New Medium-Term Management Plan,“WAY 2040 Stage 1”

April 30, 2024

03Group Philosophy
Heiwa Real Estate Group Corporate Philosophy

Our Purpose

Enriching everyone’s futureWith Bazukiri that draws people inThis is the Group’s raison d'être. It articulates
the fundamental purpose and guiding
principles of our existence within society.

Long-term Vision “WAY 2040”

Pursue perpetual dynamic
growth to become the“Bazukuri Company”

This represents the Group’s vision.
It outlines the journey toward realizing Our
Purpose and declares the kind of presence weaspire to embody.

Our Values

Trust Forward thinking Co-creation

These are the shared values of the Group,
indicating what we hold dear and how we
conduct our business.

Basic Policy

Code of Conduct /Heiwa Real Estate Group Credo /Standards for Behavior

This forms the guideline for each officer andemployee of the Group to fulfill their social
responsibility with a high ethical standard.

©HEIWA REAL ESTATE GROUP

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Group Purpose
Heiwa Real Estate Group Purpose

Enriching everyone’s future with Bazukuri that draws people inOur aim is to enrich the future of all stakeholders.

Through continuous Bazukuri, we have infused vibrancy

This includes both material and spiritual prosperity.

into districts. The fundamental value shared across theWe are committed to continuously creating spaces

Group’s work is drawing people in through diverse

where everyone involved can enjoy this abundance.

Bazukuri endeavors. As a Group, we will embark on
initiatives to create captivating living environments.

©HEIWA REAL ESTATE GROUP

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HEIWA REAL ESTATE GROUP

Long-term Vision “WAY 2040”

Pursue perpetual dynamic
growth to become the“Bazukuri Company”©HEIWA REAL ESTATE GROUP

05

Assessment of External Environment

Amid significant changes in the business environment,
establishing a long-term vision enables us to enhance corporate value.
Changes to Urban Environment and Lifestyles

Diversification and qualitative
shifts in workstyles
Population decline, and a dwindlingbirthrate and an aging society
Expanded demand frominbound tourism
Intensified competition between
cities and between regions

Changes to Society and Global Environment

Heiwa Real
Estate Group
Long-term Vision“WAY 2040”

Establishmentof long-termvision

Expectations for improved
capital efficiency
Advancement of sustainability
management
Progress in digital technology

Threat of natural disasters©HEIWA REAL ESTATE GROUP

06

Growth Strategy

Through four growth strategies, we aim to enhance corporate value andachieve our vision for 2040.
Long-term Vision “WAY 2040”

Pursue perpetual dynamic growth tobecome the “Bazukuri Company”
Quantitative Targets

Four Growth Strategies
2. Cultivate profit growth while
enhancing capital efficiency

1. Expand redevelopment business

Deploy Bazukuri endeavorsthat draw people inthroughout Japan
3. Boost social value

Promote sustainability
initiatives

Expand leasing business, promote
reinvestment by realizing gains
from property sales, andenter new business areas
Enhance

corporate
value throughsynergies

Consolidated operating profit ofat least ¥25 billion in 2040*1
Sustainable ROE exceeding
cost of shareholders’ equity

4. Strengthen business foundations

Maximize human capitalfor accelerated growthNet-zero greenhouse gas (GHG)
emissions by 2050*2*1. Achieve around double the consolidated operating profit level in FY2023.
*2. The ROE target is set for each medium-term management plan.

©HEIWA REAL ESTATE GROUP

06Positioning of the Plan

Our new medium-term management plan, WAY 2040 Stage 1, marks the period of our initial sprint toward
dynamic growth.
This initial sprint toward dynamic growth is dedicated to establishing the Nihonbashi Kabutocho and Kayabacho district brand, undertaking our largest-everredevelopment projects, located in Sapporo, and venturing into new business domains to realize our vision. This signals the beginning of our efforts to “Pursue perpetualdynamic growth to become the ‘Bazukuri Company,’” the key goal of our Long-term Vision, Way 2040.

Heiwa Real Estate Group Long-term Vision “WAY 2040”
Stage 1
Initial sprint toward dynamic growth(FY2024–FY2026)

Establish the Nihonbashi
Kabutocho and Kayabacho
district brand

Advance our largest-everredevelopment projects, locatedin Sapporo
Venture into new businessdomains to realize our vision

Stage 2Further evolution into the Bazukuri Company(FY2027–FY2030)

Becoming the Bazukuri Company capable of dynamic growth The introduction of new features through the opening of Caption by Hyatt
Kabutocho Tokyo will generate synergies among different aspects and services
within the city, enhancing overall urban functionality.
 We will expand FinGATE and attract and operate unique commercial
establishments that bring vibrancy both on weekdays and weekends.

FY2026 Quantitative Targets
Consolidated operating profit
At least ¥14 billion

 We will steadily advance toward the completion in 2028 of our largest-everredevelopment projects —the Odori-nishi 4 South, Type 1 District
Redevelopment Project and the Sapporo Station South Exit North 4 West 3,
Type 1 District Redevelopment Project (provisional names).

Earnings per share (EPS)At least ¥270

 To achieve the dynamic growth emphasized in our Long-term Vision, we will
strengthen our hotel business and explore opportunities for expansion into new
business domains, primarily through M&A.

Return on equity (ROE)(FY2024–FY2026)
At least 7%©HEIWA REAL ESTATE GROUP

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Growth strategy (1) Expand redevelopment business: Deploy Bazukuri endeavors that draw people in throughout Japan

Establish the Nihonbashi Kabutocho
and Kayabacho district brandIntroducing new features through Caption by Hyatt
Kabutocho Tokyo, the first in Tokyo, will generatesynergies among different city services. By expandingFinGATE, attracting and operating unique commercial
establishments that add vibrancy all week, andapplying innovative urban sustainability initiatives, wewill create diverse spaces that draw people in andentrench our Nihonbashi Kabutocho and Kayabacho
district brand.

Advance our largest-ever redevelopment
projects, located in Sapporo

Expand redevelopment projects
nationwide

We will steadily advance toward the completion

To enhance our presence as a Bazukuri

in 2028 of our largest-ever redevelopment

Company, we will drive the implementation ofprojects—the Odori-nishi 4 South, Type 1redevelopment projects centered around ourDistrict Redevelopment Project and the Sapporo

assets in major cities throughout Japan.

Station South Exit North 4 West 3, Type 1 DistrictRedevelopment Project (provisional names)—aspart of our Bazukuri endeavors in Sapporo thatdraw people in..
©HEIWA REAL ESTATE GROUP

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Growth strategy (2) Cultivate profit growth while enhancing capital efficiency: Expand leasing business, promote reinvestment byrealizing gains from property sales, and diversify into new business areas

Expand revenue in the AssetManagement Business

Develop a business model for creating
added value in the Building Business

HEIWA REAL ESTATE REIT total assets

Market value of lease properties, etc.

(Billions of yen)
500
400
300

363.5

119.4

376.8

388.9

112.4

112.2

(Billions of yen)
240

420.1

421.2

111.5

116.7

200
100
0

244.0

276.7

308.6

304.4

213.3

220
200
180

264.4

Venture into new business domains torealize our vision

178.0

184.1

221.0

228.4

194.7 196.3

160
140
120

20/3

21/3
Book value

22/3

23/3

24/3

Unrealized gains

100

20/11

21/5

21/11

22/5

22/11

23/5

23/11

©K5

We will realize gains from property sales by

We will strive to increase asset management

To achieve the dynamic growth emphasized inrenewing our portfolio and sustainably develop

fees by supporting the growth of HEIWA REAL

our Long-term Vision, we will explore

our business model focused on creating added

ESTATE REIT, Inc. and to enhance Group

opportunities for expansion into newvalue.

earnings with high capital efficiency throughbusiness domains by strengthening our hotel

stable growth in brokerage business.

business and implementing M&A.

©HEIWA REAL ESTATE GROUP

09

Growth Strategy (3) Boost Social Value

Implement sustainability management

Promote the creation of sustainable districts

We, as a Bazukuri Company, will contribute toWe will enhance the competitiveness of our asset portfolio by addressing social issues such as

realizing a sustainable society by addressing

environmental friendliness and boosting disaster preparedness. This will be achieved through building

environmental and social issues, including

development and operation as well as facility investment, and continuing efforts to reduce GHG

achieving net-zero greenhouse gas (GHG)

emissions, among other initiatives.

emissions, while encouraging interactive
communication with all stakeholders.

©HEIWA REAL ESTATE GROUP

10Growth strategy (4) Strengthen business foundations: Maximize human capital for accelerated growth

Implement management with anawareness of the cost of shareholders’equity and stock price
Stock price indicators

(Yen)
7,000
6,000

5,030

5,287

5,405

5,497

3,955

3,785

3,270

3,334

5,000

3,455

4,000
3,000
2,000
1,000

Maximize human capital

2,799

2,837

20/3

3,190

21/3

NAV per share

22/3
BPS

23/3

5,774

4,080

3,510

24/3

Develop Human Resources Capable ofRealizing Our Purpose

Board composition with a majority of external directors(A Company with a Nominating Committee, etc.)

Externaldirectors

FemaleCreate an Organization That Promotes andMaximizes Diversity
Foster a Comfortable Work Environment

Internaldirectors

Stock priceWe set an ROE target for FY2024 to FY2026 of atleast 7%, exceeding the cost of shareholders'equity. For shareholder returns from FY2024 toFY2026, we aim to maintain a consolidated
dividend payout ratio of 50% in consideration of
the cost of shareholders’ equity, capital efficiency,
and other factors. We will also flexibly implement
share buybacks, taking into account aspects suchas stock price, investment plans, and financial
condition.

Human resource strategy

Further strengthen corporate governanceAs part of our Long-term Vision, we will promote
human capital management to drive dynamicgrowth. This involves cultivating human resources
capable of realizing our Purpose through careerdevelopment, as well as individuals proficient indigital transformation (DX). Additionally, we will
create an organization that promotes andmaximizes diversity, while fostering comfortableand vibrant workplaces through health andproductivity management, among other measures.

We will bolster corporate governance byenhancing the functions of the Board ofDirectors and reducing cross-shareholdings.

©HEIWA REAL ESTATE GROUP

11

Financial and non-financial key performance indicators (KPIs)

Financial KPIs

EPSProfit
targets

At least ¥270 (FY2026)

At least ¥14 billion* (FY2026)
Consolidated
operating profit

Non-financial KPIs

Environmental* Breakdown• Building Business: ¥13.8 billion• Asset Management Business: ¥2.4 billion• Corporate and elimination: -¥2.2 billion

Capitalefficiency

ROE

At least 7% (FY2024–FY2026)

Shareholder
returns

Consolidated
dividend payout
ratio

We aim to maintain a consolidated dividend payout
ratio of approximately 50% (FY2024–FY2026) and will
flexibly implement share buybacks, taking into
account factors such as stock price, investment
plans, and financial condition.

GHG emissions

Reduce by 80% compared to FY2018 by FY2025(Scope 1 and 2)
Achieve net-zero emissions by FY2050(Scope 1, 2, and 3)

Water usage

Reduce in each application year on year

Wasteemissions

Reduce in each application year on year

SocialRatio of new graduate female hires: At least 30% (five-year average)
Ratio of female managers: At least 20% by FY2030
Ratio of mid-career workers in management positions: At least 40% by
FY2030
Annual health check uptake: 100%
Uptake of cancer screenings (every two years): 100% of employees
aged 35 or above
Annual stress check uptake: 100%
Annual paid holiday uptake: At least 70%
Male childcare leave uptake: 100% by FY2030
First aid training qualification: All of our officers and employees

GovernanceRatio of cross-shareholdings to consolidated net assets: 10% or lessby FY2026©HEIWA REAL ESTATE GROUP

Capital allocation

Capital allocation(FY2024–FY2026)
FY2024
Cash balance at beginning ofperiod: Approx. ¥28 billion

Generated throughbusiness and othersources:
Approx. ¥70 billion
Incl. revenue from sales ofproperties:
Approx. ¥37 billion

Proceeds from interest-bearing
liabilities:
Approx. ¥40 billion

Redevelopment
investment:
Approx. ¥60 billion(Breakdown)
Nihonbashi Kabutocho andKayabacho district:Approx. ¥16 billion
Sapporo: Approx. ¥40 billion
Other: Approx. ¥4 billion

Investment in property
acquisition:
Approx. ¥23 billion
CAPEX:
Approx. ¥17 billion
Shareholder returns:
Approx. ¥18 billion
FY2026
Cash balance at end of period:
Approx. ¥20 billion

Notes: 1. Currently, the estimated total investment for theprovisionally named Odori-nishi 4 South, Type 1 District
Redevelopment Project, scheduled for completion in2028, and Sapporo Station South Exit North 4 West 3,
Type 1 District Redevelopment Project, scheduled forcompletion in FY2028, is approximately ¥120 billion.
2. Reference indicator (financial soundness): Net debt-toequity (D/E) ratio of approximately 2.0©HEIWA REAL ESTATE GROUP

Enriching everyone’s future with Bazukuri that draws people in