Activia Properties Inc.
FP19 Ended May 2021
Q&A Session Summary
Date: Wednesday, July 14, 2021 (Telephone Conference)

Q1 ： For Shiodome Building, you achieved to back fill the vacated area of 1,300 tsubo without
any downtime. Although, you will have another tenant departure at the end of next June.
What is the leasing strategy, and have you had a good response so far?
A1 ： On July 1st, we announced that NTT Communications would leave the property one year
later. The co-ownership interest that we hold in this property is 35%, though the tenant is themajor one in our offices, and the leased area accounts for 2.5% of the total portfolio. As forthe leasing strategy, it would be not realistic to backfill all the area by one tenant, so we would
like to fully leverage our knowhow and mix the methods such as leasing several one or moreentire floors to tenants, or divide the area into several sections, etc. The Mitsubishi EstateGroup, which is the major owner of the property, had been the main leasing company, but thistime our group has also earnestly participated in leasing. So, we will pay our greatest effort
in leasing based on the strategy mentioned above. The strength of this building is that eventhough being over 10 years old, the specifications are not inferior to others, as it has a pillarfree space of over 1,000 tsubo and the floor shape is very easy to use. In addition, the nearest
Hamamatsucho Station has good access to Haneda and Tokyo, and in the surrounding area,
there is Tokyo Port City Takeshiba, which was recently developed by the sponsor, and therebuilding of the World Trade Center Building is under planning. Those aspects will increase
the recognition of the area as a major office area in the future. Also, a pedestrian deck directly
connected to the station has been constructed. I would like to take advantage of these positive
features for leasing. Recently, an area of 3.5 floors which is scheduled to be vacant wassuccessfully backfilled by a new tenant under favorable conditions and without downtime.
The departure of NTT Communications may affect our business performance from the fiscal
period ending November 2022 (FP22), so I will continue working on leasing for the next sixmonths and factor in the outcome to the next business forecast.

Q2 ：I would like to understand your asset reshuffle strategy. You recently sold the hotel inAkasaka and acquired an office property in Tamachi. What is your policy in terms ofasset class? Please let us know if you have already in mind to focus on selling hotels andacquiring offices, or owning a hotel that is expected to recover to the growth trajectoryat an early stage with an eye on post COVID-19?

A2 ： We have recently conducted an asset reshuffle, and we would like to continue working on
them. The three key points for selecting property to be sold are (1) profitability, (2) building
age, and (3) competitiveness. The property will be picked up and reshuffle will be conducted
depending on whether or not it corresponds to these criteria. On the other hand, the point forthe property to be acquired is that future internal growth can be expected. The offices in thegreater Shibuya area and the south side of the Yamanote line will be the main candidates, as
our focused areas are not changed. The reshuffle of Akasaka and Tamachi is positioned as thefirst project of the "asset-recycling model", of which we have recently defined the term withthe sponsor. We would like to continue to work on this "asset-recycling model" with oursponsor, and the sponsor is now considering API’s properties to utilize in their medium-term
management plan which is going to be set up. If we pick up the properties that can beredeveloped, those that have the potential to be redeveloped, and those that have theadvantage of being rebuilt independently, about half of our properties are listed. Althoughsome of them may take time, we believe that we can demonstrate the strength of being
sponsored by a developer, by continuing to work on the “asset-recycling model”.

Q3 ： I would like you to make an additional explanation on the trend in the market value ofeach asset class. The disposition price of Tokyu Plaza Akasaka was below the appraisal
value at the end of the previous fiscal period. Does that mean that the hotel price isfalling? Are the prices of offices and retail properties also falling or not?
A3 ： Looking at the overall market, the transaction is sluggish. However, with regard to offices,
the competition for acquisition continues to be extremely fierce once buildings are on sale,and the price and cap are almost at the same level of those before pandemic. For retailproperties and hotels, cash flow is not stable, though firstly there are few listed for sale as theseller's expectation is high. So, it is difficult to mention the market view. Under suchcircumstances, Tokyu Plaza Akasaka has a lower appraisal value compared to the previous
period, and the disposition was conducted based on the lower appraisal value. This wasbecause it became clear that, for the contract renewal with Tokyu Hotels, a considerable rent

reduction was expected. This was reflected in the appraisal value for the fiscal period ended
May 2021 (FP19). If I go into detail, in October last year, Tokyu Hotels requested a rent
reduction. At that time, due to the effects of GoTo Travel, etc., the hotel was on a recovery
trend, so we decided that it was not necessary to respond to the rent reduction request, andwe were looking for sale to a third party and operator change. However, from the end of thelast year to the beginning of this year, the infection spread of COVID-19 worsened, and dueto the influence of the subsequent state of emergency, Tokyu Hotels said once to quit theoperator. It may not be easy to change the operator of such a large hotel, so we asked thesponsor to conduct an asset reshuffle, and they decided to replace with an office with a viewto redevelopment of hotel. The new appraisal value of 10.8 billion yen is based on theassumption that it will return to the original rent in about two years, including the sales-linked
rent portion. For us, there is still a possibility that the premise will worsen further in the future,so we decided to sell it in consideration of risks.

Q4 ： With the “asset-recycling model”, the interaction with the sponsor will become evenmore intense in the future? It might be the sponsor side that bears the (re)development
risk, but is there any change in how to divide the risk and return at two sides? How doyou think about the sponsor’s engagement to API, will you just acquire and dispose ofproperties from and to them, or are you taking certain (re)development risks at yourside?
A4 ： From the perspective of whether the seller and the buyer can feel the benefits of thetransaction, rather than just buying and selling, it may be effective to evaluate the property
from the developer's perspective with a view to redevelopment. Considering the market
situation where simple transaction is difficult, the engagement of the sponsor may become
stronger, and the importance of schemes utilizing funds such as REITs is increasing in theirmedium-term management plan, too. However, I think the scheme does not permit API tobear the (re)development risk. Of course, there should be a return on (re)development risk,
but it is not so good for REIT products that the volatility becomes too large when viewed inchronological order. Having said that, there might be a possibility of participating. For
example, if the cash flow of the property to be redeveloped is stable, API will own theproperty until the redevelopment plan starts, and then when the redevelopment becomesrealistic, it will be sold back to the sponsor. It has not been materialized yet, though we areexchanging information related to such plans with the sponsor.

Q5 ： Regarding the rent gap, the market is becoming cautious and the rent gap is shrinking.
You mentioned that the rent per tsubo-aware strategy can be implemented even in thisenvironment, though is it underpinned by some fact?
A5 ： The rent gap is narrowing due to the synergistic effect of market rent adjustments and ourrent increase track record at rent revisions. For offices, we would like to prioritize the levelof rent per tsubo while firmly implementing internal growth. In addition, in the fiscal period
under review, we achieved the largest rent increase amount at tenant replacement ever. The
rent was steadily increased, and this was supported by the tenant needs to relocate to good
locations, such as near stations. I would like to continue taking upside for similar properties.
However, some offices are a little far from the station or have certain vacant spaces andcompetitors in the vicinity, so it is difficult to increase the rent there. In other cases, we are
flexibly responding to rent revision negotiations with tenants with consideration ofmaintaining occupancy. Therefore, we will firmly aim to increase rent for those with a large
rent gap and those with a low difficulty of tenant replacement. To achieve stable growth, anexplicit approach is required. I think it is a chance to show off our capability.

Q6 ： Regarding the trend in the office occupancy rate at the end of the fiscal period, theprevious guidance predicted that on cash basis it would recover to 97.4% at the end of
the period ending November 2021 (FP20), but this time it is estimated to be 95.0%, down
about 2.5pt. On the other hand, the forecast for the fiscal period ending May 2022
(FP21) is a significant recovery of 98.3%. Is this based on contracts that you havealready made or on expectation?
A6 ： From what I actually feel of the market, in the past few months, occupancy has been
increasing and decreasing, and it takes time for companies to make decisions to move in due
to economic uncertainty. This time’s occupancy expectation reflects that the recovery of theoccupancy on cash basis is delayed from the previous forecast. As for the market outlook,from this winter to next spring, if the occupancy returns by conducting measures such as
lowering the rent for the areas with poor conditions where leasing goes sluggish, the market
will recover to a solid level by next spring. Since we expect to do so, the recovery has been
delayed for about half a year from the previous forecast. It reflects the fact that the strength
and weakness of each area and property are becoming clear, and that the large areas such of

from 200 to 300 tsubo are more severe compared to the areas of 100 tsubo or less. On theother hand, the demand is active from tenants looking for better location. They seek torelocate in better location even if the new area is smaller than before as they should cost cut
at the same time. We can receive the demands from those tenants. Even though the large lot
is tough overall, we have made a contract with a lot of over 300 tsubo at Ebisu Prime Square.
I think it is important to aim for recovery toward next spring, so this time we have this outlook.

Q7 ： The occupancy will recover from 95.0% to 98.3%, and what are the proportions of thosealready contracted and those expected?
A7 ： At the moment, there are not so many contracts that have been concluded, and there are many
prospects. However, as it is clear which properties are struggling and which are enjoying, soI think that how to resolve the problem of the properties suffering is also visible to someextent.

Q8 ： Sales in DECKS Tokyo Beach and Tokyu Plaza Omotesando Harajuku seem to havefallen recently. What do you think about the current situation and future outlook of theend tenant’s ability to pay rent and the occupancy rate?
A8 ： Sales at those two facilities are certainly struggling. As an individual factor, for Tokyu Plaza
Omotesando Harajuku, we lost American Eagle Outfitters which had been operating twoyears ago, and for Odaiba, inbound demand has disappeared. It is difficult to improve sales
under such circumstances. In terms of eviction and occupancy rate, there are about 40-50
evictions mainly of small tenants, and most of them are small and medium-sized food andbeverage tenants. Although the impact on our business performance is not significant, it is avery important factor for the vitality of commercial facilities. So we would like to tackle
backfilling as an immediate issue.

Q9 ： Regarding the appraisal value, certain, mainly retail properties, lowered valuation fromthe previous period. For Tokyu Plaza Omotesando, cap rate change etc., may be a factor
for lower appraisal value, but this is based on a transient factor of COVID-19 orreflecting the current trend in rent per tsubo, etc.?

A9 ： This time, cap rate is the main factor for the lowered appraisal values of Omotesando andAkasaka. For both properties, cash flow was reviewed as those had rent reduction. The cap
rate of Akasaka has been raised as in the previous fiscal period, partly due to cash flow
reviewed following hotel rent reductions. Other than that, the appraisal value is slightly
lowered due to NOI fluctuations for the properties whose cash flow was affected by rent
reductions. For these properties, the key is whether or not sales will return steadily.

Q10 ： Regarding the DPU forecast, the biggest factor of the decrease for the fiscal period
ending November 2021 (FP20) is the financial cost of 161 yen. Is it okay to understandthat this is a conservative assumption as in the previous fiscal period?
A10 ： We are incorporating interest rate buffers in our earnings forecasts this time, too. The buffer
is equivalent to 161 yen for the November 2021 (FP20) forecast and 192 yen for the May
2022 (FP21) forecast. There is no change in the supportive stance of lenders. The spread isslightly widened in the recent borrowings, but in any case, it does not have a significantimpact on our business performance.

Q11 ：Regarding the successor tenant of American Eagle Outfitters, you mentioned that it wasa "long-term stable contract". What about the rent level?
A11 ：We have achieved some rent improvement, so we take it positively.

Q12 ：The breakdown of the COVID-19 impact on the forecast DPU was disclosed until the lasttime. Please tell us the breakdown of the COVID-19 impact at this time.
A12 ：On page 5 of the financial results presentation material, the main factors of COVID-19 impact,
such as the facility shutdowns, temporary rent reductions, and downtime, are listed. On thepage 6, the COVID-19 impact includes the sales-linked at hotels, etc., so some numbers do
not match those on the previous page. As mentioned on page 5, the impact of the temporary
rent reduction was significant in the fiscal period ended November 2020 (FP20), but this has
gradually settled down. The number of downtimes is still large, but it has decreased in thefiscal period ending May 2022 (FP21). This is because it reflects improved office occupancy,
even though the retail will take some time to recover.

Q13 ：If the sales-linked rent at hotels before COVID-19 level is added to the number on P5,
will it be close to the number on P6, then?
A13 ：You’re right.
< End >

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