REIT REPORTStar Asia Investment Corporation
3468
Tokyo Stock Exchange REIT

30-May-2018
FISCO Ltd. Analyst

Hideo Kakuta

FISCO Ltd.
http://www.fisco.co.jp

REIT REPORTFISCO Ltd.
http://www.fisco.co.jp

Star Asia Investment Corporation
3468 Tokyo Stock Exchange REIT

30-May-2018
http://starasia-reit.com/en/ir/index.html■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Overview......................................................................................................................................................

01

2. Business description. . ..................................................................................................................................

01

3. Results trends........................................ ......................................................................................................

02

4. Growth strategy...........................................................................................................................................

03■Overview----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 04
1. The REIT’s management style, investment policy, and asset portfolio. ........................................................

04

2. Results for internal growth and the strategy for the future. ..........................................................................

06

3. External growth trajectory and strategy for the future. .................................................................................

07

4. Expansion of the Star Asia Group’s business line (business domain) and support for the REIT. ..................

08■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 09
1. Results trends up to FY1/18 (4th fiscal period). ...........................................................................................

09

2. FY7/18 (5th fiscal period) and FY1/19 (6th fiscal period) forecasts. .............................................................

10

3. Financial position.........................................................................................................................................

12■Benchmarks-------------------------------------------------------------------------------------------------------------------------------------------------------------------- 13

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REIT REPORTFISCO Ltd.
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Star Asia Investment Corporation
3468 Tokyo Stock Exchange REIT

30-May-2018
http://starasia-reit.com/en/ir/index.html██Summary
Conducts active management as a comprehensive REIT and aims
to maximize unitholders’ interests
Less than two years after being listed, implemented its second capitalincrease through a public offering and expanded its asset scale
The cash distribution at the end of the 4th fiscal period was higher
than expected
1. Overview
Star Asia Investment Corporation <3468> (hereafter, also “the REIT”) is the REIT of the Star Asia Group, which is anindependent real estate investment group (described below). It was established in December 2015 and was listed on
the Tokyo Stock Exchange REIT Market in April 2016. It has two fiscal periods a year (ending in January and July), andat the end of January 2018, the REIT completed the 4th fiscal period (the six months from August 2017 to January2018) and announced the details of its financial statements in the middle of March 2018. At the start of the 4th fiscal
period, it sold properties and also focused on internal growth (described below), and as a result, the cash distribution
per unit was ¥4,077. At the same time, it announced the forecasted investment conditions for the 5th fiscal period(ending July 2018) and the 6th fiscal period (ending January 2019), with the forecasted cash distributions per unit being¥2,750 and ¥2,804, respectively. From the 5th fiscal period onward, the REIT intends to conduct active managementthat will contribute to improving the cash distribution per unit as it aims to maximize unitholders’ interests.
2. Business description
The REIT, which follows the principle of “unitholders’ interests first,” is a comprehensive REIT that is utilizing theaccumulated expertise and abundant management track record of the Star Asia Group to manage its assets. It ischaracterized by its four management policies, which are as follows: 1) Prioritized, focused investment in the Tokyo
area, 2) Gaining income stability and growth through the diversification of asset types, 3) Investment primarily in
medium-sized assets, 4) Conducting active management that is not bound by existing concepts as its management
style. It recently implemented the second capital increase through a public offering (announced in January 2018)
and together with borrowing, it used the funds to acquire 6 properties (total cost: ¥10.7bn) at the start of the 5th
fiscal period (beginning of February 2018), and thereby expanded its portfolio to ¥86.0bn (total acquisition price)and 29 properties.
(1) Investment focused on the Tokyo area
Among the 29 properties, 22 are located in the Tokyo area, and the percentage of total properties in this area
has reached 80.1% (acquisition-price basis). For the properties outside of the Tokyo area, many of them are also
highly liquid properties close to stations in major cities.
(2) Diversification of asset types
Assets with a focus on growth, such as offices (30.8%) and hotels (12.7%), make up 43.4% of total assets, andthe remaining 56.6% are residences (20.6%) and logistics facilities (36.0%) with a focus on stability.
(3) Investing primarily in medium-sized assets
The average purchase price of its 29 properties is ¥2.97bn, and it aims to thoroughly disperse risk throughinvesting in highly liquid medium-sized properties.

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REIT REPORTFISCO Ltd.
http://www.fisco.co.jp

Star Asia Investment Corporation
3468 Tokyo Stock Exchange REIT

30-May-2018
http://starasia-reit.com/en/ir/index.html

Summary(4) Conducting active management that is not bound by existing concepts
As typical examples of this, it has replaced assets twice so far, and it was the first listed REIT to invest in mezzanine
loan debt.
Going forward, the focus points for investment will be as follows.
For external growth (the expansion of investment assets), the goal at the present time is to reach an asset scaleof ¥200bn by 2020, and it is aiming to achieve this goal by utilizing to the greatest possible extent its sponsor
support (such as utilizing the information on sales of properties acquired by the sponsor group and acquiringproperties managed by the sponsor group), and acquiring information on properties from the asset managementcompany’s independent network.
For internal growth (such as expanding revenue and reducing costs), the focus point differs depending on theasset type. For offices, the main point is eliminating the rent gap. At the end of the 3rd fiscal period, the rent gap
was 6.8%, but by the end of the 4th fiscal period, it had been reduced to 5.2% and it is being steadily eliminated,
and the REIT intends to focus on eliminating the rent gap even more in the future. For logistics facilities, it willrenegotiate rental contracts and related matters according to the situation of each tenant. For the two tenants
whose rental contracts end in the current fiscal period (the 5th fiscal period), it has renegotiated contracts withincreased rent. For residences, the REIT achieved an increase in the occupancy rate during the 4th fiscal period,and it will work to maintain the improved occupancy rate in the future.
3. Results trends
In FY1/18 (the 4th fiscal period), the results were strong and about the same as in the previous fiscal period.
Operating revenue was ¥3,194mn, operating income was ¥2,051mn, ordinary income was ¥1,876mn, and net
income was ¥1,802mn. Similar to the 3rd fiscal period, operating revenue was boosted by the sale of real estate(gain on sale: ¥771mn). For offices, the occupancy rate at the end of the period was high, at 99.7%, and the rent
gap improved, which contributed to revenue surpassing the forecast. For residences, the occupancy rate improved
significantly, from the initial rate of 93.8% (end of August 2017) to the period-end rate of 97.1% (end of January2018). Also, in the 4th fiscal period, the gain on sale of real estate was dispersed among unitholders, boosting
the cash distribution per unit to the high level of ¥4,077, which was ¥38 above the previously announced cash
distribution forecast. The REIT retained ¥113mn as internal reserves, which it plans to utilize in the future to stabilize
cash distributions.
The forecasts for FY7/18 (the 5th fiscal period) are operating revenue of ¥2,751mn (down ¥443mn from the previous
period), operating income of ¥1,504mn (down ¥547mn), ordinary income of ¥1,231mn (down ¥645mn), net incomeof ¥1,230mn (down ¥572mn), and cash distribution per unit of ¥2,750 (down ¥1,327). So it seems like the resultsin the 5th fiscal period will decline, but this is due to the recording of a gain on the sale of real estate of ¥771mn
in the previous period, and rather we should focus on the growth in rental income, which is the foundation of the
REIT’s results, by ¥325mn. In terms of the reasons for the growth in rental income, the effects of the acquisitionof assets from the capital increase through a public offering will be large. In January 2018, the REIT conducted
its second capital increase through a public offering, and then in February, it acquired six properties for ¥10.7bn.
The acquisitions of these six properties at the start of the 5th fiscal period will contribute to income. Among these
six acquired properties, three are logistics facilities, two are residences, and one is an office, and from the REIT’s
perspective, the increase in assets was in a form that primarily focuses on stability.

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REIT REPORTFISCO Ltd.
http://www.fisco.co.jp

Star Asia Investment Corporation
3468 Tokyo Stock Exchange REIT

30-May-2018
http://starasia-reit.com/en/ir/index.html

Summary

4. Growth strategy
The REIT is aiming for an asset scale of ¥200bn by 2020. The main source of assets will be the provision of properties
from the Star Asia Group that is extending its business line (business domain). The Star Asia Group has advanced
into the development, management and administration of operational assets. One example of this is its businessof student-only residences targeting overseas students, which is conducted by GSA Star Asia K.K. and funded inpart by the GSA (Global Student Accommodation) Group, which conducts a global business for the management
and administration of student-only residences. Against the backdrop of the Japanese government’s promotion of
the Top Global University Project and Go Global Japan Project, the Star Asia Group is assuming that the number ofoverseas students will increase in the future and that the need for international-standard, student-only residences
will also grow. Based on these assumptions, the Group decided to work together with the GSA Group to develop
a business in this field. HAKUSAN HOUSE (364 beds, completed in February 2018), which was newly constructedin Hakusan, Bunkyo Ward, Tokyo, is the first international-standard, student-only residence project. The REIT has
acquired the preferential negotiation rights for HAKUSAN HOUSE for the 18 months from its completion, and if it
incorporates it into its portfolio, it will be developed as a new asset type. In addition, as it has up until now, the Star
Asia Group continues to invest in special situations, and at the end of September 2017, its investment assets were
worth ¥55.1bn, based on their appraisal value. If these real-estate properties under management by this Group
match the REIT’s investment criteria for real estate to be acquired in the future, then they will become targets forconsideration for acquisition. It is said that the sponsor plays a large role in external growth, and for the REIT, thereis the advantage that it can utilize the evolution of its sponsor, the Star Asia Group, for its own growth.
Another point to focus on is that Satoshi Obara has been appointed as the new Director and CIO. Mr. Obara has
extensive experience in real estate investment and management at Morgan Stanley Capital K.K., and he also has
the experience of playing a central role in the investment management of a listed REIT, so he was invited to fill thisposition so that the REIT could acquire his skills and network. In addition to sponsor support, it is expected thatproject discovery will be accelerated through the strengthening of the REIT’s independent network.
Key Points
Is conducting active management that is not bound by existing concepts and aiming to maximize unitholders’interests. Its approach to building a portfolio is to focus on the Tokyo area, diversify asset types, and accumulate
medium-sized assets.
• Is accelerating growth based on the support of the Star Asia Group that is extending its business line (businessdomain). The Star Asia Group is producing internally and enhancing property administration, management, anddevelopment functions, and it is entering into the new business domain of the development, administration, andmanagement of operational assets.
• In the two years since it was listed, it has conducted two capital increases through public offerings andexpanded its assets to ¥86bn. It is aiming for an asset scale of ¥200bn by 2020 based on the Star Asia Group’s
Special Situations Fund’s investment assets and newly acquired properties, as well as the newly developed
projects that are exemplified by its student-only residences.
•

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REIT REPORTFISCO Ltd.
http://www.fisco.co.jp

Star Asia Investment Corporation
3468 Tokyo Stock Exchange REIT

30-May-2018
http://starasia-reit.com/en/ir/index.html

Summary㻾㼑㼟㼡㼘㼠㼟㻌㼠㼞㼑㼚㼐㼟㻔¥㼙㼚㻕㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼞㼑㼢㼑㼚㼡㼑㻌㻔㼘㼑㼒㼠㻕

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Source: Prepared by FISCO from the REIT's financial results██Overview
Conducts active managementwith the aim of maximizing unitholders’ interest
Is making steady progress for internal growth,
including by eliminating the rent gap and improving occupancy rates
Its external growth strategy is to incorporate the evolution of
the Star Asia Group
1. The REIT’s management style, investment policy, and asset portfolio
The REIT’s distinctive management style is to conduct active management through investigating and implementing
measures that can be expected to contribute to the maximization of unitholders’ interests without being bound by
existing concepts and precedents. Since it was listed, it has implemented many measures to maximize unitholders’ interests, with prime examples being that it has replaced properties on two occasions, with goals including
strengthening the portfolio and obtaining gains on sales, and also that it was the first listed investment corporation
to invest in mezzanine loan debt. Going forward also, the REIT will continue to conduct active management withthe aim of maximizing unitholders’ interests.

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REIT REPORTFISCO Ltd.
http://www.fisco.co.jp

Star Asia Investment Corporation
3468 Tokyo Stock Exchange REIT

30-May-2018
http://starasia-reit.com/en/ir/index.html

Overview<Investment policies and asset portfolio>(1) Investment focused on the Tokyo area
The REIT’s policy is to invest more than 70% on investment assets in the Tokyo area, on an acquisition-pricebasis. This is because the population density is high in the Tokyo area and it is the center of economic activities
in Japan, so the needs for real estate for a variety of purposes are high and stable income can be expected. Afterthe acquisition of an additional 6 properties (for a portfolio of 29 properties in total with a total acquisition priceof ¥86bn) at the start of the 5th fiscal period (beginning of February 2018), the percentage of properties locatedin the Tokyo area had reached 80.1%. The areas being targeted for investment outside the Tokyo area include
Osaka, Nagoya, Fukuoka, Sapporo, and other government-ordinance designated cities, and the REIT’s policy is
to invest through strictly selecting properties in each of these areas. Currently, the portfolio contains five Osaka
properties and two Fukuoka properties.
(2) Diversification of asset types
The asset types that the REIT targets for investment are offices, commercial facilities, residences, logistics facilities
and hotels, seeing as, its portfolio becomes resistant to the effects of changes to the economic environment
and it can expect stable income by incorporating multiple asset types. Currently, the portfolio does not includecommercial facilities, but it is pursuing a portfolio that has both income growth potential and stability based on theprinciple that the percentage of each asset type shall not exceed 50% of the total. From the REIT’s perspective,
within the currently incorporated assets, offices and hotels are assets that focus on income growth and logistics
facilities and residences are assets that focus on income stability. As of the beginning of February 2018, theassets that focus on growth, such as offices (30.8%) and hotels (12.7%), constituted 43.4% of total assets, andthe assets that focus on stability, such as residences (20.6%) and logistics facilities (36.0%), constituted 56.6%.
Going forward, the REIT will aim to build a portfolio that incorporates both stability and growth, while also paying
attention to maintaining a balance by incorporating assets of each type.

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㻥㻜㻚㻜㻑

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Source: Prepared by FISCO from the REIT's results briefing materials

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REIT REPORTFISCO Ltd.
http://www.fisco.co.jp

Star Asia Investment Corporation
3468 Tokyo Stock Exchange REIT

30-May-2018
http://starasia-reit.com/en/ir/index.html

Overview(3) Investing primarily in medium-sized assets
The REIT aims to secure the flexibility of its portfolio by focusing on highly liquid medium-sized assets withstrong turnover and minimize the impact of tenant departures and rent reductions on portfolio income. As of the
beginning of February 2018, the average acquisition price of the 29 properties it owns was ¥2.97bn, and we cansee that it is practicing its investment policy from the fact that all of its properties cost less than ¥10bn. Although
the characteristics are somewhat different for each asset type, the REIT’s basic strategy is to aim to thoroughly
disperse risk by building a portfolio that is focused on medium-sized assets that will be (can be) occupied bymultiple tenants. Going forward also, it intends to continue to invest primarily in medium-sized assets.
2. Results for internal growth and the strategy for the future
The REIT is actively working to achieve internal growth (such as by increasing income and reducing costs), andthe points of focus differ for each asset type. The main point for offices is eliminating the rent gap (the difference
between the monthly contract rent amount at properties owned by the REIT compared to similar properties in thesurrounding area). Many of the office buildings it manages have tenants whose rental contracts are lower than
the rent in the surrounding area (72.0% as of the end of the 4th fiscal period), and it is working to eliminate thisgap. At the end of the 3rd fiscal period, the rent gap was 6.8%, but by the end of the 4th fiscal period it had been
reduced to 5.2% and it is being steadily eliminated, and the REIT intends to focus on further eliminating the gap in
the future. For logistics facilities, it will renegotiate rental contracts and related matters according to the situationof each tenant. For the two tenants whose rental contracts end in the current fiscal period (the 5th fiscal period), it
has renegotiated contracts with increased rent. Going forward also, it plans to increase rent as much as possible,
taking into consideration factors such as rent in the areas surrounding the properties it owns, the conditions ofbuildings, and the levels of tenant satisfaction. For residences, the REIT achieved an increase in the occupancy rateduring the 4th fiscal period, and it will work to maintain the improved occupancy rate in the future. In the investment
management company, the Investment Management Division has recruited two personnel (in January 2018) who
are very familiar with property administration and management, and it is planning to implement measures toward
internal growth that are tailored to the features of each property even more than in the past. Also, in the Star Asia
Group, in July 2017 the Construction Management Department was established, and the REIT is able to constantly
receive advice from the sponsor group to contribute to maintaining and improving the values of properties, and it
can be expected to provide even more support than before for tasks such as for the creation of capital expenditureand major renovation plans for the properties that the REIT is considering acquiring, renewal construction work thatis highly appealing to tenants at the properties that it owns, and the formulation of more strategic renovation plans.

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REIT REPORTFISCO Ltd.
http://www.fisco.co.jp

Star Asia Investment Corporation

30-May-2018

3468 Tokyo Stock Exchange REIT

http://starasia-reit.com/en/ir/index.html

Overview

Trends in occupancy rates

Source: The REIT's results briefing materials

3. External growth trajectory and strategy for the future
Since it was listed in April 2016, the REIT has replaced assets on 2 occasions, and through the assets it acquired
from the 2 capital increases through public offerings, it has expanded the asset scale from ¥61.4bn (acquisition-pricebasis) at the time it was listed to ¥86bn. Looking to the future, it is aiming to achieve an asset scale of ¥200bn by
2020 through acquiring properties, mainly from the Star Asia Group that is extending its business line (businessdomain), and also through accelerating project discovery by strengthening the REIT’s independent network (including
by appointing a new CIO).
Initiatives for growth
Main initiatives
Eliminating the rent gap in the offices portfolio
Internal
growthstrategy

Negotiating rent increases at logistics facilities
Stabilizing occupancy rates at residences (strengthening competitiveness through renovation work, etc.)
Maintaining and improving the ability to appeal to tenants through appropriate capital expenditure and renovations(utilizing sponsor support)
Enhancing asset management functions –> Increasing by 2 the number of Investment Management Division personnel
Expanding the properties pipeline from the Star Asia Group that is expanding its business line

External
growthstrategy

Further utilizing the warehousing function of the sponsor group
Discovering projects by strengthening the management company’s independent network–> newly appointing the Director and CIO
Continuously investing in mezzanine loan debt
Examining asset replacements

Financialstrategy

Continuously examining acquiring a rating
Fixing the payment interest rate to hedge the risk of interest-rate fluctuations –> Was set on March 16, 2018
Appointed a new lender

Source: Prepared by FISCO from the REIT's results briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

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REIT REPORTFISCO Ltd.
http://www.fisco.co.jp

Star Asia Investment Corporation
3468 Tokyo Stock Exchange REIT

30-May-2018
http://starasia-reit.com/en/ir/index.html

Overview

4. Expansion of the Star Asia Group’s business line (business domain) and support for the REITThe Star Asia Group was established by Malcolm F. MacLean IV and Taro Masuyama, and started investing in 2007.
It is a real estate investment group comprised of the funds resulting from the investment decisions taken by bothmen, the investment management company, and the assets receiving investments. It mainly manages the funds
from investors who seek long-term investment, such as overseas university funds, foundations and pension funds,
by investing in assets related to real estate, etc. in Japan and other Asian countries. Currently, it is not investing inassets other than in Japan and it has been continuously accumulating a track record of investing in the Japanesereal estate market. One of the features that differentiates it from other real estate investors is that in addition to
direct investment in real estate of various asset types, it invests flexibly in real estate through multiple approaches,
including via bond and stock investments. When searching for investment projects, it makes full use of the wide
range of relationships that the Star Asia Group has in the financial and real estate markets. Its investments havesurpassed a total of ¥322bn (as of the end of September 2017).
The Star Asia Group started from investing in real estate-related debt before shifting its focus to investing in actual
real estate in response to the conditions in the real estate market. Currently, it is engaged in investing activities
for the Special Situations Fund IV. At the end of September 2017, its investment-assets balance, based on theappraisal values of its properties, was ¥55.1bn. Its investment ratio in the Tokyo area is high, and it is also diversifying
asset types while focusing on offices. For these properties, there is a system in place in which the REIT is able
to examine an acquisition through a sponsor-support agreement, which can be said to be an important elementthat will support the REIT’s external growth in the future. In addition, the Star Asia Group is aiming to enhance its
functions to incorporate real estate-related functions within the Group and to diversify the asset classes that are
its investment targets. In terms of the enhancement of functions, this has mainly entailed bringing into the GroupStar Asia Asset Advisors Co., Ltd., in order to internally produce real estate management functions, and Star Asia
Sogo Kaihatsu Co., Ltd., to add development functions. Various benefits can be expected from this in the future,such as acquiring information on properties from Star Asia Asset Advisors and for examining the acquisitions of
the development properties handled by Star Asia Sogo Kaihatsu. Moreover, in order to diversify the asset classes
targeted for investment, the Star Asia Group has also started investing in operational assets. An example of thisis the previously mentioned collaboration with the GSA Group to invest in the development of HAKUSAN HOUSE.
HAKUSAN HOUSE is a student-only residence completed in February 2018 in Hakusan, Bunkyo Ward, Tokyo, and it
has 175 rooms and 364 beds. It can be said to be an international-standard, student-only residence the like of which
has never been seen before in Japan, offering a concierge service, holding events for residents and incorporating
various shared areas such as a shared kitchen, dining areas and a multipurpose room. Going forward, the mainrole will be played by GSA Star Asia K.K., which is jointly funded by the Star Asia Group and the GSA Group, andthe plan is continue to provide similar student-only residences with the goal of ultimately providing 20,000 beds.
As previously stated, the REIT acquired the preferential negotiation rights to HAKUSAN HOUSE for the 18 months
after its completion, and it is expected to be incorporated into the REIT.

We encourage readers to review our complete legal statement on “Disclaimer” page.

08 13

REIT REPORTFISCO Ltd.
http://www.fisco.co.jp

Star Asia Investment Corporation
3468 Tokyo Stock Exchange REIT

30-May-2018
http://starasia-reit.com/en/ir/index.html

Overview

The Star Asia Group’s growth strategy

Source: The REIT's results briefing materials

Executed an agreement on preferential negotiation right of
HAKUSAN HOUSE (student accommodation property)

Source: The REIT’s results briefing materials██Results trends
In the 3rd and 4th fiscal periods,
the gain on sales following the replacement ofassets was returned to unitholders as cash distributions
1. Results trends up to FY1/18 (4th fiscal period)
In FY1/18 (the 4th fiscal period), operating revenue was ¥3,194mn, operating income was ¥2,051mn, ordinary
income was ¥1,876mn, and net income was ¥1,802mn, so the results were strong and about the same as in theprevious fiscal period. Operating revenue grew due to a gain on sale of ¥771mn recorded from the sale of real estate,
the same as in the 3rd fiscal period. For rental income, the ratio of office rent is large. Because there were changes
to the percentages of each asset type in the portfolio, the replacement of assets, and the acquisition of additional
properties, there were significant increases in rent from logistics facilities, hotels, and residences. For offices, during
the 4th fiscal period, the occupancy rate was maintained at the high level of above 99.6%, and also progress wasmade in eliminating the rent gap. In residences, the occupancy rate improved remarkably. Also, in the 4th fiscal
period, the gain on sale following the sale of real estate was returned to unitholders as a cash distribution, so the
cash distribution per unit was at the high level of ¥4,077, which was ¥38 higher than the previously announced
cash distribution forecast.
We encourage readers to review our complete legal statement on “Disclaimer” page.

09 13

REIT REPORTFISCO Ltd.
http://www.fisco.co.jp

Star Asia Investment Corporation
3468 Tokyo Stock Exchange REIT

30-May-2018
http://starasia-reit.com/en/ir/index.html

Results trends

FY1/18 (the 4th fiscal period) results and previous results
FY1/18 (4th fiscal period)
FY7/16
FY1/17
FY7/17(1st fiscal period) (2nd fiscal period) (3rd fiscal period)
results (¥mn)
results (¥mn)
results (¥mn)

Results (¥mn)

Composition
ratio

Changecompared toprevious period(¥mn)

Operating revenue

1,859

2,017

3,211

3,194

100.0%-17

Operating income

1,147

1,190

2,098

2,051

64.2%

-46

Ordinary income

335

1,073

1,833

1,876

58.7%

43

Net income

333

1,072

1,832

1,802

56.4%

-30

Cash distribution perunit (¥)

892

3,112

4,423

4,077

Source: Prepared by FISCO from REIT materials㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼞㼑㼢㼑㼚㼡㼑㻌㼎㼥㻌㼟㼑㼓㼙㼑㼚㼠㻝㼟㼠㻌㼒㼕㼟㼏㼍㼘㻌㼜㼑㼞㼕㼛㼐㻌㼞㼑㼟㼡㼘㼠㼟㻟㼞㼐㻌㼒㼕㼟㼏㼍㼘㻌㼜㼑㼞㼕㼛㼐㻌㼞㼑㼟㼡㼘㼠㼟

㻔¥㼙㼚㻕
㻝㻘㻜㻜㻜
㻥㻜㻜
㻤㻜㻜
㻣㻜㻜
㻢㻜㻜
㻡㻜㻜
㻠㻜㻜
㻟㻜㻜
㻞㻜㻜
㻝㻜㻜
㻜
㻻㼒㼒㼕㼏㼑
㼞㼑㼚㼠㻾㼑㼟㼕㼐㼑㼚㼏㼑㼟㼞㼑㼚㼠㻸㼛㼓㼕㼟㼠㼕㼏㼟㼒㼍㼏㼕㼘㼕㼠㼕㼑㼟㼞㼑㼚㼠㻞㼚㼐㻌㼒㼕㼟㼏㼍㼘㻌㼜㼑㼞㼕㼛㼐㻌㼞㼑㼟㼡㼘㼠㼟㻠㼠㼔㻌㼒㼕㼟㼏㼍㼘㻌㼜㼑㼞㼕㼛㼐㻌㼞㼑㼟㼡㼘㼠㼟㻴㼛㼠㼑㼘㼟㼞㼑㼚㼠㻻㼠㼔㼑㼞㼞㼑㼚㼠㼍㼘
㼎㼡㼟㼕㼚㼑㼟㼟㻙㼞㼑㼘㼍㼠㼑㼐

㻹㼑㼦㼦㼍㼚㼕㼚㼑 㻳㼍㼕㼚㻌㼛㼚㻌㼟㼍㼘㼑㼞㼑㼘㼍㼠㼑㼐
㼛㼒㻌㼞㼑㼍㼘
㼑㼟㼠㼍㼠㼑㻘㻌㼑㼠㼏㻚

Source: Prepared by FISCO from the REIT's results briefing materials

There remains room for internal growth from the 5th fiscal period
onward, including from eliminating the rent gap in offices,and re-negotiating contracts with increased rent
for logistics facilities’ tenants
2. FY7/18 (5th fiscal period) and FY1/19 (6th fiscal period) forecasts
The forecasts for FY7/18 (5th fiscal period) are for operating revenue of ¥2,751mn (down ¥443mn from the previous
period), operating income of ¥1,504mn (down ¥547mn), ordinary income of ¥1,231mn (down ¥645mn), net incomeof ¥1,230mn (down ¥572mn), and cash distribution per unit of ¥2,750 (down ¥1,327).

We encourage readers to review our complete legal statement on “Disclaimer” page.

10 13

REIT REPORTFISCO Ltd.
http://www.fisco.co.jp

Star Asia Investment Corporation
3468 Tokyo Stock Exchange REIT

30-May-2018
http://starasia-reit.com/en/ir/index.html

Results trends

It might seem that the earnings in FY7/18 (the 5th fiscal period) will decline, but this is because a gain on sale of¥771mn was recorded and distributed in the previous fiscal period, and rather we should focus on the growth inrental income, which is the foundation of the results, to ¥325mn. In terms of the reasons for the growth in rental
income, the effects of the acquisition of assets from the capital increase through a public offering will be large. In
January 2018, the REIT conducted its second public offering and it used the funds it raised to acquire 6 propertiesfor ¥10.7bn in early February, which expanded the assets portfolio to 29 properties with a total acquisition price of¥86bn. Among the 6 properties acquired, 3 are logistics facilities, 2 are residences, and 1 is an office, and from the
REIT’s perspective, the increase in assets was in a form that primarily focuses on stability. After the second public
offering, the assets’ unrealized gain (the difference between the appraisal price and the acquisition price) was ¥6.8bn,
so it is possible that the unrealized gain will be realized in the future through the transfer of assets held.
FY7/18 (5th fiscal period) and FY1/19 (6th fiscal period) forecasts
FY7/18 (5th fiscal period)
FY1/18(4th fiscal period)
results (¥mn)

FY1/19 (6th fiscal period)

Forecast (¥mn)

Changecompared toprevious fiscal
period (¥mn)

Forecast (¥mn)

Changecompared toprevious fiscal
period (¥mn)

3,194

2,751

-443

2,732

-19

Of which, rent income

2,408

2,733

342

2,713

-19

Of which, mezzanine

14

18

4

18

-

Of which, gain on sale

771

-

-771

-

-

Operating income

2,051

1,504

-547

1,497

-7

Ordinary income

1,876

1,231

-645

1,320

89

Net income

1,802

1,230

-572

1,319

89

Cash distribution perunit (¥)

4,077

2,750

-1,3272,804

54

Operating revenue

Source: Prepared by FISCO from REIT materials

Overview of the acquisition of assets from the second capital increase through a public offering

Source: The REIT's results briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

11 13

REIT REPORTFISCO Ltd.
http://www.fisco.co.jp

Star Asia Investment Corporation
3468 Tokyo Stock Exchange REIT

30-May-2018
http://starasia-reit.com/en/ir/index.html

Results trends

Total asset-based LTV (interest-bearing debt ÷ total assets) 45.5%,
diversification of bank formation
3. Financial position
At the end of January 2018 (end of the 4th fiscal period), total assets were ¥82,154mn. The majority was property,
plant and equipment, and the changes compared to the end of the previous fiscal period were negligible.
Liabilities were ¥40,284mn. Within the liabilities, the percentage of long-term loans payable is high and the long-term
liability ratio is 100%. The total asset-based LTV (interest-bearing debt ÷ total assets; LTV: loan to value) is 45.5%,
successfully maintaining firm control between 45% and 50%, which is the target.
The REIT’s lenders are a co-financing group arranged by Sumitomo Mitsui Banking Corporation (Sumitomo Mitsui
Financial Group <8316>) and Mizuho Bank, Ltd. (Mizuho Financial Group <8411>). In addition to these two banks,
the participants are Sumitomo Mitsui Trust Bank, Limited, Mitsubishi UFJ Trust and Banking Corporation, Aozora
Bank, Ltd. <8304>, Shinsei Bank, Limited <8303>, and Resona Bank, Limited (Resona Holdings <8308>), which
is a lineup that gives a feeling of stability. In the current fiscal period, it also began transactions with The Bank ofFukuoka, Ltd. (Fukuoka Financial Group <8354>), with the aim of further diversifying fund raising. The REIT is aiming
to expand its asset scale while maintaining its financial soundness, and financially there are no causes for concern.
Simplified balance sheet and management indicators(¥mn)
End of FY7/17

End of FY1/18

ChangeCurrent assets

5,261

4,961

(Cash and deposits)

1,598

1,667

68

(Cash and deposits in trust)

3,239

3,153

-85

Non-current assets

78,34877,193-1,154(Property, plant and equipment)

74,697

72,829-1,867

Total assets

83,60982,154-1,454Current liabilities

9,796

8,437

-1,359Non-current liabilities

31,91931,846-73

Total liabilities

41,71640,284-1,432

Net assets

41,892

41,870-21

Total liabilities and net assets

83,60982,154-1,454-300<Stability>
Current ratio (current assets ÷ current liabilities)

53.7%

58.8%

Long-term liability ratio (long-term liabilities ÷ total liabilities)

100.0%

100.0%

Total asset-based LTV (interest-bearing debt ÷ total assets)

46.3%

45.5%

Equity ratio (equity ÷total assets)

50.1%

51.0%

Source: Prepared by FISCO from REIT materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

12 13

REIT REPORTFISCO Ltd.
http://www.fisco.co.jp

Star Asia Investment Corporation
3468 Tokyo Stock Exchange REIT

30-May-2018
http://starasia-reit.com/en/ir/index.html██Benchmarks
Appeals to investors through conducting active managementthat aims to maximize unitholders’ interests
The investment unit price has greatly outperformed
the TSE REIT Index
The REIT’s appeal includes that it conducts active management that aims to maximize unitholders’ interests. Throughimplementing various types of measures to maximize unitholders’ interests, including replacing assets and being
the first listed REIT to invest in mezzanine loan debt, in the past year the REIT’s investment unit price has greatly
outperformed the TSE REIT Index (from a comparison of the trend in the REIT’s investment unit price since it waslisted and the trend in the TSE REIT Index). In the future, when the asset scale exceeds ¥100bn from the acquisitionof properties alongside the equity financing, the stability of the portfolio and the liquidity of the investment unit will
improve. It also has in sight acquiring a rating and inclusion in a global index.
Continuously implementing measures that aim to maximize unitholders’ interests

Source: The REIT's results briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

13 13

Disclaimer
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