Financial Results for the 1st Fiscal Period (“FP1”)
Sakura Sogo REIT Investment Corporation (Securities code: 3473)

Fiscal Period ended 28 February 2017

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)

Contents

Sakura Sogo REIT Investment Corporation

Section 1 – The Sponsors
Overview of Sponsors
Sponsor Support Structure
Portfolio Investment Guidelines

4
5
6

Section 2 – Fiscal Period 1 Financial Results
Financial Results Overview
FP1 - Forecast vs Actual DPU
DPU - FP1 vs Forecast FP2 & FP3

8
910

Section 3 – JREIT Sector & Peer Comparison
JREIT Sector
JREIT Peer Comparison

12
13

Section 4 – Key Performance Indicators (KPI’s)
Portfolio KPIs
Portfolio – Sector Analysis
FP1 Internal Growth
Financial KPIs
Portfolio summary

15
16
17
18
19

Section 5 – Management Key Priorities
Management Key Priorities
Part A – Internal GrowthPart B – External Growth
Roadmap for GrowthPart C – Capital Management
Overview of Borrowings
Status of Unitholders

21
23
27
28
30
31
32

Appendix
Balance Sheet and Statement of Income
Income and Expenditure by Property for FP1
Portfolio Map
Property – Appraisal & Yield Analysis
Overview of the Investment Corporation
Disclaimer

34
35
37
38
40
41

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)2

Sakura Sogo REIT Investment Corporation

Section 1 – The Sponsors

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)3

Overview of Sponsors

Sakura Sogo REIT Investment Corporation

Nippon Kanzai Co., Ltd.
The Nippon Kanzai Group, established in 1965, is headed by Nippon Kanzai Co. Ltd.,
one of the major companies involved in building management and operation in Japan
offering a full-line of real estate management services. It is entrusted with the building
management and operation of a variety of buildings including office buildings,
condominiums and retail facilities in major cities across Japan and through its
business operations, it has acquired extensive know-how in the building management
and operation of buildings of various sizes, purpose of use and location.

The Galileo Group is an independent Australian real estate and fund managementbusiness with an extensive track record in real estate investment and developments inAustralia, Japan and the U.S. The Group has significant real estate capital markets
experience with senior personnel having been directly involved in the IPO and ongoing
management of listed REITs for over 20 years. The Group commenced operations inJapan in 2006.

Track Record of Galileo Group
2003

2006

2016

Established an Australian
listed REIT (investment
target: U.S. shopping centres)

Established an Australian
listed REIT (investment
target: Japanese diversified
portfolio)

Established a REIT listed on
Tokyo Stock Exchange(investment target: Japanesediversified portfolio)

Characteristics of Nippon Kanzai Group▪ Provision of a Full-Line of Real Estate Management Services
Its core business is building maintenance, however other related services include
facilities management, cleaning, security and property management.

▪ High Level of Management
Nippon Kanzai Group is able to achieve industry best practice in terms of building
maintenance and management by developing and leveraging its own originaltechnology and databases described below.

■ Acquisitions by Asset Type
(U.S./Japan)

Residential
3.1%

Wide-Area Facility
Management System
WAFMTM

LEAD-Web System

Building Health Record

A network based system
which enables even buildings
located at distant sites to bemonitored remotely 24 hours
a day, 365 days a year.

A portal site system whichenables management
information of multiple
buildings to be shared withbuilding owners and centrally
managed.

Nippon Kanzai Group's
internal databaseconsolidating theaccumulated data on
buildings under its
management.

■ Galileo Group’s Acquisitions ■ Development by Assetand Developments (Global)
Type (Australia)

Other
3.3%
Office
9.4%

500.6
￥bn

339.5
￥bn

Retail84.2%

Development(Australia)
32.2%

Acquisition(U.S./Japan)
67.8%

Land lots
5.6%

Retail
6.0%

161.2
￥bn

Residential
88.4%

Source: Galileo Group - Cumulative figures from 2003 to September 30, 2016

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)

4

Sponsor Support Structure

Sakura Sogo REIT Investment Corporation

Leverage off of the complementary skill sets of Nippon Kanzai and Galileo Group
Sakura Real Estate Funds Management, Inc. (“the Asset Management Company”) receives extensive support for external and internal growth based on
the Sponsor Support Agreement executed with Nippon Kanzai and Galileo Group1

Support Provided
Provision of sales information on properties held and granting of first refusal rights
Provision of information on external properties

External Growth Support

Provision of warehousing functions
Gathering of information on the real estate transaction market and provision of results of analyses
Examining joint ownership of properties
Provision of advice on investment strategies and global offerings
Provision of advice on the management and operation of properties

Internal Growth Support

Support and cooperation with sourcing, redevelopment and renovations
Dispatching seconded staff and other human resource support

Same Boat Investment by the Nippon Kanzai Group and Galileo Group
Both sponsors2 acquired investment units of the Investment Corporation at the time of IPO in order to align their interests with those of the unitholders’.
As a result, each owns 2.6% of investment units issued and outstanding (5.2% in total by both sponsors)

Nippon Kanzai Co., Ltd.
Investment in the Investment
Corporation by Nippon Kanzai Group

Investment in the Investment
Corporation by Galileo Group

1 "Nippon Kanzai Group’s core companies" means Nippon Kanzai and Tokyo Capital Management
2 "Sponsors" means Nippon Kanzai,Tokyo Capital Management and Galileo which have executed a Sponsor Support Agreement

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)5

Portfolio Investment Guidelines

Sakura Sogo REIT Investment Corporation

Overview

Flexible investments possible with respect to asset type and location enabling the Asset Management Company to enhance unitholder value
Able to reduce portfolio concentration risks by aiming to diversify the portfolio by sector, location, tenant and lease type
Ongoing review of real estate market trends to identify potential new, and optimize existing revenue streams
Pursue opportunities to actively recycle capital to enhance unitholder returns

Investment Ratio by Asset Type1
Investment Ratio by Asset TypeGrowthCharacteristics of Asset Type

Office30～60％



During economic expansion, up-side potential can be capitalized on
By targeting B-grade office buildings for investment, it is possible to pursue a large
number of investment opportunities that offer relatively high liquidity and tenant diversity

Residential
10～30％



Rental demand and rent rates are relatively stable irrespective of economic changes andtenants are diversified making residential housing suitable as a medium to long-term
stable investment



Retail30～60％
Other
0～20％

Stability

Areas with stable population, expected to support ongoing retail sales that result insecure rental income A long-term stable cash flow possible via lease agreements with a tenure of at least
three years or more which do not allow for early termination


The potential and value of each individual property will be identified and the goal will be
to conduct flexible property acquisition and investment

Investment Ratio by Location1
Tokyo Metropolitan Area
Approx. 50%

Regional Major Cities
Approx. 40%

Other
Approx.
10%

1 The ratios above are target ratios over the medium to long-term

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)6

Sakura Sogo REIT Investment Corporation

Section 2 – Fiscal Period 1 Financial Results

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)7

Financial Results Overview

Sakura Sogo REIT Investment Corporation

Interim Forecast vs. Actual for the fiscal period ended February 2017 (“FP1”)
Unit: ￥mil

Interim forecast
14 November 2016

Actual
28 February 2017

Variance

Operating revenue

2,280

2,253

(27)

Operating expenses

1,315

1,194

(121)

Operating profit

965

1,059

94

Non-operating expenses

578

549

(29)

Ordinary profit

387

510

123

Net profit

387

509

122

1,164

1,529

365

Distribution per unit (DPU) (¥)

Major factors


Downtime due to tenant replacementLeasing fees to be expensed in FP2. Annual building inspection
contingency not required. Savings in sales promotion cost

Savings in investment unit issuance costs
Interest cost lower than forecast

Forecast for the 2nd (“FP2”) and 3rd (“FP3”) fiscal periods ended August 2017 and February 2018
Unit: ￥mil

FP2 Forecast
31 August 2017

FP3 Forecast
28 February 2018

Variance

Operating revenue

2,428

2,441

13



Contracted upward rent revisions, re-tenanting

Operating expenses

1,357

1,390

33



Waiver of Management fee based on NOI ends FP3

Operating profit

1,071

1,051

(20)

Non-operating expenses

137

151

14



Forecast additional interest cost associated with refinance ofshort term borrowings and extension of loan maturity profile

Ordinary profit

934

900

(34)

Net profit

933

899

(34)

2,803
7.3%

2,700
7.1%

(103)

Distribution per unit (DPU) (¥)
Annualized DPU yield

1

Major factors

1Annualized DPU yield based on closing price of ¥76,300 on 12 April 2017

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)8

FP1 – Forecast vs Actual DPU

Sakura Sogo REIT Investment Corporation

Primary Reasons for FP1 Variances Lower than forecast IPO issue costs
 IPO forecast had assumed accrual for P-tax in FP1
 Lower than forecast costs for audit, tax and accounting¥ per unit

Total

Increase

Decrease
84

1,500

69

1,529

71
2

141
1,250

203

1,164
Lower thanforecast
professional,
appraisal feesand printing
costs

1

Other

669

1,000

13

Unable toaccrue P-tax

750

Other
Depreciationof IPO unit
issue costs

Increasein NOI

500
305
250

Lower IPO
issue costs

0
IPO Forecast
Sep 2016

Interim Forecast
Nov 2016

Actual FP1
Feb 2017

1 Other: variances in forecast associated with tenant downtime, depreciation, security agency fee
2 Other: variances in forecast associated with depreciation and non-refundable C-Tax

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)9

DPU - FP1 Actual vs Forecast for FP2 & FP3

Sakura Sogo REIT Investment Corporation

FP2 and PF3 Forecast Variances Forecast DPU in FP2 of ¥2,803 per unit and FP3 of ¥2,700 per unit
 Annualized DPU yield of 7.3% and 7.1%, for FP2 and FP3 respectively based on the closing price of ¥76,300 on 12 April 2017

¥ per unit

Total

Increase

Decrease

3,500
1,683

607

3,000

198

2,803

128
47

2,500

Timing of P-tax
payment
impacting NOI

67

5

2,700

2

Other

Waiver of Mgt.
fee based on
NOI ends FP3

Interest
3
expense4

Other

Property NOI

2,000
1,529
1,500
Inv. Corp.
establishment
1
costs

1,000

500

0
FP1 Actual
DPU

FP2 Forecast
DPU

FP3 Forecast
DPU

1 Costs related to unit issuance, loan origination & non-refundable C-tax
2 Includes variances in operating expenses, interest expense and depreciation
3 Increased interest expense associated with assumed 5 year extension of short term loan maturities in Aug 2017
4 Includes depreciation and other operating expenses

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)10

Sakura Sogo REIT Investment Corporation

Section 3 – JREIT Sector & Peer Comparison

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)

11

JREIT Sector

Sakura Sogo REIT Investment Corporation

JREIT Sector
 Total market capitalization has increased 167% or ￥7.6 trillion since December 2012 and now exceeds ￥12 trillion
 58 JREIT’s with 7 new entrants in the past 12 months, the sector continues to benefit from strong investor support
 Although the TSE REIT Index is at a similar level vs June 2016, the DPU yield gap of larger vs smaller REIT’s has widened significantly
Number of Listed J-REITs and Market Capitalisation1(¥ Trillion)
14.0

JREIT DPU Yields – Spread with JGBs still attractive2
60

Market Cap. (LHS)
No .of Listed REITs (RHS)

12.0

50

10.0

40

(%)
12.0

REIT Distribution Yield(Weighted Average)
JGB Yield(10years)
Spread(REIT-JGB)

10.0
8.0
6.0

8.0
30

4.0

6.0
20

4.0
2.0
0.0
01/09

03/09

05/09

07/09

09/09

11/09

13/09

15/09

Number of Listed J-REITs and Market Capitalisation1
IPO
VolumePO

Value(USDm)

Volume

2,462
4,004
2,103
1,063
2,712
400

11
37
30
35
30
10

2.0

10

0.0

0

-2.0
01/09

03/09

05/09

07/09

09/09

11/09

13/09

15/09

JREIT DPU Yields – Significant gap between small and large cap REITs1
IPO+POValue(USDm)

Volume

1,931
6,615
5,137
6,210
4,849
1,477

15
43
36
40
37
11

Value
(USDm)J-REIT
Total
MarketCap(USDm)

9.0%
8.0%
7.0%
6.0%

2012
2013
2014
2015
2016
2017

4
6
6
5
7
1

4,393
10,619
7,240
7,247
7,560
1,877

39,94067,384
93,61493,454
107,286
106,791

Note: As of 28 Feb 2017 (1 USD=¥113)

5.0%
4.0%
3.0%
2.0%
1.0%
0

1 Source: Nomura Securities Co. Ltd. / SMBC Nikko Securities Inc.

200

400

600

800

1,000
Market Cap: ¥ bn

2 Source: Nomura Securities Co. Ltd.

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)

12

JREIT Peer Comparison

Sakura Sogo REIT Investment Corporation

JREIT Peer Comparison1
 Sakura Sogo REIT (“SKR”) DPU yield 270 basis points (“bps”) higher than Diversified REITs and 130 bps higher than Small Cap REITs2
 Based on current trading price SKR’s implied NOI cap rate is 5.6%, 120 bps higher than Diversified REITs
 SKR has a greater proportion of its portfolio (by value) located in Tokyo’s central five wards relative to:- The average for Diversified REITs- The average for Small Cap REITs
Price / Net Asset Value

Annualised DPU Yield3
8.0%

7.3
6.0

6.0%

0.90%

4.6

4.0%

0.60%

2.0%

0.30%

0.86

0.82

0.00%

0.0%
SKR

Diversified
REITS

SKR

Small Cap
REITs

Implied Capitalisation Rate
6.0%

1.10

1.20%

Diversified
REITS

Small Cap
REITs

% of Portfolio located in Tokyo Central Five Wards

5.6

5.3

50.0%
39.6

4.4

40.0%

4.0%

36.4

30.0%
16.6

20.0%

2.0%

10.0%
0.0%

0.0%
SKR

Diversified
REITS

Small Cap
REITs

SKR

Diversified
REITS

Small Cap
REITs

1 Source: SMBC Nikko Securities Inc.
2 Small Cap REITs defined as those with market capitalization less than ¥100 billion
3 Annualized DPU for SKR based on FP2 DPU and closing price of ¥76,300 on 12 April 2017.

JREIT peers average DPU as at 30 March 2017.
Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)13

Sakura Sogo REIT Investment Corporation

Section 4 - Key Performance Indicators

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)14

Portfolio KPI’s

Sakura Sogo REIT Investment Corporation

Overview
Real estate market conditions remain robust Increase of 2.1% in portfolio appraisal value. Office +3.0% and Residential +2.4% were the strongest sectors
 Continued high level of occupancy across the portfolio
 Evidence of upward rent reviews in the office portfolio

Portfolio Value
Appraisal Value (￥bn)

Book Value (￥bn)

Unrealized Gain (￥bn)@ IPO
8 September 201658.25857.838

0.420

@ FP1
28 February 201759.49357.702

1.791

Variance

2.1%

0.2%

1.371
Hiei Kudan Building

Portfolio PerformanceOccupancy (%)

NOI Cap Rate (%)1

NOI (¥bn)1@ IPO
8 September 2016

97.7

5.4

3.141

@ FP1
28 February 2017

97.5

5.3

3.133

Variance

0.2

0.1

0.3%

Office Market Rents2

Office Passing Rents3

Tokyo Office Vacancy (%)4@ IPO
8 September 2016

16,05915,311

2.7@ FP128 February 2017

16,05915,442

2.5

Variance

0.0%

0.9%

0.2

Market Trends

Suroy Mall Chikushino

NK Building

1 As per independent appraisals dated February 2016 and February 2017
2 Weighted average office market rents (¥/tsubo/month) as per independent appraisals dated February 2016 and February 2017
3 Weighted average office passing rent (¥/tsubo/month) as per independent appraisals dated February 2016 and February 2017
4 Source: CBRE Market Overview Japan Office Q3 2016 and Q4 2016

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)15

Portfolio - Sector Analysis

Occupancy (%)

Sakura Sogo REIT Investment Corporation

OfficeRetailResidential

Other

@ IPO
8 September 2016
@ FP1
28 February 2017

98.4

98.0

95.0

100.0

94.3

98.9

94.6

99.7

Variance

4.1

0.9

0.4

0.3

OfficeRetailResidential

Other

15,459

4,430

4,618

4,543

15,467

4,432

4,611

4,545

0.1%

0.0%

0.1%

0.0%

OfficeRetailResidential

Other

@ IPO
8 September 2016
@ FP1
28 February 201724.94022.880

6.499

3.939

25.70023.120

6.654

4.019

Variance

3.0%

1.0%

2.4%

2.0%

OfficeRetailResidential

Other

@ IPO
8 September 2016
@ FP1
28 February 2017

4.6

5.8

6.5

6.1

4.5

5.7

6.3

6.0

Variance

0.1

0.1

0.2

0.1

Passing Rents1@ IPO
8 September 2016
@ FP1
28 February 2017
Variance

Appraisal Values (¥bn)2

NOI Cap Rates (%)2

1 ￥per tsubo per month
2 As per independent appraisals dated February 2016 and February 2017

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)16

FP1 Internal Growth

Sakura Sogo REIT Investment Corporation

Office Rent Reviews

Strategic Capital Expenditure

17

Number of leases renewed

Number of rent reviews

7

Number of rent increases

7

Average rent increase (%)

11.6% of office portfolio reviewed

5.9

Shin Yokohama Nara Building LED lighting installed in the 1F lobby
 Occupancy prior to works 87.0%, current occupancy 100.0%
 Electricity costs down approximately 3.0%

BeforeShin Yokohama Nara Building

Seishin Building

Hiei Kudan Building

After

Azabu Amerex Building

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)17

Financial KPI’s

Sakura Sogo REIT Investment Corporation

Overview
 LTV 48.0% at 28 February 2017. Adjusted for forecast repayment of ¥1.9 bn of short term borrowings in August 2017, LTV restated would be 46.0%
 NAV per unit increased 4.6% due to an uplift in appraisal values

Balance SheetLTV (%)

Ave. loan maturity (years)

Total Liabilities (￥bn)@ IPO
8 September 2016

48.9

2.79

33.93

@ FP1
28 February 2017

48.0

2.32

34.63

Variance

0.9

0.47

2.1%
Shin Yokohama Nara

Net Equity (￥bn)

NAV (￥per unit)

Total Assets (￥bn)@ IPO
8 September 201629.25

89,113

63.19

@ FP1
28 February 201729.25

93,22964.39

Variance

0.0%

4.6%

1.9%
Royal Hill Sannomiya

Investment Units
Unit Price (¥ per unit)

Annualized DPU yield (%)

P/NAV

@ IPO
8 September 2016

79,2001

6.32

0.89

12 April 201776,3007.33

0.82

Variance

3.7%

1.0

7.9%
Confomall Sapporo

1 Closing price on the first day trading on TSE
2 Stabilized DPU yield based on IPO issue price of ¥91,000 and FP2 Forecast at IPO of ¥2,863
3 Annualized DPU yield based on FP2 forecast DPU of ¥2,803 and closing price on 12 April 2017 of ¥76,300

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)18

Portfolio Summary

Sakura Sogo REIT Investment Corporation

At February 28, 201718

No. of properties

97.5

Average occupancy %Total appraised value ¥m59,493

Average NOI yield %1

5.5

Total book value ¥m

57,702Average NOI yield post depreciation %1

4.6

Portfolio Diversification■ Investment Ratio by Asset Type

Lease type (by income)■ Investment Ratio by Location
Other
7.2%

Other
6.7%
Residential
11.2%
Office43.0%
Major
Regional
Cities41.8%

Tokyo
Metropolitan
Area
51.0%

Standard Japanese leases %53.4

Long term leases %46.6

WALE2 of long term leases (years)

5.4

Retail39.2%

1 Calculated based on 9 September 2016 acquisition price2 Weighted average lease term to expiry

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)19

Sakura Sogo REIT Investment Corporation

Section 5 - Management Key Priorities

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)20

Management Key Priorities

Sakura Sogo REIT Investment Corporation

External Growth

Identifying investment opportunities
off market via sponsor relationships



Add to existing pipeline support
network (currently 5)Foster relationships with mid scale
developers that are not aligned with
JREITsCapital Management


Explore opportunities to recycle
assets which can:Internal Growth

Enhance Unitholder
Value



- Upward rent reviews particularly
in office- Increase distributions and,- Explore opportunities to create
new revenue streams- Enhance portfolio characteristicsCarefully manage borrowings to
mitigate maturity risk and minimize
ongoing cost of debt
Cumulative investment scheme for
the Asset Management Company
Directors and Employees to furtheralign interest with unitholders

Actively pursue growth

Utilize the expertise of Nippon
Kanzai to ensure buildings are wellmaintained while minimizing costs

Strategic capital expenditure initiativesto:- Maintain high occupancy- Minimize downtime on vacant space- Enhance prospects of current andfuture rent reviews

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)21

Sakura Sogo REIT Investment Corporation

Part A - Internal Growth Initiatives

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)22

Internal Growth

Sakura Sogo REIT Investment Corporation

Office Successful track record of achieving rent increases in office assets
 Average uplift of 11.6% for office rent reviews in FP1
 Based on independent appraisals over 70% of office floor space is at or below assessed market rent
Rent Gap1

8.8%

8 tenants
628 tsubo> 20%

Plan to approach 12 tenants whose leases renew in FP2 and FP3 forrent review

19.1%> 10% < 20%

15 tenants
1,367 tsubo

43.9%

between 0% - 10%

30 tenants
3,146 tsubo

Monitor / consider upward rent revisions for tenants with a rent
gap of less than 10%

28.3%

less than 0%

25 tenants
2,028 tsubo

Maintain sound relationships and ensure building services meettenant expectation
Focus on high level of tenant retention – target > 80%

71.7%

2nd Fiscal Period

13

7

2

Tenant Lease
Renewals

Tenants
below Market

Under rent
Between 0-10%

3rd Fiscal Period

5
Under rent
> 10%

21

11

4

Tenant Lease
Renewals

Tenants
below Market

Under rent
Between 0-10%

7Under rent
> 10%

1 Average passing rent vs. assessed market rent from independent appraisal dated 28 February 2017

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)23

Internal Growth

Sakura Sogo REIT Investment Corporation

Retail
La Park Kishiwada

Conversion Opportunity

 Vacant storage area has been successfully converted to officeuse leading to additional (higher) revenue Potential to convert additional vacant storage area to generatehigher revenue (¥4m p.a.)

La Park Kishiwada

2F Tenant Repositioning

Introduction of a well known national apparel retailer and a major
Kansai area based book store to achieve the following: improve overall retail offer
 increase appeal to young and family shoppers
 expected to increase foot traffic leading to higher sales potential
for 2F existing tenants and the shopping center over all.

Residential
Shiroi Logiman

Renovation Works Replaced carpet with wood flooring Resulting in an increase in average passing rents
 Actual vs. forecast downtime was reduced

BeforeShiroi Logiman

Model Room

 A model room was established to show prospective tenants sample
fixture and room layout
 Has been helpful in maintaining high occupancy

After

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)24

Internal Growth

Sakura Sogo REIT Investment Corporation

Office: Strategic Capital Expenditure Nippon Kanzai Group has undertaken extensive review of building services
 Nippon Kanzai Group is coordinating replacement of HVAC systems with the key objectives as follows:- High rate of tenant retention- Attract new tenants to minimize any downtime due to vacancy- Ensure building services meet tenant expectations to optimize rent review outcomes
Seishin
Building

Takadanobaba
AccessTsukasamachi
Building

Shin Yokohama
Nara Building

HVAC Replacement
2nd - 9th FP
Y55m p.a.

HVAC Replacement
2nd - 7th FP
Y18m p.a.

HVAC Replacement
3rd - 5th FP
Y32m p.a.

HVAC Replacement
2nd - 10th FP
Y25m p.a.

Explore new revenue streams and cost reduction
 Promote actions to increase revenue such as installing rooftop telcom
antennas, introducing bento trucks during lunch hours at office properties- Potential to generate additional revenue of approx. ¥600,000 p.a. perbuilding Reduce costs by updating facility equipment such as LED lighting and HVAC

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)25

Sakura Sogo REIT Investment Corporation

Part B - External Growth Initiatives

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)26

External Growth

Sakura Sogo REIT Investment Corporation

Pipeline Support AgreementsEnhance investment opportunities through direct channels
Pipeline Support Agreements will provide preferred negotiation rights for SKR
At IPO three Pipeline Support Agreements were entered into by the Nippon Kanzai Group
During FP1 two more were entered into by the Asset Management Company- Liv-Group and,- Real estate developer listed on TSE (confidentiality required)
Examples of Liv-Group recent developments

Chuo-wardTokyo

Adachi-ward
Tokyo

Kawasaki City
Kanagawa prefecture

Saitama City
Saitama prefecture

Other initiatives
 Actively looking to foster relationships with mid scale developers
 Ongoing review of acquisition opportunities including 6 sourced directly without broker introduction

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)27

Roadmap for Growth

Sakura Sogo REIT Investment Corporation

Medium-term Goal of Asset Size

Securing sourcing routes
through pipeline
agreements with outside
collaborators.

Warehousing
functions throughbridge financeReinforcing IR
activities in Japanand abroad

Planning for capitalincrease through public
offering

Obtain credit rating with the enhancement offinancial base and proven track record

Improving debt financing
conditions (reducing
costs and extending
borrowing periods)

Achieve a scale of 150
billion yen
within 5 years(¥ bn)

150

150.0
120

90

60

30

57.3

0
As of listingWithin 5 years

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)28

Sakura Sogo REIT Investment Corporation

Part C - Capital Management

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)29

Capital Management

Sakura Sogo REIT Investment Corporation

Priorities and Initiatives
Short term loan maturities

Explore recycling of assets / swaps

 Plan to repay ¥1.0 bn consumption tax loan in August 2017 withc-tax refund Plan to repay ¥0.9 bn in August 2017 with surplus operating cash Stabilized borrowings following these repayments equates to ¥29.0 bn(stabilized LTV of 46%)
 Currently discussing terms for refinance of ¥7.0 bn loan maturity inAugust 2017 with syndicate lenders
 Intention to pursue a refinance that will extend the existing average loan
maturity profile to exceed 3 years
 Strong focus on achieving optimal balance between duration ofborrowings, maturity profile and proportion of fixed vs floating Selectively consider asset sales and/or swaps where attractive reinvestment
opportunities have been identified
 Primary objective to achieve the following:- Growth in DPU- Enhanced stability and/or growth in revenues- Improved overall portfolio characteristics

Summary of Loan Maturities

Debt Ratio - Term

Alignment of interest with unitholders
 Introduced Cumulative Investment Scheme for Directors and Employees of
SREFM or the Asset Manager
 Approximately 30% of the asset management fees that the Asset Manager
receives are linked to NOI Incentive bonuses for all staff are directly linked to the performance of SKR

Interest Rate Ratio

Unit: ￥ mil
10,000

Short Term
28.8%

8,000

900
1,000

6,000

7,000

Floating
interest rate
28.8%

Forecast to be repaid in August 2017

6,000

6,000

6,000

4,000
4,000
2,000
Long Term
71.2%

0
2017

2018

2019

2020

2021

Fixed
interest rate
71.2%

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)30

Overview of Borrowings

Sakura Sogo REIT Investment Corporation

Borrowings

LenderShort-termLong-term

A Syndicate of lenders with Sumitomo Mitsui
Banking Corporation(Sumitomo Mitsui Banking Corporation,
Shinsei Bank, Limited, Resona Bank,
Limited, Aozora Bank, Ltd., ORIX Bank
Corporation, The Nishi-Nippon City Bank,
Ltd., The Bank of Fukuoka, Ltd, Sumitomo
Mitsui Trust Bank, Limited)

Total

Loan amount(¥ mil)28-Feb-17

Forecast repayment(¥ mil)31-Aug-17

Forecast roll over(¥ mil)31-Aug-17

Forecast balance(¥ mil)31-Aug-17

4,900

1,900

3,000

3,000

4,000

-

4,000

4,000

6,000

-

-

6,000

0.62473% (fixed)

31-Aug-18

4,000

-

-

4,000

0.71096% (fixed)

30-Aug-19

6,000

-

-

6,000

0.81842% (fixed)

31-Aug-20

6,000

-

-

6,000

0.93842% (fixed)

31-Aug-21

30,900

1,900

7,000

29,000Interest rate

Base Rate +0.2%(floating)Base Rate +0.2%(floating)Maturity date

31-Aug-17
31-Aug-17

Collateral: Unsecured and unguaranteed

Balance of Borrowings by Lender
The Bank of Fukuoka, Ltd.
3.2%
The Nishi-Nippon City
Bank, Ltd.
3.2%
ORIX Bank Corporation
6.5%

Loan cost and duration (at 28 February 2017)
Sumitomo Mitsui Trust
Bank, Limited.
3.2%

Sumitomo Mitsui Banking
Corporation
32.2%

Weighted average cost (%)

0.82

Average duration (Years)

2.32

Aozora Bank, Ltd.
9.7%
Resona Bank, Limited.
9.7%
Shinsei Bank, Limited.
32.2%
Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)31

Status of Unitholders

Sakura Sogo REIT Investment Corporation

No. of Investment Units by Investor Type100%

12,464

3.7%

39,616

11.9%

5,244

1.6%

37,121

11.1%

Main Unitholders

Securities firms

Foreigners
80%

37,67637,306

11.2%

9,328

2.8%

11.3%

Rank

at 28 February 2017

Name

Number ofUnits Owned

Percentage
Share (%)1

1Japan Trustee Service Bank, Ltd.

22.555

6.77

2

JP Morgan Bank (Ireland) Plc 380423

12,814

3.85

3The Master Trust Bank of Japan, Ltd.

11,899

3.57

4

Trust & Custody Services Bank, Ltd. (Securities
Investment Trust Account)

11,6893.51

5The Nomura Trust and Banking Co., Ltd.
(Investment account)）

11,598

3.48

6Galaxy JREIT Pty. Ltd.

8,700

2.61

6

Nippon Kanzai Co., Ltd.

8,700

2.61

8

Credit Suisse Securities (Europe) Ltd. PB
Omnibus Client Account

6,802

2.04

9

Sekai Shindokyo

5,410

1.63

10

Barclays Capital Securities Ltd.

2,507

0.75

Other domestic corporations

61,966

18.6%

Financial institutions

60%

Individuals/others

40%
234,287

70.4%
190,994

57.4%

20%

1 Percentage share is the number of units owned expressed as a percentage of total investment0%
Sep '16

Feb '17

units issued (rounded down to second decimal place).

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)32

Sakura Sogo REIT Investment Corporation

Appendix

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)33

Balance Sheet and Statement of Income

Balance Sheet at 28 February 2017

Sakura Sogo REIT Investment Corporation

Statement of Income
Unit: ￥mil

Unit: ￥mil

AssetsCurrent assets

6,571

Operating revenue

2,253

Cash and deposits

1,062

Leasing business revenue

1,979

Cash and deposits in trust

4,147

Other leasing business revenue
Operating expenses

274

Other
Non-current assets
Property, plant and equipment
Investments and other assets
Total assets

1,362

Expenses related to rent business

834

57,031
797

Asset management fee
Asset custody fee/Administrative service fees

108
23

64,399Directors’ compensation

11

Liabilities
Current liabilities

1,194

57,828

9,515

Other operating expenses
Operating profit

218
1,059

Operating accounts payable220

Non-operating expenses

548

Short-term loans payable

8,900Interest expenses

90

Accounts payable – other19

Depreciation of deferred organization expenses

51

Advances received

372

Investment unit issuance expenses

169

Other
Non-current liabilities
Long-term loans payable237

25,120Borrowing related expenses
Ordinary profit (loss)

22,000Net profit (loss) before income taxes

511

4

511

Tenant leasehold and security deposits in trust
Total liabilities

3,120

Net profit (loss)

509

34,635

Unappropriated retained earnings (undisposed loss)

509

Total unitholders’ equity

29,764

Unitholders’ capital

29,255509

Surplus
Total net assets

29,764

Total liabilities and equity

64,399

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)34

Income and Expenditure by Property for FP1

Sakura Sogo REIT Investment Corporation(173 operating days)

Unit: ￥’000

OF-01

OF-02

OF-03

OF-04

OF-05

OF-06

OF-07

RT-01

RT-02

Seishin
BuildingNK
Building

Tsukasamachi
Building

Takadanobaba
AccessAzabu Amerex
Building

Hiei Kudan
Building

Shin Yokohama
Nara Building

La Park
Kishiwada

Suroy Mall
Chikushino

Operating revenue fromreal estate leasing

215,413116,130

101,457

76,73562,392

63,38872,999487,084

284,927

Leasing businessrevenue

193,303

105,032

89,462

61,92958,49961,11859,947

390,930

281,251

Other Leasing businessrevenue

22,109

11,098

11,99514,806

3,893

2,270

13,051

96,154

3,676

Operating expenses fromreal estate leasing

28,414

22,58013,97429,15011,955

11,693

20,734242,320

51,656

Management fees

13,803

12,222

6,787

19,116

7,943

10,474

13,550125,104

34,777

Utilities expenses

12,146

8,707

5,815

6,615

3,279

28

5,930

105,114

3,721

Insurance premium

224

148

140

168

85

125

155

1,167

636

1,084

601

241

2,139

188

247

15

4,987

1,951

Trust Fees

718

718

718

715

359

718

718

1,754

718

Other expenses

437

181

271

395

99

98

364

4,191

9,8501

186,999

93,55087,48347,58550,437

51,69552,265

244,764

233,271

10,998

5,531

6,614

7,295

2,135

2,607

7,386

38,26835,677

176,000

88,01880,86840,28948,30149,08844,878206,495

197,593

Repair & Maintenance

Leasing NOI
Depreciation
Operating income (loss)
from real estate leasing

1 including ground lease rent

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)35

Income and Expenditure by Property for FP1

Sakura Sogo REIT Investment Corporation(173 operating days)

Unit: ￥’000

RT-03

RT-04

RS-01

RS-02

RS-03

RS-04

OT-01

OT-02

OT-03

Seiyu
Minakuchi

Suroy Mall
Nagamine

Shiroi
LogimanMatsuyaResidence
SekimeRoyal Hill Kobe
Sannomiya II

Urban Plaza
ImazatoFunabashi HiTech Park Hidan

Funabashi HiTech Park
Factory

Confomall
SapporoOperating revenue fromreal estate leasing

Non-disclosure

165,560

130,305

80,85356,097

37,685Non-disclosure

Non-disclosure

68,041

Leasing businessrevenue

Non-disclosure

135,639

121,824

74,672

51,95535,799Non-disclosure

Non-disclosure

58,379Other Leasing businessrevenue

Non-disclosure

29,921

8,480

6,181

4,142

1,886

Non-disclosure

Non-disclosure

9,662

Operating expenses fromreal estate leasing

23,36145,967

41,204

20,556

13,610

8,496

1,799

10,845

18,381

Management fees

5,790

15,65825,126

12,061

8,228

5,082

950

9,873

6,244

Utilities expenses

0

22,153

2

2,377

1,607

490

0

133

9,941

Insurance premium

496

250

599

240

145

114

114

60

264

Repair & Maintenance

310

6,209

12,463

5,101

2,863

2,134

0

0

653

Trust Fees

715

718

1,197

359

359

359

718

718

718

1

976

1,815

416

406

313

16

59

558

Non-disclosure

119,593

89,10060,29742,487

29,189Non-disclosure

Non-disclosure

49,66041,792

17,492

18,655

9,543

11,552

5,423

9,291

2,991

12,877

Non-disclosure

102,101

70,44450,75330,93423,766

Non-disclosure

Non-disclosure

36,782Other expenses
Leasing NOI
Depreciation
Operating income (loss)
from real estate leasing

16,0481 including ground lease rent

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)36

Portfolio Map

OF-01 Seishin Bldg

OF-02 NK Bldg.

Sakura Sogo REIT Investment Corporation

OF-03 Tsukasamachi Bldg

OF-04 Takadanobaba Access

OF-05 Azabu Amerex Bldg

OF-06 Hiei-Kudan Bldg

OF-07 Shin-Yokohama Nara Bldg

OT-03

RT-01 La Park Kishiwada

RT-02 Suroy Mall Chikushino

RT-03 Seiyu Minakuchi

RT-04 Suroy Mall Nagamine

Chiba
Tokyo
OF-04
RS-01 Shiroi Logiman

RS-02 Matsuya Residence Sekime

RS-03 Royal Hill Kobe Sannomiya II

RS-04 Urban Plaza Imazato

RT-02

RT-03
RS-02
RS-03
RS-04
RT-01

OF-01
OF-05

OF-02
OF-03
OF-06

RS-01

OT-02
OT-01

Kanagawa
OF-07

RT-04
OT-01 Funabashi Hi-Tech Park Hidan

OT-02 Funabashi Hi-Tech Park

OT-03 Confomall Sapporo

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)37

Property – Appraisal & Yield Analysis

Sakura Sogo REIT Investment Corporation
at 28 February 2017

OfficeAsset Type

Retail

No.

OF-01

OF-02

OF-03

OF-04

OF-05

OF-06

OF-07

RT-01

RT-02

RT-03

Property Name

Seishin
BuildingNK
Building

Tsukasamachi
Building

Takadanobaba
AccessAzabu Amerex
Building

Hiei Kudan
Building

Shin Yokohama
Nara Building

La Park
Kishiwada

Suroy Mall
Chikushino

Seiyu
Minakuchi

Shinjuku-ku,
Tokyo

Chiyoda-ku,
Tokyo

Chiyoda-ku,
TokyoShinjuku-ku,
Tokyo

Minato-ku, Tokyo

Chiyoda-ku,
Tokyo

Kohoku-ku,
Yokohama

Kishiwada, Osaka

Chikushino,
KyushuMinakuchi, Shiga

Address
Appraisal @IPO (¥bn)

7,960

3,780

3,860

3,370

2,050

1,990

1,930

6,510

7,810

4,240

Appraisal @FP1 (¥bn)

8,360

3,860

3,910

3,430

2,140

2,050

1,950

6,600

7,820

4,240

NOI Yield@ IPO (%)

4.2%

4.6%

4.6%

4.8%

4.4%

4.9%

5.6%

6.1%

5.6%

6.0%

NOI Yield@ FP1 (%)

4.0%

4.5%

4.6%

4.7%

4.2%

4.7%

5.5%

5.9%

5.6%

6.0%

NOI Yield @IPO post depr
(%)

3.9%

4.3%

4.3%

4.4%

4.2%

4.7%

4.8%

5.0%

4.7%

4.0%

NOI Yield @PF1 post depr
(%)

3.8%

4.2%

4.2%

4.3%

4.0%

4.5%

4.7%

4.7%

4.7%

4.0%

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)38

Property – Appraisal & Yield Analysis

Sakura Sogo REIT Investment Corporation
at 28 February 2017

Asset Type

RetailNo.

RT-04

Residential
RS-01

RS-02

Other
RS-03

RS-04

OT-01

OT-02

OT-03

Total
(18 properties)

Property Name

Address

Suroy Mall
Nagamine

Shiroi
LogimanMatsuyaResidence Sekime

Royal Hill Kobe
Sannomiya II

Urban Plaza
ImazatoFunabashi
Hi-Tech Park
Hidan

Funabashi Hi-TechPark

Confomall
SapporoKumamoto City,
Kumamoto

Shiroi City,
Chiba

Osaka City,
Osaka

Kobe City,
Hyogo

Osaka City,
Osaka

Funabashi City,
Chiba

Funabashi City,
Chiba

Sapporo City,
Hokkaido

Appraisal @IPO (¥bn)

4,320

2,190

1,850

1,500

959

1,760

749

1,430

58,258

Appraisal @FP1 (¥bn)

4,460

2,210

1,910

1,550

984

1,800

779

1,440

59,493

NOI Yield@ IPO (%)

5.6%

7.4%

6.5%

5.5%

6.1%

6.3%

6.4%

5.8%

5.4%

NOI Yield@ FP1 (%)

5.6%

7.2%

6.4%

5.3%

5.9%

6.1%

6.2%

5.6%

5.3%

NOI Yield @IPO post depr
(%)

4.8%

5.7%

5.5%

4.0%

5.0%

5.2%

5.5%

4.0%

4.6%

NOI Yield @PF1 post depr
(%)

4.8%

5.5%

5.4%

3.8%

4.8%

5.1%

5.4%

3.8%

4.4%

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)39

Overview of the Investment Corporation

Sakura Sogo REIT Investment Corporation

Schematic Diagram of the Investment Corporation’s Structure
Sponsor / Parent Company of Asset Management
Company

Investment Corporation❷

Asset Custody Company/Administrator ofUnitholder Registry/General Administrator related
to the operation of the administrative institution

Galileo Sydney Holdings Pty Limited

Sumitomo Mitsui Trust Bank, Limited.

❸
Sakura Sogo REIT Investment

Asset Management Company❶

Sakura Real Estate Funds Management, Inc.
❸
SponsorNippon Kanzai Co., Ltd.
Tokyo Capital Management Co., Ltd.

General Administrator for Accounting Affairs❹
General Meeting ofUnitholders

Kaneyama & Associates

Board of Officers
Executive Officer: Makoto Muranaka
Supervisory Officer： Hirotaka Isayama
Supervisory Officer： Shigeru Kaneda
Accounting Auditor
PricewaterhouseCoopers Arata❶ Asset Management Entrustment Agreement❷ Asset Custody Entrustment Agreement / Entrustment
Agreement for Administrator of the Investment Unitholder
Registry / Entrustment Agreement for Clerical
undertakings (Institution services）❸ Sponsor Support Agreement❹ Business Entrustment Agreement

Overview of Asset Management Company
Trade Name

Sakura Real Estate Funds Management, Inc.

Date of Incorporation

July 7, 2015

Stated Capital

101.52 million yen

Shareholder Composition

Galaxy JREIT Pty Limited 50%
Tokyo Capital Management Co., Ltd. 50%(based on voting rights: Galaxy JREIT Pty Limited 100%)

Principal Lines of Business

Discretionary Investment Business,management of Investment Corporation’s assets

Officers

6 Directors (2 Full-time Directors), 1 Statutory Auditor

Financial Instrument Business
Registration

Reg. No.: Director of Kanto Local Finance Bureau (FI) No. 2907
Member of Investment Trusts Association, Japan

Real estate agency business license

License No.: Tokyo Metropolitan Governor (1) No. 98232

Approval as Entrustment - Based
Agency Services for Transactions

Approval No.: Minister of Land, Infrastructure,
Transport and Tourism No. 100

General Meeting of Unitholders
Statutory Auditor
Board of Directors
Investment Committee

Compliance Committee

Representative Director and Chairman / Representative Director and President
Compliance Officer

Investment Division

Finance and Planning Division

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)40

Disclaimer

Sakura Sogo REIT Investment Corporation

This presentation material has been prepared solely for the purpose of providing information, and not for soliciting investments in certain products.
The presentation material includes, in addition to a description of Sakura Sogo REIT Investment Corporation (hereinafter the “Investment Corporation”), charts, data, etc.
prepared by Sakura Real Estate Funds Management, Inc. (hereinafter the “Asset Management Company”) based on data and indices published by third parties.
Furthermore, it includes present analysis, judgements and other opinions of the Asset Management Company regarding such information.
The contents of the presentation material have not been audited, and their accuracy nor integrity is guaranteed. The analysis and judgement by the Asset Management
Company are its current opinions and the contents may be modified or repealed without any advance notice.
The Investment Corporation or the Asset Management Company bear no responsibility with regard to the accuracy of the data or indices published by third parties(including data based on real estate appraisal reports).
The content of this presentation material include statements on forecast and future operating results. Such statements are based on the information available at the timeof preparation of this presentation material and certain assumptions for unforeseeable factors, and thus do not guarantee future operating results of the Investment
Corporation and may differ from actual operating results.

Sakura Sogo REIT Presentation Material for the 1st Fiscal Period (Ended February 2017)41