fiscal period ending August 31, 2016) with its accounting
auditor, and any other agreement that DHI and DHR separately agree to terminate.
7.4

Notwithstanding the preceding three paragraphs, DHI and DHR may change theprovisions thereof upon agreement through consultation.

Article 8

Payment upon the merger

In lieu of cash distribution to the unitholders of DHR for DHR’s fiscal period ending on the
day immediately preceding the Effective Date, DHI shall make a payment upon the merger
calculated by the following formula to the Allotted Unitholders (with any fractional amountless than one yen rounded down) per one investment unit of DHR owned by the Allotted
Unitholders, and within a period after the Effective Date that is reasonable in consideration of
the determination of profit for that DHR’s fiscal period, the process of rendering payment
upon the merger, and other factors:
Amount of thepayment upon themerger per one
investment unit=

Distributable profit of DHR
as of the day immediately
preceding the Effective Date
Outstanding investment units of DHR
as of the day immediately
preceding the Effective Date

In the formula set out above, the term “Outstanding investment units of DHR as of the day
immediately preceding the Effective Date” shall mean the number of investment units
calculated by deducting the number of investment units held by the unitholders of DHR otherthan the Allotted Unitholders from the outstanding number of investment units of DHR as ofthe day immediately preceding the Effective Date.
Article 9

Cash distribution

With respect to cash distributions relating to the fiscal periods of DHI and DHR ended
February 29, 2016, (i) DHI shall distribute 3,365,577,740 yen in total (4,501 yen perinvestment unit), and (ii) DHR shall distribute 3,381,449,400 yen in total (9,642 yen perinvestment unit), to their respective unitholders or the registered pledgees of investment units
entered in or recorded on their respective final unitholders registers as of the last day of such
fiscal period. Except for the distribution provided for above, no cash shall be distributed tounitholders until the Effective Date; provided, however, that if the Effective Date is changed
to a date after September 1, 2016, DHI and DHR will determine the treatment of cash
distributions upon agreement through consultation.
Article 10 Succession of corporate property
On the Effective Date, DHI shall succeed to any and all assets, liabilities, rights andobligations of DHR existing as of the Effective Date.

23

Article 11 Covenants
11.1 From the execution date of this Agreement to the Effective Date, DHI and DHR shalleach conduct their respective business and manage and operate their respective property
with the due care of a prudent manager, and cause their respective asset managers, asset
custody companies, administrative agents, and other third parties to do the same, andshall obtain the prior consent of the other party before taking any action that mightmaterially affect their respective assets, rights or obligations (including, but not limited
to, issuance of investment units, issuance of investment corporation bonds, newborrowing (excluding any borrowing to pay existing loans), or entering into or
performing a sale or purchase agreement for real property), unless otherwise expressly
provided for herein or in any other agreement executed as of the execution date of thisAgreement.
11.2 DHI and DHR shall immediately give notice to the other party, if, during the period on
or before the Effective Date, either party learns of any event which may reasonably
have a material impact on their business, financial condition, or the Merger (including,but not limited to, an event such as a breach of a financial covenant or other provisionof any loan agreement, breach of law or ordinance by DHI or DHR, or a matter
indicated by the relevant authorities). In this case, DHI and DHR shall discuss andconsider how to deal with such event in good faith and shall use best efforts to resolve
such issues.
Article 12 Conditions for the Merger
If any of the following conditions precedent to the Merger is not satisfied as of the day
immediately prior to the Effective Date, or if it becomes clear that any of such conditions
precedent to the Merger will not be satisfied on or before the day immediately preceding theEffective Date, then either party may cancel this Agreement without assuming any liability or
payment obligation to the other party by giving written notice to the other party prior to the
Effective Date (except for any liability or payment obligation owed by such party pursuant tobreach of any other provision of this Agreement):(1)

approval at the general meetings of unitholders of both DHI and DHR and otherprocedures pursuant to applicable laws and ordinances have been completed, and allnecessary permits and approvals have been obtained, as required in relation to theMerger or in order to implement the matters contemplated in connection with the
Merger;(2)

neither DHI nor DHR is in breach of a contractual obligation (including those under thisAgreement) or financial covenant or delayed in payment of a monetary debt (including
taxes and other public charges); provided, however, that minor breaches and delays inpayment shall be excluded;(3)

there is no occurrence of an acceleration event (including any event that would
constitute an acceleration event either with the passage of time or notice, or both),suspension of payments, or insolvency by DHI or DHR;

(4)

consent has been obtained from each financial institution lending money to DHI or
DHR with respect to conducting the Merger and the basic borrowing conditions
applicable on and after the effective date of the Merger (for each loan agreement,
including necessary measures so that no breach of financial covenant clause, breach ofcovenant clause, or acceleration event attributable to DHI occurs after the Merger), and24

such consent has not been withdrawn;(5)each of DHI and DHR has reasonably confirmed that the procedures for filing of Form
F-4 are not necessary for the Merger under the U.S. Securities Act;

(6)

no petition for the commencement of bankruptcy procedures, civil rehabilitation
procedures, or any other similar legal insolvency procedures is filed with respect to DHI
or DHR;(7)

DHI and DHR have not been subject to revocation of registration by a supervisoryagency, suspension of all or a part of its business, or other administrative disposition
that materially impairs, or has a materially adverse effect on, the implementation of the
Merger; and(8)in addition to the above, there is no event which is reasonably judged to materially
impede the Merger or to make it impracticable.

Article 13 Change of conditions for the Merger and termination of this Agreement
If, during the period from the execution date of this Agreement to the Effective Date, (i) there
is any material change in the assets or the business condition of DHI or DHR, (ii) it isreasonably concluded that the implementation of the Merger has become impossible or
impracticable, (iii) it becomes difficult to achieve the purpose of the Merger for any otherreason, or (iv) it becomes clear that there are grounds to believe that any of the above
circumstances may arise, then DHI and DHR may, upon agreement through consultation ingood faith, change the conditions of the Merger or any other provisions of this Agreement, or
terminate this Agreement.
Article 14 Announcements
In the event DHI or DHR makes a public announcement in relation to the Merger such as theexecution of this Agreement, its contents, or otherwise, the party shall make suchannouncement only with the prior consent of the other party hereto as to the announcement’s
content, timing, method, etc.
Article 15 Costs and expenses
DHI shall bear costs and expenses incurred by DHI and DHR relating to the execution andperformance of this Agreement subject to the Merger taking effect.
Article 16 Governing law
This Agreement shall be governed by and construed in accordance with Japanese law.
Article 17 Jurisdiction
DHI and DHR agree that the Tokyo District Court shall be the court of first instance having
exclusive jurisdiction in any dispute related to this Agreement.
Article 18 Good faith consultation

25

Any necessary matters concerning the Merger as well as those provided for in this Agreement
shall be separately determined through mutual consultation by DHI and DHR in accordancewith the purpose of this Agreement.
(The remainder of this page has been intentionally left blank.)

26

This Agreement has been prepared in two originals, to which each of DHI and DHR shallaffix its name and seal and retain one original.
April 15, 2016

DHI Daiwa House Residential Investment Corporation
2-4-8, Nagatacho, Chiyoda-ku, Tokyo
Executive Director

Jiro Kawanishi

DHR Daiwa House REIT Investment Corporation
2-3-6, Nihonbashi Kayabacho, Chuo-ku, Tokyo
Executive Director

Masazumi Kakei

27

Schedule (The Content of the Amendments)

The content of the amendments are as described below.
(The amended parts are underlined.)
Current Articles of Incorporation

Proposed Amendments

Article 1 Corporate Name
Article 1 Corporate Name
The name of the investment
The name of the investment
corporation(the“Investment
corporation(the“Investment
Corporation”) is Daiwa House
Corporation”) is Daiwa House
Residential Investment Corporation
REIT Investment Corporation and is
and is expressed as “Daiwa House
expressed as “Daiwa House REIT
Residential Investment Corporation”
Investment Corporation” in English.
in English.
Article 5 Total Number of Investment Article 5 Total Number of Investment
Units Authorized to be Issued
Units Authorized to be Issued
5.1
The total number of units 5.1
The total number of units
authorized to be issued by theauthorized to be issued by theInvestment
Corporationis
Investment
Corporationis
4,000,000.
8,000,000.
Paragraphs 5.2 and 5.3
Paragraphs 5.2 and 5.3(Omitted)(Same as Current Provisions)
Article 16 Record Date
Article 16 Record Date
16.1
If the Investment Corporation 16.1
If the Investment Corporation
convenes the general meeting of
convenes the general meeting ofunitholders pursuant to theunitholders pursuant to theprovisions of the first sentence ofprovisions of the first sentence ofArticle 9.3, the unitholders or
Article 9.3, the unitholders
registeredinvestment
unit
registered or recorded in the final
pledgees registered or recorded
unitholders register as of the end
in the final unitholders registerof August 2015 and thereafter as
as of the end of August 2015 andof the end of August of every
thereafter as of the end of August
second subsequent year shall beof every second subsequent year
the unitholders entitled toshall be the unitholders or
exercise their voting rights at theregisteredinvestment
unit
general meeting of unitholders
pledgees entitled to exercise
convened by the Investment
their voting rights at the general
Corporation.
meeting of unitholders convenedby the Investment Corporation.
Paragraph 16.2
Paragraph 16.2
(Omitted)(Same as Current Provisions)
Article 30 Investment Policy
Article 30 Investment Policy
30.1
The Investment Corporation 30.1
The Investment Corporation
shall mainly invest in (i) Realshall mainly invest in (i) Real
Estate (meaning the assets
Estate (meaning the assets
defined in Article 31.2; the samedefined in Article 31.2; the same
hereinafter) used mainly forhereinafter) used mainly forresidential facilities located inlogistics facilities, residential

28Current Articles of Incorporation

the greater Tokyo area and othergovernment-designated cities inJapan and the surrounding areasof those cities and (ii)Real-Estate-Backed Securities(meaning the assets defined in
Article
31.3;
the
same
hereinafter) backed by Real
Estateusedmainlyforresidential facilities located insuch greater Tokyo area andothergovernment-designatedcities in Japan and thesurrounding areas of those cities.

Paragraphs 30.2 through 30.4
(Omitted)

Proposed Amendments

facilities, commercial facilities,
and hotels located in the threemajor metropolitan areas (thegreater Tokyo area (Tokyo,
Kanagawa, Saitama, and Chiba
prefectures), the greater Nagoya
area (Aichi, Gifu, and Mie
prefectures), and the greater
Osaka area (Osaka, Kyoto,
Hyogo, Nara, andShiga
prefectures)) and the rest of
Japan
and
(ii)
Real-Estate-Backed Securities(meaning the assets defined in
Article
31.3;
the
same
hereinafter) backed by Real
Estate used mainly for logistics
facilities, residential facilities,
commercial facilities, and hotels
located in such three major
metropolitan areas and the rest ofJapan.
The
Investment
Corporation may invest in otherRealEstateandReal-Estate-Backed Securities.
Paragraphs 30.2 through 30.4
(Same as Current Provisions)

Article 31 Types, Purpose, and Scopeof Specified Assets to be Managed
Paragraphs 31.1 through 31.3
(Omitted)
31.4
The Investment Corporation may
invest in the following specified
assets in addition to the Real
Estate and Real-Estate-Backed
Securities listed in Article 31.2
and Article 31.3:
Items (1) through (6)(Omitted)(New Provisions)31.5

Article 31 Types, Purpose, and Scopeof Specified Assets to be Managed
Paragraphs 31.1 through 31.3
(Same as Current Provisions)
31.4
The Investment Corporation may
invest in the following specified
assets in addition to the Real
Estate and Real-Estate-Backed
Securities listed in Article 31.2
and Article 31.3:
Items (1) through (6)(Same as Current Provisions)(7)
rights to operate public
facilities, etc. (meaning
those provided for in
Article 3(xii) of theInvestment Trusts Act
Enforcement Order).
The Investment Corporation may 31.5
The Investment Corporation may
invest in the following noninvest in the following non
specified assets incidental to thespecified assets incidental to the29Current Articles of Incorporation

investment in Real Estate:
Item (1)(Omitted)(New Provisions)(2)(Omitted)(New Provisions)(3)

other rights that need to beacquired and that are
incidental
totheinvestments in Real Estate
and Real-Estate-Backed
Securities
Paragraph 31.6
(Omitted)(New Provisions)(New Provisions)

Proposed Amendments

investment in Real Estate:
Item (1) (Same as Current Provisions)(2)
movables (meaning, of the
movables provided for in
the Civil Code (Act No. 89
of 1896, as amended),facilities, equipment, orother things attached to thereal estate for structural
reasons or for use);
(3)
(Same
as
Current
Provisions)(4)carbon dioxide equivalentquotas under the Act on
PromotionofGlobalWarming Countermeasures(Act No. 117 of 1998, as
amended) or other similar
rights, or emission credits(including greenhouse gas
emission credits); and(5)other rights and assets thatneed to be acquired and thatare incidental to theinvestments in Real Estate
andReal-Estate-Backed
Securities
Paragraph 31.6
(Same as Current Provisions)
Section XII
Supplementary
Provision
Article 41 EffectivenessofAmendments
Any amendment to these Articles ofIncorporation will take effect on
September 1, 2016, the effective date of
the absorption-type merger under the
Merger Agreement dated April 15, 2016
between the Investment Corporation as
the surviving corporation and thepre-merger
Daiwa
House
REIT
Investment Corporation as the absorbed
corporation (the “Merger”), subject tothe effectiveness of the Merger. This
supplementary provision is to be deleted
after the effective date of the amendment
to these Articles of Incorporation.

30

Current Articles of Incorporation

Proposed Amendments

Attachment
Attachment
Asset Management Fees Payable to Asset Asset Management Fees Payable to AssetManagerManager(Omitted)(Same as Current Provisions)
Fee

Asset
management
fee 1(asset-b
ased
fee)
Asset
management
fee 2(profitbasedfee)Acquisi
tion
and
sale
fees

Calculation
method(Omitted)

Timingofpayment(Omitted)(Omitted)(Omitte
d)

1.
If
the
Investment
Corporationacquires or sells
Real Estate orReal-Estate-Backed
Securities(excluding thosethat fall under 2.
below):
Not to exceed theamountcalculatedbymultiplying theacquisitionorsale price of theReal Estate orReal-Estate-Backed Securities by
0.8%.3

By theend ofmonth
followin
g
the
month
in whichthe Real
Estate orReal-Est
ate-Backed
Securities areacquiredor sold.

Fee

Timingofpayment
Asset(Same as Current (Samemanage Provisions)asment
Current
fee 1
Provisio(asset-b
ns)
ased
fee)
Asset
(Same as Current (Samemanage Provisions)asment
Current
fee 2
Provisio(profitns)
based
fee)
Acquisi 1.
If
the By thetion
Investment
end ofandCorporation
month
sale
acquires or sells followin
feesReal Estate or gthe
Real-Estate-Back monthed
Securities in which(excluding those the Realthat fall under 2. Estate or
below):
Real-Est
Not to exceed the ate-Bac
amountked
calculated
by Securiti
multiplying the es are
acquisitionor acquired
sale price of the or sold.
Real Estate orReal-Estate-Backed Securities by
0.5%.32.
If
theInvestment
Corporationacquires or sells
Real Estate orReal-Estate-Back

Calculation
method2.
IftheInvestment
Corporationacquires or sells
Real Estate orReal-Estate-Back

31

Current Articles of Incorporation

Proposed Amendments

ed
Securities
from or to aninterested party:
Not to exceed theamountcalculatedbymultiplying theacquisitionorsale price by
0.4%.3ed
Securities
from or to aninterested party:
Not to exceed theamountcalculatedbymultiplying theacquisitionorsale price by
0.25%.3

3. (Omitted)

Mergerfee

1

3
4(Omitted)‘Total asset value’ means the amountcalculated in accordance with either(i) or (ii) below with respect to eachaccounting period2:(i) Total asset value for the First
Accounting Period (as defined
below)The total asset value recorded on
the balance sheet as at the Fiscal
PeriodClosingDate
immediately preceding the First
Accounting Period (provided
that said balance sheet isapproved under Article 131(2) of
the Investment Trusts Act)

(ii)
2

(Omitted)(Omitted)(Omitted)(Omitted)(Omitted)

3.
(Same
as
Current
Provisions)
Merger (Same as Current (Samefee
Provisions)as
Current
Provisions)1‘Total asset value’ means the amountcalculated in accordance with either(i) or (ii) below with respect to eachaccounting period2:(i) Total asset value for the First
Accounting Period (as defined
below)The total asset value (minus theamountequivalenttounamortized positive goodwill)recorded on the balance sheet asat the Fiscal Period Closing Date
immediately preceding the First
Accounting Period (provided
that said balance sheet isapproved under Article 131(2) of
the Investment Trusts Act)(ii) (Same as Current Provisions)
2(Same as Current Provisions)
3(Same as Current Provisions)
4(Same as Current Provisions)32

[Translation]
Schedule 2

Daiwa House REIT Investment Corporation(September 1, 2015 – February 29, 2016)

I.

Asset Management Report

II.

Balance Sheets

III. Statements of Income and Retained Earnings
IV. Statements of Changes in Net Assets
V.

Statements of Cash Flows

VI. Notes to Financial Statements

33

I. Asset Management Report1

Summary of Asset Management(1) Historical Operating Results
PeriodOperating revenues
Of which, real estate leasing business revenues
Operating expenses
Of which, real estate leasing business expenses

12th period

13th period

14th period

15th period

16th period

From
September 1, 2013
to February 28, 2014

From
March 1, 2014
to August 31, 2014

From
September 1, 2014
to February 28, 2015

From
March 1, 2015
to August 31, 2015

From
September 1, 2015
to February 29, 2016

(Yen in millions)

4,153

4,928

5,146

6,305

6,938

(Yen in millions)

4,153

4,928

5,146

6,305

6,938

(Yen in millions)

1,832

2,074

2,143

2,621

2,969

(Yen in millions)

1,462

1,669

1,689

2,140

2,383

Operating income(Yen in millions)

2,321

2,853

3,003

3,683

3,969

Ordinary income(Yen in millions)

1,960

2,359

2,546

2,972

3,382

Net income(Yen in millions)

1,959

2,359

2,545

2,971

3,381

Total assets(Yen in millions)

131,509

163,088

166,825

216,936

222,081(Period-on-period changes)
Net assets(Period-on-period changes)
Unitholders’ capital
Total number of investment units issued

(%)

0.1

24.0

2.3

30.0

2.4

(Yen in millions)

61,34080,40780,593

108,430

108,840

(%)

(0.0)

31.1

0.2

34.5

0.4

(Yen in millions)

59,381

78,04878,048105,459

105,459(Units)122,540

293,480

293,480

350,700

350,700
310,353(Yen)

250,288273,979

274,614309,183(Yen in millions)

1,959

2,359

2,545

2,971

3,381

(Yen)

15,992

8,039

8,674

8,473

9,642

Of which, earnings distributions per unit

(Yen)

15,992

8,039

8,674

8,473

9,642

Of which, distributions in excess of earnings per unit

(Yen)

—

—

—

—

—

(%)

1.5

1.6

1.5

1.5

1.5

(%)

3.0

3.2

3.1

3.1

3.1

(%)

3.2

3.3

3.2

3.1

3.1

(Annualized)

(%)

6.4

6.6

6.4

6.2

6.2

Equity ratio (Note 3)

(%)

46.6

49.3

48.3

50.0

49.0

Net assets per unit (Note 2)
Total distributions
Distributions per unit

Ordinary income to total assets ratio (Note 3)(Annualized)
Return on equity (Note 3)(Period-on-period changes)
Payout ratio (Note 3)

(%)

(0.1)

2.7

(1.0)

1.7

(1.0)

(%)

100.0

(Note 4) 100.0

100.0(Note 4) 100.0

100.0

26

32

33

40

41

(m2)

572,794.19

738,355.09

762,373.09

980,662.56

1,002,859.37

40

46

47

54

55

<Reference Information>
Number of investment properties
Total leasable area
Number of tenants
(%)

100.0

100.0

100.0

100.0

100.0

Depreciation during the period(Yen in millions)

844

1,010

1,044

1,359

1,487

Capital expenditures during the period(Yen in millions)

6

23

19

3

106

Rental NOI (Net Operating Income) (Note 3)(Yen in millions)

3,536

4,269

4,501

5,523

6,042

(Yen)

22,887

11,482

12,233

12,35013,884(Yen in millions)

63,00074,50077,50098,000102,000

(%)

47.9

45.7

46.5

45.2

45.9

(Days)

181

184

181

184

182

Occupancy rate at the end of period

FFO (Funds from Operations) per unit (Note 3)
Interest-bearing debt (Note 3)
Interest-bearing debt to total assets ratio (Note 3)
Number of operating days

(Notes) 1. Operating revenues, etc., do not include consumption taxes.
2. DHR executed a 2-for-1 investment unit split effective March 1, 2014. Net assets per unit are calculated on the assumption that the split of investment units was executed at the beginning of
the 12th period.
3. The indicators shown are calculated based on the following formulae:
		 Ordinary income to total assets ratio = Ordinary income / ((Total assets at the beginning of period + Total assets at the end of period) / 2) × 100
		 Return on equity = Net income / ((Net assets at the beginning of period + Net assets at the end of period) / 2) × 100
		 Equity ratio = Net assets at the end of period / Total assets at the end of period × 100
		 Payout ratio = Distributions per unit (excluding distributions in excess of earnings) / Net income per unit × 100
		 Rental NOI = Real estate leasing business revenues – Real estate leasing business expenses + Depreciation during the period
		 FFO per unit = (Net income + Depreciation +/– Gains (losses) from sales of property, etc.) / Total number of investment units issued
		 Interest-bearing debt = Borrowings + Investment corporation bonds
		 Interest-bearing debt to total assets ratio = Interest-bearing debt / Total assets at the end of period × 100
4. Due to the issuance of new investment units, the payout ratio for the 13th period and the 15th period is calculated based on the following formula.
		 Payout ratio = Total distributions (excluding distributions in excess of earnings) / Net income × 100

34

(2) Asset Management during the Period
A. Transition of DHR
Daiwa House REIT Investment Corporation (hereinafter referred to as “DHR”) was established on September 14, 2007, in accordance with the Act on
Investment Trusts and Investment Corporations (hereinafter referred to as the “Investment Trusts Act”), with Daiwa House REIT Management Co., Ltd.
(hereinafter referred to as the “Asset Manager”) as the organizer, and completed its registration in the Kanto Local Finance Bureau on October 23, 2007
(Director-General of the Kanto Local Finance Bureau No. 66).
DHR issued new investment units through public offering on November 27, 2012. The following day, November 28, 2012, DHR was listed (with thesecurities code number 3263) on the J-REIT section of the Tokyo Stock Exchange, Inc. (hereinafter referred to as the “Tokyo Stock Exchange”).
To achieve its basic investment policy of focusing predominantly on “stability” in the management of its assets, DHR targets investment in logistics
and retail properties, investing in “high-performance logistics properties” and “specialty retail complexes.” In addition, DHR is planning steady growth in
the scale of its assets by acquiring highly competitive assets through collaboration with the Daiwa House Group (see Note 1), which has an extensive
logistics and retail properties development track record supported by an extensive land information network and a customer base covering the wholecountry. Furthermore, DHR has its sights set on maintaining and improving the value of its assets through operations and management that maximize
their competitiveness.
In the current fiscal period (ended February 29, 2016), DHR acquired DREAM TOWN ALi, a retail property (acquisition price of ¥7,790 million) using
funds raised in loan financing. Consequently, DHR held a total of 41 properties as of February 29, 2016 (total acquisition price of ¥203,763 million)(see Note 2).
(Notes) 1. The Daiwa House Group comprises Daiwa House Industry Co., Ltd. (hereinafter referred to as “Daiwa House”), its 142 consolidated subsidiaries, two non-consolidated subsidiaries, 25 equity-method
associates, and two non-equity-method associates, as of March 31, 2016. The same shall apply hereinafter.
2. The “total acquisition price” shown is rounded to the nearest million yen. The same shall apply hereinafter.

B. Investment Environment and Performance
The Japanese economy is showing signs of gradual recovery, with corporate earnings and capital expenditure on the rise thanks to the government’s
economic policies and the Bank of Japan’s monetary policy.
In the real estate market, the increased investor confidence that has come from the relaxing of financial regulation and other policy changes has
continued to buoy up land values—around 90% of the 100 intensively-developed major urban districts showed an increase in land value according to theLand Value LOOK Report published by the Ministry of Land, Infrastructure, Transport and Tourism in February 2016.
The Tokyo Stock Exchange (“TSE”) REIT Index rose to the highest level in eight years in January 2015, but the J-REIT market has tended to bebearish since then, and investors have been increasingly risk-averse due to concerns about overseas stock markets and public finances, particularly
since late June 2015. However, the TSE REIT Index once again began to rise, due in part to the effect of lower government bond yields as a result of the
Bank of Japan’s newly-implemented negative interest rate policy in January 2016. Moreover, asset acquisitions by J-REIT from January to December
2015 remained strong despite slowing down in the second half, and overall J-REIT asset acquisitions totaled JPY 1.6146 trillion, up 0.8% year on year.
With regard to the logistics properties that DHR targets for investment, there is a significant increase in supply of new logistics properties from thecurrent year onward, but while there are concerns that this may lead to a temporary rise in the vacancy rate, we expect a continuation of the current
bottomed-out stage due to healthy demand and a broadening of the development area for the high-performance large logistics properties.
With regard to the business environment surrounding retail properties which are another target of our investment, the retail sales total for calendar
year 2015 according to the commercial sales statistics (excluding automobile and fuel sales) has held firm, increasing 1.1% from the previous year,
aided by improvement in the Japanese economy’s employment and income climate. In the supermarket and convenience store industries, where
sales totals have been firm, some companies have been providing new customer services in partnership with mail order retailers and home delivery
providers to target elderly households and double-income households, while due to the effects of inbound tourism, businesses targeting foreigners
are on an expanding trend.
In this investment environment, DHR drew on its Daiwa House Group pipeline in acquiring the retail property DREAM TOWN ALi (acquisition priceof ¥7,790 million) during the current fiscal period (ended February 29, 2016), thereby enabling DHR to expand and diversify its portfolio. As a result,as of February 29, 2016 DHR owned 41 properties (with a total book value of ¥197,336 million at the end of the period) with a total leasable area of
1,002,859.37 m2 and an occupancy rate of 99.95% (the figure is rounded down to the nearest 100th).

C. Overview of Financing
In the current fiscal period (ended February 29, 2016), DHR raised funds of ¥5,000 million in long-term loans on September 28, 2015 to partially cover
the acquisition costs for trust beneficiary interests in real estate as well as related expenses. In addition, in order to partially cover repayments of existing
borrowings, DHR raised funds of ¥19,000 million in long-term loans on November 30, 2015.
Of the amount of long-term loans, DHR arranged fixed rates of interest by entering into interest rate swap agreements with respect to ¥23,000 millionof the loans that are subject to floating interest rates. Consequently, as of February 29, 2016, DHR’s total interest-bearing debt was ¥102,000 million (totalborrowings of ¥100,000 million and total investment corporation bonds of ¥2,000 million), while its ratio of long-term loans (Note 1) and ratio of fixed-rateloans (Note 2) were each 96.1%.
The credit rating DHR has obtained from the external credit rating agency as of February 29, 2016 is as follows:35

I. Asset Management Report

Rating agency
Japan Credit Rating Agency, Ltd. (JCR)

RatingOutlookLong-term issuer rating: AA−

StableRating on bonds (1st Unsecured Investment
Corporation Bonds): AA−—(Notes) 1. “Ratio of long-term loans” shown is the ratio of long-term interest-bearing debt to the total amount of interest-bearing debt as of February 29, 2016. Long-term interest-bearing debt for which thetime until the date of repayment upon maturity or the date of redemption is less than one year as of February 29, 2016, are also calculated as long-term interest-bearing debt.
2. “Ratio of fixed-rate loans” shown is the ratio of interest-bearing debt with fixed interest rates to the total amount of interest-bearing debt as of February 29, 2016. For interest-bearing debt of whichinterest rates are effectively fixed through the use of interest rate swap agreements, the calculation of the ratio of fixed-rate loans is carried out by deeming it as interest-bearing debt with a fixedinterest rate.

D. Overview of Financial Results and Distributions
In the current fiscal period (ended February 29, 2016), operating revenues came to ¥6,938 million, operating income came to ¥3,969 million, ordinary
income came to ¥3,382 million, and net income came to ¥3,381 million.
As a result of the above-mentioned performance, in accordance with the distribution policy stipulated in Article 46, item 1 of the Articles ofIncorporation of DHR, it was decided that the full amount of unappropriated retained earnings would be distributed, except fractions of less than ¥1 of
distributions per investment unit. The aim would be to include earnings distributions in tax deductible expenses based on application of special provisions
for taxation (Article 67-15 of the Act on Special Measures Concerning Taxation). Consequently, distributions per investment unit came to ¥9,642.

(3) Summary of Capital Increase
During the current period, there were no changes in the total number of investment units issued and unitholders’ capital.
DHR’s total number of investment units issued and changes in unitholders’ capital for the most recent five years until February 29, 2016 are
as follows:

Date

Event

Total number of investment units issued(Units)ChangeBalanceUnitholders’ capital(Yen in millions)
ChangeRemarks

BalanceNovember 27, 2012

Capital increase throughpublic offering

102,800

117,400

49,601

56,901(Note 1)

December 26, 2012

Capital increase throughthird-party allotment

5,140

122,540

2,480

59,381(Note 2)

March 1, 2014

Split of investment units

122,540

245,080—

59,381(Note 3)

March 19, 2014

Capital increase throughpublic offering

44,000289,080

16,97076,351(Note 4)

April 14, 2014

Capital increase throughthird-party allotment

4,400

293,480

1,697

78,048(Note 5)

March 23, 2015

Capital increase throughpublic offering

52,000345,480

24,910102,958(Note 6)

April 14, 2015

Capital increase throughthird-party allotment

5,220

350,700

2,500

105,459(Note 7)(Notes) 1. New investment units were issued through public offering with an issue value of ¥482,500 per unit in order to raise funds for the acquisition of new properties and repayments of loans payable.
2. New investment units were issued through third-party allotment with an issue value of ¥482,500 per unit in line with a capital increase through public offering of investment units.
3. A 2-for-1 split of investment units was implemented with an effective date of March 1, 2014.
4. New investment units were issued through public offering with an issue value of ¥385,687 per unit in order to raise funds for the acquisition of new properties, etc.
5. New investment units were issued through third-party allotment with an issue value of ¥385,687 per unit in line with a capital increase through public offering of investment units.
6. New investment units were issued through public offering with an issue value of ¥479,044 per unit in order to raise funds for the acquisition of new properties, etc.
7. New investment units were issued through third-party allotment with an issue value of ¥479,044 per unit in line with a capital increase through public offering of investment units.

[Changes in market price of investment securities]
The highest and lowest (closing) prices in the J-REIT section of the Tokyo Stock Exchange, on which DHR’s investment securities are listed, by period
are as follows:
Period12th period

13th period

14th period

15th period

16th period

Fiscal period end

February 2014

August 2014

February 2015

August 2015

February 2016

Highest (Yen)¥876,000¥423,500 (Note)¥473,000¥622,000¥569,000¥505,000

Lowest (Yen)¥642,000¥416,500 (Note)¥401,000¥468,000¥439,000¥395,000(Note) In conjunction with a 2-for-1 investment unit split effective March 1, 2014, investment units of DHR since February 26, 2014 have been traded at the unit price following the ex-rights. The upper row
shows the highest and lowest prices (closing prices) up until the day before the ex-rights, while the lower row shows the highest and lowest prices (closing prices) after the ex-rights.

36

(4) Distributions
It was decided that the full amount of unappropriated retained earnings would be distributed, except fractions of less than ¥1 of distributions perinvestment unit, with the aim of earnings distributions to be included in tax deductible expenses based on application of special provisions for taxation(Article 67-15 of the Act on Special Measures Concerning Taxation). Consequently, distributions per investment unit came to ¥9,642.
Period12th period

13th period

14th period

15th period

16th period

From
September 1, 2013
to February 28, 2014

From
March 1, 2014
to August 31, 2014

From
September 1, 2014
to February 28, 2015

From
March 1, 2015
to August 31, 2015

From
September 1, 2015
to February 29, 2016

Net income(Yen in thousands)

1,959,680

2,359,313

2,545,604

2,971,619

3,381,646

Unappropriated retained earnings(Yen in thousands)

1,959,680

2,359,334

2,545,653

2,971,627

3,381,792

Retained earnings(Yen in thousands)

21

49

8

146

343

Total distributions(Yen in thousands)

1,959,659

2,359,285

2,545,645

2,971,481

3,381,449(Yen)

15,992

8,039

8,674

8,473

9,642

(Yen in thousands)

1,959,659

2,359,285

2,545,645

2,971,481

3,381,449(Yen)

15,992

8,039

8,674

8,473

9,642

(Yen in thousands)

—

—

—

—

—

(Yen)

—

—

—

—

—

Of total capital refunds, total distributions fromthe allowance for temporary difference adjustment(Yen in thousands)

—

—

—

—

—

(Of capital refunds per unit, distributions fromthe allowance for temporary difference adjustment
per unit)

(Yen)

—

—

—

—

—

(Yen in thousands)

—

—

—

—

—

(Yen)

—

—

—

—

—

(Distributions per unit)
Of the above, total earnings distributions(Earnings distributions per unit)
Of the above, total capital refunds(Capital refunds per unit)

Of total capital refunds, total distributions deemed
as distributions from capital refunds for tax purposes(Of capital refunds per unit, distributions deemed
as distributions from capital refunds for tax
purposes per unit)(5) Future Operating Policies and Issues to Be Addressed
We expect Japan’s domestic economy to remain on track to recovery stemming in part from positive effects of the government’s economic stimulus measures.
In the J-REIT market, the high level of appetite for investment among investment corporations seems likely to persist, underpinned by the prevailingfundraising environment and a trend toward lower returns expected by investors. On the other hand, the investment environment is becoming increasingly
severe amid factors that include signs of overheating prices for some investment real estate, while we also envision a scenario of greater diversification of
investment targets and substance such as in terms of greater investment in locations other than the three major metropolitan areas of Japan, additional
investment in current asset holdings, and funds flowing to redevelopment initiatives.
DHR will focus predominantly on its basic policy of “stability” in the management of its assets and, continuing to target long-term, stable earnings
and maximize unitholder value, DHR will work to further expand the scale of its assets while maintaining and enhancing asset value over the medium tolong term.

A. External Growth Strategy
DHR aims to achieve consistent external growth, and has accordingly entered into pipeline supporting agreements (hereinafter, the “supporting
agreements”) separately with Daiwa House, Daiwa Lease Co., Ltd., Fujita Corporation, Daiwa Logistics Co., Ltd., Daiwa Information Service Co., Ltd., andDaiwa Royal Co., Ltd. with its sights set on achieving the objectives set forth in its growth strategy pursued in collaboration with the Daiwa House Group.
Through these agreements, DHR intends to achieve the objectives set forth in its external growth strategy by fully leveraging the development
capabilities of its sponsor Daiwa House in supplying community-based properties that draw on the strengths of respective regional economies throughthe Daiwa House Group’s nationwide land information network.
By constructing a mechanism that enables the understanding and sharing of DHR’s investment policy with the Daiwa House Group, DHR will seek
to enjoy continuous support, including from the development phase, for a supply of properties that fit the needs of tenants and that result in long-termlease agreements to achieve long-term and stable cash flow.
In addition to obtaining information on properties from the Daiwa House Group, DHR intends to proactively collect information from independent
information sources available to the Asset Manager and make efforts to acquire quality assets using such information. Further, in connection with theacquisition of properties from parties outside the Daiwa House Group, DHR may seek to utilize warehousing services provided by Daiwa House until
DHR’s acquisition of properties, as contemplated under the supporting agreements.

37

I. Asset Management Report

B. Internal Growth Strategy
As DHR’s investment policy is to select properties with long-term and stable lease agreements, DHR considers it important to promote internal growth byengaging in cost reduction by streamlining operations in order to enhance profitability of acquired properties.
Furthermore, DHR believes that, under the principle of “industrialization of construction,” Daiwa House has realized standardization and efficiency indesign and construction. It has constructed economical and well-planned, easily-maintained buildings using solid construction and technical capabilities
as well as its abundant experience and know-how with respect to logistics and retail properties throughout Japan.
DHR believes that by receiving consistent support from the Daiwa House Group on a long-term basis, ranging from building and facilities maintenanceto short-term repair, long-term repair, renewal construction and redevelopment, DHR can optimize life cycle costs by taking advantage of the Daiwa
House Group’s know-how, understanding the status of buildings through well-planned and periodic inspections and implementing adequate and timely
preventive repairs and improving performance.
DHR will seek to engage in operations and management that take advantage of the Daiwa House Group’s know-how through the Daiwa HouseGroup’s support with respect to life cycle costs and its property management, and will also take measures to maintain and improve competitiveness andasset values. In such manner, DHR will seek to maintain and improve rent and occupancy rates and reduce costs.
Meanwhile, DHR will persist with its investment in energy conservation and initiatives geared toward environmentally sound solutions that enhance
profitability through efforts which include installing LED lighting in our current asset holdings.

C. Financial Strategy
DHR seeks as its basic policy to execute a well-planned and flexible financial strategy with the aim of ensuring sustainable profits on a medium- to longterm basis, contributing to the steady growth and efficient management of its properties and creating management stability.
DHR is also working to improve the stability of its financial base by maintaining and expanding its solid lender formation, while also taking steps
geared toward diversifying methods of raising capital through issuance of investment corporation bonds, extending repayment periods on interest-bearing
debt, fixing interest rates, and staggering repayment dates.

D. Merger between DHR and Daiwa House Residential Investment Corporation
By applying its traditional investment strategy, DHR has used to work towards achieving sustainable external growth and stable dividends, with the aimof increasing value of investment units through long term stable cash flow and solid growth of the portfolio. However, DHR currently faces its challenges:
DHR has relatively limited available strategies for efficiently swapping out investments and achieving internal growth at its positioning in the logistics REIT
sector and its current portfolio size.
It was with this in mind that DHR first agreed to begin negotiations with Daiwa House Residential Investment Corporation (hereinafter referred to as“DHI”) which deals in residential properties for a merger as one option for addressing these challenges and promoting the future growth of DHR. After
careful deliberations, DHR determined that the Merger was the most effective strategy for maximizing unitholder value based on improved distribution
through stable cash flow and solid growth of the portfolio. As such, DHR and DHI (with the two together hereinafter referred to as “the Investment
Corporations”) resolved at meetings of their respective boards of directors held on April 15, 2016, to implement an absorption-type merger with DHI as
the surviving corporation and DHR as the absorbed corporation (hereinafter referred to as the “Merger”) effective September 1, 2016, and executed amerger agreement (hereinafter referred to as the “Merger Agreement”) as of April 15, 2016.
For overview of the Merger, please refer to “1 Summary of Asset Management, (6) Significant Events after Balance Sheet Date, A. Merger between
DHR and Daiwa House Residential Investment Corporation” below.

(6) Significant Events after Balance Sheet Date
A. Merger between DHR and Daiwa House Residential Investment Corporation
DHR and DHI resolved at meetings of their respective boards of directors held on April 15, 2016, to implement the merger effective September 1, 2016,
and concluded a merger agreement on April 15, 2016.
(a) Purpose of the Merger
The Investment Corporations have to date used their individual strengths to work towards securing stable income over the medium to long termand steadily growing their assets, with the aim of sustainably increasing unitholder value. However, each faces its own challenges: DHI’s LTV ratio
remains high, and its portfolio specialized in residential properties offers limited opportunities for internal growth, while DHR has relatively limited available
strategies for efficiently swapping out investments and achieving internal growth at its positioning in the logistics REIT sector and its current portfolio size.
It was with this in mind that the Investment Corporations first agreed to begin negotiations for a merger as one option for addressing these challenges
and promoting the future growth of both companies. After careful deliberations, the Investment Corporations determined that the Merger was the mosteffective strategy for maximizing unitholder value based on improved distribution through stable cash flow and solid growth of the portfolio. As such, theInvestment Corporations have executed the Merger Agreement on April 15, 2016.
The Investment Corporations expect the following to result from the Merger: (i) enhanced external growth potential and further internal growth
opportunities through the shift to a diversified REIT, (ii) improvement of the position in the J-REIT market and asset-management flexibility through scaleenhancement, and (iii) acceleration of growth leveraging the value chain of the Daiwa House Group’s integrated capabilities, among other positive effects.

38

The Daiwa House Group, the sponsor, has set its management vision of “Endless Heart” and “co-create value for individuals, communities andpeople’s lifestyles,” and has committed itself to “contributing to society” through business development in diversified categories to meet social needs
and through aggressive innovation and the development of new categories. The Daiwa House Group has realized the “creation of shareholders’ value”
that generates greater economic value than the capital cost, steadily over the medium-to-long-term. The Investment Corporations will follow this Daiwa
House Group’s philosophy.
The surviving corporation after the Merger will shift to a diversified REIT that invests in new types of properties, such as hotels, office buildings,
and so on, in addition to those that the Investment Corporations have dealt in to date. Its policy will be to leverage the Daiwa House Group’s
integrated capabilities to enhance its growth potential, improve the profitability and quality of its portfolio, and achieve sustainable external growthand stable dividends.
Note that, along with the Merger, an absorption-type merger will be implemented effective as of September 1, 2016 with Daiwa House AssetManagement Co., Ltd., the asset manager of DHI, as the surviving company and the Asset Manager as the absorbed company, subject to the Merger
taking effect, in order for the assets held by the surviving corporation after the Merger to be managed efficiently.
(b) Method of the Merger
The Merger will be an absorption-type merger wherein DHI will be the surviving corporation and DHR will be dissolved.
(c) Merger Ratio
For the Merger, 2.2 units of DHI per unit of DHR will be allotted to the unitholders of DHR. Since this will generate fractions less than one unit for thenumber of investment units to be issued, those fractional units less than one unit will be sold through a market transaction in accordance with statutory
provisions, and the proceeds from the sale will be delivered to the unitholders who hold fractions in proportion to the size of their holdings.
(d) Cash Payment upon the Merger
In lieu of cash distributions to the unitholders of DHR for DHR’s fiscal period ending on the day immediately preceding the effective date of the Merger,
DHI plans to make a payment upon the merger that will be equivalent to the cash distributions of DHR for that fiscal period (a merger payment equal tothe distributable profit amount of DHR as of the day immediately preceding the effective date of the Merger divided by the number of investment units
after deducting the number of investment units held by unitholders other than the Allotted Unitholders (defined below) of DHR from the total numberof outstanding investment units of DHR as of the day immediately preceding the effective date of the Merger), to its unitholders (excluding unitholders
who have requested the purchase of their investment units in accordance with Article 149-3 of the Investment Trusts Act) (hereinafter referred to as the“Allotted Unitholders”) entered in or recorded on the final unitholders register of DHR as of the day immediately preceding the effective date of the Merger,
within a reasonable period after the effective date of the Merger.

B. Matters to be Submitted to the 12th Unitholders’ Meeting
At the 12th Unitholders’ Meeting scheduled for May 27, 2016, DHR intends to submit proposals for the approval of the Merger Agreement; the terminationof the asset management agreement with the Asset Manager; the election of Directors (one Executive Director, one Substitute Executive Director, two
Supervisory Directors and one Substitute Supervisory Director) as well as for the partial amendment of the Articles of Incorporation.

39

I. Asset Management Report

C. Acquisition of Assets
DHR has concluded the purchase agreements regarding the acquisition of the following assets on April 15, 2016. The surviving corporation after the
Merger is then expected to acquire the respective assets subject to the effectuation of the Merger, etc.
Property nameNaha Shin-Toshin Center Building (Daiwa Roynet Hotel Naha-Omoromachi)

Planned acquisition price (Note 1)¥7,600,000 thousand

Seller (Note 2)

Daiwa House Industry Co., Ltd.
DO Shin-Toshin Development Tokutei Mokuteki Kaisha

Asset type

Trust beneficiary interest in real estate (Note 4)

Location (Address)

1-1-12, Omoromachi, Naha-shi, Okinawa

Planned acquisition date (Note 3)

September 28, 2016

Property name

D Project Hibiki Nada

Planned acquisition price (Note 1)¥2,080,000 thousand

Seller (Note 2)

Daiwa House Industry Co., Ltd.

Asset type

Trust beneficiary interest in real estate (Note 4)

Location

3-1-5, Hibiki-machi, Wakamatsu-ku, Kitakyushu-shi, Fukuoka

Planned acquisition date (Note 3)

September 28, 2016

Property name

D Project Morioka II

Planned acquisition price (Note 1)¥1,280,000 thousand

Seller (Note 2)

Daiwa House Industry Co., Ltd.

Asset type

Trust beneficiary interest in real estate (Note 4)

Location (Address)

3-15, Ogama-kazabayashi, Takizawa-shi, Iwate

Planned acquisition date (Note 3)

September 28, 2016

Property nameSports Depo, GOLF5 Kokurahigashi IC Store

Planned acquisition price (Note 1)¥2,230,000 thousand

Seller (Note 2)

Daiwa House Industry Co., Ltd.

Asset type

Trust beneficiary interest in real estate

Location (Address)

2-18-17, Kamikuzuhara, Kokuraminami-ku, Kitakyushu-shi, Fukuoka

Planned acquisition date (Note 3)

September 28, 2016

(Notes) 1. Acquisition price does not include acquisition expenses which were incurred in connection with the acquisition, settlement money such as taxes and duties, and consumption taxes.
2. As Daiwa House Industry Co., Ltd. is an interested party, etc. as defined in the Investment Trusts Act, the Asset Manager has gone through the necessary discussion and resolution procedures inaccordance with its internal rules to avoid transactions with conflicts of interest.
		 DO Shin-Toshin Development Tokutei Mokuteki Kaisha, the seller of Naha Shin-Toshin Center Building (Daiwa Roynet Hotel Naha-Omoromachi), is not an interested party, etc. under the Investment
Trusts Act. The said Tokutei Mokuteki Kaisha, however, is a special purpose company set up with the aim of acquiring, holding and disposing of specified assets partially invested in by Daiwa House
Industry Co., Ltd., which is the parent company of the Asset Manager, and is classified as an interested party as stipulated in the Asset Manager’s internal rules to avoid transactions with conflicts ofinterest. As such, the Asset Manager has gone through the necessary discussion and resolution procedures.
3. The purchase agreement for acquisition of each above property is deemed a forward commitment, etc. (a forward-dated purchase agreement in which settlement and transfer of the property arecarried out at least one month after the agreement is concluded, as well as certain other similar agreements).
		 Under the purchase agreement, if a party breaches the respective purchase agreement, then the non-breaching party may cancel the purchase agreement upon notice to the breaching party, but
only if the non-breaching party is no longer able to fulfill the purpose of the respective purchase agreement due to the other party’s breach. In the event the purchase agreement is cancelled, thenon-breaching party may demand the breaching party to pay a penalty in the amount equal to approximately 20% of the respective purchase price (amount equal to approximately 10% for the sales
contract with DO Shin-Toshin Development Tokutei Mokuteki Kaisha concerning the acquisition of Naha Shin-Toshin Center Building (Daiwa Roynet Hotel Naha-Omoromachi); as such penalty is
expected to constitute damage payment, the non-breaching party may not claim for damages in the amount exceeding such penalty amount).
		 The payment of the respective purchase price by the surviving corporation after the Merger, however, is subject to the surviving corporation after the Merger completing the financing necessary to pay
the respective purchase price. Hence, if the surviving corporation after the Merger is unable to complete the financing necessary to pay the purchase price, the respective purchase agreement will
expire without the surviving corporation after the Merger assuming any obligations under the purchase agreement, including payment of any penalty or compensation such as payment of damages.
Thus, if the surviving corporation after the Merger cannot fulfill the forward commitment, etc. due to failing to complete the financing, it is unlikely that such non-fulfillment will have any material impact
on the financial situation of the surviving corporation after the Merger.
4. As of April 15, 2016, the asset to be acquired stands as physical real estate. By the time of planned acquisition date, however, the asset is expected to be transferred to the trustee by the current
owner and the surviving corporation after the Merger is expected to acquire the beneficiary interest in the respective real estate.

40

2

Overview of the Investment Corporation(1) Status of Investment Units
Period12th period

13th period

14th period

15th period

16th period

February 28, 2014

August 31, 2014

February 28, 2015

August 31, 2015

February 29, 2016

Total number of investment units authorized(Units)2,000,000

4,000,000

4,000,000

4,000,000

Total number of investment units issued(Units)122,540

293,480 (Note)

293,480

350,700

350,700

4,127

6,105

5,482

7,411

7,440

Number of unitholders

4,000,000(Note) DHR executed a 2-for-1 investment unit split effective March 1, 2014.

(2) Matters concerning Investment Units
The top ten unitholders in terms of the percentage of investment units held as of February 29, 2016 are as follows:
Percentage of units held to the total
number of investment units issued(%)

Number of investment units held
(Units)Name
Japan Trustee Services Bank, Ltd. (Trust account)

111,317

31.74

Daiwa House Industry Co., Ltd.

42,800

12.20

The Master Trust Bank of Japan, Ltd. (Trust account)

27,792

7.92

Trust & Custody Services Bank, Ltd. (Securities investment trust account)

24,315

6.93

The Nomura Trust and Banking Co., Ltd. (Investment trust account)

12,651

3.61

The Fuji Fire and Marine Insurance Co., Ltd.

5,594

1.60

The Hachijuni Bank, Ltd.

4,606

1.31

State Street Bank - West Pension Fund Clients - Exempt 505233

3,455

0.99

The Yamanashi Chuo Bank, Ltd.

3,203

0.91

Trust & Custody Services Bank, Ltd. (Money trust tax account)

2,806

0.80

238,539

68.02

Total

(3) Officers
The following table provides information about the Executive Director, Supervisory Directors and Accounting Auditor during the 16th period.
Title and post

Name

Executive Director (Note 1)

Masazumi Kakei

Supervisory Directors (Note 1)

Accounting Auditor (Note 2)

Major concurrent position

Total compensation per title during
the 16th period(Yen in thousands)

—

2,400

Shuichi Sasaki

Representative Lawyer
Sasaki Sōgō Law Office

1,800

Tatsuro Sasaki (Note 3)

Attorney
Sasaki Sōgō Law Office

1,200

Satoshi Kikuchi (Note 3)

Certified Public Accountant
Satoshi Kikuchi Certified Public Accountant Office

KPMG AZSA LLC

600—

12,600(Notes) 1. The Executive Director and Supervisory Directors do not hold investment units of DHR under their own or another person’s name. Any Supervisory Director may serve as an executive of a corporation
other than those listed above, but such corporations including those listed above do not have any interest in DHR.
2. Dismissal or non-reappointment of Accounting Auditor shall be discussed at DHR’s board of directors pursuant to the provisions of the Investment Trusts Act for dismissal, and taking into full accountall relevant factors for non-reappointment.
3. Satoshi Kikuchi retired as Supervisory Director on October 31, 2015, and Tatsuro Sasaki, who was substitute Supervisory Director, was appointed as Supervisory Director on November 1, 2015.

(4) Asset Manager, Custodian and General Administrators
Business

Name

Asset Manager

Daiwa House REIT Management Co., Ltd.

Custodian

Sumitomo Mitsui Trust Bank, Limited

General Administrator (Transfer agent)

Sumitomo Mitsui Trust Bank, Limited

General Administrator (Administrative work for organizational operation)

Sumitomo Mitsui Trust Bank, Limited

General Administrator (Accounting administration)

Sumitomo Mitsui Trust Bank, Limited

General Administrator (Administrative work related to investment corporation bonds)

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

41

I. Asset Management Report

3

Portfolio of the Investment Corporation(1) Composition of Assets
15th period
August 31, 2015
Type ofassetsProperty
type

Area

Total amount held
(Yen in millions)(Note 2)16th period
February 29, 2016

Percentage
to total assets(%)

Total amount held
(Yen in millions)(Note 2)

Percentage
to total assets(%)

Greater Tokyo area

118,743

54.7

117,904

53.1

Greater Nagoya area

10,584

4.9

10,517

4.7

Greater Osaka area

14,1196.5

14,001

6.3

Other

15,943

7.3

15,7997.1

Subtotal

159,39073.5

158,222

71.2

Greater Tokyo area

16,423

7.6

16,295

7.3

Greater Nagoya area

1,968

0.9

1,968

0.9

Greater Osaka area

4,558

2.1

4,561

2.1

Other

8,545

3.9

16,288

7.3

Subtotal

31,49514.5

39,113

17.6

Total

190,886

88.0

197,33688.9

Deposits and other assets (Note 3)

26,05012.0

24,745

11.1

Total assets (Note 4)

216,936(190,886)

100.0(88.0)

222,081(197,336)

100.0(88.9)

Logistics
properties

Real estatein trust
Retailproperties

Three major
metropolitan areasof Japan (Note 1)

Three major
metropolitan areasof Japan (Note 1)(Notes) 1. Three major metropolitan areas of Japan are the Greater Tokyo area, the Greater Nagoya area and the Greater Osaka area. The Greater Tokyo area consists of Tokyo, Kanagawa Prefecture, Saitama
Prefecture and Chiba Prefecture; the Greater Nagoya area consists of Aichi Prefecture, Gifu Prefecture and Mie Prefecture; and the Greater Osaka area consists of Osaka Prefecture, Kyoto Prefecture,
Hyogo Prefecture, Nara Prefecture, and Shiga Prefecture. The same shall apply hereinafter.
2. The total amount held represents the amount recorded on the balance sheets as of the end of the respective period (for real estate in trust, book value less depreciation expenses).
3. Figures for deposits and other assets include the amount of construction in progress in trust.
4. Figures in brackets in the total assets represent the portion corresponding to substantive holding of real estate, etc., in total assets.

(2) Principal Assets Held
The overview of principal assets held by DHR as of February 29, 2016 (top ten properties in terms of book value at the end of the period) is as follows:
Occupancy rate(%)

Rate to total real estateleasing business revenues(%)

72,320.01

100.0— (Note 3)

Logistics property

62,394.17

62,394.17

100.0— (Note 3)

Logistics property

9,569

39,584.80

39,584.80

100.0— (Note 3)

Logistics property

D Project Kuki V

7,970

47,320.89

47,320.89

100.0— (Note 3)

Logistics property

DREAM TOWN ALi

7,783

22,196.81

21,911.46

98.7

4.8

Retail Property

D Project Urayasu I

7,458

36,515.81

36,515.81

100.0— (Note 3)

Logistics property

D Project Machida

7,331

50,490.39

50,490.39

100.0— (Note 3)

Logistics property

D Project Kuki III

7,277

26,937.41

26,937.41

100.0— (Note 3)

Logistics property

D Project Kuki II

7,001

50,490.00

50,490.00

100.0— (Note 3)

Logistics property

D Project Matsudo

6,972

26,776.67

26,776.67

100.0— (Note 3)

Logistics property

Total

94,157435,026.96

434,741.61

99.9

Book value(Yen in millions)Leasable area(m2) (Note 1)

D Project Urayasu II

20,80572,320.01

D Project Hachioji

11,986

D Project Nishiyodogawa

Property nameLeased area(m2) (Note 2)

Primary Use

44.5(Notes) 1. Leasable area means the area of the building in relation to each property in trust which DHR believes is leasable as indicated in the relevant lease agreement or drawing of the building.
2. Leased areas as indicated in each lease agreement in relation to each property in trust as of February 29, 2016, are added up and shown. However, the leased areas as indicated in each subleaseagreement for properties in trust as of February 29, 2016 that are subject to a pass-through type master lease agreement, under which rent is in principle the same amount as the rent received by themaster lessee from end-tenants, are added up and shown. In some properties, leased area is larger than gross floor area due to differences in measurement of floor area in real property registrationand lease agreements. Gross floor area is based on the real property registration, while leased area is based on each lease agreement. In particular at logistics properties, when eaves are included in
the leased area, the leased area may significantly exceed the gross floor area.
3. These rates to total real estate leasing business revenues are not disclosed as consent for disclosure has not been obtained from lessees.

42

(3) Description of Portfolio
The overview of portfolio assets held by DHR as of February 29, 2016 is as follows:
Property name
D Project Machida
D Project Hachioji
D Project Aikawa-Machi
D Project Shin-Misato

Form of ownership

1-6, Oyamagaoka 2-chome, Machida-shi,Tokyo
21-1, Minami-Osawa 3-chome,
Hachioji-shi, Tokyo
4020-12, Aza Sakuradai, Nakatsu,
Aikawa-machi, Aiko-gun, Kanagawa
Lala City, Shin-Misato, Misato-shi,
Saitama (Note 3)

Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate

D Project Urayasu I

12-1, Chidori, Urayasu-shi, Chiba

D Project Urayasu II

11-5, Chidori, Urayasu-shi, Chiba

D Project Akanehama
D Project Noda
D Project Inuyama
D Project Gifu
D Project Neyagawa
D Project Sapporo Minami
D Project Morioka
D Project Sendai Minami

Logistics properties

Location (Note 1)

D Project Tsuchiura
D Project Gotenba
D Project Nishi-Hiroshima
D Project Fukuoka Umi
D Project Tosu
D Project Kuki I
D Project Kuki II
D Project Kawagoe I
D Project Kawagoe II
DPL Inuyama
D Project Fukuoka Hakozaki
D Project Kuki III
D Project Kuki IV
D Project Kuki V
D Project Kuki VI
D Project Yashio
D Project Nishiyodogawa
D Project Matsudo

2-8, Akanehama 3-chome, Narashino-shi,
Chiba
1-1, Aza Tamei, Futatsuka, Noda-shi,
Chiba
5-5, Takanebora, Inuyama-shi, Aichi
449-9, Nanba Azamura-higashi,
Wanouchi-cho, Anpachi-gun, Gifu
24-12, Shimeno 2-chome, Neyagawa-shi,Osaka
7-1, Wattsu Chuo 5-chome,
Kitahiroshima-shi, Hokkaido
3-18, Kazabayashi, Ogama, Takizawa-shi,
Iwate
2-39, Kuko-Minami 3-chome,
Iwanuma-shi, Miyagi
20-29, Aza Harayama, Hongo,
Tsuchiura-shi, Ibaraki
2271-10, Aza Odori, Jinba, Gotenba-shi,
Shizuoka
3-11, Tomo-Minami 2-chome,
Asaminami-ku, Hiroshima-shi, Hiroshima
384-15, Aza Noguchi, Oaza Ino,
Umi-machi, Kasuya-gun, Fukuoka
1623-2, Aza Hasuhara, Himekata-machi,
Tosu-shi, Saga
6004-2, Aza Taikoda, Shobu-cho Shobu,
Kuki-shi, Saitama
6201-1, Aza Kazarimen, Shobu-cho
Sanga, Kuki-shi, Saitama
2-3, Yoshinodai 3-chome, Kawagoe-shi,
Saitama
2-4, Yoshinodai 3-chome, Kawagoe-shi,
Saitama
1-8, Aza Nakahiratsuka, Oaza
Haguroshinden, Inuyama-shi, Aichi, etc.
2-1, Hakozakifuto 5-chome, Higashi-ku,
Fukuoka-shi, Fukuoka
6004-1, Aza Taikoda, Shobu-cho Shobu,
Kuki-shi, Saitama
6201-5, Aza Kazarimen, Shobu-cho
Sanga, Kuki-shi, Saitama
6201-6, Aza Kazarimen, Shobu-cho
Sanga, Kuki-shi, Saitama
48-3, Kiyoku-cho, Kuki-shi, Saitama
50-1, Oaza Shin-machi, Yashio-shi,
Saitama
7-48, Nakashima 2-chome,
Nishiyodogawa-ku, Osaka-shi, Osaka
700-3, Aza Nishinooda, Kamihongo,
Matsudo-shi, Chiba

Retail properties

Subtotal
ACROSSMALL
Shinkamagaya
FOLEO Hirakata
QiZ GATE URAWA
UNICUS Takasaki

12-1, Shin-Kamagaya 2-chome,
Kamagaya-shi, Chiba
20-10, Koyamichi 1-chome, Hirakata-shi,
Osaka
3720, Oaza Nakao, Midori-ku,
Saitama-shi, Saitama
1150-5, Aza Nishikanai, Iizukamachi,
Takasaki-shi, Gunma

Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate

43

Leasable area
(m2)

Book value(Yen in millions)

Assessed value
at the end of period(Yen in millions) (Note 2)

50,490.39

7,331

9,200

62,394.17

11,986

15,40014,240.84

2,515

3,320

11,289.91

4,293

5,720

36,515.81

7,458

9,080

72,320.01

20,80525,40011,663.39

2,478

2,890

29,232.53

4,840

6,200

43,723.70

6,324

8,520

7,669.91

846

1,100

11,151.51

4,431

5,830

6,749.10561

818

9,558.32

936

1,200

11,052.27

1,161

1,520

17,448.86

2,711

3,390

6,737.53

912

1,140

5,093.51

955

1,210

24,729.56

2,941

4,150

8,826.00

1,983

2,730

22,708.72

3,439

3,910

50,490.00

7,001

8,100

16,150.88

3,054

3,480

19,872.00

4,176

4,730

21,628.50

3,347

3,850

34,710.80

3,636

4,250

26,937.41

7,277

7,640

26,460.00

5,262

5,490

47,320.89

7,970

8,280

29,244.66

4,935

5,130

21,965.04

6,103

6,400

39,584.80

9,569

10,30026,776.67

6,972

7,370

824,737.69

158,222

187,748

41,742.84

6,496

7,640

16,380.78

4,561

4,580

9,705.31

4,760

4,740

9,277.08

2,582

2,950

Retail properties

I. Asset Management Report

Property nameLocation (Note 1)

Form of ownership

ACROSSPLAZA Miyoshi(land)

855-403, Aza Kitashinno, Oaza Fujikubo,
Miyoshi-machi, Iruma-gun, Saitama
1-1, Hamada 3-chome, Aomori-shi,
Aomori19-5, Wakamatsu 5-chome, Minami-ku,
Sagamihara-shi, Kanagawa
14-5, Higashi-Sendai 4-chome,
Miyagino-ku, Sendai-shi, Miyagi
1-1, Otsuka Minami 5-chome,
Inazawa-shi, Aichi

Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estate
Trust beneficiaryinterests in real estateDREAM TOWN ALi
LIFE Sagamihara Wakamatsu
FOLEO Sendai Miyanomori
ACROSSPLAZA Inazawa(land)

Leasable area
(m2)

Book value(Yen in millions)

Assessed value
at the end of period(Yen in millions) (Note 2)

24,018.00

3,413

3,710

22,196.81

7,783

8,100

2,973.44

1,625

1,640

19,845.72

5,922

6,840

31,981.70

1,968

2,380

Subtotal

178,121.68

39,11342,580Total

1,002,859.37

197,336

230,328(Notes) 1. Location means displayed address. If a property does not have a displayed address, the address of the building in the register (when there is more than one address, any of them) is shown. For land
properties, the address of the land in the register is shown as location.
2. Assessed value at the end of period represents the appraisal value or survey value provided by the Tanizawa Sōgō Appraisal Co., Ltd. and Japan Real Estate Institute, with the date of appraisal
value as of February 29, 2016, in accordance with the method and criteria of asset valuation set forth in the Articles of Incorporation of DHR and the rules stipulated by the Investment Trusts
Association, Japan.
3. Information is not disclosed as consent for disclosure has not been obtained from lessees.

The status of rental business related to properties held by DHR is as follows:

Property name

Total numberof tenants(as of the endof period)

Logistics properties(Note 1)

15th period

16th period(From March 1, 2015 to August 31, 2015)(From September 1, 2015 to February 29, 2016)

Occupancy
Real estate
Rate to total
rate
leasing business real estate(as of therevenues
leasingend of(during thebusiness
period)period)revenues(%)(Yen in millions)(%)

Real estate
Rate to total
Total number Occupancy
leasing business real estateof tenants (as rate (as ofrevenues
leasingof the end of the end of(during thebusiness
period)period)period)revenues(Note 1)(%)
(Yen in millions)(%)

D Project Machida

1 [1]

100.0

— (Note 2)— (Note 2)

1 [1]

100.0

— (Note 2)— (Note 2)

D Project Hachioji

2

100.0

— (Note 2)— (Note 2)

2

100.0

— (Note 2)— (Note 2)

D Project Aikawa-Machi

1 [1]

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Shin-Misato

1

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Urayasu I

1

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Urayasu II

1 [1]

100.0

— (Note 2)— (Note 2)

1 [1]

100.0

— (Note 2)— (Note 2)

D Project Akanehama

1 [1]

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Noda

1

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Inuyama

1

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Gifu

1

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Neyagawa

1

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Sapporo Minami

1

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Morioka

1

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Sendai Minami

1

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Tsuchiura

1

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Gotenba

1

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Nishi-Hiroshima

2

100.0

D Project Fukuoka Umi

4

100.0

D Project Tosu

1

100.0

D Project Kuki I

1

D Project Kuki II

1

D Project Kawagoe I

1

100.0

— (Note 2)— (Note 2)

2

100.0

1.9

4

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

100.0— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

100.0— (Note 2)— (Note 2)

1

100.0

— (Note 2)

102

1.6

1

100.0

102

1.5

138

138

2.0

121

— (Note 2)
122— (Note 2)
1.8— (Note 2)

D Project Kawagoe II

1

100.0

2.2

1

100.0

DPL Inuyama

1

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Fukuoka Hakozaki

1

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Kuki III

1

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

44

Property name

Total numberof tenants(as of the endof period)

Logistics properties(Note 1)

16th period(From September 1, 2015 to February 29, 2016)

Occupancy
Real estate
Rate to total
rate
leasing business real estate(as of therevenues
leasingend of(during thebusiness
period)period)revenues(%)(Yen in millions)(%)

Real estate
Rate to total
Total number Occupancy
leasing business real estateof tenants (as rate (as ofrevenues
leasingof the end of the end of(during thebusiness
period)period)period)revenues(Note 1)(%)
(Yen in millions)(%)

D Project Kuki IV

1

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Kuki V

1

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Kuki VI

1

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Yashio

2

100.0

— (Note 2)— (Note 2)

2

100.0

— (Note 2)— (Note 2)

D Project Nishiyodogawa

1

100.0

— (Note 2)— (Note 2)

1

100.0

— (Note 2)— (Note 2)

D Project Matsudo

1

100.0

1

100.0

Subtotal

38

100.0

5,021

79.6

38

100.0

5,328

76.8

ACROSSMALL Shinkamagaya

1

100.0

275

4.4

1

100.0

275

4.0

FOLEO Hirakata

Retail properties

15th period(From March 1, 2015 to August 31, 2015)— (Note 2)— (Note 2)— (Note 2)— (Note 2)

1 [23]

99.6

188

3.0

1 [25]

100.0

190

2.7

QiZ GATE URAWA

9

98.1

237

3.8

9

98.1

227

3.3

UNICUS Takasaki

1

100.0

129

2.1

1

100.0

129

1.9

ACROSSPLAZA Miyoshi (land)

1

100.0

94

1.5

1

100.0

94

1.4

DREAM TOWN ALi

—

—

—

—

1 [34]

98.7

334

4.8

LIFE Sagamihara Wakamatsu

1

100.0

— (Note 2)

1

100.0

FOLEO Sendai Miyanomori

1

100.0

238

3.8

1

100.0

238

3.4

ACROSSPLAZA Inazawa (land)

1

100.0

69

1.1

1

100.0

69

1.0

— (Note 2)— (Note 2)— (Note 2)

Subtotal

16

99.8

1,283

20.4

17

99.7

1,610

23.2

Total

54

100.0

6,305

100.0

55

100.0

6,938

100.0

(Notes) 1. Total number of tenants is equal to the number of tenants per property based upon each lease agreement in relation to each property in trust as of the end of the respective period. However, thenumber of end-tenants is indicated in brackets after the number of master lessees in the case of a property subject to a pass-through type master lease agreement, under which rent is in principle
the same amount as the rent received by the master lessee from end-tenants. Meanwhile, only the master lessee is indicated as a tenant with respect to a property subject to a sublease type master
lease agreement, under which a certain amount of rent is received regardless of fluctuations in the sublease occupancy rate.
2. Real estate leasing business revenues and rate to total real estate leasing business revenues are not disclosed as approval for disclosure has not been obtained from lessees.

(4) Description of Renewable Energy Power Generation Facilities, etc.
Not applicable.

(5) Description of Operating Rights of Public Facilities, etc.
Not applicable.

(6) Status of Other Assets
Trust beneficiary interests in real estate held by DHR are all listed in “(3) Description of Portfolio.” The following are other specified assets as ofFebruary 29, 2016.
Securities other than shares and investment securities(Yen in thousands)
Type

Issue nameGovernment
bonds

30-year principal-strippedgovernment bonds (Series 27)
Total

Accruedinterest

Prepaid accrued
interest

Fair value

Valuation gainor loss

Total face value

Book value

10,000

6,535

—

—

8,583

Deposited
2,047 as businesssecurity deposit

10,000

6,535

—

—

8,583

2,047

(7) Holding of Assets by Country and Region
Not applicable.

45

Remarks

I. Asset Management Report

4

Capital Expenditures for Properties Held(1) Schedule of Capital Expenditures
The following table shows major scheduled capital expenditures for planned renovation work, etc., for real estate in trust held as of February 29, 2016.
The estimated construction cost includes the portion charged to expenses.
Property name
(Location)

PurposeScheduled period

Estimated construction cost (Yen in millions)
Total amountPayment for the period

Total amount paid

D Project Fukuoka Umi(Kasuya, Fukuoka)

Installment of LED lights
and other

From March 2016
to May 2016

11

—

—

D Project Kawagoe II(Kawagoe, Saitama)

Installment of LED lights

From May 2016
to July 2016

26

—

—

D Project Kuki IV(Kuki, Saitama)

Installment of LED lights

From May 2016
to June 2016

43

—

—

LIFE Sagamihara Wakamatsu(Sagamihara, Kanagawa)

Painting of exterior walls

From March 2016
to May 2016

24

—

—

(2) Capital Expenditures during the Period
For real estate in trust held, an overview of major construction work conducted by DHR during the fiscal period under review that falls into capital
expenditure is as follows:
Property name
(Location)

PurposeConstruction cost
(Yen in millions)

PeriodD Project Akanehama (Narashino, Chiba)

Installment of LED lights

From November 2015
to November 201512

D Project Gotenba (Gotenba, Shizuoka)

Repair work of exterior walls

From August 2015
to September 201510

DPL Inuyama (Inuyama, Aichi)

Installment of LED lights

From February 2016
to February 201621

FOLEO Hirakata (Hirakata, Osaka)

Installment of LED lights

From November 2015
to November 201539(3) Cash Reserves for Long-Term Repairs and Maintenance Plans
Based on long-term repair and maintenance plans compiled for each property, DHR sets aside the following cash reserves from cash flows during the
fiscal period in order to provide for payment of funds for large repair and maintenance, etc., over the medium to long term.
(Yen in millions)Operating period

12th period

13th period

14th period

15th period

16th period

From September 1, 2013
to February 28, 2014

From March 1, 2014
to August 31, 2014

From September 1, 2014
to February 28, 2015

From March 1, 2015
to August 31, 2015

From September 1, 2015
to February 29, 2016

Balance of reserves at beginning of period

180

239

300

362

430

Amount of reserves during period

58

60

62

67

77

Amount of reversal of reserves during period

—

—

—

—

—

Reserves carried forward

239

300

362

430

507

46

5

Expenses and Liabilities(1) Expenses Incurred in Connection with Management of Assets(Yen in thousands)
15th period

16th period

From March 1, 2015
to August 31, 2015

From September 1, 2015
to February 29, 2016(a) Asset management fee (Note 1)

376,147

465,452(b) Asset custody fee

14,463

19,036(c) Administrative service fee

16,177

18,176(d) Directors’ compensation

6,000

6,000

(e) Accounting Auditor’s compensation (Note 2)

13,00012,600(f) Other expenses

54,69464,598480,484

585,863

Item

Total

(Notes) 1. In addition to the amount shown above for asset management fee, there was a management fee for property acquisition included in the cost of acquisition of individual investment properties, etc.
(15th period: ¥121,050 thousand, 16th period: ¥19,475 thousand).
2. In addition to the amount shown above for Accounting Auditor’s compensation, in the 15th period there were fees of ¥12,000 thousand for the creation of comfort letters for the issuance of new
investment units in March 2015.

(2) Debt Financing
The status of borrowings per financial institution as of February 29, 2016 is as follows:
Classification

Short-term borrowings

LenderBalance atthe beginningof period(Yen in millions)

Balance at the
Averageend of period interest rate
(Yen in millions) (%) (Note 1)

1,000

1,000

1,000

1,000

0.33

1,000

1,000

Floatingrate

1,000

1,000

4,000

4,000

Sumitomo Mitsui Banking Corporation

4,250

—

Sumitomo Mitsui Trust Bank, Limited

4,250

—

4,250

—

Sumitomo Mitsui Banking Corporation
Sumitomo Mitsui Trust Bank, Limited
The Bank of Tokyo-Mitsubishi UFJ, Ltd.

June 1,
2015

Mizuho Bank, Ltd.
Subtotal

The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Current portion of long-term borrowings

Borrowingdate

November29, 2012

4,250—

Mitsubishi UFJ Trust and Banking
Corporation

2,000

—

Resona Bank, Limited

1,000

—

Sumitomo Mitsui Banking Corporation

—

3,000

Sumitomo Mitsui Trust Bank, Limited

—

3,000

—

3,000

—

3,000

Mitsubishi UFJ Trust and Banking
Corporation

—

2,000

Resona Bank, Limited

—

1,000

20,00015,000Mizuho Bank, Ltd.

The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Mizuho Bank, Ltd.

Subtotal

November29, 2012

47

0.73
Fixed-rate

0.83
Fixed-rate

Repayment
due date

Method ofrepayment

Use

Note

June 1,
2016

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

November30, 2015

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

November29, 2016

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

I. Asset Management Report

Classification
LenderBorrowingdate

Balance at the
Averageend of period interest rate
(Yen in millions) (%) (Note 1)

Sumitomo Mitsui Banking Corporation

3,000

—

Sumitomo Mitsui Trust Bank, Limited

3,000

—

3,000

—

3,000

—

Mitsubishi UFJ Trust and Banking
Corporation

2,000

—

Resona Bank, Limited

1,000

—

Sumitomo Mitsui Banking Corporation

3,000

3,000

Sumitomo Mitsui Trust Bank, Limited

3,000

3,000

3,000

3,000

3,000

3,000

Mitsubishi UFJ Trust and Banking
Corporation

1,000

1,000

Development Bank of Japan Inc.

3,000

3,000

Sumitomo Mitsui Banking Corporation

2,000

2,000

2,000

2,000

2,000

2,000

Mizuho Bank, Ltd.

2,000

2,000

Development Bank of Japan Inc.

2,000

2,000

2,000

2,000

The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Mizuho Bank, Ltd.

The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Mizuho Bank, Ltd.

November29, 2012

November29, 2012

Sumitomo Mitsui Trust Bank, Limited
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Long-term borrowings

Balance atthe beginningof period(Yen in millions)

Sumitomo Mitsui Trust Bank, Limited

November29, 2012

March 27,
2013

Repayment
due date

Method ofrepayment

Use

Note

0.83
Fixed-rate

November29, 2016

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

0.96
Fixed-rate

November29, 2017

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

1.29
Fixed-rate

November29, 2019

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

March 27,
2023

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

April 1, 2021

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

April 1, 2022

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

April 1, 2024

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

April 1, 2026

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

1.50
Fixed-rate(Note 2)

Sumitomo Mitsui Banking Corporation

500

500

Sumitomo Mitsui Trust Bank, Limited

500

500

500

500

1.05
Fixed-rate

1,000

1,000

(Note 2)

500

500

1,000

1,000

500

500

The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Mizuho Bank, Ltd.

April 1,
2014

Mitsubishi UFJ Trust and Banking
Corporation
Sumitomo Mitsui Banking Corporation
Sumitomo Mitsui Trust Bank, Limited

April 1,
2014

1,000

1,000

Mizuho Bank, Ltd.

1,000

1,000

Sumitomo Mitsui Banking Corporation

1,000

1,000

500

500

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

Sumitomo Mitsui Trust Bank, Limited

April 1,
2014

1,000

1,000

Development Bank of Japan Inc.

500

500

Sumitomo Mitsui Banking Corporation

500

500

500

500

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

Sumitomo Mitsui Trust Bank, Limited
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Development Bank of Japan Inc.

April 1,
2014

500

500

500

500

48

1.21
Fixed-rate(Note 2)

1.52
Fixed-rate(Note 2)

2.03
Fixed-rate(Note 2)Classification

Borrowingdate

Balance atthe beginningof period(Yen in millions)

September
30, 2014

1,000

April 1,
2015

Balance at the
Averageend of period interest rate
(Yen in millions) (%) (Note 1)

Repayment
due date

Method ofrepayment

Use

Note

1,000

1.00
Fixed-rate

September
29, 2023

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

1,000

1,000

0.57
Fixed-rate

April 1, 2020

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

1,000

1,000

1,000

1,000

October 3,
2022

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

The Norinchukin Bank

1,000

1,000

Sumitomo Mitsui Banking Corporation

1,000

1,000

1,000

1,000

October 2,
2023

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

October 1,
2025

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

Lender

Nippon Life Insurance Company
Mitsui Sumitomo Insurance Company,
LimitedSumitomo Mitsui Banking Corporation
Mizuho Bank, Ltd.

Sumitomo Mitsui Trust Bank, Limited

April 1,2015

April 1,
2015

1,000

Resona Bank, Limited

1,000

1,000

Sumitomo Mitsui Banking Corporation

1,000

1,000

1,000

1,000

1,000

1,000

1,000

1,000

Sumitomo Mitsui Trust Bank, Limited
Mizuho Bank, Ltd.

April 1,
2015

Mitsubishi UFJ Trust and Banking
Corporation
Long-term borrowings(Note 2)

1,000

Mizuho Bank, Ltd.

0.87
Fixed-rate

0.99
Fixed-rate(Note 2)

1.23
Fixed-rate(Note 2)The Bank of Tokyo-Mitsubishi UFJ, Ltd.

April 1,
2015

3,000

3,000

1.18
Fixed-rate

October 1,
2025

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

Development Bank of Japan Inc.

April 1,
2015

1,500

1,500

1.46
Fixed-rate

April 1, 2027

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

—

1,000

—

1,000

September
28, 2022

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

September
30, 2024

Bulletrepayment(Note 3)

Unsecuredand nonguaranteed

November30, 2021

Bulletrepayment(Note 4)

Unsecuredand nonguaranteed

May 31,
2023

Bulletrepayment(Note 4)

Unsecuredand nonguaranteed

Sumitomo Mitsui Trust Bank, Limited
Sumitomo Mitsui Banking Corporation

September
28, 2015

—

1,000

—

1,000

—

1,000

Sumitomo Mitsui Banking Corporation

—

1,000

Sumitomo Mitsui Trust Bank, Limited

—

1,000

—

1,000

The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Mizuho Bank, Ltd.
Nippon Life Insurance Company

September
28, 2015

The Bank of Tokyo-Mitsubishi UFJ, Ltd.
November30, 2015—

1,000

Mitsubishi UFJ Trust and Banking
Corporation

—

2,000

Resona Bank, Limited

—

1,000

Sumitomo Mitsui Banking Corporation

—

1,000

—

1,000

Mizuho Bank, Ltd.

Sumitomo Mitsui Trust Bank, Limited
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Mizuho Bank, Ltd.

November30, 2015

—

1,000

—

1,000

49

0.65
Fixed-rate(Note 2)

0.73
Fixed-rate

0.51
Fixed-rate(Note 2)

0.71
Fixed-rate(Note 2)

I. Asset Management Report

Classification
LenderBorrowingdate

Balance atthe beginningof period(Yen in millions)

Sumitomo Mitsui Banking Corporation

Long-term borrowings

Sumitomo Mitsui Trust Bank, Limited

November30, 2015

Balance at the
Averageend of period interest rate
(Yen in millions) (%) (Note 1)

—

1,000

—

1,000

—

1,000

Mizuho Bank, Ltd.

—

1,000

Sumitomo Mitsui Banking Corporation

—

1,000

—

1,000

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

Sumitomo Mitsui Trust Bank, Limited
The Bank of Tokyo-Mitsubishi UFJ, Ltd.

November30, 2015

0.97
Fixed-rate(Note 2)

1.09
Fixed-rate

—

1,000

—

1,000

Subtotal

72,00081,000Total

96,000100,000

Mizuho Bank, Ltd.

Repayment
due date

Method ofrepayment

Use

Note

May 30,2025

Bulletrepayment(Note 4)

Unsecuredand nonguaranteed

May 29,2026

Bulletrepayment(Note 4)

Unsecuredand nonguaranteed(Note 2)

(Notes) 1. Average interest rate is the weighted average interest rate during the period, rounded to the nearest 100th.
2. Interest rate swaps are used to avoid interest rate fluctuation risk. Therefore, the effects of interest rate swaps are factored into the interest rates provided.
3. Used for acquisition of trust beneficiary interests in real estate.
4. The proceeds were used toward the repayment of borrowings.

(3) Investment Corporation Bonds
The status of investment corporation bonds issued as of February 29, 2016 is as follows:

Issue name

Issue date

Balance atthe beginningof period(Yen in millions)

1st Unsecured Investment Corporation Bonds

December24, 2014

2,000

2,000

2,000

2,000

Total

Balance at theend of period Interest rate
(Yen in millions)(Notes) 1. The proceeds were used toward the repayment of borrowings.
2. The bonds have pari passu conditions among specified investment corporation bonds.

(4) Short-Term Investment Corporation Bonds
There is no short-term investment corporation bond outstanding as of February 29, 2016.

(5) Unit Acquisition Rights
Not applicable.

50

0.826％

Maturity

Method ofredemption

Use

Note

December24, 2024

Bulletrepayment(Note 1)

(Note 2)

6

Status of Purchases and Sales during the Period(1) Status of Purchases and Sales of Properties and Asset-Backed Securities, Infrastructure Assets, and Infrastructure
Related Assets
Acquisition
Property name

Transfer

Acquisition price(Yen in millions)

Date of acquisition

Transfer price(Yen in millions)

Date of transfer(Note)

DREAM TOWN ALi

September 28, 2015

7,790

Total

—

7,790

Gain or loss on
disposal(Yen in millions)Book value(Yen in millions)

—

—

—

—

—

—

(Note) Acquisition price is the amount that does not include the various expenses required in the acquisition of the property, including brokerage fee, consumption taxes, local consumption taxes, etc. (thepurchase and sale price stated on the real estate purchase and sale agreement, etc.).

(2) Transaction of Other Assets
Acquisition

Disposal

Number of units
equivalent to facevalue

Amount(Yen in thousands)

Bonds

—

Total

—

Type of assets

Balance at the end of current period

Number of units
equivalent to facevalue

Amount(Yen in thousands)

—

—

—

—

(Note 1)

Number of units
equivalent to facevalue

Amount(Yen in thousands)—¥10,000 thousand

6,535

—

¥10,000 thousand

6,535(Note 1)

(Note 2)

(Notes) 1. Amount under Acquisition or Disposal indicates the settlement amount (the amount not including accrued interest or various expenses (transaction commissions, etc.)).
2. Amount under Balance at the end of period indicates the book value using the amortized cost method.
3. Assets other than the above are mostly bank deposits or bank deposits in trust assets.

(3) Review on Value of Specified Assets
A. Properties, etc.

Acquisition ortransfer

Acquisition

Property nameDREAM TOWN ALi

Transaction
date

September
28, 2015

Type of assets

Acquisition priceor transfer price(Yen in millions)Appraisal valueof properties(Yen in millions)(Note 1)

(Note 2)Trust beneficiaryinterests in real estate

7,790

8,100

Appraisal agency(Note 2)

Date ofappraisal value(Note 2)

Japan Real Estate
Institute

July 31, 2015

(Notes) 1. Acquisition price or transfer price is the amount that does not include the various expenses required in the acquisition or transfer of the property, including brokerage fee, consumption taxes, local
consumption taxes, etc. (the purchase and sale price stated on the real estate purchase and sale agreement, etc.).
2. Appraisal value shown above is based on “Real estate appraisal standards, Chapter 3, Appraisal of the value of real estate that is subject to securitization.”

B. OtherAmong transactions DHR conducted, for any transactions requiring surveys on prices, etc., of specified assets in accordance with Article 201 of theInvestment Trusts Act, excluding transactions shown above in “A. Properties, etc.,” KPMG AZSA LLC was commissioned to do such surveys. During
the period under review (from September 1, 2015 to February 29, 2016), five interest rate swap transactions were applied. DHR received a survey reportfor the said transactions from KPMG AZSA LLC. The survey contained the transaction date, the name of the counterparty to the transaction, the agreed
figures, the transaction period, the assumed principal amount and other matters regarding the transactions.

(4) Transactions with Interested Parties
A. Status of Transactions
Classification
Total amountTransaction amount, etc. (Note 2)
Purchase

Sale¥7,790 million—¥7,790 million (100.0%)

—

(—%)

¥7,790 million (100.0%)

—

(—%)

Breakdown of transactions with interested parties
Daiwa Information Service Co., Ltd.
Total

51

I. Asset Management Report

B. Amount of Fees Paid

Classification

Outsourcing expenses (Note 3)

Repairs and maintenanceconstruction (Note 4)

Total amount paid (A)(Yen in thousands)

211,662

185,089

Breakdown of transactions with interested parties
Payment recipient

Amount paid (B)(Yen in thousands)

Rate to total amount paid
(B/A)

Daiwa Information Service Co., Ltd.

85,80040.5%

Daiwa Royal Co., Ltd.

7,983

3.8%

Daiwa LifeNext Co., Ltd.

6,289

3.0%

Daiwa House Industry Co., Ltd.

89,20542.1%

ENESERVE CORPORATION

360

0.2%

KOKANKYO ENGINEERING Corp.

990

0.5%

Daiwa Information Service Co., Ltd.

31,496

17.0%

Daiwa Royal Co., Ltd.

56,208

30.4%

155

0.1%

Daiwa LifeNext Co., Ltd.

16,662

9.0%

Daiwa House Industry Co., Ltd.

29,645

16.0%

130

0.1%

Daiwa House Reform Co., Ltd.

DesignArc Co., Ltd.

(Notes) 1. Interested parties, etc. are interested parties, etc. of the asset management company, with which DHR has concluded an asset management agreement, as provided in Article 123 of the Order for
Enforcement of the Act on the Investment Trust and Investment Corporations and Article 26, item 27 of the Investment Trusts Association, Japan’s Rules on Management Reports, etc., of Investment
Trusts and Investment Corporations.
2. Transaction amount, etc. does not include various expenses required in the acquisition or transfer of the relevant property, etc., including brokerage fee, consumption taxes, local consumption taxes,
etc. (the purchase and sale price stated on the real estate purchase and sale agreement, etc.).
3. Outsourcing expenses include the amount of building management compensation.
4. Repairs and maintenance construction includes repairs and maintenance expenses as well as capital expenditures and repairs covered by insurance, etc.

(5) Status of Transactions with Asset Management Company Pertaining to Business Operated by Asset Management
Company as Subsidiary BusinessNot applicable because the Asset Manager does not engage in any business as a subsidiary business that is a type I financial instruments business, typeII financial instruments business, real estate brokerage or real estate specified joint enterprise.

52

7

Accounting(1) Status of Assets, Liabilities, Principal and Profit/Loss
Please refer to “II. Balance Sheets,” “III. Statements of Income and Retained Earnings,” “IV. Statements of Changes in Net Assets,” “V. Statements of Cash
Flows” and “VI. Notes to Financial Statements.”(2) Changes in Method to Calculate Depreciation Expenses
Not applicable.

(3) Changes in Method to Evaluate Properties and Infrastructure Assets
Not applicable.

(4) Status of Beneficiary Certificates of Investment Trust Established by DHR
Not applicable.

8

Other

(1) Notice
Board of Directors
The overview of conclusions and changes, etc., of major contracts approved by DHR’s board of directors during the current fiscal period is as follows:
Approval date
December 22, 2015

Subject

Description

Signing of memorandum on transfer
agency agreement

Incidental to the transfer agency agreement, the board of directors approved the conclusionof the memorandum to entrust tasks related to unitholders’ individual numbers to thetransfer agent.

(2) Disclosure as a Corporation Holding Real Estate Overseas
Not applicable.

(3) Disclosure relating to Real Estate Held by a Corporation Holding Real Estate Overseas
Not applicable.

(4) Treatment of Fractions in Amounts and Rates
Unless otherwise specified, amounts less than the units indicated are truncated, while values of ratio is rounded up or down to the nearest value of thelast digit in this report.

53

II. Balance Sheets

DAIWA HOUSE REIT INVESTMENT CORPORATIONBALANCE SHEETSAs of August 31, 2015 and February 29, 2016

As ofAugust 31, 2015

February 29, 2016

(Yen in thousands)
AssetsCurrent Assets:
Cash and bank deposits (Notes 3 and 4)
Tenant receivables
Prepaid expenses
Consumption taxes receivable
Other current assets
Total current assets
Investment Properties (Notes 5 and 6):
Land
Buildings and improvements
Structures
Machinery and equipment
Construction in progress
Less: accumulated depreciation
Total investment properties, net
Other Assets:
Other intangible assets
Investment securities (Note 4)Long-term prepaid expenses
Investment corporation bond issuance costs
Total other assets
Total Assets
The accompanying notes are an integral part of these financial statements.

1
54¥ 23,158,614
14,751
157,416
2,176,852
511
25,508,145¥ 23,769,479
56,527
185,670―441
24,012,118

98,885,149
95,377,041
3,313,287
343,654―(7,032,712)
190,886,420

103,713,238
98,290,417
3,509,049
343,654
3,889(8,520,020)
197,340,227

1,530
6,455
515,282
19,108542,376¥ 216,936,941

1,190
6,535
703,756
18,075729,558¥ 222,081,904

DAIWA HOUSE REIT INVESTMENT CORPORATIONBALANCE SHEETS, CONTINUED
As of August 31, 2015 and February 29, 2016

As ofAugust 31, 2015

February 29, 2016

(Yen in thousands)
Liabilities
Current Liabilities:
Accounts payable
Short-term borrowings (Notes 4 and 10)
Current portion of long-term borrowings(Notes 4 and 10)
Accrued expenses
Income taxes payable
Accrued consumption taxes
Advances received
Other current liabilities
Total current liabilities¥ 75,872
4,000,000
20,000,000¥ 162,156
4,000,000
15,000,000

433,261605―
853,198
63,88825,426,826

530,501
605
86,672
883,591
48,24520,711,772

Investment corporation bonds (Notes 4 and 9)
Long-term borrowings (Notes 4 and 10)
Tenant security deposits (Note 4)
Total Liabilities

2,000,000
72,000,000
9,079,288
108,506,115

2,000,000
81,000,000
9,529,140
113,240,912

105,459,198

105,459,198

2,971,627
108,430,826
108,430,826¥ 216,936,941

3,381,792
108,840,991
108,840,991¥ 222,081,904

Commitment and contingent liabilities (Note 17)
Net Assets (Note 8)
Unitholders' Equity:
Unitholders' capital

Units authorized:
4,000,000 units as of August 31, 2015 andFebruary 29, 2016
Units issued and outstanding:
350,700 units as of August 31, 2015 andFebruary 29, 2016

Retained earnings
Total unitholders’ equity
Total Net Assets
Total Liabilities and Net Assets
The accompanying notes are an integral part of these financial statements.

2
55

III. Statements of Income and Retained Earnings

DAIWA HOUSE REIT INVESTMENT CORPORATIONSTATEMENTS OF INCOME AND RETAINED EARNINGSFor the six-month periods ended August 31, 2015 and February 29, 2016

For the six-month periods ended
August 31, 2015

February 29, 2016

(Yen in thousands)
Operating Revenues:
Rental revenues (Note 7)
Other revenues related to property leasing (Note 7)
Total operating revenues
Operating Expenses:
Rental expenses (Note 7)
Asset management fees
Other operating expenses
Total operating expenses
Operating Income
Non-Operating Revenues:
Interest income
Interest on refund of consumption taxes
Insurance income
Other non-operating revenues
Non-Operating Expenses:
Interest expenses
Interest expenses on investment corporation bonds
Amortization of investment corporation bondissuance costs
Investment unit issuance expenses
Borrowing related expenses
Ordinary Income
Income before Income Taxes
Income taxes-current (Note 12)
Net Income
Retained Earnings Brought Forward
Unappropriated Retained Earnings
The accompanying notes are an integral part of these financial statements.

356¥ 6,200,791
104,5146,305,305¥ 6,757,082
181,8656,938,947

2,140,913
376,147
104,336
2,621,397
3,683,907

2,383,668
465,452
120,4102,969,531
3,969,415

2,348
―
255
80

2,250
1,778
1,013
300

456,9658,365

484,399
8,275

1,032

1,032

149,910
98,092
2,972,224
2,972,224
605
2,971,619―
98,7993,382,251
3,382,251
605
3,381,646

8¥ 2,971,627

146¥ 3,381,792

IV. Statements of Changes in Net Assets

DAIWA HOUSE REIT INVESTMENT CORPORATIONSTATEMENTS OF CHANGES IN NET ASSETSFor the six-month periods ended August 31, 2015 and February 29, 2016

Unitholders’ Equity
Total
Unitholders’EquityUnitholders’CapitalRetained
Earnings(Units)293,480¥ 78,048,300(Yen in thousands)¥ 80,593,954 ¥ 80,593,954¥ 2,545,653

52,0005,220――
57,22024,910,288
2,500,609――
27,410,897――(2,545,645)
2,971,619

350,700¥105,459,198¥ 2,971,627¥108,430,826 ¥108,430,826

―
―
―

―
―
―

(2,971,481)
3,381,646
410,164

Balance as of February 29, 2016
350,700 ¥105,459,198
The accompanying notes are an integral part of these financial statements.

¥ 3,381,792(2,971,481) (2,971,481)
3,381,646
3,381,646
410,164
410,164¥108,840,991 ¥108,840,991

Number of
Units
Balance as of February 28, 2015
Changes during the period:
Issuance of investment units:on March 23, 2015
on April 14, 2015
Cash distributions declared
Net income
Total changes during the period
Balance as of August 31, 2015
Changes during the period:
Cash distributions declared
Net income
Total changes during the period

457425,974

24,910,288
2,500,609(2,545,645)
2,971,619
27,836,871

Total Net
Assets24,910,288
2,500,609(2,545,645)
2,971,619
27,836,871

V. Statements of Cash FlowsDAIWA HOUSE REIT INVESTMENT CORPORATIONSTATEMENTS OF CASH FLOWSFor the six-month periods ended August 31, 2015 and February 29, 2016

For the six-month periods ended
August 31, 2015 February 29, 2016
(Yen in thousands)
Cash Flows from Operating Activities:
Income before income taxes
Depreciation
Amortization of investment corporation bond issuance costs
Investment unit issuance expenses
Interest income
Interest expenses
Increase in prepaid expenses
Increase in long-term prepaid expenses
Increase in tenant receivables
Decrease (increase) in consumption taxes receivable
Increase (decrease) in accrued consumption taxes
Increase (decrease) in accounts payable
Increase in accrued expenses
Increase in advances received
Increase (decrease) in deposits received
Interest income received
Interest expenses paid
Income taxes paid
Others, net
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Payments for purchases of investment properties
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Proceeds from short-term borrowings
Proceeds from long-term borrowings
Repayments of long-term borrowings
Proceeds from issuance of investment units
Distributions paid
Net Cash Provided by Financing Activities
Net Change in Cash and Cash Equivalents
Cash and Cash Equivalents at the Beginning of Period
Cash and Cash Equivalents at the End of Period (Note 3)
The accompanying notes are an integral part of these financial statements.

558¥ 2,972,224
1,359,762
1,032
149,910(2,348)465,331(6,971)(160,390)(5,466)(2,176,843)(249,239)(10,156)
30,925259,302(135)
2,348(466,531)(605)
127,675
2,289,825¥ 3,382,251
1,487,647
1,032―(2,250)492,674(28,253)(188,474)(41,776)
2,179,706
86,663
46,941
97,15430,393142,250(492,589)(605)(24,339)
7,028,442(48,796,885)(48,796,885)(7,920,514)(7,920,514)

4,000,000
16,500,000―
27,260,987(2,545,725)
45,215,262(1,291,797)
15,664,693¥ 14,372,896―
24,000,000(20,000,000)―(2,970,559)
1,029,440
137,368
14,372,896¥ 14,510,265

VI. Notes to Financial Statements

DAIWA HOUSE REIT INVESTMENT CORPORATION

Notes to Financial Statements
As of and for the six-month periods ended August 31, 2015 and February 29, 2016

Note 1 – Organization and Basis of Presentation
Organization
Daiwa House REIT Investment Corporation (hereinafter referred to as “DHR”) was established on September 14,
2007, with Daiwa House REIT Management Co., Ltd. as the organizer under the Act on Investment Trusts andInvestment Corporations (Act No. 198 of 1951, including subsequent revisions, hereinafter referred to as the“Investment Trust Act”), and completed its registration in the Kanto Local Finance Bureau on October 23, 2007.
DHR issued new investment units through a public offering on November 27, 2012. On the following day,
November 28, 2012, DHR was listed on the real estate investment trust securities market of the Tokyo Stock
Exchange.
In the current fiscal period ended February 29, 2016, DHR acquired one property using funds raised through debt
financing. Consequently, DHR held 41 properties with total acquisition price of ¥ 203,763 million as of February 29,
2016.

Basis of Presentation
The accompanying financial statements have been prepared in accordance with the provisions set forth in theInvestment Trust Act of Japan, the Financial Instruments and Exchange Act of Japan and its related accounting
regulations, and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which
are different in certain respects as to application and disclosure requirements from International Financial ReportingStandards or accounting principles generally accepted in the United States of America.
The accompanying financial statements have been reformatted and translated into English from the financial
statements of DHR prepared in accordance with Japanese GAAP. In preparing the accompanying financial
statements, relevant notes have been expanded and certain reclassifications have been made from the Japanese
GAAP financial statements. Certain supplementary information included in the statutory Japanese GAAP financial
statements, but not required for fair presentation, is not presented in the accompanying financial statements.
DHR maintains its accounting records in Japanese yen, the currency of the country in which DHR operates. As
permitted by the regulations under the Financial Instruments and Exchange Act, amounts of less than thousand yen
have been omitted. Unless otherwise specified, amounts of less than the units indicated are truncated, while valuesof ratio are rounded up or down to the nearest value of the last digit in the accompanying financial statements. As aresult, totals shown in the accompanying financial statements do not necessarily agree with the sums of theindividual amounts.
DHR’s fiscal period is a six-month period ending at the end of February and August of each year.

659VI. Notes to Financial Statements

Note 2 – Summary of Significant Accounting Policies(a) Cash and Cash Equivalents
Cash and cash equivalents consist of cash, demand deposits, and short-term investments which are highly liquid,readily convertible to cash and with insignificant risk of market value fluctuation, with maturities of three months orless from the date of acquisition.

(b) Investment Properties
Investment properties are stated at cost, which include the allocated purchase price, related costs and expenses foracquisition of the trust beneficiary interests in real estate. Investment property balances are depreciated using thestraight-line method over the estimated useful lives as follows:

Buildings and improvements
Structures
Machinery and equipment

Years
3～46
10～43
19

Costs related to the renovation, construction and improvement of properties are capitalized. Expenditures forrepairs and maintenance which do not add to the value or prolong the useful life of a property, are expensed as
incurred.

(c) Investment Securities
Debt securities classified as held-to-maturity are stated at amortized cost.

(d) Investment Units Issuance Expenses
The issuance costs of new investment units are expensed when incurred.

(e) Investment Corporation Bond Issuance Costs
The issuance costs of investment corporation bonds are amortized on a straight-line basis over the redemption
period.

(f) Long-term Prepaid Expenses
Long-term prepaid expenses are amortized on a straight-line basis.

760

(g) Income Taxes
Deferred tax assets and liabilities are computed based on the differences between the financial statements andincome tax bases of assets and liabilities using the statutory tax rate.

(h) Real Estate Taxes
Investment properties are subject to various taxes, such as property taxes and city planning taxes. An owner of theproperties is registered by a record maintained in each jurisdiction by the local government. The taxes are imposedon the registered record owner as of January 1 of each year, based on an assessment made by the local government.
When a property is purchased within the calendar year, the taxes for corresponding calendar year are imposed on
the seller. DHR pays the seller the corresponding amount of the taxes for the period of property acquisition date to
December 31 of the calendar year and capitalizes these amounts as acquisition costs of the property, rather than
expensing them. In subsequent calendar years, such taxes on investment properties for each calendar year are
charged as operating expenses. Capitalized real estate taxes amounted to ¥ 196,808 thousand and ¥ 12,072 thousand
for the periods ended August 31, 2015 and February 29, 2016, respectively.

(i) Consumption Taxes
Consumption taxes are excluded from transaction amounts. Generally, consumption taxes paid are offset against
the balance of consumption taxes withheld. As such, the excess of payments over amounts withheld are included incurrent assets while the excess of amounts withheld over payments are included in current liabilities.

(j) Hedge Accounting
DHR enters into derivative transactions for the purpose of hedging risks defined in the Articles of Incorporationof DHR in accordance with its general risk management policy. DHR uses interest-rate swaps as hedging
instruments in order to hedge the risk of interest rate fluctuations related to borrowings. Pursuant to Japanese GAAP,
DHR applies the special accounting treatment to interest-rate swaps which qualify for hedge accounting and meet
specific criteria. Under the special accounting treatment, the related differentials paid or received under such swap
contracts can be recognized and included in interest expenses or income of the hedged assets or liabilities, and theinterest-rate swaps are not required to be measured at fair value separately. The assessment of hedge effectivenesshas been omitted since all interest-rate swaps meet the specific criteria under the special accounting treatment.

(k) Revenue Recognition
Operating revenues primarily consist of rental revenues including fixed rental revenues. Other revenues related toproperty leasing consist of common area charges and other operating revenues which include utility charge
reimbursements, parking space rental revenues and other miscellaneous revenues. Rental revenues are generally
recognized on an accrual basis over the life of each lease. Utility charge reimbursements are recognized whenearned and their amounts can be reasonably estimated. Reimbursements from tenants including utility charge
reimbursements are recorded on a gross basis and such amounts are recorded both as revenues and expenses during
the fiscal period.
861

VI. Notes to Financial Statements(l) Accounting Treatment of Trust Beneficiary Interests in Real Estate
For trust beneficiary interests in real estate, all assets and liabilities with respect to assets in trust, as well as all
income generated and expenses incurred with respect to assets in trust, are recorded in the relevant balance sheet
and income statement accounts of the accompanying financial statements.

Note 3 – Cash and Cash Equivalents
Cash and bank deposits include restricted bank deposits held in trust that are retained for repayment of tenantsecurity deposits.
Reconciliation of the cash and bank deposits recorded on the accompanying balance sheets to the cash and cash
equivalents reported in the accompanying statements of cash flows is as follows:
As ofAugust 31, 2015

February 29, 2016

(Yen in thousands)

Cash and bank deposits
Less: restricted bank deposits held in trust
Cash and cash equivalents¥ 23,158,614(8,785,717)¥ 14,372,896¥ 23,769,479(9,259,214)¥ 14,510,265

Note 4 – Financial Instruments(a) Qualitative Information for Financial Instruments
Policy for Financial Instrument Transactions
DHR raises funds through borrowings, issuance of new investment units and issuance of investment corporation
bonds for the acquisition of real estate properties, with the aim of ensuring stable earnings from a medium tolong-term perspective and steady asset growth.
DHR enters into derivative transactions for the purpose of hedging interest rate risks and other risks arising fromborrowings and other funding measures.
Surplus funds are managed carefully by investing in financial instruments considering risk and liquidity, withtaking into consideration market environments and forecasted cash flows.
Nature and Extent of Risks arising from Financial Instruments and Risk Management
Bank deposits are used for investment of DHR’s surplus funds. These bank deposits are exposed to credit risks
such as bankruptcy of the depository financial institutions. DHR limits its credit risk by entering into bank deposits
only with financial institutions with high credit ratings.
Proceeds from borrowings and investment corporation bonds are used to acquire real estate properties and to
repay outstanding debts. These borrowings and investment corporation bonds are exposed to liquidity risk on
962repayment or redemption. Such risk is managed in the following ways such as trying to maintain and strengthen theability of procurement from the capital market by issuance of investment units, establishing committed credit lines
with financial institutions, monitoring forecasted cash flows on a monthly basis and keeping sufficient liquidity on
hand.
For floating-rate borrowings exposed to the risk of interest rate fluctuations, DHR, in order to reduce the potential
risk of rising interest rates, closely watches the movement of interest rates, and intends to increase the ratio of fixedrate borrowings. As of August 31, 2015 and February 29, 2016, DHR has a derivative (interest-rate swap) as ahedging instrument, in order to avoid interest rate fluctuations and to fix the amount of interest payments forfloating-rate long-term borrowings. The assessment of hedge effectiveness is omitted since all interest-rate swaps
meet the specific criteria under the special accounting treatment.
Tenant security deposits are exposed to liquidity risk arising from the vacating of properties by tenants as a resultof the termination of contract. DHR manages this risk by depositing into trusts.
Supplemental Explanation regarding Fair Values of Financial Instruments
The fair value of financial instruments is based on their observable market price, if available. When there is noobservable market price available, fair value is based on a price that is reasonably estimated. Since certain
assumptions and factors are reflected in estimating the fair value, different assumptions and factors could result in adifferent value.

(b) Estimated Fair Value of Financial Instruments
Book value, fair value and difference between the two as of August 31, 2015 and February 29, 2016 are as
follows:
As ofAugust 31, 2015

Assets(1) Cash and bank deposits(2) Investment securities:
Held-to-maturity debt
securities
Total

Book value

Fair value

February 29, 2016
(Yen in thousands)
DifferenceBook value
Fair value
Difference¥ 23,158,614 ¥ 23,158,614¥ ―¥ 23,769,479 ¥ 23, 769,479

¥ ―

6,455
7,460
¥ 23,165,069 ¥ 23,166,074

1,004¥ 1,004

6,535
8,583
¥ 23,776,015 ¥ 23,778,062

2,047¥ 2,047

Liabilities(3) Short-term borrowings
4,000,000(4) Current portion of
20,000,000
long-term borrowings(5) Investment corporation
bonds
2,000,000
72,000,000(6) Long-term borrowings(7) Tenant security deposits
293,571
Total¥ 98,293,571¥ ―Derivative transactions

4,000,000―

4,000,000

4,000,000―

20,008,388

8,388

15,000,000

15,022,469

22,4692,004,000
4,000
72,570,747
570,747
287,988(5,582)¥ 98,871,124 ¥ 577,553
¥ ―
¥ ―
10
63

2,000,000
2,067,600
67,60081,000,000
83,058,328 2,058,328
269,926
271,065
1,138¥ 102,269,926 ¥ 104,419,462 ¥ 2,149,536
¥ ―
¥ ―
¥ ―

VI. Notes to Financial Statements

The financial instruments whose fair values are deemed extremely difficult to determine are excluded from thetable above (See Note 2 below).
Notes:
1. Methods to Estimate Fair Value of Financial Instruments
Assets:(1) Cash and bank deposits
Due to the short maturities, the book value of these assets is deemed a reasonable approximation of their fairvalue. Therefore, the book value is used as the fair value.
(2) Held-to-maturity debt securities
Fair values of held-to-maturity debt securities are based on market prices. Book value, fair value and difference
between the two are as follows:
As ofAugust 31, 2015

February 29, 2016
(Yen in thousands)
Book value Fair value DifferenceBook value Fair value
Difference

Securities with fair value
exceeding book value:
Japanese government bonds (*)¥ 6,455¥ 7,460 ¥ 1,004¥ 6,535¥ 8,583¥ 2,047
Total¥ 6,455¥ 7,460 ¥ 1,004¥ 6,535¥ 8,583¥ 2,047(*) These held-to-maturity debt securities have been deposited with the Tokyo Legal Affairs Bureau as security
deposits in line with the requirements of the Building Lots and Building Transaction Business Act of Japan.
Liabilities:(3) Short-term borrowings
Due to the short maturities, the book value of these liabilities is deemed a reasonable approximation of their fairvalue. Therefore, the book value is used as the fair value.
(4) Current portion of long-term borrowings and (6) Long-term borrowings
Fair values of fixed-rate borrowings are calculated based on the present value of principal and interest cash flows
discounted at the current interest rate which is assumed to be applied if similar new borrowings were entered into.
Each borrowing at floating rate as of August 31, 2015 and February 29, 2016 is subject to the special treatment
for interest-rate swaps (See “Derivative transactions” below), and the fair value of such borrowing is calculated
based on the present value of principal and interest cash flows which are processed as a single unit with theinterest-rate swap discounted at the current interest rate which is reasonably assumed to be applied if similar new
borrowings were entered into.

1164

(5) Investment corporation bonds
Fair value of investment corporation bonds is based on its reference statistical price for OTC bond transactions.
(7) Tenant security deposits
Fair values of tenant security deposits are calculated based on the present value of future cash flows discounted at
the current interest rate which is estimated by taking the remaining term into consideration.

Derivative transactions:(1) Derivative transactions for which hedge accounting is not applied… None.
(2) Derivative transactions for which hedge accounting is applied… Contracted amounts and fair values are as
follows:
As of
Hedge
accounting
methodType ofderivativetransaction

Specialtreatmentforinterest-rate
swapsInterest-rate
swap
Receivefloating/
Pay fixed

Hedgeditem

August 31, 2015
Contracted amountDue after
Total
one yearLong-term¥ 24,500,000 ¥ 24,500,000
borrowings

February 29, 2016
Contracted amountFair
Due after
value
Total
one year(Yen in thousands)(*)¥ 47,500,000 ¥ 47,500,000

Fair
value

(*)

(*) Fair value of interest-rate swap with the special treatment is included in fair value of long-term borrowings as
the interest-rate swap and hedged borrowings are processed as a single unit with the hedged long-termborrowings (See “Note 1. Methods to Estimate Fair Value of Financial Instruments, (6) Long-termborrowings” above).

2. Financial Instruments Whose Fair Values are Deemed Extremely Difficult to Determine
As ofAugust 31, 2015
February 29, 2016
(Yen in thousands)

Tenant security deposits (*)¥ 8,785,717¥ 9,259,214(*) Tenant security deposits are excluded from the scope of fair value disclosure because they are not marketable,
and the actual deposit period is not estimable as leases may be cancelled, renewed or re-signed even if a leaseterm is set in the lease contract, which in turn makes it difficult to reasonably estimate future cash flows.

1265

VI. Notes to Financial Statements

3. Redemption Schedule for Monetary Claims and Securities with Maturity

As of August 31, 2015

Cash and bank deposits
Investment securities:
Held-to-maturity debt
securities
Total

As of February 29, 2016

Cash and bank deposits
Investment securities:
Held-to-maturity debt
securities
Total

Due within
one year

Due after
one to twoyears

Due after
Due after
two to three
three toyears
four years(Yen in thousands)¥―¥―

Due after
four to fiveyears

Due after
five years¥ 23,158,614

¥―

¥ ―

¥―

―

―

―

―

―

10,000¥ 23,158,614

¥―

¥ ―

¥―

¥ ―

¥ 10,000

Due within
one year

Due after
one to twoyears

Due after
Due after
two to three
three toyears
four years(Yen in thousands)¥ ―¥ ―Due after
four to fiveyears

Due after
five years¥ 23,769,479

¥ ―

¥ ―

¥ ―

―

―

―

―

―

10,000¥ 23,769,479

¥ ―

¥ ―

¥ ―

¥ ―

¥ 10,000

Due after
Due after
two to three
three toyears
four years(Yen in thousands)¥ ―¥ ―Due after
four to fiveyears

Due after
five years

¥ ―

¥ ―

―

2,000,000

4. Repayment Schedule for Investment Corporation Bonds and Borrowings

As of August 31, 2015

Short-term borrowings
Investment corporationbonds
Long-term borrowings
Total

As of February 29, 2016

Short-term borrowings
Investment corporationbonds
Long-term borrowings
Total

Due within
one year

Due after
one to twoyears¥ 4,000,000

¥ ―

―

―

―

20,000,000¥ 24,000,000

15,000,000
16,000,000¥ 15,000,000 ¥ 16,000,000

Due within
one year

Due after
one to twoyears¥ 4,000,000

¥ ―

¥ ―

―

―

―

15,000,000

16,000,000¥ 19,000,000¥ 16,000,000―― 11,000,000 30,000,000¥ ― ¥ 11,000,000 ¥ 32,000,000

Due after
Due after
two to three
three toyears
four years(Yen in thousands)

1366

Due after
four to fiveyears

Due after
five years

¥ ―

¥ ―

¥ ―

―

―

2,000,000― 10,000,000¥ ― ¥ 10,000,000

1,000,000

54,000,000¥ 1,000,000 ¥ 56,000,000Note 5 – Investment Properties
Investment properties as of August 31, 2015 and February 29, 2016 consist of the following:
As of
August 31, 2015
Acquisition
cost

Land
Buildings andimprovements
Structures
Machinery andequipment
Construction inprogress
Total

Accumulated
depreciation¥ ―¥ 98,885,149

February 29, 2016
(Yen in thousands)
Acquisition
Book valuecost¥ 98,885,149

AccumulatedBook value
depreciation¥ ― ¥ 103,713,238¥ 103,713,238

95,377,041
3,313,287(6,685,095)(322,641)

88,691,945
2,990,645

98,290,417
3,509,049(8,101,330)(384,900)

90,189,086
3,124,148

343,654(24,975)

318,679

343,654(33,789)

309,864

―

―

―

3,889
¥ 205,860,247¥ 197,919,132¥ (7,032,712) ¥ 190,886,420

3,889¥ (8,520,020) ¥ 197,340,227―

Note 6 – Fair Value of Investment and Rental Properties
DHR owns logistics and retail properties for rent in the Greater Tokyo Area and other areas. The book value, net
increase in the book value and the fair value of the investment and rental properties are as follows:
As of / For the six-month periods ended
August 31, 2015
February 29, 2016
(Yen in thousands)

Book value:
Balance at the beginning of the period
Net increase during the period
Balance at the end of the period¥ 143,439,633
47,446,786¥ 190,886,420¥ 190,886,420
6,449,917¥ 197,336,338

Fair value¥ 218,038,000¥ 230,328,000

Notes:
1. Book value is stated at acquisition cost less accumulated depreciation.
2. The increase in the fiscal period ended August 31, 2015 is mainly due to the acquisition of D Project Kuki III,D Project Kuki IV, D Project Kuki V, D Project Kuki VI, D Project Yashio, D Project Nishiyodogawa, D
Project Matsudo (¥ 48,802,743 thousand) and the decrease is mainly due to recognition of depreciation expenseof ¥ 1,359,422 thousand. The increase in the fiscal period ended February 29, 2016 is mainly due to theacquisition of DREAM TOWN ALi (¥ 7,830,871 thousand) and the decrease is mainly due to recognition ofdepreciation expense of ¥ 1,487,307 thousand.
3. Fair value is determined mainly by appraisal value provided from external real estate appraisers.

14
67

VI. Notes to Financial Statements

Note 7 – Rental Revenues and Expenses
Rental revenues and expenses for the periods ended August 31, 2015 and February 29, 2016 are as follows:
For the six-month periods ended
August 31, 2015
February 29, 2016
(Yen in thousands)

Revenues from Property Leasing:
Rental revenues
Common area charges
OthersTotal revenues from property leasing
Rental Expenses:
Real estate taxes
Property management fees
Insurance
Repairs and maintenance
Depreciation
OthersTotal rental expenses
Operating Income from Property Leasing Activities¥ 6,200,791
53,98150,532¥ 6,757,082
53,873
127,991

6,305,305

6,938,947

469,819
172,475
9,472
75,087
1,359,422
54,635

469,774
211,662
10,16775,981
1,487,307
128,775

2,140,913¥ 4,164,392

2,383,668¥ 4,555,278

Note 8 – Net Assets
DHR issues only non-par value units in accordance with the Investment Trust Act and all of the issue amountsof new units are designated as stated capital. DHR maintains a minimum of at least ¥50 million of net assets as
required by the Investment Trust Act.
DHR issued new investment units through a public offering on March 23, 2015 at the issue value of ¥479,044
per unit and through a third party allotment on April 14, 2015 at the issue value of ¥479,044 per unit.

1568Note 9 – Investment Corporation Bonds
The following summarizes the status of the DHR’s first unsecured investment corporation bonds with specialpari passu conditions among specified investment corporation bonds as of August 31, 2015 and February 29, 2016.
The bonds would be repaid on lump-sum basis on the maturity date.
As ofAugust31,
2015
February 29, 2016
Maturity
Description
Issue date
Interest rate
date
(Yen in thousands)
December December Fixed rate of
DHR 1st Unsecured Bonds¥2,000,000¥2,000,000
24, 2014
24, 2024
0.826%¥2,000,000¥2,000,000
Total

Note 10 – Short-Term and Long-Term Borrowings
Short-term and long-term borrowings consist of the following:
As of
August 31, 2015 February 29, 2016
(Yen in thousands)

Unguaranteed, unsecured floating-rate borrowings due 2016 with averageinterest rate of 0.33%
Short-term borrowings
Unguaranteed, unsecured fixed-rate borrowings due 2015 with averageinterest rate of 0.73%
Unguaranteed, unsecured fixed-rate borrowings due 2016 with averageinterest rate of 0.83%
Unguaranteed, unsecured fixed-rate borrowings due 2017 with averageinterest rate of 0.96%
Unguaranteed, unsecured fixed-rate borrowings due 2019 with averageinterest rate of 1.29%
Unguaranteed, unsecured fixed-rate borrowings due 2020 with averageinterest rate of 0.57%
Unguaranteed, unsecured floating-rate borrowings due 2021 with averageinterest rate of 1.05% (*)
Unguaranteed, unsecured floating-rate borrowings due 2021 with averageinterest rate of 0.51% (*)
Unguaranteed, unsecured floating-rate borrowings due 2022 with averageinterest rate of 1.21% (*)
Unguaranteed, unsecured floating-rate borrowings due 2022 with averageinterest rate of 0.87% (*)
Unguaranteed, unsecured floating-rate borrowings due 2022 with averageinterest rate of 0.65% (*)
Unguaranteed, unsecured floating-rate borrowings due 2023 with averageinterest rate of 1.50% (*)
16
69¥ 4,000,000¥ 4,000,000¥ 4,000,000¥ 4,000,000¥ 20,000,000¥ ―15,000,000

15,000,000

16,000,000

16,000,000

10,000,000

10,000,000

1,000,000

1,000,000

3,000,000

3,000,000―

7,000,000

3,500,000

3,500,000

3,000,000

3,000,000―

4,000,000

2,000,000

2,000,000

VI. Notes to Financial Statements

As ofAugust 31, 2015 February 29, 2016
(Yen in thousands)

Unguaranteed, unsecured floating-rate borrowings due 2023 with averageinterest rate of 0.99% (*)
Unguaranteed, unsecured fixed-rate borrowings due 2023 with averageinterest rate of 1.00%
Unguaranteed, unsecured floating-rate borrowings due 2023 with averageinterest rate of 0.71% (*)
Unguaranteed, unsecured floating-rate borrowings due 2024 with averageinterest rate of 1.52% (*)
Unguaranteed, unsecured fixed-rate borrowings due 2024 with averageinterest rate of 0.73%
Unguaranteed, unsecured floating-rate borrowings due 2025 with averageinterest rate of 1.23% (*)
Unguaranteed, unsecured fixed-rate borrowings due 2025 with averageinterest rate of 1.18%
Unguaranteed, unsecured floating-rate borrowings due 2025 with averageinterest rate of 0.97% (*)
Unguaranteed, unsecured floating-rate borrowings due 2026 with averageinterest rate of 2.03% (*)
Unguaranteed, unsecured floating-rate borrowings due 2026 with averageinterest rate of 1.09% (*)
Unguaranteed, unsecured fixed-rate borrowings due 2027 with averageinterest rate of 1.46%
Total
Less: current portionLong-term borrowings, less current portion

4,000,000

4,000,000

1,000,000

1,000,000―

4,000,000

3,000,000

3,000,000―

1,000,000

4,000,000

4,000,000

3,000,000

3,000,000―

4,000,000

2,000,000

2,000,000―

4,000,000

1,500,000¥ 92,000,000
20,000,000¥ 72,000,000

1,500,000¥ 96,000,000
15,000,000¥ 81,000,000(*) DHR entered into an interest-rate swap contract to avoid interest rate fluctuation risk. The average interest
rate is calculated after taking into consideration the effect of the interest-rate swap.
During the fiscal period ended February 28, 2013, DHR established a committed credit line of ¥10,000,000
thousand with financial institutions. Of the committed credit line, ¥10,000,000 thousand are available as of August
31, 2015 and February 29, 2016.

1770

Note 11 – Leases
The future minimum rental revenues under existing non-cancelable operating leases as of August 31, 2015 andFebruary 29, 2016 are as follows:
As ofAugust 31, 2015
February 29, 2016
(Yen in thousands)

Due within one year
Due after one year
Total

¥ 10,648,952
79,229,689¥ 89,878,641¥ 11,178,100
76,680,733¥ 87,858,833

Note 12 – Income Taxes
DHR is subject to Japanese corporate income taxes on all of its taxable income. However, DHR may deduct theamount distributed to its unitholders from its taxable income when certain requirements, including a requirement to
distribute in excess of 90% of distributable profit for the fiscal period, are met under the Special Taxation Measure
Act of Japan. If DHR does not satisfy all of the requirements as specified in the Act, the entire taxable income of
DHR will be subject to regular corporate income taxes in Japan.
The following table summarizes the significant difference between the statutory tax rate and DHR’s effective
tax rate for financial statement purposes.
For the six-month periods ended
August 31, 2015 February 29, 2016

Statutory tax rate
Deductible cash distributions
Changes in valuation allowance
Others
Effective tax rate

34.15%(34.14)(0.01)
0.02
0.02%

32.31%(32.30)(0.01)
0.02
0.02%

The significant components of deferred tax assets and liabilities as of August 31, 2015 and February 29, 2016
are as follows:
As ofAugust 31, 2015 February 29, 2016
(Yen in thousands)

Deferred tax assets:
Tax loss carried forward
Total deferred tax assets
Valuation allowance
Net deferred tax assets¥ 179,825
179,825(179,825)¥―¥ 179,542
179,542(179,542)¥―
18
71

VI. Notes to Financial Statements

Pursuant to the promulgation on March 31, 2016 of the “Act for Partial Revision of the Income Tax Act, etc.”(Act No. 15, 2016) and the “Act for Partial Revision of Local Taxation Act, etc.” (Act No. 13, 2016), the statutory
effective tax rate to calculate deferred tax assets or liabilities will be changed from 32.31% to 31.74% for
temporary differences reversed in the fiscal period beginning on and after September 1, 2016, and to 31.59% for
those reversed in the fiscal period beginning on and after September 1, 2018. There is no impact from thesechanges.

Note 13 – Per Unit Information
Information about earnings per unit for the periods ended August 31, 2015 and February 29, 2016 and net assets
per unit as of August 31, 2015 and February 29, 2016 are as follows:

Earnings per Unit:
Net income per unit
Weighted average number of units outstanding (units)

For the six-month periods ended
August 31, 2015
February 29, 2016
(Yen)

¥ 8,657
343,234¥ 9,642
350,700

As of
August 31, 2015
February 29, 2016
(Yen)

Net Assets per Unit

¥ 309,183¥ 310,353

The computation of earnings per unit is based on the weighted average number of units outstanding during theperiod. The computation of net assets per unit is based on the number of units outstanding at each period end as
stated on the balance sheets.

Note 14 – Distribution Information
DHR’s Articles of Incorporation stipulates that DHR is required to make a distribution in excess of 90% of
distributable profit as defined in the Special Taxation Measure Act of Japan for each fiscal period. In accordancewith the distribution policy, DHR generally intends to distribute approximately 100% of retained earnings.
For the six-month periods ended
August 31, 2015
February 29, 2016
(Yen)

Unappropriated retained earnings
Cash distributions declared
Retained earnings brought forward¥ 2,971,627,843
2,971,481,100¥ 146,743

19
72¥ 3,381,792,820
3,381,449,400¥ 343,420

Cash distributions are declared by the board of directors after the end of each period. Such distributions arepayable to unitholders of record at the end of each period. A distribution in respect of the six-month period ended
August 31, 2015 of ¥ 8,473 per investment unit, amounting to a total cash distributions declared of¥ 2,971,481,100, was proposed and approved at the board of directors meeting on October 16, 2015. A distribution
in respect of the six-month period ended February 29, 2016 of ¥ 9,642 per investment unit, amounting to a total
cash distributions declared of ¥ 3,381,449,400, was proposed and approved at the board of directors meeting on
April 15, 2016.

Note 15 – Related-Party Transactions
Related-party transactions for the periods ended August 31, 2015 and February 29, 2016 are as follows:

For the six-month period ended August 31, 2015
Classification

Name

Location

Capitalstock
Yen inmillions

Company ofwhich major
corporateunitholders
hold a majorityof voting rights

Daiwa
Information
ServiceCo., Ltd.

Taito-ku,
Tokyo

¥ 200

Principal
business or
occupation

Asset
managementbusiness

Ratio ofvotingrightsRelation to therelated party

Nature of transaction―

Daiwa Royal
Co., Ltd.

Company ofwhich major
corporateunitholders
hold a majorityof voting rights

Daiwa
LifeNext
Co. Ltd.
(Note 4)

Minato-ku,
Tokyo

130

Company ofwhich major
corporateunitholders
hold a majorityof voting rights

Daiwa
Energy Co.,Ltd.

Abeno-ku,
Osaka

50

Chiyoda-ku,
Tokyo

500

Asset
managementbusiness

Entrustment ofproperty
management

―

Asset
managementbusiness―

Environment
business―

Repairs andmaintenance ofproperties

Lease ofequipment held

20
73

Balance at theend of period(Note 1)
Yen inthousands

Property
management fees

¥ 49,906

Cost of utilities

30,688
Accounts
payable¥ 27,929―

Tenantsecurity
deposits

879,288

Rental revenues

439,644

Advances
received

76,950Property
management fees

7,694

Other expenses
related to rent
business

4,103

Accounts
payable1,805

Repairs andmaintenance(Note 3)

3,611

Property
management fees

6,209

Repairs andmaintenance(Note 3)

7,399

Rental revenues

11,616

Other expenses
related to rent
business
Repairs andmaintenance(Note 3)―Company ofwhich major
corporateunitholders
hold a majorityof voting rights

Account

Yen inthousands%

Master lessee
and entrustmentof property
management

Amount oftransaction(Notes 1 and 2)

2,639
11,636

Accounts
payableAdvances
received

6,805

2,090

VI. Notes to Financial Statements

Classification

Name

Location

Capitalstock
Yen inmillions

Company ofwhich major
corporateunitholders
hold a majorityof voting rights

Daiwa
Logistics
Co., Ltd.

Nishi-ku,
OsakaCompany ofwhich major
corporateunitholders
hold a majorityof voting rights

Daiwa House
Reform Co.,Ltd.

Kita-ku,
Osaka

Company ofwhich major
corporateunitholders
hold a majorityof voting rights

MEDIA
TECH INC.

Company ofwhich major
corporateunitholders
hold a majorityof voting rights

Daiwa HouseREIT
Management
Co., Ltd.

Major
corporateunitholder

Daiwa House
IndustryCo., Ltd.

Principal
business or
occupation

Ratio ofvotingrightsRelation to therelated party

Nature of transaction

Amount oftransaction(Notes 1 and 2)

Rental revenues

Yen inthousands

241,500

Advances
received

42,262―Tenantsecurity
deposits

313,648

Transportation
business―

100

Renovation
business―

Repairs andmaintenance ofproperties

Repairs andmaintenance(Note 3)

5,262

Nishi-ku,
Osaka

50

Information andcommunication
business―

Use of homepage
serverOther operating
expenses

Chuo-ku,
Tokyo

200

Investment
managementbusiness―

Entrustment of
asset
management

Kita-ku,
Osaka

3,764

161,699

Construction
business

Lease of realestate held―

Master lessee
and entrustmentof property
management

12.2

―

―

148

Accounts
payable26

Asset managementfee (Note 6)

497,197

Accruedexpenses

406,239

Property
management fees

86,915

Repairs andmaintenance (Note 3)

5,915

Purchase of trust
beneficiary interests
in real estate(Note 5)

43,120,000

Rental revenues
―

21
74

Account

Yen inthousands%

Balance at theend of period(Note 1)

238,500―

Accounts
payable―Advances
received
Tenantsecurity
deposits

16,182―42,930238,500

For the six-month period ended February 29, 2016

Classification

Name

Location

Capitalstock
Yen inmillions

Company ofwhich major
corporateunitholders
hold a majorityof voting rights

Daiwa
Information
ServiceCo., Ltd.

Taito-ku,
Tokyo

¥ 200

Principal
business or
occupation

Asset
managementbusiness

Ratio ofvotingrightsRelation to therelated party

Nature of transaction

Master lessee
and entrustmentof property
management¥ 85,800

Cost of utilities

86,916

Other expenses
related to rent
business

9,482

Repairs andmaintenance(Note 3)31,496

Purchase of trust
beneficiary interests
in real estate (Note 5)―
Property
management fees
Daiwa Royal
Co., Ltd.

Chiyoda-ku,
Tokyo

500

Company ofwhich major
corporateunitholders
hold a majorityof voting rights

Daiwa
LifeNext
Co. Ltd.

Minato-ku,
Tokyo

130

Company ofwhich major
corporateunitholders
hold a majorityof voting rights

Daiwa
Energy Co.,Ltd.

Abeno-ku,
Osaka

50

Company ofwhich major
corporateunitholders
hold a majorityof voting rights

Daiwa
Logistics
Co., Ltd.

Nishi-ku,
OsakaCompany ofwhich major
corporateunitholders
hold a majorityof voting rights

Daiwa House
Reform Co.,Ltd.

Kita-ku,
Osaka

3,764

100

Asset
managementbusiness

Entrustment ofproperty
management

―

Asset
managementbusiness―

Environment
business―

Transportation
business―

Renovation
business―

Repairs andmaintenance ofproperties

Lease ofequipment held

Other expenses
related to rent
business
Repairs andmaintenance(Note 3)22
75

7,790,000

Accounts
payable―¥ 69,883－

440,919

Advances
received

76,950－Tenantsecurity
deposits

879,288

Accounts
payable

3,577

7,983
13,58056,208

Rental revenues

750

Property
management fees

6,289

Repairs andmaintenance(Note 3)

16,662

Rental revenues

Rental revenues――

Accounts
payable16,638

11,616

Advances
received

2,090

241,500

Advances
received

42,262――Tenantsecurity
deposits

313,648

Repairs andmaintenance(Note 3)

155

Accounts
payable167

Lease of realestate held

Repairs andmaintenance ofproperties

Balance at theend of period(Note 1)
Yen inthousands

Property
management fees

Rental revenues

Company ofwhich major
corporateunitholders
hold a majorityof voting rights

Account

Yen inthousands%―

Amount oftransaction(Notes 1 and 2)

VI. Notes to Financial Statements

Classification

Name

Location

Capitalstock
Yen inmillions

Principal
business or
occupation

Ratio ofvotingrightsRelation to therelated party

Nature of transaction

Amount oftransaction(Notes 1 and 2)

Account

Yen inthousands%

Balance at theend of period(Note 1)
Yen inthousands

Company ofwhich major
corporateunitholders
hold a majorityof voting rights

ENESERVECORPORATION

Otsu-shi,
Shiga

7,629

Environment
business―

Management ofreal estate held

Property
management fees

360

―

－

Company ofwhich major
corporateunitholders
hold a majorityof voting rights

MEDIA
TECH INC.

Nishi-ku,
Osaka

50

Information andcommunication
business―

Use of homepage
serverOther operating
expenses148

Accounts
payable26

Company ofwhich major
corporateunitholders
hold a majorityof voting rights

KOKANKYO
ENGINEERING Corp.

Shibuya-ku,
Tokyo

73

Environment
business―

Management ofreal estate held

Property
management fees

990

―

－

Company ofwhich major
corporateunitholders
hold a majorityof voting rights

DesignArc
Co., Ltd.

Nishi-ku,
Osaka

450

Interior business―

Repair andmaintenance ofreal estate held

Repair andmaintenance(Note 3)

130

―

－

Company ofwhich major
corporateunitholders
hold a majorityof voting rights

Daiwa HouseREIT
Management
Co., Ltd.

Chuo-ku,
Tokyo

200

Investment
managementbusiness―

Entrustment of
asset
management

Asset managementfee (Note 6)

Major
corporateunitholder

Daiwa House
IndustryCo., Ltd.

Kita-ku,Osaka

161,699

Construction
business

Master lessee
and entrustmentof property
management

12.2

Property
management fees
Repairs andmaintenance(Note 3)
Rental revenues―

484,927

89,20529,645
238,500―

Accruedexpenses502,688

Accounts
payable20,418Advances
received
Tenantsecurity
deposits

42,930238,500

Notes:
1. Consumption taxes are not included in transaction amounts but are included in the balance at the end of theperiod.
2. The terms and conditions of related-party transactions are on an arm’s length basis.
3. Repairs and maintenance include capital expenditures and repair costs covered by insurance.
4. Daiwa Service Co., Ltd. merged with Daiwa LifeNext Co., Ltd. on April 1, 2015, thus becoming Daiwa
LifeNext Co., Ltd. The amount of transaction represents the total amount of transaction with Daiwa Service
Co., Ltd. before April 1, 2015 and with Daiwa Life Next Co., Ltd. on and after April 1, 2015.
5. The amount of transaction for purchase of trust beneficiary interests in real estate does not include acquisition
costs, taxes and dues and consumption taxes.
6. Asset management fee includes management fee for acquisition of properties in the amount of ¥121,050
thousand and ¥ 19,475 thousand for the periods ended August 31, 2015 and February 29, 2016, respectively.
These amounts are included in the acquisition cost of respective investment properties.
23
76

Note 16 – Segment Information(a) Segment Information(1) General information about reportable segments
DHR’s reportable segments represent its components for which separate financial information is available
and operating results are regularly reviewed by the highest decision making body to make decisions about
resources to be allocated to the segment and assess its performance.
As DHR focuses on acquiring and managing logistics and retail properties in Japan, DHR’s reportablesegments are separated into two segments, “logistics property leasing business” and “retail property leasing
business”, based on types of portfolio assets.
(2) Method for measuring profit, assets and other items of reportable segments
The accounting policies of each reportable segment are consistent with those disclosed in Note 2, “Summaryof Significant Accounting Policies”. Segment profit is based on operating income.
(3) Information about profit, assets and other items is as follows:
For the six-month period ended August 31, 2015
(Yen in thousands)

Operating revenues (Note 1)
Segment profit
Segment assets
Other items
Depreciation
Increase in investment
properties and intangible
assets

Logistics
property leasing
business¥ 5,021,497
3,357,655
168,609,873

Retail property
leasing business¥ 1,283,808
790,970
34,396,706

Amount recorded
in financial
statements¥ ―¥ 6,305,305(464,718)
3,683,907
13,930,360
216,936,941

Adjustment(Note 2)

1,147,206

212,215340

1,359,762

48,786,447

1,501

―

48,787,948

Notes:
1. DHR’s operating revenues are exclusively earned from external parties.
2. Adjustment to segment profit of ¥ (464,718) thousand consists of corporate expenses, which include asset
management fees, asset custodian fees, general administration fees, directors’ fees that are not allocated to any
reportable segments.
Adjustment to segment assets of ¥ 13,930,360 thousand includes ¥ 13,424,828 thousand of current assets and¥ 505,532 thousand of other assets.
Adjustment to depreciation of ¥ 340 thousand represents depreciation of intangible assets in corporate assets.

24
77

VI. Notes to Financial Statements

Operating revenues (Note 1)
Segment profit
Segment assets
Other items
Depreciation
Increase in investment
properties and intangible
assetsFor the six-month period ended February 29, 2016
(Yen in thousands)
Logistics
Amount recorded
Retail property
Adjustment
property leasing
in financial
leasing business(Note 2)businessstatements¥ 5,328,696¥ 1,610,251¥ ―¥ 6,938,947
3,557,566
972,626(560,778)
3,969,415
167,346,812
42,597,025
12,138,065
222,081,904

1,226,737

260,570340

1,487,647

62,426

7,878,687―

7,941,114

Notes:
1. DHR’s operating revenues are exclusively earned from external parties.
2. Adjustment to segment profit of ¥ (560,778) thousand consists of corporate expenses, which include asset
management fees, asset custodian fees, general administration fees, directors’ fees that are not allocated to any
reportable segments.
Adjustment to segment assets of ¥ 12,138,065 thousand includes ¥ 11,437,412 thousand of current assets and¥ 700,653 thousand of other assets.
Adjustment to depreciation of ¥ 340 thousand represents depreciation of intangible assets in corporate assets.

(b) Related Information
Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as domestic revenues account for more than 90% of total
operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as domestic investment properties account for more than
90% of the book value of the total investment properties.
Information on Major Tenants
A major tenant is a tenant that accounts for 10% or more of the operating revenues recorded in the statements
of income and retained earnings. Details are as follows:

25
78

Revenues for the six-month periods ended
August 31, 2015
February 29, 2016
Related segment(Yen in thousands)

Hitachi Capital Corporation¥ ― (Note 1)¥ ― (Note 1)

Logistics property leasing business

Note:
1. Not disclosed, as consent for disclosure has not been obtained from the tenant.

Note 17 – Commitment and Contingent Liabilities
Asahi Security Co., Ltd., the tenant of D Project Shin-Misato, filed a claim in the Tokyo District Court on June27, 2014 against Mitsubishi UFJ Trust and Banking Corporation, the trustee of the property, for requesting
confirmation of a reduction of approximately 16% in the rent compared with the current level for the period fromMay 2014. This case is currently pending.
DHR believes that the current rent is reasonable and intends to make a point through the trustee in future court
proceedings.
Even if the claim were admitted by the Court in full, its impact on DHR’s net income for the fiscal period ended
February 29, 2016, would be less than 3%. With respect to the outcome of this case, DHR is unable to estimate thepossible loss or range of losses that could potentially result from it as of the balance sheet date.

Note 18 – Subsequent Events(a) Merger between DHR and Daiwa House Residential Investment Corporation
DHR and Daiwa House Residential Investment Corporation (“DHI”) resolved at meetings of their respective
boards of directors held on April 15, 2016, to implement an absorption-type merger with DHI as the surviving
corporation (the “Surviving Corporation”) and DHR as the absorbed corporation (the “Merger”) effective
September 1, 2016 and have concluded a merger agreement (the “Merger Agreement”) on the same date.
(1) Purpose of the Merger
DHR and DHI (the “Investment Corporations”) have made efforts to sustainably increase unitholders’ value
through securing stable income over the medium- to long-term and steadily growing their assets with taking
advantages of their strengths. However, each of them faces challenges; DHR has relatively limited strategies for
efficiently replacing properties and achieving internal growth at its positioning in the logistics REIT sector,
while DHI’s portfolio specializes in residential properties and assumes limited opportunities for internal growthunder persistently high LTV ratio. Under these business environments, the Investment Corporations agreed to
begin negotiations and have had deliberate discussions for a merger, as one option for addressing thesechallenges and promoting the future growth of both companies. As a result, the Investment Corporations
determined that the Merger was the best solution for maximizing unitholders’ value through securing profit andrealizing stable and improved distribution by solid growth of the operating assets, and concluded the Merger
Agreement on April 15, 2016.
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79

VI. Notes to Financial Statements

Note that, along with the Merger, an absorption-type merger (the “Asset Manager Merger”) will be
implemented effective September 1, 2016 with Daiwa House Asset Management Co., Ltd., the asset manager of
DHI, as the surviving company and Daiwa House REIT Management Co., Ltd. (the “Asset Manager” of DHR)
as the absorbed company, subject to the Merger taking effect as a condition precedent thereto in order for theassets held by the Surviving Corporation to be managed efficiently after the Merger.
(2) Merger type
The Merger will be an absorption-type merger wherein DHI will be the Surviving Corporation and DHR will
be dissolved.
(3) Merger ratio
For the Merger, 2.2 DHI units will be allotted to DHR unitholders per one DHR unit. Since this will generate
fractions less than one unit for the number of investment units to be issued, those fractional units less than one
unit will be sold through a market transaction in accordance with statutory provisions, and the proceeds from thesale will be delivered to the unitholders who hold fractions in proportion to the size of their holdings.
(4) Cash distribution upon the Merger
Instead of cash distributions to DHR unitholders for the DHR’s final fiscal period ending on the day
immediately preceding the effective date of the Merger, DHI will make a cash distribution on merger to theunitholders listed or recorded on the final unitholders register of DHR as of the day immediately preceding theeffective date of the Merger, excluding the dissenting DHR unitholders who demand for repurchase ofinvestment units pursuant to Article 149-3 of the Investment Trusts Act (the “Allotted Investors”), in an amountequivalent to the cash distributions for the final fiscal period based on DHR’s distributable profit within areasonable period after the effective date of the Merger. The payment on merger to each unit held by DHR
unitholders other than the Allotted Investors will be (i) the amount of distributable profit of DHR as of the day
immediately preceding the effective date of the Merger divided by (ii) the number of investment units that is
obtained by deducting (a) the number of DHR investment units held by the DHR unitholders other than the
Allotted Investors from (b) the number of DHR investment units issued and outstanding.
(5) Performance of the Surviving Corporation (DHI) in the latest fiscal period ended February 29, 2016
Business purpose: Management of the investment corporation assets by investing mainly in real estate
properties in accordance with the Investment Trusts Act.
Operating revenues
Net income
AssetsLiabilities
Net assets¥9,662 million¥3,177 million¥258,590 million¥147,395 million¥111,194 million

2780

(b) Acquisition of Assets
DHR concluded purchase agreements regarding the acquisition of the following assets on April 15, 2016. The
Surviving Corporation plans to acquire the properties on the condition that the Merger takes effect.
Naha Shin-Toshin Center Building
Property name(Daiwa Roynet Hotel Naha-Omoromachi)
Planned acquisition price (Note1)¥ 7,600,000 thousand
Daiwa House Industry Co., Ltd.
Seller (Note 2)
DO Shin-Toshin Development Tokutei Mokuteki Kaisha
Asset type
Trust beneficiary interest in real estate (Note 4)
Location (Address)
1-1-12, Omoromachi, Naha-shi, Okinawa
Planned acquisition date (Note 3)
September 28, 2016
Property namePlanned acquisition price (Note1)
Seller (Note 2)
Asset type
Location
Planned acquisition date (Note 3)

D Project Hibiki Nada
¥ 2,080,000 thousand
Daiwa House Industry Co., Ltd.
Trust beneficiary interest in real estate (Note 4)
3-1-5, Hibiki-machi, Wakamatsu-ku, Kitakyushu-shi, Fukuoka
September 28, 2016

Property namePlanned acquisition price (Note1)
Seller (Note 2)
Asset type
Location (Address)
Planned acquisition date (Note 3)

D Project Morioka II¥ 1,280,000 thousand
Daiwa House Industry Co., Ltd.
Trust beneficiary interest in real estate (Note 4)3-15, Ogama-kazabayashi, Takizawa-shi, Iwate
September 28, 2016

Property namePlanned acquisition price (Note1)
Seller (Note 2)
Asset type
Location (Address)
Planned acquisition date (Note 3)

Sports Depo, GOLF5 Kokurahigashi IC Store¥ 2,230,000 thousand
Daiwa House Industry Co., Ltd.
Trust beneficiary interest in real estate
2-18-17, Kamikuzuhara, Kokuraminami-ku, Kitakyushu-shi, Fukuoka
September 28, 2016

Notes:
1. Acquisition price does not include acquisition costs, taxes and dues and consumption taxes.
2. As Daiwa House Industry Co., Ltd. is an interested party as defined in the Investment Trusts Act, the AssetManager has gone through the necessary discussion and approval procedures in accordance with its internal
rules to prevent any potential conflicts of interest.
DO Shin-Toshin Development Tokutei Mokuteki Kaisha, the seller of Naha Shin-Toshin Center Building(Daiwa Roynet Hotel Naha-Omoromachi), is not an interested party under the Investment Trusts Act. This
Tokutei Mokuteki Kaisha, however, is a special purpose company set up with the aim of acquiring, holding
and disposing of specified assets partially invested in by Daiwa House Industry Co., Ltd., which is the parent
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81VI. Notes to Financial Statements

company of the Asset Manager, and is classified as an interested party as stipulated in the Asset Manager’s
internal rules to avoid transactions with conflicts of interest. Therefore, the Asset Manager has gone throughthe necessary discussion and approval procedures.
3. The purchase agreement for acquisition of each above property (the “Agreement”) is deemed a forward
commitment (a forward-dated purchase agreement in which settlement and transfer of the property are carriedout at least one month after the agreement is concluded, or certain other similar contracts).
Under the Agreement, if a party breaches the Agreement, then the non-breaching party may cancel theAgreement upon notice to the breaching party only when the non-breaching party is no longer able to fulfill
the purpose of the Agreement due to the other party’s breach. In the event the Agreement is cancelled, thenon-breaching party may demand the breaching party to pay a penalty in the amount equal to approximately
20% of the purchase price (as such penalty is expected to constitute damage payment, the non-breaching party
may not claim for damages in the amount exceeding such penalty amount). With regard to the Agreement withDO Shin-Toshin Development Tokutei Mokuteki Kaisha for acquisition of Naha Shin-Toshin Center Building(Daiwa Roynet Hotel Naha-Omoromachi), the penalty is to be approximately 10% of the purchase price.
However, under the Agreement, the Surviving Corporation shall make a payment of the acquisition price after
the Merger on condition that the Surviving Corporation would obtain necessary funds to meet the payment.
Hence, if the Surviving Corporation is unable to complete the financing, the Agreement will expire without theSurviving Corporation assuming any obligations under the Agreement, including payment of any penalty orcompensation such as payment of damages. Thus, if the Surviving Corporation cannot fulfill the forward
commitment due to its inability to complete the financing, it is unlikely that such non-fulfillment will have any
material impact on the Surviving Corporation’s financial position.
4. As of February 29, 2016, the assets to be acquired stand as physical real estate. By the time of planned
acquisition date, however, the assets are expected to be transferred to the trustee by the current owner and theSurviving Corporation is expected to acquire the trust beneficiary interest in the respective real estate.

2982Note 19 – Additional Information
DHR plans to acquire the following asset based on the purchase agreement concluded on October 29, 2015.
Property nameAcquisition price (Note1)
Seller (Note 2)
Asset type
Location
Planned acquisition date (Note 3)

D Project Tosu (extension building)¥ 2,600,000 thousand
Daiwa House Industry Co., Ltd.
Trust beneficiary interest in real estate (Note 4)1623-1, Aza Hasuhara, Himekata-machi, Tosu-shi, Saga
June 15, 2016

Notes:
1. Acquisition price does not include acquisition costs, taxes and dues and consumption taxes.
2. As Daiwa House Industry Co., Ltd. is an interested party as defined in the Investment Trusts Act, the AssetManager has gone through the necessary discussion and approval procedures in accordance with its internal
rules to prevent any potential conflicts of interest.
3. The purchase agreement for acquisition of this property (the “Agreement”) is deemed a forward commitment(a forward-dated purchase agreement in which settlement and transfer of the property are carried out at least
one month after the agreement is concluded, as well as certain other similar contracts).
Under the Agreement, if a party breaches the Agreement, then the non-breaching party may cancel theAgreement upon notice to the breaching party only when the non-breaching party is no longer able to fulfill
the purpose of the Agreement due to the other party’s breach. In the event the Agreement is cancelled, thenon-breaching party may demand the breaching party to pay a penalty in the amount equal to approximately
20% of the purchase price (as such penalty is expected to constitute damage payment, the non-breaching party
may not claim for damages in the amount exceeding such penalty amount).
However, under the Agreement, DHR shall make a payment of the acquisition price on condition that DHR
would obtain necessary funds to meet the payment. Hence, if DHR is unable to complete the financing, theAgreement will expire without DHR assuming any obligations under the Agreement, including payment of any
penalty or compensation such as payment of damages. Thus, if DHR cannot fulfill the forward commitment
due to its inability to complete the financing, it is unlikely that such non-fulfillment will have any material
impact on DHR’s financial position.
According to an appraisal report provided by The Tanizawa Sōgō Appraisal Co., Ltd., the appraisal value of
this property was ¥3,000 million as of February 29, 2016.
4. As of February 29, 2016, an extension building is under construction by Daiwa House Industry Co., Ltd. Afterits completion and by the time of planned acquisition date, however, the asset is expected to be transferred tothe trustee by Daiwa House Industry Co., Ltd. and DHR is expected to acquire the trust beneficiary interest in
the real estate.

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