Notice Concerning Acquisition of Trust Beneficiary Interest in Domestic Real Estate (The Ritz-Carlton, Kyoto and MAST Ijiri)

Transcription

1 January 29, 2019 Real Estate Investment Trust Securities Issuer Sekisui House Reit, Inc. Representative: Junichi Inoue, Executive Director (Securities Code: 3309) Asset Management Company Sekisui House Asset Management, Ltd. Representative: Junichi Inoue, President & Representative Director Inquiries: Yoshiya Sasaki, Chief Manager Investor Relations Department TEL: (main) Notice Concerning Acquisition of Trust Beneficiary Interest in Domestic Real Estate (The Ritz-Carlton, Kyoto and MAST Ijiri) Sekisui House Reit, Inc. ( SHR ) hereby announces that Sekisui House Asset Management, Ltd., to which SHR entrusts management of its assets (the Asset Management Company ) decided today for SHR to acquire the assets (the Properties or Assets to be acquired ) as described below. Since the counterparties to the acquisition of the assets fall under the category of interested persons, etc. as provided in the Act on Investment Trusts and Investment Corporations (Act No. 198 of 1951, including amendments thereto) (the Investment Trusts Act ), and under the category of interested parties as provided in the Asset Management Company s internal rules: Rules for Transactions with Interested Parties, the Asset Management Company has obtained, in accordance with the Investment Trusts Act and the Rules for Transactions with Interested Parties, the consent of SHR based on approval at the meeting of the board of directors of SHR held today. 1. Summary of Acquisition SHR will acquire the following two Properties. The Ritz-Carlton, Kyoto is a hotel of the Marriott Hotel Group s highestend brand planned and developed by Sekisui House, Ltd. ( Sekisui House ), the sponsor of SHR. MAST Ijiri is a rental condominium planned and developed by Sekiwa Real Estate Kyushu, Ltd. ( Sekiwa Kyushu ), a wholly-owned subsidiary of Sekisui House. These acquisitions are a part of the growth strategy to make the most of the real estate development and operation capabilities of the Sekisui House Group that has vast experience in the development and operation of residential and commercial properties. Property name Asset type Location Planned acquisition price (Note 1) Seller The Ritz-Carlton, Kyoto Hotel Kyoto-shi, Kyoto 17,800 million yen Sekisui House MAST Ijiri Residence Fukuoka-shi, Fukuoka 390 million yen Sekiwa Kyushu Total Planned acquisition price 18,190 million yen - (1) Type of specified asset : Trust beneficiary interest, trust assets of which are comprised of 1

2 domestic real estate (As for The Ritz-Carlton, Kyoto, 40% quasi-co-ownership interest) (2) Sale and purchase contract date : January 29, 2019 (3) Planned acquisition date : January 31, 2019 (4) Acquisition financing : Loans (Note 2) and cash on hand (5) Settlement method : Payment of entire amount at time of delivery (Note 1) The planned acquisition price does not include miscellaneous acquisition related expenses, fixed asset tax, city planning tax, consumption tax and local consumption tax and is rounded down to the nearest million yen. The same shall apply hereinafter. (Note 2) Please refer to the press release entitled Notice Concerning Borrowing of Funds separately issued by SHR today for details of the loans. 2. Reason for Acquisition Based on SHR s basic policy to provide high-quality social capital and maximize unitholder value by conducting asset management that pursues stable earnings over the medium to long term and steady growth of its investment assets, SHR intends to focus on prime properties (high-quality residential and commercial properties in strategic locations), investing mainly in residential properties such as residences and in commercial properties such as office buildings and hotels, in accordance with the investment target and investment policy stipulated in its Articles of Incorporation. Since SHR positions residences and office buildings as core assets to constitute its portfolio, and intends to invest in hotels for which growth is expected, SHR will acquire the Assets to be acquired in an aim to build a portfolio that combines high stability and quality. The characteristics of the Assets to be acquired taken into consideration upon deciding on the acquisition are as follows: 2

3 (1) The Ritz-Carlton, Kyoto 1 Location characteristics The Property is located in Kyoto-shi, a market where further growth is expected owing to stable domestic demand and inbound demand as Japan s leading tourist city. The Property, situated on the bank of the Nijo-Ohashi Bridge on the Kamogawa River that flows from north to south of Kyoto-shi, is in a rarely-found location suitable for urban-type resort hotels which is close to the famous entertainment districts in Kyoto such as Gion, Kawaramachi and Ponto-cho, and offers a scenic view of the Higashiyama Sanju-Roppo mountain range that runs between the Kamogawa River and Mount Hieizan. Additionally, the Property is located approximately six minutes on foot from Sanjo Station on the Keihan Main Line. It is close to major tourist sites in Kyoto such as the Kyoto Imperial Palace and Nijo Castle and to Kyoto city office, and suitable for guests staying for either sightseeing or business. SHR believes that the combination of The Ritz-Carlton, Kyoto in the rarely-found favorable location of scenic beauty in Kyoto-shi, a world s popular tourist destination, has extremely strong appeal to wealthy individuals and tourists visiting Japan. (Reference) Tourism data for Kyoto-shi ~ The annual number of tourists topped 50 million for five consecutive years, and the annual number of foreign guests topped 3 million for three consecutive years. ~ The annual number of tourists topped 50 million for five consecutive years, reaching million in 2017, and the annual number of foreign guests topped 3 million for three consecutive years, reaching 3.53 million in These results were mainly due to the continuous efforts of Kyoto-shi to improve the quality of tourism styles and the quality as a tourist city, as well as the fact that readers of those involved including a leading UK specialist magazine, chose Kyotoshi as No.1 in the Best City category for two consecutive years. (Source: prepared by the Asset Management Company in reference to the Kyoto Tourism Comprehensive Survey 2017 published by Kyoto Bureau of Industry and Tourism in August The numbers of tourists for 2011 and 2012 have not been estimated due to changes in the survey method. The number of foreign guests does not include those who stayed at unauthorized private lodging (minpaku) facilities.) 2 Property characteristics The Ritz-Carlton is the highest-end brand of the Marriott Hotel Group, one of the world s leading hotel chains, and has been renowned for its luxury hotels, with successful hotel operations in many countries around the world and hotel management know-how of an international standard. The Property has also been highly praised by third parties since its opening in February 2014 as The Ritz-Carlton, Kyoto, including becoming the first hotel in the Kansai region to win a 3

4 Five Star award from Forbes Trabel Guide. The building of the Property was newly constructed in 2013 by Sekisui House, the sponsor of SHR. It adopts an exterior design harmonizing with the historical surrounding environment, while trying to fuse Japanese tradition with contemporary Western style. The Property has luxury specifications that match the brand image of The Ritz-Carlton, with four gardens created based on the concept of inheriting the history of Kyoto, and high-quality space arranged with the essence of the traditions and cultures of Kyoto and displaying many artworks selected based on the concept of The Tale of Genji. The total number of guest rooms is 134, and the average floor area of the guest rooms is 50m 2. The Property also offers hospitality of the highest standard in its restaurants, banquet rooms and spas. The tenant of the Property is SH Hotel Systems, Ltd., a wholly owned subsidiary of Sekisui House and a hotel operating company in the Sekisui House Group. SH Hotel Systems, Ltd. plans to execute a building lease agreement with the Trustee on the planned acquisition date. Please refer to the supplementary explanation material Hotel Overview for The Ritz-Carlton, Kyoto to be separately published on SHR s website today for the detail of the property. (2) MAST Ijiri 1 Location characteristics The Property is located approximately three minutes on foot from Ijiri Station on the Nishitetsu Tenjin Omuta Line, and it takes approximately 15 minutes from Ijiri Station to Nishitetsu Fukuoka (Tenjin) Station. From Ijiri Ekimae Bus Stop on the north, many buses bound for the Tenjin and Hakata areas are operated by Nishitetsu Bus. As such, it is easy to access the center of the city from the Property. In the Tenjin area, the Tenjin Big Bang Project led by Fukuoka-shi is underway, and office buildings, large commercial facilities and restaurants have gathered to form the largest commercial area in Kyushu. In addition, reconstruction and large-scale development projects for office buildings have been planned on the back of the declining office vacancy rate, which is expected to lead to the city s further improvement in terms of convenience, liveliness and functionality and to attract demands from commuters to the center of Fukuoka-shi such as Tenjin and Hakata area. The Property also offers convenience in daily life, since there are supermarkets, convenience stores, restaurants, financial institutions and medical institutions around the Property. 2 Property characteristics The Property has 11 stories above ground and 30 units in total. As there are 20 units of 1LDK and 10 units of 2LDK, the Property is capable of responding to demands from a wide variety of people from singles to families. The Property is also equipped with stand-alone wash-basins, automatic locks and delivery lockers to meet the needs of the tenants. 3. Description of the Assets to be acquired (1) The Ritz-Carlton, Kyoto Property name Overview of specified asset The Ritz-Carlton, Kyoto Planned acquisition date January 31, 2019 Type of specified asset Trustee Period of trust contract Planned acquisition price 40.0% quasi-co-ownership interest in trust beneficiary interest (planned) Mizuho Trust & Banking Co., Ltd. (planned) From January 30, 2006 to April 30, 2021 (planned) 17,800 million yen Appraisal value (Date of value) 18,480 million yen (December 31, 2018) 4

5 Location (indication of residential Kamogawa Nijo-Ohashi Hotori, Nakagyo-ku, Kyoto-shi, Kyoto address) Lot 543 Hokodencho, Nijo-Ohashi Agaru, Nakagyo-ku, Kyoto-shi, Kyoto and six other lots Site area 6,178.57m 2 Land Use district Commercial district Building coverage ratio 80% Floor area ratio 400% Type of ownership Proprietorship Use Hotel Building Collateral Construction completion October 2013 Structure / Floors RC with stainless steel sheet roof / B3F/5F Total floor area 23,461.39m 2 Type of ownership Proprietorship None Status of leasing and management Total leasable area 9,384.56m 2 (Note 1) Total leased area 9,384.56m 2 (Note 1) Occupancy rate 100.0% Number of tenants 1 Monthly rent: 58,704 thousand yen (Note 2) This amount represents the monthly rent for the period from the planned acquisition date to the end of April The monthly rent for the above calculation period consists of a fixed rent of 29,352 thousand yen and a variable rent of 29,352 thousand yen. After and including May 1, 2020, the monthly rent consists of a fixed rent of 29,352 thousand yen and a variable rent recalculatd based on the lessee s revenue from the hotel business for the period from January 1 to the end of December each year ( Each Percentage Rent Monthly rent Calculation Period ) with respect to Each Percentage Rent Calculation Period. After and including May 1, 2020, the monthly variable rent for the period from May 1 each year to the end of the following April will be (i) the amount obtained by subtracting [certain amount based on lease agreement] and amount of the monthly fixed rent emerged in Each Percentage Rent Calculation Period from the hotel business revenue of the lessee (the profits of the hotel operator in the property based on its financial report) in Each Percentage Rent Calculation Period [plus certain adjustments] divided by (ii) 12 months. Leasehold and security deposits - Property management company SH Hotel Systems, Ltd. (planned) Master lease company (Master - lease type) 5

6 Contract period From January 31, 2019 to April 30, 2021 (planned) Outline of building engineering report (Note 3) Building replacement cost 2,881 million yen Emergency repair - Repair Short-term repair - expenses Long-term repair 3,898 thousand yen Investigator Tokyo Bldg-Tech Center Co., Ltd. Outline of earthquake PML report PML value 4.19 % Investigator Sompo Risk Management Inc. Building designer, constructor, building inspector Building designer Office of First Class Architects of Nikken Sekkei Ltd. Structure designer Office of First Class Architects of Nikken Sekkei Ltd. Constructor Obayashi Corporation Osaka Main Office Building inspector Bureau Veritas Japan Co., Ltd. Matters of special note 1. Sekisui House and SHR have executed a writen quasi-co-owners agreement (the Agreement in this section), agreeing to mutual right of first negotiation, etc. The following outlines the Agreement. (a) In the event that Sekisui House or SHR seeks to transfer the quasi-co-ownership interest to a third party, the party seeking to transfer (the offeror in this section) must notify the other party (the counterparty in this section) of the transfer terms and conditions and other information related to the concerned transfer before any transfer negotiations take place with a third party and, if the counterparty requests consultations concerning purchase of the quasi-co-ownership interest, the offeror shall hold consultations on the transfer terms and conditions in good faith with the counterparty and no negotiations concerning transfer of the quasi-co-ownership interest shall take place with a third party during the prescribed consultation period. Furthermore, only if an acceptance of the offer to transfer s not received by the offeror from the counterparty within the prescribed consultation period or if consultations fail to reach an agreement may the offeror be entitled to transfer the quasi-coownership interest to a third party; provided, however, that the terms and conditions of the concerned transfer shall not be of more advantageous content to the third party than the transfer terms and conditions notified to the counterparty above. (b) In the event of failure to perform the obligations provided in the Agreement, Sekisui House or SHR shall be entitled to notify the other party that the obligations be performed and, if the concerned obligations are not performed within the prescribed period, to request that the quasi-co-ownership interest held by the other party be transfered with compensation. (c) In order for Sekisui House or SHR to assign, transfer, provide as collateral or otherwise dispose of, its quasi-coownership interest to a third party without undergoing the procedures described in (a) above, it shall obtain consent from the counterparty. (d) In the event that Sekisui House or SHR is to transfer part of the quasi-co-ownership interest not to the counterparty but to a third party, the third party shall succeed to the status under the Agreement to the extent of the ratio of quasi-co-ownership interest subject to the concerned transfer. (e) Certain matters including disposition, establishment of mortgage or lien, repair work which exceeds certain amount and change of agreements executed by trustee in connection with this property need mutual agreement between SHR and Sekisui House. 6

7 (f) In the event that co-ownership interest in this property is returned from trustee to beneficiary in kind, claims on division of co-ownership parts in accordance with Article 256 of the Civil Code shall not be made for five years from the effective return date. (Note 1) Represents the area calculated by multiplying the total leasable area of the building of 23,461.39m 2 by the ratio of quasi-coownership interest held by SHR (40%), as rounded to the nearest second decimal place. (Note 2) Represents the monthly rent multiplied by the ratio of quasi-co-ownership interest held by SHR (40%). (Note 3) The amounts in the columns under the section Outline of building engineering report are not the amounts for the entire building, but represent the amounts in proportion to the ratio of quasi-co-ownership interest held by SHR (40%). (2) MAST Ijiri Overview of specified asset Property name MAST Ijiri Planned acquisition date January 31, 2019 Type of specified asset Trust beneficiary interest (planned) Trustee Mitsubishi UFJ Trust and Banking Corporation (planned) Period of trust contract From January 31, 2019 to January 31, 2029 (planned) Planned acquisition price 390 million yen Appraisal value (Date of value) 400 million yen (December 31, 2018) Location (indication of residential address) 3-13 Ijiri 4-chome, Minami-ku, Fukuoka-shi, Fukuoka Lot Ijiri 4-chome, Minami-ku, Fukuoka-shi, Fukuoka Site area m 2 Land Building Collateral Use district Neighborhood commercial district Building coverage ratio 80% Floor area ratio 300% Type of ownership Proprietorship Use Apartment complex Construction completion January 2008 Structure / Floors RC / 11F Total floor area 1,619.68m 2 Type of ownership Proprietorship None Status of leasing and management Total leasable area 1,430.60m 2 (number of leasable residential units: 30) Total leased area 1,430.60m 2 (number of leased residential units: 30) Occupancy rate % Number of tenants 1 Monthly rent 2,126 thousand yen Leasehold and security deposits 2,311 thousand yen Property management company Sekiwa Real Estate Kyushu, Ltd.(planned) Master lease company (Master lease type) Sekiwa Real Estate Kyushu, Ltd. (planned) (fixed-rent type) Contract period From January 31, 2019 to January 31, 2024 (planned) Outline of building engineering report 7

8 Building replacement cost 407 million yen Emergency repair - Repair Short-term repair - expenses Long-term repair 3,092 thousand yen Investigator Daiwa Real Estate Appraisal Co., Ltd. Outline of earthquake PML report PML value 0.46% Investigator Sompo Risk Management Inc. Building designer, constructor, building inspector Building designer BAS Architec Structure designer K.K.Kasuga Structure Design Constructor ZEN Koumuten Co., Ltd. Building inspector Japan ERI Co., Ltd. Matters of special note None 8

9 [Explanation of Description of the To-be-Acquired Asset] (1) Type of specified asset is the type of right to be acquired by SHR. (2) Trustee is the party that is to become the trustee after the acquisition by SHR. (3) Period of trust contract indicates the trust term agreed upon with the party that is to become the trustee. (4) Appraisal value (Date of value) is the appraisal value and date of value stated in the real estate appraisal report prepared by the real estate appraisal firm that SHR and SHAM has entrusted with appraisal of investment real estate, where the appraisal value is rounded down to the nearest million yen. (5) Location (indication of residential address) is the indication of residential address based on that stated in the written property outline or written explanation of important matters. Furthermore, if there is no implementation of indication of residential address or otherwise no indication of residential address in the written property outline and written explanation of important matters, Location (indication of residential address) is the parcel number based on that stated in the registry (in cases where there are several, then one of them) or the indication method used in practice as the location. (6) For Land, Lot and Site area is the parcel number (in cases where there are several, then one of them) and the sum total of parcel area based on that stated in the registry. Furthermore, even if the acquisition is of part of the site of a building under sectional ownership or co-ownership interest in land, Site area is the parcel area for the entire site or land. (7) For Land, Use district is the type of use district listed in Article 8, Paragraph 1, Item 1 of the City Planning Act (Act No. 100 of 1968, including amendments thereto) (the City Planning Act ). (8) For Land, Building coverage ratio, which is the ratio of the building area of the building to the site area as provided in Article 53 of the Building Standards Act (Act No. 201 of 1950, including amendments thereto) (the Building Standards Act ), is the percentage figure provided in accordance with the Building Standards Act, the City Planning Act and other related laws and regulations. (9) For Land, Floor area ratio, which is the ratio of the total floor area of the building to the site area as provided in Article 52 of the Building Standards Act, is the percentage figure provided in accordance with the Building Standards Act, the City Planning Act and other related laws and regulations. (10) For Land, Type of ownership is the type of right held by SHR for real estate in the case of real estate directly held by SHR, and is the type of right held by the trustee of the real estate trust for real estate in trust in the case of a trust beneficiary right held by SHR. (11) For Building, Use is the major type indicated in the registry. Furthermore, in the case of a building under sectional ownership, Use is the use of the concerned exclusively-owned portions. (12) For Building, Construction completion is the date of new construction in the registry of the principal building. In cases where there are several principal buildings, Construction completion is the earliest date of new construction in the registry. (13) For Building, Structure / Floors is based on that stated in the registry. Furthermore, in cases where SHR acquires exclusively-owned portions of a building under sectional ownership or co-ownership interest, Structure / Floors is the structure and number of floors for the entire building. Furthermore, the following abbreviations are used in Structure / Floors. RC: Reinforced concrete structure; SRC: Steel reinforced concrete structure; S: Steel-framed structure (14) For Building, Total floor area is the sum total of floor area of the building or building in trust (excluding annex buildings, etc.) indicated in the registry. In addition, in cases where SHR acquires exclusively-owned portions of a building under sectional ownership or co-ownership interest, Total floor area is the floor area for the entire building. (15) For Building, Type of ownership is the classification of the type of ownership, such as ownership right and sectional ownership right. Sectional ownership right refers to the ownership right to the exclusively-owned portions of a building under sectional ownership. (16) Collateral outlines the collateral to be borne by SHR, if any, after the acquisition of the trust beneficiary right by SHR. (17) For Status of leasing and management, Total leasable area for the Assets to be acquired refers to the floor area available for leasing based on the lease agreements or building drawings, etc. as of the end of December 2018 provided from the current owner. (18) For Status of leasing and management, Total leased area for the Assets to be acquired is the sum total of the leased area indicated in the lease agreements as of the end of December 2018 provided from the current owner. (19) For Status of leasing and management, Occupancy rate is the ratio of total leased area to total leasable area for the Assets to be acquired, rounded to one decimal place. (20) For Status of leasing and management, Total number of tenants is the total number of tenants per property based on the content of the lease agreement to be newly concluded with the tenants at the time of acquisition of the Assets to be acquired. However, for MAST Ijiri, the total number is stated as 1 on the assumption that all end tenants have agreed to the master lease company being the lessor since a new master lease agreement is 9

10 planned to be concluded between the trustee and the master lease company. Please refer to (24) below for the definition of master lease company and master lease agreement. (21) For Status of leasing and management, Monthly rent is the monthly rent for the Assets to be acquired (the monthly rent for MAST Ijiri excludes usage fee for parking but includes common area fees. The same shall apply hereinafter), rounded down to the nearest thousand yen, based on the content of the lease agreement to be newly concluded with the tenants at the time of acquisition of the Assets to be acquired. (22) For Status of leasing and management, Leasehold and security deposits is the amount of the leasehold stipulated in each lease agreement to be newly concluded with the tenants at the time of acquisition of the Assets to be acquired, rounded down to the nearest thousand yen. (23) For Status of leasing and management, Property management company is the company to be entrusted with property management services after the acquisition by SHR. (24) For Status of leasing and management, Master lease company is the company that is to become the master lease company by concluding a master lease agreement with the trustee after the acquisition by SHR. Furthermore, master lease agreement is a lease agreement of a building concluded in bulk in the purpose of the lessee subleasing the building to third parties. The same applies hereinafter. (25) For Status of leasing and management, Master lease type is the type of master lease that is to become effective after the acquisition by SHR. Fixedrent type is a master lease in which the rent that the master lessee pays is a fixed amount regardless of the rent that the sublessee pays to the master lessee. Pass-through type is a master lease in which the rent that the master lessee pays is always the same amount as the rent that the end-tenant pays to the master lessee. (26) For Status of leasing and management, Contract period is the period of each lease agreement to be newly concluded with the tenants at the time of acquisition of the Assets to be acquired. (27) For Outline of building engineering report, Building replacement cost is the replacement cost indicated in the building engineering report, rounded down to the nearest million yen. (28) For Outline of building engineering report, Repair expenses are rounded down to the nearest thousand yen. Short-term repair is the investigator s estimate of the repair and renewal expenses required within one year at the time of investigation. Long-term repair is the investigator s estimate of the repair and renewal expenses for 12 years (varies depending on the investigator) at the time of investigation, converted into an annual average amount. (29) For Outline of earthquake PML report, PML value is based on the statement in the seismic risk evaluation report prepared for the Assets to be acquired by the investigator. The concerned statement is no more than an indication of the opinion of the reporting party, and SHR does not guarantee the accuracy of the content thereof. Furthermore, PML value refers to the extent of damage that may be suffered due to an earthquake of the largest scale assumed in the assumed scheduled use period (large earthquake that may occur with a 10% probability of exceedance in 50 years = large earthquake corresponding to a 475-year return period), expressed as a percentage (%) of the replacement cost for the amount of probable loss corresponding to the non-exceedance probability. However, the amount of probable loss is limited to that for direct loss on the building (structure, finishing and building equipment) only that are caused by earthquake ground motion, and does not include damage to equipment, furniture, fixtures, etc., loss caused by post-earthquake water or fire disasters, compensation for disaster victims, operating loss due to interruption of business operations and other secondary damages. (30) Matters of special note is the matters considered important in relation to rights, use, etc. of the Assets to be acquired, and the matters considered important in consideration of the degree of impact on the valuation, profitability and liquidity of the Assets to be acquired, including the following matters. a. Key limitations or restrictions by laws and regulations b. Key burdens or limitations pertaining to rights, etc. (including establishment of security interest) c. Key structures, etc. crossing the boundary between the real estate or real estate in trust and the adjacent land or issues with boundary confirmation, etc., as well as agreements, etc. thereof, if any d. Key matters agreed upon or agreements, etc. with co-owners or sectional owners 10

11 4. Seller Profile (1) The Ritz-Carlton, Kyoto (1) Name Sekisui House, Ltd. (2) Address , Oyodonaka, Kita-ku, Osaka-shi, Osaka (3) Representative Yoshihiro Nakai, President & Representative Director (4) Business activities Design, construction and contracting of industrialized houses; as well as sale, agency, leasing, management of realsestates and bsuinesses related thereto. (5) Capital 202,591 million yen (as of the end of October 2018) (6) Estbalished August 1960 (7) Net asset 1,202,275 million yen (consolidated) (as of the end of October 2018) (8) Gross asset 2,375,286 million yen (consolidated) (as of the end of October 2018) The Master Trust Bank of Japan, Ltd. (trust account) (8.13%) (9) Major shareholder Sekisui Chemical Co., Ltd. (6.11%) (shareholding ratio) Japan Trustee Services Bank, Ltd. (trust account) (5.72%) (All of the above quoted as of the end of July 2018) (10) Relationship with SHR and the Asset Management Company Asof today, Sekisui House owns 5.18% of the total issued investment units of the SHR. Furthermore, Sekisui House owns 100% of the total issued shares of the Asset Capital relationship Management Company and falls within the definitions of an Interested Person as stipulated in the Investment Trusts Act and an Interested Party as stipulated in the Asset Management Company s internal rules: Rules for Transactions with Interested Parties. As of today, Sekisui House has dispatched to the Asset Management Company one Personal relationship Part-time Director and one Part-time Auditor. Furthermore, 18 persons among the executive and regular employees of the Asset Management Company are seconded from Sekisui House. Sekisui House has concluded the Sponsor Support Agreement, the Memorandum of Understanding concerning Holding of Investment Units, and the Memorandum of Business relationship Understanding concerning Use of Trademarks with SHR and the Asset Management Company. Furthermore, Sekisui House is the seller of the asset that has been acquired by SHR and has concluded the Master Lease and Property Management Agreement for part of the asset that has been purchased. Related party Sekisui House is the parent company to the Asset Management Company and fall within the definition of a related party. (2) MAST Ijiri (1) Name Sekiwa Real Estate Kyushu, Ltd. (2) Location Hakataekimae, Hakata-ku, Fukuoka-shi, Fukuoka (3) Representative Daisuke Akamatsu, President & Representative Director (4) Business activities Sale and leasing of real estates (5) Capital 263 million yen (as of the end of January 2018) (6) Estbalished August 1980 (7) Net asset 7,025 million yen (as of the end of January 2018) 11

12 (8) Gross asset 11,527 million yen (as of the end of January 2018) (9) Major shareholder (shareholding ratio) Sekisui House, Ltd. (wholly-owning parent company) (10) Relationship with SHR and the Asset Management Company Sekiwa Kyushu is a subsidiary, wherein Sekisui House (which owns 100% of the total issued shares of the Asset Management Company) owns 100% of the voting Capital relationship rights. Sekiwa Kyushu falls within the definitions of the Interested Person as stipulated in Investment Trusts Act and an Interested Party as stipulated in the Asset Management Company s internal rules: Rules for Transactions with Interested Parties. Personal relationship Business relationship Related party No notable personal relationship Sekiwa Kyushu has concluded an agreement concerning preferential negotiation right in order to establish the pipeline for property information centering on residence, with SHR and the Asset Management Company. Furthermore, Sekiwa Kyushu is the seller of a part of the owned properties of SHR and SHR has entered into master lease agreement and property management agreement with Sekiwa Kyushu for a part of owned properties of SHR. Sekiwa Kyushu is a subsidiary of Sekisui House that is the parent company of the Asset Management Company, and falls within the definition of a related party. 5. Status of Property Buyers, Etc. (1) The Ritz-Carlton, Kyoto Previous owner Owner before last Name Sekisui House A party that does not have a relationship of special interest Relationship with a See 4. Seller Profile above. party classified as having a relationship of special interest Background and Acquisition for development reason for acquisition Acquisition price Time of acquisition (2) MAST Ijiri Previous owner Owner before last Name Sekiwa Kyushu A party that does not have a relationship of special interest Relationship with a party classified as having a relationship of special interest See 4. Seller Profile above. 12

13 Background and Acquisition for development reason for acquisition Acquisition price Time of acquisition 6. Overview of Brokerage None. 7. Transactions with Interested Persons, Etc. As described above, Sekisui House and Sekiwa Kyushu, the Sellers of the Assets to be acquired, fall within the definitions of the Interested Persons, etc. and the Interested Parties under the Rules for Transactions with Interested Parties (which is the Asset Management Company s internal rule). Given this, the Asset Management Company has taken the decision-making procedures (including SHR s consent based on the approval of the SHR s Board of Directors held on January 29, 2019) stipulated in the Rules for Transactions with Interested Parties to excute the Agreement for the Transfer of Trust Beneficiary Rights concerning the Assets to be acquired with Sekisui House and Sekiwa Kyushu. Furthermore, for The Ritz-Carlton, Kyoto among the Assets to be acquired, SHR plans to conclude the Building Lease Agreement wherein SH Hotel Systems (that falls within the definitions of the Interested Person, etc. and the Interested Party) is the lessee and outsource the property management business to SH Hotel Systems. In addition, for MAST Ijiri among the Assets to be acquired, SHR plans to conclude the Building Lease Agreement wherein Sekiwa Kyushu is the lessee (master lease company) and outsource the property management business to Sekiwa Kyushu. For the leasing of these buildings and the outsourcing of businesses, the decision-making procedures (including SHR s consent based on the approval of the SHR s Board of Directors held on January 29, 2019) stipulated in the Rules for Transactions with Interested Parties have been taken as well. 8. Future Outlook There is a change from the forecast of operating results and distributions for the Fiscal Periods Ending April 30, 2019 (from November 1, 2018 to April 30, 2019) and October 31, 2019 (from May 1, 2019 to October 31, 2019) released in the Summary of Financial Statement for the Fiscal Periods Ended October 31, 2018 (REIT) on December 14, Please refer to Notice Concerning Revisions to the Forecast of Operating Results and Distributions for the Fiscal Periods Ending April 30, 2019 and October 31, 2019 released today for the details of the change. 9. Summary of Appraisal Report (1) The Ritz-Carlton, Kyoto Property name Appraisal value (Note) The Ritz-Carlton, Kyoto 18,480,000,000 yen Name of appraisal firm Richi Appraisal Institute Co., Ltd. Date of value December 31, 2018 Note: The Appraisal value above represent the amounts in proportion to the ratio of quasi-co-ownership interest held by SHR (40%). Amounts in the table below represent the amounts for the entire building. Item Details Description, etc. Income approach value 46,200,000 (thousand yen) Estimated by primarily using the income approach value calculated by the DCF method, while correlating it to the income approach value calculated by the direct capitalization method. 13

14 Value based on direct capitalization method 46,700,000 Operating revenue 1,888,519 Gross potential income 1,888,519 As for the fixed rent and variable rent, anticipated standard rent stable in the medium to long term is recorded in consideration to hotel business operating results. Vacancy loss, etc. - Not recorded as per the content of the agreement. Operating expenses 111,001 Maintenance and management fee - Not recorded as per the content of the agreement. Utilities expenses - Not recorded as per the content of the agreement. Assessed on the basis of the engineering report, levels for similar real Repair expenses 2,924 estate, etc. Property management fee 1,200 Recorded based on the property management agreement. Tenant leasing cost, etc. - Not recorded as per the content of the agreement. Property taxes 100,562 Recorded based on the fiscal year of 2018 actual amount. Insurance premium 6,314 Other expenses - Not recorded Recorded based on past results of the property, etc. Net operating income (NOI) 1,777,517 Gain on management of income from lump-sum - Not recorded as per the content of the agreement. payment Capital expenditures -22,650 Assessed on the basis of the engineering report, levels for similar real estate, etc. FF&E -212,556 Recorded based on the relevant agreement. Net cash flow (NCF) 1,542,311 Capitalization rate 3.3% Value of earnings calculated by discounted cash flow (DCF) method 46,000,000 Discount rate 3.1% Terminal capitalization rate 3.5% Cost method value 37,400,000 Ratio of land 81.1% Ratio of building 18.9% Items considered upon determining appraisal value Note: Assessed with comprehensive considerations given to the location conditions, individuality of the subject property and market trends, etc. Assessed with comprehensive considerations given to the location conditions, individuality of the subject property and market trends, etc. Assessed based on the capitalization rate with comprehensive considerations given to the building deterioration after expiration of the possession period, market trends and uncertainty risks in the future, etc. Determined the appraisal value based on the income approach value, recognizing the validity of the income approach value that reflects the price formation process by typical candidate purchasers of the subject property. Amounts are rounded down to the nearest thousand yen. Accordingly, the amounts may not add up to the figures for operating revenue, operating expenses and other items. *Comparison with monthly rent for the lease agreement Note 1: Note 2: Monthly rent (average rent unit price) for the appraisal price Monthly rent (average rent unit price) for lease agreements 62,950 thousand yen (22,174 yen/tsubo) 58,704 thousand yen (20,679 yen/tsubo) Monthly rent (average rent unit price) for the appraisal price is based on the total revenue of fixed and variable rent in the direct capitalization method described in the above appraisal and represents the amounts in proportion to the ratio of quasi-co-ownership interest held by SHR (40%). Monthly rent (average rent unit price) for lease agreements is based on the monthly rent in 3. Description of the Assets to be acquired above. 14

15 (2) MAST Ijiri Property name Appraisal value Name of appraisal firm MAST Ijiri 400,000,000 yen Daiwa Real Estate Appraisal Co., Ltd. Date of value December 31, 2018 Item Details Description, etc. Income approach value 400,000 Value based on direct capitalization method 406,000 Utilizing income approach as revenue price will be set to a more (thousand yen) persuasive level based on DCF method factoring in fluctuations in net income, the revenue price will be set to a more persuasive level, verifying the revenue price based on direct capitalization method. Operating revenue 30,115 Gross potential income 31,314 Valued based on the standardized assumed revenues acknowledged as stable in the medium to long term. Vacancy loss, etc. -1,198 Valued based on the vacancy rate acknowledged as stable in the medium to long term. Operating expenses 8,692 Maintenance and management Valued based on the planned amount in relevant agreements and 1,458 fee maintenance and management fee of similar properties. Utilities expenses 830 Valued based on past figures and utilities expenses of similar properties. Repair expenses 1,683 Verifying repair expenses of similar properties, utilized the average of annual repair expenses in the engineering report as it is set to a reasonable level. Property management fee 867 Valued by reference to property management fees of similar properties. Tenant leasing cost, etc. 557 Valued based on the assumed replacement rate, taking into account tenant solicitation expenses based on that of similar properties. Property taxes 3,113 Valued based on past figures obtained from the client, taking into account applied rate and land price trend. Insurance premium 46 Valued by reference to estimated cost or non-life insurance fees of similar properties. Other expenses 134 Valued based on past figures and other factors. Net operating income (NOI) 21,423 Gain on management of income from lump-sum 0 payment Capital expenditures -1,927 Net cash flow (NCF) 19,497 Capitalization rate 4.8% Valued based on investment yield determined by taking into account of actual use of lump-sum payment (either investment or procurement). Verifying renewal cost of similar properties, utilized the average of annual repair expenses in the engineering report as it is set to a reasonable level. Valued based on the capitalization rate on appraisal reports of J- REIT properties within the same market area, reflecting the spread depending on the property conditions such as locational condition of the property, the property grade, age and facilities level and other conditions such as gap between current rental revenues and market rental revenues, property rights and other conditions in agreements. 15

16 Value of earnings calculated by discounted cash flow (DCF) method Discount rate 397, % Valued based on the methods of comparing with evaluation of similar properties and of making adjustment to rates of other financial assets by considering individual factors of the property and interviews from investors. Terminal capitalization rate 5.0% Valued by reference to general prediction with respect to future economic growth rate and property-price trend, making adjustment based on trends of investment yield, risk of the property as investment target and property-price trend, taking into account the capitalization rate of similar transactions. Furthermore, giving consideration to future uncertainty such as possibility of increased capital expenditure due to aging of the property, change of market trend and loss of liquidity because of passage of time. Cost method value 617,000 Ratio of land 53.0% Ratio of building 47.0% Items considered upon determining appraisal value Note: Utilizing revenue price in reference to cost method value as revenue price is set to a more persuasive level for it reflects real estate market trend and conducts of market participants. Amounts are rounded down to the nearest thousand yen. Accordingly, the amounts may not add up to the figures for operating revenue, operating expenses and other items. *Comparison with the monthly rent for the lease agreement Monthly rent (average rent unit price) for the appraisal price 2,305 thousand yen (5,550 yen/tsubo) Monthly rent (average rent unit price) for lease agreements 2,126 thousand yen (4,914 yen/tsubo) Note 1: Monthly rent (average rent unit price) for the appraisal price is based on the rent including common area fee in the direct capitalization method Note 2: described in the above appraisal report. Monthly rent (the average rent unit price) for lease agreements is based on the monthly rent in 3. Description of the Assets to be acquired above. End *Sekisui House Reit, Inc. website: 16

17 <Attachments> Reference Material 1: Reference Material 2: Photograph of Property and Map of the Surrounding Area of the Assets to be acquired Portfolio List after the Acquisition of the Assets to be acquired 17

18 Reference Material 1: Photograph of Property and Map of the Surrounding Area of the Assets to be acquired (1) The Ritz-Carlton, Kyoto 18

19 (2) MAST Ijiri 19

20 Reference Material 2: Portfolio List after the Acquisition of the Assets to be acquired Property number (Note 1) Property name Location (Planned) Date of acquisition (Note 2) (Planned) Acquisition price (Note 3) (million yen) Investment ratio (Note 4) (%) R-001 Esty Maison Ginza Chuo-ku, Tokyo May 1, , R-002 Esty Maison Azabunagasaka Minato-ku, Tokyo May 1, , R-003 Esty Maison Ebisu II Shibuya-ku, Tokyo May 1, , R-004 Esty Maison Ebisu Shibuya-ku, Tokyo May 1, R-005 Esty Maison Kanda Chiyoda-ku, Tokyo May 1, , R-006 Esty Maison Kitashinjuku Shinjuku-ku, Tokyo May 1, , R-007 Esty Maison Asakusakomagata Taito-ku, Tokyo May 1, , R-008 Esty Maison Kawasaki Kawasaki-shi, Kanagawa May 1, , R-009 Esty Maison Yokohama Yokohama-shi, Kanagawa May 1, , R-010 Esty Maison Kameido Koto-ku, Tokyo May 1, , R-011 Esty Maison Meguro Meguro-ku, Tokyo May 1, , R-012 Esty Maison Sugamo Toshima-ku, Tokyo May 1, , R-013 Esty Maison Kyobashi Osaka-shi, Osaka May 1, , R-014 Esty Maison Hakuraku Yokohama-shi, Kanagawa May 1, R-015 Esty Maison Minamihorie Osaka-shi, Osaka May 1, , R-016 Esty Maison Gotanda Shinagawa-ku, Tokyo May 1, , R-017 Esty Maison Oisendaizaka Shinagawa-ku, Tokyo May 1, , R-018 Esty Maison Shinagawa Seaside Shinagawa-ku, Tokyo May 1, , R-019 Esty Maison Minamiazabu Minato-ku, Tokyo May 1, , R-020 Esty Maison Tsukamoto Osaka-shi, Osaka May 1, , R-021 Esty Maison Kawasaki II Kawasaki-shi, Kanagawa May 1, , R-022 Esty Maison Azabujuban Minato-ku, Tokyo May 1, , R-023 Esty Maison Itabashihoncho Itabashi-ku, Tokyo May 1, R-024 Esty Maison Oizumigakuen Nerima-ku, Tokyo May 1, R-025 Esty Maison Higashishinagawa Shinagawa-ku, Tokyo May 1, , R-026 Esty Maison Itabashikuyakushomae Itabashi-ku, Tokyo May 1, , R-027 Esty Maison Musashikoyama Shinagawa-ku, Tokyo May 1, , R-028 Esty Maison Sendagi Bunkyo-ku, Tokyo May 1, R-029 Esty Maison Yotsuyasakamachi Shinjuku-ku, Tokyo May 1, , R-030 Esty Maison Hakatahigashi Fukuoka-shi, Fukuoka May 1, , R-031 Esty Maison Kamigofuku Fukuoka-shi, Fukuoka May 1, R-032 Esty Maison Sangenjaya Setagaya-ku, Tokyo May 1, R-033 Prime Maison Musashinonomori Kodaira-shi, Tokyo May 1, , R-034 Prime Maison Higashisakura Nagoya-shi, Aichi May 1, , R-035 Prime Maison Kayabakoen Nagoya-shi, Aichi May 1, R-036 Esty Maison Sangenjaya II Setagaya-ku, Tokyo May 1, R-037 Esty Maison Itabashi C6 Itabashi-ku, Tokyo May 1, , R-038 MAST Hakata Fukuoka-shi, Fukuoka May 1, , R-039 Esty Maison Kinshicho Sumida-ku, Tokyo May 1, , R-040 Esty Maison Musashikoganei Koganei-shi, Tokyo May 1, ,

21 Property number (Note 1) Property name Location (Planned) Date of acquisition (Note 2) (Planned) Acquisition price (Note 3) (million yen) Investment ratio (Note 4) (%) R-041 Prime Maison Gokiso Nagoya-shi, Aichi May 1, , R-042 Prime Maison Yuhigaoka Osaka-shi, Osaka May 1, R-043 Prime Maison Kitatanabe Osaka-shi, Osaka May 1, R-044 Prime Maison Momochihama Fukuoka-shi, Fukuoka May 1, , R-045 Esty Maison Akihabara Taito-ku, Tokyo May 1, , R-046 Esty Maison Sasazuka Shibuya-ku, Tokyo May 1, , R-047 Prime Maison Ginza East Chuo-ku, Tokyo May 1, , R-048 Prime Maison Takami Nagoya-shi, Aichi May 1, , R-049 Prime Maison Yadaminami Nagoya-shi, Aichi May 1, R-050 Prime Maison Teriha Fukuoka-shi, Fukuoka May 1, , R-051 Esty Maison Higashishirakabe Nagoya-shi, Aichi May 1, , R-052 Esty Maison Sengoku Bunkyo-ku, Tokyo May 1, , R-053 Esty Maison Daizawa Setagaya-ku, Tokyo May 1, , R-054 Esty Maison Togoshi Shinagawa-ku, Tokyo May 1, , R-055 Esty Maison Nishitemma Osaka-shi, Osaka May 1, , R-056 Esty Maison Shirokanedai Shinagawa-ku, Tokyo May 1, , R-057 Esty Maison Higashishinjuku Shinjuku-ku, Tokyo May 1, , R-058 Esty Maison Motoazabu Minato-ku, Tokyo May 1, , R-059 Esty Maison Toritsudaigaku Meguro-ku, Tokyo May 1, R-060 Esty Maison Musashikoyama II Shinagawa-ku, Tokyo May 1, , R-061 Esty Maison Nakano Nakano-ku, Tokyo May 1, , R-062 Esty Maison Shinnakano Nakano-ku, Tokyo May 1, , R-063 Esty Maison Nakanofujimicho Nakano-ku, Tokyo May 1, R-064 Esty Maison Tetsugakudo Nakano-ku, Tokyo May 1, , R-065 Esty Maison Koenji Suginami-ku, Tokyo May 1, , R-066 Esty Maison Oshiage Sumida-ku, Tokyo May 1, , R-067 Esty Maison Akabane Kita-ku, Tokyo May 1, , R-068 Esty Maison Oji Kita-ku, Tokyo May 1, , R-069 Prime Maison Waseda Shinjuku-ku, Tokyo May 1, , R-070 Prime Maison Hatchobori Chuo-ku, Tokyo May 1, , R-071 Prime Maison Jimbocho Chiyoda-ku, Tokyo May 1, , R-072 Prime Maison Gotenyama East Shinagawa-ku, Tokyo May 1, , R-073 MAST LIFE Akihabara Chiyoda-ku, Tokyo May 1, R-074 Esty Maison Aoi Nagoya-shi, Aichi May 1, , R-075 Esty Maison Yakuin Fukuoka-shi, Fukuoka May 1, , R-076 Esty Maison Kinshicho II Sumida-ku, Tokyo May 1, , R-077 Esty Maison Ojima Koto-ku, Tokyo May 1, , R-078 Prime Maison Fujimidai Nagoya-shi, Aichi May 1, , R-079 Esty Maison Tsurumai Nagoya-shi, Aichi May 1, , R-080 Prime Maison Morishita Koto-ku, Tokyo May 1, , R-081 Prime Maison Shinagawa Shinagawa-ku, Tokyo May 1, ,