Nippon Accommodations Fund Inc.
35th Period (March 2023 – August 2023) Investor Presentation
Q&AＱ

NAF’s financial results appear to be firm. My question concerns costs. Faced with thepossibility that restoration and marketing costs may rise in the future, for example, whatmeasures do you plan to implement and what are your strategies toward controlling costs?

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While it is true that restoration costs are on an upward trend, transactions are conducted
on a stable basis at prices that fall within a certain range over a reasonably long period oftime with various sponsor group suppliers. In this manner, steps are taken to control costs
so that extreme increases do not occur. Of course, we recognize the need to closely
monitor cost trends going forward. We will work to curb costs by utilizing the procurement
capabilities of our sponsor group as a whole. Occupancy rates are currently on an upward
trajectory and conditions throughout the leasing market are favorable. In light of thesecircumstances, it is unlikely that marketing costs will continue to rise. Rather thanunnecessarily extending vacancy periods by focusing excessively on increasing rents, webelieve that engaging in appropriate leasing activities will help increase occupancy andthereby improve NOI. Accordingly, we will endeavor to control marketing expenses byengaging in leasing activities that appropriately address the needs of the market by area.

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While recognizing that the percentage change at the time of tenant turnover is strong, I
believe that amount of key money received has a significant impact on NAF’s profit andloss. What is your strategy toward key money received going forward?

ＡKey money is also an important source of revenue. With market trends beginning tostrengthen, the rate of key money received is gradually increasing. Higher rates of key
money received for single type units were especially marked in the 35th period. Whiletrends are subject to overall market conditions, we will work closely with leasing companies
to capture key money in areas and for unit types where inquiries are firm.

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The lease contracts for the three hotels acquired in this instance are all on a fixed rent
basis, with a remaining period of 13 years. As such, there are no contingencies that serve
as a hedge against inflation. I suspect that these properties were acquired with theexpectation of stable cash flows. Taking into consideration the external environment,including inflation, what were your intentions when acquiring the three hotels and what isthe possibility of acquiring additional properties with similar stable cash flows?

ＡNAF has set a cap of 10% on hospitality facilities as a percentage of the total portfolio.
With the ratio at 5% prior to the recent acquisitions, there is still room for additionalpurchases. As an investment corporation that focuses mainly on rental apartments,acquiring hospitality facilities helps to not only supplement stability, but also allows us tobetter grasp trends in the investment environment and market by product. We recognizethat fixed rents do not hedge against inflation. By the same token, given the high volatility

of hotels, a fact that became abundantly clear during the COVID-19 pandemic, we look toacquire certain properties with fixed rents or a high proportion of fixed rents to ensure asteady stream of revenue as opposed to addressing inflationary concerns.
ＱDo you intend to acquire more hotels in the future guided by your 10% cap on hospitality
facilities? Or, do you view the acquisition of hotels as a supplementary initiative, amid thedifficulties in acquiring rental apartments? Moreover, during the last Investor Presentation,
you mentioned that NAF would on the one hand adopt a cautious approach toward theacquisition of properties while still exploring acquisition opportunities in the future. Whatthen is your appetite toward acquiring rental apartments?

ＡAs we have mentioned, NAF has set a hospitality facility acquisition cap of 10% as apercentage of the total portfolio. While there is still room for additional acquisitions, we are
not looking to intentionally pursue the acquisition of more hospitality facilities in the future.
As far as the Investment Corporation’s investment criteria is concerned, we examine
whether the asset is consistent with existing properties managed and provides anadequate yield. Should a hospitality facility meet these criteria, we will take steps to takeadvantage of any acquisition opportunities as they arise. We did not acquire hotels in thisinstance because of the difficulties encountered in purchasing residential properties. The
decision was based on NAF’s capacity to acquire hospitality facilities at this time and theattractiveness of each property as an investment. Turning to its investment policy towardrental apartments, NAF maintains a cautious approach to avoid negatively impacting theportfolio through unnecessary acquisitions amid an environment in which prices are high.
Meanwhile, we will continue to acquire properties, including residential and otherproperties, that contribute to NOI and EPU growth. Accordingly, our policy to acquire quality
properties that become available remains unchanged.

ＱNAF’s LTV ratio on a book value basis is slightly above 50%. Taking into consideration theaccumulation of unrealized gains, the Investment Corporation’s LTV ratio on a market
value is extremely low in the 30% range. Taking the aforementioned into consideration,
there appears to be a considerable difference between the LTV ratio on a book and market
value. As far as NAF and its principal financial institutions are concerned which LTV ratio
value basis plays a more important role?

ＡIt would appear that lenders focus on NAF’s LTV ratio on a book value basis while
conscious of the market value. We also believe that managing the LTV ratio on a bookvalue basis is basic to and an important prerequisite in the Investment Corporation’sfinancial management.

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As far as new rents are concerned, the percentage change in rent at the time of tenant
turnover has risen to 4%. What are your thoughts on the future direction? Will thepercentage continue to increase, and if so for how long?

ＡThe Tokyo metropolitan area is enjoying a robust upswing in the inflow of people. We
believe this trend will continue until this inflow reaches the levels recorded between 2018and 2019 when market conditions were extremely favorable. Accordingly, we expect rents
will also continue to rise.

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Turning to the Investment Corporation’s borrowing costs, and as indicated by the “LongTerm Interest-Bearing Debt Maturity Ladder” that runs along the bottom half of page 17 of
the Investor Presentation materials, the average interest rate for debt that is schedule tomature in the February 2024 36th period is a low 0.59% while rising to quite a high 1.12%
in the August 2024 37th period. Meanwhile, looking at the Forecasts data on page 19,“Interest expenses, etc.” are projected to climb 9 million yen in the 36th period comparedwith the period under review and 42 million yen in the 37th period compared with the 36thperiod. What are the factors that underpin this increase in interest costs in the 37th period
compared with the 36th period. NAF plans to refinance a portion of its existing debt aroundthe end of the 36th period and as such the effects of the increase in interest will emerge inthe 37th period. Compared with the 36th period, interest rates prior to refinancing in the37th period are higher. While the impact of higher refinancing rates should be less thancompared with the 36th period, can we assume that profit and loss in the 37th period will
be significantly affected compared with the previous period?

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That is correct. Calculations are based strictly on the timing of refinancing and as such a
discrepancy is projected to emerge between interest rates prior to refinancing and theestimated increase in interest payable for each of the 36th and 37th periods.
* (Supplementary comment) Forecast interest payable is calculated on the assumption thatwill refinance the same amount of debt prior to repayment by the date of maturity for eachindividual loan that falls due on the date of repayment for each period. The repayment
dates of long-term interest-bearing debt in the 36th period are concentrated aroundFebruary 2024, the last month of the 36th period. As a result, the amount of difference
between interest payable in the 36th period is relatively small compared with the previousperiod. Meanwhile, the refinancing of long-term interest-bearing debt in the 37th period isspread evenly. Accounting for the impact of the increase in interest on refinancing
undertaken in the 36th period, together with the increase in interest associated withrefinancing in the 37th period, the difference in the 37th period compared with the previousperiod is greater than the difference in the 36th period compared with the previous period.

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Looking once again at the “Long-Term Interest-Bearing Debt Maturity Ladder” that runs
along the bottom half of page 17 of the Investor Presentation materials, interest rates onborrowings that are scheduled to mature from the February 2025 period are quite low. As
a result, the negative impact on earnings due to refinancing from this period may besignificant. In light of an upswing in rents, will you be able to achieve dividend growth under
this operating environment?

Ａ

Having procured funds at low rates of interest to date, we understand that refinancing atthese previous interest rate levels will be difficult from the February 2025 period. When
disclosing forecasts for each period going forward, we will look to set distributions while
taking into consideration the recent upswing in base interest rates. As far as discussions
with financial institutions are concerned, and despite the upward trend in base interest
rates, there are no noticeable requests from lenders to increase the margins on debt
interest rates. With this in mind, we assume that any increase in debt interest rates will
mirror base rates of interest. NAF currently refinances interest-bearing debt to the tune ofaround 10 billion yen each period. Roughly speaking, an increase of 0.1% in the base rate
will impact NAF’s investment units by approximately 5 yen. By extension, an increase of
1% will increase costs by 50 yen per investment unit. Taking into consideration the current
tight supply and demand balance in the rental apartment market and expectations that
rents will continue to increase in the future owing to trends in population dynamics, weremain confident that the Investment Corporation is more than capable of absorbing anincrease in debt interest rates of this nature.
* (Supplementary comment) The aforementioned example is provided as a matter ofconvenience since the repayments dates of loans prior to refinancing are to a certain extent
spread out over the period. Should refinancing be carried out in a lump sum as of thebeginning of the period, an increase in interest rates of 0.1% is estimated to have an impactof around 10 yen per investment unit.

ＱRegarding NAF’s acquisition of rental apartments by type, family and large type apartment
are trending well. Trends in single type apartments are also expected to recover on theback of population dynamics in urban areas. What is your policy toward the acquisition ofrental apartments by type?

ＡWe believe that family and large type rental apartments will continue to face a low anddepleted volume of market stock. On the supply side, returns on investment tend to decline
as spacious floor plans are segregated into family and large type rental apartments. With
this in mind, it is difficult for developers to take the leap toward development family andlarge type properties. Taking the aforementioned into consideration, it is not an easy task
to purchase these types of rental apartment despite the desire to do so. In the event thatfamily and large type properties become available, we would actively look to acquire. While
it is true that single type rental apartments offer considerable potential, I believe that theInvestment Corporation should carefully assess the competition as well as the winners andlosers between properties within the micro-market of each area in which apartments arelocated. Having said this, NAF’s policy is to avoid purchasing single type rental apartments
solely on the premise that these types of properties are acceptable given that a significant
portion of the population is made up of singles. We will focus on properties where productperformance matches the market. This includes properties that are optimally positioned
and that can solidly perform even under such circumstances as the COVID-19 pandemic.

NAF will not acquire properties simply because they are of the single type. Rather, steps
will be taken to carefully select and acquire properties that are optimal for the market.
Ｑ

Turning to the “Effect of Value-enhancement investment in Private Area at Okawabata
Apartment Communities” data on page 14 of the Investor Presentation materials, there
was a substantial increase in the percentage change in rent at the time of tenant turnover
for a number of individual factors in the 35th period. Even with this substantial increase,
the average increase over the past six periods is about 20 to 30%. Will this upward
momentum in rents continue into the future?

ＡThe contracts for Okawabata Apartment Communities units that underwent valueenhancement investment and accordingly exhibited a high percentage change in rent at
the time of tenant turnover in the 35th period were old. As such, the increase in rent
eliminated the rent gap. Rents have also increased between 20 and 30% for other units atthe time of tenant turnover. We believe that family and large type rental apartments willremain scarce and that the current upswing in prices for houses for sale in the Tokyo
metropolitan area is reinforcing the growing demand for family type rental housing. Against
the backdrop of robust trends in family and large type rental apartments, Okawabata
Apartment Communities in particular is a rare family and large type apartment in the Tokyo
CBD area and our flagship property. We expect that rents will continue to rise in line withthe value of the property.

■ This document is intended for informational purposes, and is not intended to sell or solicit an offer tobuy or sell any security or other financial instrument of the Investment Corporation■ Unless explicitly indicated, the information provided in this document does not constitute thedisclosure or asset management reports required under the Financial Instruments and Exchange Act
or the Act on Investment Trusts and Investment Corporations.
■ Nippon Accommodations Fund Inc. has exercised due care in providing the information in thisdocument, but does not guarantee its accuracy or completeness.
■ The information in this document contains future projections, but such statements do not guarantee
future performance.
■ The Investment Corporation is not responsible for updating the information in this document. The
information in this document may be changed without prior notice.
REIT Management Company: Mitsui Fudosan Accommodations Fund Management Co., Ltd.
(Financial Instruments Firm: Kanto Finance Bureau (registration) No. 401
Member of the Investment Trusts Association, Japan)