Industrial & Infrastructure Fund Investment Corpor : Notice Concerning Asset Acquisition (Equity Investment in a Silent Partnership)（754.1KB）

January 9, 2019

To all concerned parties:

Investment Corporation

Industrial & Infrastructure Fund Investment Corporation (Tokyo Stock Exchange Company Code: 3249）

Representative:Yasuyuki Kuratsu, Executive Director

URL:http://www.iif-reit.com/english/

Asset Management Company

Mitsubishi Corp.-UBS Realty Inc.

Representative: Inquiries:Katsuhisa Sakai, President & CEO Hidehiko Ueda,

Head of Industrial Division

TEL: [phone]

Notice Concerning Asset Acquisition (Equity Investment in a Silent Partnership)

Industrial & Infrastructure Fund Investment Corporation ("IIF") announced today that Mitsubishi Corp.-UBS Realty Inc., IIF's asset manager (the "Asset Manager"), decided to invest in a silent partnership （hereinafter referred to as the "Tokumei Kumiai"）.

It is the first case for J-REIT to invest in a Tokumei Kumiai based on the Principles for Positive Impact

Finance.

1.

Summary of Equity Investment

1)	Type of asset	Tokumei Kumiai that invests in trust beneficiary right (Note 1)
2)	Asset name	Tokumei Kumiai interest in Godo Kaisha Industrial Asset Holdings 6 (hereinafter referred to as the "SPC") (Note 2)
3)	Property held in trust	Higashi kojiya 6-chome Rental Factory (hereinafter referred to as the "target property" or just as the "property", and building is named OTA Techno CORE)
4)	Investment amount	100 million yen (6.06% of total investment amount in Tokumei Kumiai)
5)	Contract execution date	January 9, 2019
6)	Acquisition date	February 28, 2019
7)	Acquisition funds	Internal cash

(Note 1) The SPC will acquire the trust beneficiary right relating to the target property on March 1, 2019. IIF will be given preferential negotiation right with expiring date on the last day of February 2024 to acquire the trust beneficiary right and settle accounts when the right is exercised (For more details, please see "3 (1) Outline of Tokumei Kumiai interest(the investment target) and structure".IIF has not decided to acquire the trust beneficiary right and not scheduled to acquire the trust beneficiary right as of today. IIF cannot assure that IIF will be able to acquire the trust beneficiary right in the future.

(Note 2) For more details of the Tokumei Kumiai interest, please see "3 (1) Outline of Tokumei Kumiai interest(the investment

target) and structure"

2. Reasons for Acquisition

Key Points

• (1) The SPC established by funds from IIF and other investors invites the Development Bank of Japan Inc. as the senior lender and is going to acquire a rental factory (shared factory) of which Ota-ku is the tenant.

• (2) A preferential negotiation right will be given to IIF to acquire the trust beneficiary right at the price lower than the acquisition price of the SPC, and securing both future acquisition opportunities and high profitability over the medium term.

• (3) PRE development and ESG measures will be undertaken on a continuous basis.

【Photo of the Target Property】

The exterior symbolizes the facility's status as a gathering place for manufacturing industries

High specs as an apartment factory and facilities that take the environment into consideration

Solar power generation equipment installed on the roof. (top left) "Sky Showers" are used to provide natural illumination using light ducts. (right) The technology was developed by a maker in Ota-ku.

The "100 Ota Craftsmen" exhibit was presented. The exhibition highlighted award-winning craftsmen who honed their skills at companies with three or fewer employees as exceptional technical workers who contributed to manufacturing in Ota-ku (left)(Note) Products made by end tenants are displayed throughout in the building (right).

(Note) Submissions for the 100 Ota Craftsmen exhibit are currently not being accepted.

(1)

The SPC established by funds from IIF and other investors invites the Development Bank of Japan Inc. as the senior lender and is going to acquire a rental factory (shared factory) of which Ota-ku is the tenant.

IIF makes investments based on the principle of aiming to "invest in social infrastructure as a source of power for the Japanese economy and support Japan's industrial activities from a perspective of real estate" since its listing. The Property was created as a gathering place for manufacturing industries that produce high added value, one of the characteristics of the manufacturing industries being promoted by Ota-ku in accordance with its Ota 10-Year Future Plan(Note 1), Ota-ku's basic 10-year plan.

The facility is a rental factory with a concentration of small and medium manufacturers, primarily companies involved in precision processing, related fields, and machine metal related research and development.

IIF will invest in the Tokumei Kumiai for the SPC with the Development Bank of Japan Inc.

(hereinafter may be referred to as "DBJ") as the senior lender and IBJ Leasing Company, Limited as the mezzanine lender on February 28, 2019. The other planned investors in the Tokumei Kumiai are domestic investors with high degrees of a public nature such as non-profit organizations including a mutual aid enterprise and educational institutions. The SPC plans to acquire the trust beneficiary right on March 1, 2019.

Ota-ku, the lessee of the target property, is leasing the entire property under a long fixed-term lease agreement (lease term of 20 years; the remaining lease term about 13.2 years as of the date of this press release). As a result, stable rental income is anticipated over the long term from a lessee with extremely high creditworthiness. Ota-ku has subleased the property to approximately 20 end tenants.

In addition, the DBJ Group (Note 2) including DBJ, the senior lender, has been holding Management of Technology to Create Value Training Sessions ("MOT Training") nationwide for candidate next-generation leaders in manufacturing and other industries over 13 years since 2005. The MOT Training is a forum for learning technology management that can respond to diversifying and increasingly complex customer needs in an environment where it is becoming more difficult for a single company to create value on its own. The training has provided opportunities for open dialogue among different industries and practical exercises to support the reinforcement of the competitiveness of Japan's industries and growth of manufacturing industries that contribute to the growth of local communities.(Note 3) The DBJ Group will continue to actively support customer measures intended to augment competitiveness and raise corporate value in accordance with its corporate philosophy: Design the future with financial expertise-With tireless efforts to cultivate frontier markets in financing, we are committed to resolving customer and social issues and to helping realize sustainable development of Japan and the world.

(Note 1)	A fundamental plan established by Ota-ku in March 2009 for ward administration over the medium- to
long-term.
(Note 2)	The DBJ Group refers to the company group including DBJ and its affiliated companies. The same shall apply
hereafter.
(Note 3)	As a member of the Tomorrow's Manufacturing Forum held by Ota-ku in 2005, the DBJ Group compiled action
proposals aimed at reinforcing management capabilities drawn from an analysis of current circumstances in
manufacturing industries in Ota-ku and identified issues.

(2) A preferential negotiation right will be given to IIF to acquire the trust beneficiary right at the price lower than its acquisition price of the SPC, and securing both future acquisition opportunities and high profitability over the medium term.

IIF plans to invest in the Tokumei Kumiai through the SPC scheme. The expected dividend payout (Note 4) of the SPC is 7.6%, and consequently, high profitability over the medium term is expected. IIF will also be given the preferential negotiation right, which allows IIF to acquire the trust beneficiary right during the five-year time of investment period until the expiration date of the Tokumei Kumiai contract on the last day of February 2024. The SPC shall not conclude any kinds of sales agreement related to the trust beneficiary right with third party other than IIF during the aforementioned period. The SPC plans to acquire the trust beneficiary right on March 1, 2019 at an acquisition price of 4.77 billion yen, but with the preferential negotiation right that IIF plans to acquire as indicated above, IIF will have a preferential negotiation right to the trust beneficiary right at a price of 4.49 billion yen with purchase deadline until the last day of February 2024 (For the detail, please see "3 (1) Outline of Tokumei Kumiai interest (the investment target) and structure")

Acquisition Price Comparison

(Note 4)The expected dividend payout is calculated by dividing (A) the product of (a) the simulated Tokumei Kumiai interest dividend, which is calculated by deducting (i) simulated expenses such as operating expense of the SPC and the interest of debt from (ii) the first year net revenue with the DCF method as described in the real estate appraisal report prepared by the Japan Real Estate Institute with September 30, 2018 as the appraisal date (If special circumstances are expected in the first year, the second or later year net revenue is used), and (b) IIF's investment ratio to total Tokumei Kumiai interest amount (6.06%), by the IIF's Tokumei Kumiai investment amount. The owner of the property will receive subsidies from Ota-ku until 2021, and the expected dividend payout is calculated using the net operating income in the first year in which the effects from those subsidies are not present. Further, the anticipated amounts of expenses are reference values calculated by the Asset Manager, and the actual dividend payout may differ greatly from the reference values or dividends may not be paid at all.

(3) PRE development and ESG measures will be undertaken on a continuous basis

The property is a facility that supports small and medium businesses, primarily manufacturing businesses located in Ota-ku. In addition, acquisition of the property through SPC scheme will contribute to the Public Real Estate (PRE) initiatives that IIF has undertaken since its initial public offering. By gaining experience with PRE, IIF plans to expand opportunities for acquisition of public real estate in the future.

In addition, investment in the Tokumei Kumiai is positioned as a "social" action in relation to ESG (environment, social, and governance) measures and is intended to contribute to the continuous development of local communities.

As the only J-REIT specializing in industrial real estate, IIF has gained experience acquiring manufacturing and R&D facilities in recent years. Ota-ku is a region with a concentration of manufacturing industries in Tokyo and has long had a high density of abundant manufacturing human resources such as engineers and craftsmen. IIF believes that through measures with J-REITs premised on holding properties over the long term, Ota-ku can secure the property as a site for human resource development and technology transfer to promote industry over the medium to long term.

IIF also believes that the impact this project gives to the local community falls under the SDGs (Sustainable Development Goals) (Note 5) materiality emphasized by the Asset Manager and will contribute to the creation of a sustainable society. Furthermore, a third-party opinion (Note 6) has been obtained stating that the project is in accordance with the Principles for Positive Impact (Note 7) of the United Nations Environment Programme Finance Initiative (UNEP FI).

(Note 5)The Sustainable Development Goals (SDGs) are the core of the 2030 Agenda for Sustainable Development adopted at the United Nations summit in September 2015. The Asset Manager has investigated its vision and targets for sustainability and taken measures to carry them out until now, but with rising interest in ESG, it has engaged in dialogue and taken action with stakeholders, identified material issues relating to sustainability, and adopted SDGs with a high degree of relevancy. Details can be found on the IIF's web site.

http://www.iif-reit.com/english/structure/pdf/ESGReport.pdf

(Note 6) (Note 7)

For the details of the report, please refer the link.http://www.iif-reit.com/english/structure/pdf/Report.pdf

Principles adopted in January 2017 by members of the United Nations Environment Programme Finance Initiative (UNEP FI), namely financial institutions, to achieve sustainable development and the SDGs as a series of shared principles for financing that will lead to efforts to maximization of the positive impact on the economy, society, and the environment while addressing any negative impacts on these same three items. A request has been made to the UNEP FI Positive Impact Steering Group for an opinion regarding compliance of the equity investment in the Tokumei Kumiai.

Our decision-making process with respect to the acquisition focused on the following points in particular.

■Continuity

• • High degree of continuity backed by a 20-year (non-cancellable), long fixed-term lease agreement with Ota-ku, the tenant of the property

• • The facility is expected to be used to support small and medium manufacturing companies over the long term as a means of creating a gathering place for manufacturing industries that produce high added value as planned by Ota-ku.

■ Versatility (Versatility as a Real Estate Asset)

• • The surrounding area has a high concentration of small and medium manufacturing factories, making the site highly convenient for the end tenants of the property in terms of conducting business with related companies and main trading partners.

• • Ota-ku, where the property is located, ranks number one in industry among Tokyo's 23 wards in terms of the value of manufactured goods shipment, number of employees, and number of business sites, and there is solid tenant demand from small and medium manufacturing businesses.

• • The property features specifications with a high degree of versatility including floor bearing capacity of 2.5 t/m2 on the first and second floors, and 1.5 t/m2 on the third and fourth floors, effective ceiling heights of 4.1 m on the first floor, 3.8 m on the second floor, and 3.0 m on the third and fourth floors, one 6.0-ton freight elevator that can be used to transport large machinery and materials, and one standard elevator.

• • Usability is not limited to just production and R&D, but also meeting rooms, sales pitch spaces, and exhibition spaces provided in the common area.