Japan Prime Realty Investment Corporation

June 2019 (35th) Period Analyst Meeting[Q&A Session Summary]〔Date: August 19, 2019〕

Q. Do you sense any changes in the momentum of increases in office rent and demand for
offices?
A. Market rent is rising steadily, and the gap between market rent and ongoing rent isexpanding. We expect that the negative gap in rents will continue to expand for sometime to come. Companies moving to JPR’s buildings for improving locations or expanding
offices need to employ excellent human resources to compete and are looking for goodbuildings. We expect that we will be able to raise the rents on buildings with good
locations and specifications for some time to come.
Q. Are there any differences in momentum among different office rent brackets?
A. The rate of revision is high in Fukuoka, Osaka, and other cities outside the Tokyo area. It
is rising also in Shin-Yokohama and Kawaguchi. In terms of earnings, high-rent buildingsin the center of Tokyo, particularly Harajuku and Shinjuku, are relatively good and aremaking a greater contribution.
Q. You said that capital expenditures will peak in the June 2020 period. What is yourforecast after that?
A. We expected that capital expenditures would be 1.89 billion yen in the June 2019 period,
but actual capital expenditures were 1.32 billion yen because some capital expenditures
were carried forward due to an adjustment of tenants. At present, we expect that capital
expenditures will be about 1.8 billion yen in the December 2020 period and will fall after
that. In principle, we want to control capital expenditures within the amount ofdepreciation.
Q. Please explain the positions of urban retail properties and urban hotels in your portfolio.
A. We basically position urban retail properties as assets for stable revenue. Properties,including the FUNDES Series, are multi-tenant buildings where contracts are mediumterm contracts. We expect an upside at some properties when contracts are renewed.
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The contracts for the hotels are long-term contracts. The term of contract is ten years ormore. In principle, we position the hotels as assets for stable revenue.
Q. The RevPAR of urban hotels is weak. How do you plan to differentiate yourself byacquiring hotels?
A. The hotels that the main sponsor is developing are favorably located and havespecifications that enable us to compete. The hotel market is weak partly due to sharply
rising prices, and we believe that the market will grow in the medium to long term. We will
carefully select hotels to acquire for about two years, closely watching occupancy rates.
Q. Please explain the reasonableness of the selling price of Tokyo Tatemono Kyobashi
Bldg.
A. The building is old, and the maintenance cost was increasing. We decided to sell it,
taking rebuilding into consideration. The building is on leased land, and that has been
considered in determining the price. In the trading of properties with Tokyo Tatemono, we
have acquired properties at prices lower than the appraisal value and have soldproperties at prices higher than the appraisal value. We determine terms and conditions,taking the overall balance into consideration.
Q. How high a yield after depreciation do you expect when you acquire office buildings,
retail properties, and hotels in the 23 wards of Tokyo?
A. We cannot give you any specific number because the yield differs depending onproperties’ locations and specifications, among other factors. The yield on office buildings
in particular varies depending on the area and the potential for upward rent revisions,among other attributes. Among retail properties, we purchased FUNDES Suidobashi at
3.5% and subsequently bought FUNDES Ueno at 3.3%. We will make a decision basedon individual properties’ competitiveness, among other factors. The same is true forhotels that we plan to acquire. We will conduct case studies and other studies.
Q. You did not purchase FUNDES Jimbocho from Tokyo Tatemono. Please describe thebackground.
A. They, of course, offered the purchase of the property to JPR. However, there was a gap
between the offered price and the price we wanted, and we did not acquire the property.
Q. Please explain your policy on LTV in external growth.
A. We will control LTV between 40% and 45%. If LTV is 45%, the maximum rate, our2

acquisition capacity is around 30 billion yen. We will consider a capital increase througha public offering depending on the price of a property that we will acquire to achievesufficient acquisition capacity.
Q. Your medium-term DPU target is 7,800 yen. When will you reach the target?
A. If rents and common charges increase 1% annually, DPU is expected to riseapproximately 70 yen every period. If we take only internal growth into consideration, wewill reach the target in two or three years from the June 2020 period, when DPU isestimated at 7,500 yen. We expect also external growth and wish to achieve the target
as early as possible.
Q. Why did you change your asset management fee structure?
A. We have changed the fixed fee to the asset-linked fee. The rate is close to the lower limitof the range of rates in general. We have expanded the portion of cash distribution-linked
fees to reinforce incentives to increase distributions. We have changed the asset
management fee structure to make the necessary investment, including an investment insystems and human resources, and achieve further growth in keeping with thesophistication of REIT management. We want to build on our strengths and improve ourstatus in the REIT industry. Our new rate of asset management fees is still lower than theaverage in the REIT industry.

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