Daiwa House REIT Investment : Notice Concerning Disposition of Domestic Real Estate and Trust Beneficiary Interest in Real Est

December 18, 2020

For Immediate Release

REIT Issuer:

Daiwa House REIT Investment Corporation

2-4-8, Nagatacho, Chiyoda-ku, Tokyo

Toshiharu Asada, Executive Director

(TSE Code: 8984)

Asset Manager:

Daiwa House Asset Management Co., Ltd.

Koichi Tsuchida, President and CEO

Inquiries:

Yoshikazu Tamura, General Manager,

Fund Management Department, Daiwa House REIT Division

TEL: [phone]

Notice Concerning Disposition of Domestic Real Estate and

Trust Beneficiary Interest in Real Estate

Daiwa House REIT Investment Corporation ("DHR") hereby announces the decision made today by Daiwa House Asset Management Co., Ltd. (the "Asset Manager"), the asset manager to which DHR entrusts the management of its assets, for DHR to dispose of the following three properties (the "Anticipated Dispositions") as described below (the "Disposition").

1. Disposition overview

Difference

Gain or

Anticipated

Anticipated

between

Appraisal

loss on

Anticipated

sale price

book value

anticipated sale

value

Property

sale

Property name

Asset class

date of

(million

(million

price and

(million

number

(million

disposition

yen)

yen)

anticipated book

yen)

yen)

(Note 1)

(Note 2)

value

(Note 4)

(Note 3)

(million yen)

RE-121

Castalia Maruyama

Residential

December

720

350

369

344

511

Urasando

21, 2020

RE-122

Castalia Maruyama

Residential

January

2,055

1,490

564

492

2,000

Omotesando

29, 2021

RE-131

Big Tower Minami

Residential

March 1,

3,515

1,182

2,332

2,209

2,760

Sanjo

2021

Total

6,290

3,023

3,266

3,045

5,271

(Note 1) Excluding various expenses related to dispositions, settlement money such as taxes and dues, and consumption taxes, etc.

(Note 2) Anticipated book value as of each anticipated date of disposition.

(Note 3) Gain or loss on sale represents the forecast amount.

(Note 4) Appraisal value as of August 31, 2020.

1. Type of specified asset

	Castalia Maruyama Urasando	:	Real estate
	Castalia Maruyama Omotesando	:	Real estate
	Big Tower Minami Sanjo	: Trust beneficiary interest in real estate
(2)	Anticipated date of the sale and purchase agreements	:	Please refer to "6. Disposition schedule" below
(3)	Buyer	: Please refer to "4. Buyer profile" below
(4)	Settlement method	:	Payment of entire amount upon transfer

2. Disposition rationale

With an aim to improve portfolio quality, DHR will dispose of the Anticipated Dispositions, based on the examination in terms of the medium- to long-term management efficiency of DHR's portfolio and characteristics of the respective properties and comprehensively considering factors such as the competitiveness of the Anticipated Dispositions and market conditions.

DHR also intends to promote efficiency of portfolio management by the Disposition, since the Anticipated Dispositions are considered at risk for a potential decrease in NOI in the future due to rent reduction and increased repairs and maintenance expenses.

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The following factors were considered for the decision with regard to each of the Anticipated Dispositions.

1. Castalia Maruyama Urasando and Castalia Maruyama Omotesando
   These properties are located in an academic district popular among family households in Chuo Ward of Sapporo City in Hokkaido. However, characteristics of the properties including floor layout and monthly rent range have somewhat deviated from the rental demand in the area in recent years. Based on the view that it would be hard to maintain or improve profitability of the properties going forward and after considering the risk of potential decrease in profitability and the risk of reversal of the real estate trading market, DHR judged it would be preferable to dispose of the properties at the current point.
2. Big Tower Minami Sanjo
   The property is a 31-storyhigh-rise condominium built more than 13 years ago with the timing for large-scale repair work becoming imminent, and capital expenditure and repairs and maintenance expenses are expected to rise. Based on the view that it would be hard to maintain or improve profitability of the property going forward and after considering the risk of potential decrease in profitability and the risk of reversal of the real estate trading market, DHR judged it would be preferable to dispose of the property at the current point.

The total of the anticipated sale price of the Dispositions is higher than the anticipated book value by 108.0% and the appraisal value by 19.3% against a backdrop of a booming real estate trading market.

DHR believes the Disposition and returning of the gain on sale to unitholders as distributions over the fiscal periods ending February 28, 2021 and August 31, 2021 will contribute to expand our unitholders' value.

By utilizing part of the gain on sale of investment properties in the fiscal periods ending February 28, 2021 and August 31, 2021, DHR plans to strategically bring forward some of the repair work scheduled in later periods with an aim to cut back repairs and maintenance expenses in the future and thereby stabilize NOI.

Net proceeds of the Disposition will be used to pay distributions to unitholders and the remainder will be reserved as cash on hand to use as funds for acquiring assets such as large-scale logistics properties in the future.

3. Details of the Anticipated Dispositions

Overview of leasing is based on information as of August 31, 2020.

	Property number		Castalia Maruyama Urasando	Asset class	Residential
	RE-121		Acquisition price	411 million yen
Type of specified asset			Real estate
Trustee					-
Trust maturity date			-
Location	Lot number			21-55-1, Minami Nijo Nishi, Chuo Ward, Sapporo City, Hokkaido
Address			21-1-47, Minami Nijo Nishi, Chuo Ward, Sapporo City, Hokkaido
		Type of ownership		Ownership
		Land area			532.43 m2
Land	Area classification		Neighborhood commercial district
		Building coverage ratio	80%
		FAR			300%
		Type of ownership		Ownership
		Gross floor area		1,891.08 m2
Building	Use			Apartment complex
Structure			Reinforced concrete building
		Number of floors		10F
		Date of construction	August 15, 2007
Collateral					None
						Overview of leasing
Leasable area		1,522.89 m2	Number of leasable units		36
						- 2 -

Leased area

1,354.89 m2

Annual rent

37 million yen

Occupancy rate

89.0%

Tenant leasehold

3,205 million yen

and security deposit

Historical

August 2018

February 2019

August 2019

February 2020

August 2020

occupancy rate

97.7％

95.4％

97.7％

87.5％

89.0％

Master lease company

Big Co., Ltd.

Master lease type

Pass-through type

Property management company

Big Co., Ltd.

Property number

Castalia Maruyama

Asset class

Residential

RE-122

Omotesando

Acquisition price

1,740 million yen

Type of specified asset

Real estate

Trustee

-

Trust maturity date

-

Location

Lot number

21-46-29, Kita Ichijo Nishi, Chuo Ward, Sapporo City, Hokkaido

Address

21-2-1, Kita Ichijo Nishi, Chuo Ward, Sapporo City, Hokkaido

Type of ownership

Ownership

Land area

1,583.12 m2

Land

Area classification

Commercial district

Building coverage ratio

80%

FAR

400%

Type of ownership

Ownership

Gross floor area

7,783.57 m2

Building

Use

Apartment complex

Structure

Reinforced concrete building

Number of floors

14F

Date of construction

February 12, 2008

Collateral

None

Overview of leasing

Leasable area

6,100.31 m2

Number of leasable units

146

Leased area

5,724.29 m2

Annual rent

137 million yen

Occupancy rate

93.8%

Tenant leasehold

11,350 million yen

and security deposit

Historical

August 2018

February 2019

August 2019

February 2020

August 2020

occupancy rate

96.7％

90.7％

84.4％

93.2％

93.8％

Master lease company

Big Co., Ltd.

Master lease type

Pass-through type

Property management company

Big Co., Ltd.

Property number

Big Tower Minami Sanjo

Asset class

Residential

RE-131

Acquisition price

1,740 million yen

Type of specified asset

Trust beneficiary interest in real estate

Trustee

Sumitomo Mitsui Trust Bank, Limited

Trust maturity date

November 30, 2030

Location

Lot number

2-15-1, Minami Sanjo Higashi, Chuo Ward, Sapporo City, Hokkaido

Address

2-15-1, Minami Sanjo Higashi, Chuo Ward, Sapporo City, Hokkaido

Type of ownership

Ownership

Land

Land area

1,590.67 m2

Area classification

Commercial district

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		Building coverage ratio	80%
		FAR			600%
		Type of ownership	Ownership
		Gross floor area	12,066.33 m2
Building		Use			Apartment complex
	Structure	Reinforced concrete building
		Number of floors	31F with 1 basement
		Date of construction	September 1, 2007
Collateral				None
					Overview of leasing
Leasable area		8,661.19 m2		Number of leasable units	179
Leased area			8,346.84 m2		Annual rent		199 million yen
Occupancy rate		96.4%			Tenant leasehold		15,747 million yen
			and security deposit
Historical		August 2018	February 2019		August 2019		February 2020	August 2020
occupancy rate	97.1％	94.6％		90.3％			89.9％	96.4％
Master lease company			Big Co., Ltd.
Master lease type					Pass-through type
Property management company			Big Co., Ltd.

4. Buyer profile

1. Castalia Maruyama Urasando

i)	Name	Chushingai Building
ii)	Location	4-11, Minami Nijo Nishi, Chuo Ward, Sapporo City, Hokkaido
iii)	Representative	Yukihiro Oda, President and Representative Director
iv)	Business activities	1.	Sales of everyday sundries, foods and apparel
		2.	Sales of educational materials and toys
		3.	Leasing and management of real estate
v)	Capital	15 million yen
vi)	Foundation date	December 11, 1959
vii)	Net assets
viii)	Total assets	Not disclosed (Note)
ix)	Major shareholder and
	shareholding ratio

1. Relationships with DHR and the Asset Manager

	Capital relationships	There is no capital relationship requiring disclosure between DHR/the Asset
	Manager and the buyer.
	Personnel relationship	There is no personnel relationship requiring disclosure between DHR/the Asset
	Manager and the buyer.
	Business relationship	There is no business relationship requiring disclosure between DHR/the Asset
	Manager and the buyer.
	Status of classification	The buyer is not a related party of DHR/the Asset Manager.
	as related party
(Note) Not disclosed as consent for disclosure has not been obtained from the buyer.

1. Castalia Maruyama Omotesando

The buyer is a domestic limited liability company. However, name, etc. is not disclosed as consent for disclosure has not been obtained from the buyer. The buyer is not an interested party of DHR and the Asset Manager or a related party of DHR and the Asset Manager.

1. Big Tower Minami Sanjo

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i)

Name

Mantomi Building

ii)

Location

6-4-8, Ginza, Chuo Ward, Tokyo

iii)

Representative

Nariya Oyama, Representative Director

iv)

Business activities

1. Leasing and management of real estate

2. Management of parking space

3. Sale and purchase, leasing, management and refit of aircrafts and ships,

broking or intermediacy of these businesses

4. All other businesses incidental or related to the above

v)

Capital

30 million yen

vi)

Foundation date

March 29, 1945

vii)

Net assets

1,752 million yen (as of September 30, 2020)

viii)

Total assets

18,978 million yen (as of September 30, 2020)

ix)

Major shareholder and

Mantomi Asset Management 100%

shareholding ratio

x)

Relationships with DHR and the Asset Manager

Capital relationships

There is no capital relationship requiring disclosure between DHR/the Asset

Manager and the buyer.

Personnel relationship

There is no personnel relationship requiring disclosure between DHR/the Asset

Manager and the buyer.

Business relationship

There is no business relationship requiring disclosure between DHR/the Asset

Manager and the buyer.

Status of classification

The buyer is not a related party of DHR/the Asset Manager.

as related party

5.

Interested party transactions

None

6.

Disposition schedule

Property name

Disposition decision

Execution date of the sale

Date of payment and

date

and purchase agreements

Delivery date

Castalia Maruyama Urasando

December 21, 2020

December 21, 2020

(planned)

(planned)

Castalia Maruyama Omotesando

December 18, 2020

December 22, 2020

January 29, 2021

(planned)

(planned)

Big Tower Minami Sanjo

December 21, 2020

March 1, 2021

(planned)

(planned)

7.

Outlook

DHR expects to record gain on sale of investment properties of 836 million yen for the fiscal period ending February 28, 2021 and 2,209 million yen for the fiscal period ending August 31, 2021 associated with the Disposition.

For the forecasts of results for the fiscal periods ending February 28, 2021 and August 31, 2021with the Disposition factored in, please refer to the press release "Notice Concerning Revision to Forecast of Results for the Fiscal Periods Ending February 28, 2021 and August 31, 2021" separately announced today.

8. Overview of property appraisal of the Anticipated Dispositions

Overview of property appraisal

Property name	Castalia Maruyama Urasando
Appraisal value	511 million yen
Appraiser	The Tanizawa Sōgō Appraisal Co., Ltd.
Appraisal date	August 31, 2020
Item	Content	Basis
Value based on income method	511 million yen	Estimated value based on income method by using value

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						based on discount cash flow method, with value based on
						direct capitalization method used as a reference.
	Value based on direct	512 million yen
	capitalization method
		Operating revenue	39 million yen
			Effective gross revenue	42 million yen		Assessed the market rent level of the property through
						comparison with rent levels of other leasing cases, etc.
			Loss from vacancy	2 million yen		Assessed considering the average turnover period, period
						without revenue during tenant solicitation, etc.
		Operating expense	12 million yen
			Maintenance	1 million yen		Based on the building maintenance and management
						contract, etc.
			Utility cost	1 million yen		Based on the property management report, etc.
			Repair	2 million yen		Assessed by splitting the figure based on the engineering
						report and similar cases in 3 (repair):7 (capex) ratio.
			Property management	1 million yen		Based on the property management contract.
			Fee
			Advertisement and	1 million yen		Assumed 25% annual tenant replacement.
			other leasing cost
			Tax	3 million yen		Recorded based on the actual results for 2020.
			Insurance	0 million yen		Recorded based on past results, etc.
			Other cost	0 million yen		Based on the property management report, etc.
		Net operating income	27 million yen
		(NOI)
			Investment income of	0 million yen		Assessed with the investment yield set at 1.0%
			lump sum
			Capital expenditure	3 million yen		Assessed by splitting the figure based on the engineering
						report and similar cases in 3 (repair):7 (capex) ratio.
		Net cash flow (NCF)	24 million yen
		Cap rate	4.7%		Assessed by comparing with the multiple transaction
						yields in the neighboring areas or the similar areas of the
						same supply and demand.
	Value based on Discounted	510 million yen
	Cash Flow method
		Discount rate	4.7%		Assessed by reflecting specific risks related to the
						property in the base yield.
		Terminal cap rate	4.9%		Assessed on the basis of capitalization rate taking into
						consideration of future prediction uncertainty.
Value based on cost method	485 million yen
	Proportion of land	49.5%
	Proportion of building	50.5%
Items applied to adjustments in valuation approach		None
and the determination of the appraisal value
				Overview of property appraisal
Property name	Castalia Maruyama Omoteando
Appraisal value	2,000 million yen
Appraiser	The Tanizawa Sōgō Appraisal Co., Ltd.
Appraisal date	August 31, 2020
			Item	Content		Basis
Value based on income method	2,000 million yen		Estimated value based on income method by using
							value based on discount cash flow method, with value
							based on direct capitalization method used as a
							reference.
	Value based on direct	2,010 million yen
	capitalization method
		Operating revenue	147 million yen
			Effective gross revenue	158 million yen		Assessed the market rent level of the property through
				- 6 -

					comparison with rent levels of other leasing cases, etc.
			Loss from vacancy	10 million yen	Assessed considering the average turnover period,
					period without revenue during tenant solicitation, etc.
		Operating expense	43 million yen
			Maintenance	5 million yen	Based on the building maintenance and management
					contract, etc.
			Utility cost	3 million yen	Based on the property management report, etc.
			Repair	9 million yen	Assessed by splitting the figure based on the
					engineering report and similar cases in 3 (repair):7
					(capex) ratio.
			Property management	4 million yen	Based on the property management contract.
			Fee
			Advertisement and	4 million yen	Assumed 25% annual tenant replacement.
			other leasing cost
			Tax	14 million yen	Recorded based on the actual results for 2020.
			Insurance	0 million yen	Recorded based on past results, etc.
			Other cost	1 million yen	Based on the property management report, etc.
		Net operating income	104 million yen
		(NOI)
			Investment income of	0 million yen	Assessed with the investment yield set at 1.0%
			lump sum
			Capital expenditure	10 million yen	Assessed by splitting the figure based on the
					engineering report and similar cases in 3 (repair):7
					(capex) ratio.
		Net cash flow (NCF)	94 million yen
		Cap rate	4.7%	Assessed by comparing with the multiple transaction
					yields in the neighboring areas or the similar areas of
					the same supply and demand.
	Value based on Discounted	2,000 million yen
	Cash Flow method
		Discount rate	4.7%	Assessed by reflecting specific risks related to the
					property in the base yield.
		Terminal cap rate	4.9%	Assessed on the basis of capitalization rate taking into
					consideration of future prediction uncertainty.
Value based on cost method	2,100 million yen
	Proportion of land	53.0%
	Proportion of building	47.0%
Items applied to adjustments in valuation approach and	None
the determination of the appraisal value
				Overview of property appraisal
Property name	Big Tower Minami Sanjo
Appraisal value	2,760 million yen
Appraiser	DAIWA REAL ESTATE APPRAISAL CO., LTD.
Appraisal date	August 31, 2020
			Item	Content	Basis
Value based on income method	2,760 million yen	Estimated value based on income method by using
					value based on discount cash flow method, with value
					based on direct capitalization method used as a
					reference.
	Value based on direct	2,760 million yen
	capitalization method
		Operating revenue	209 million yen
			Effective gross revenue	227 million yen	Assessed standardized room rent revenue and common
					area charges of the property based on the current rent,
					new rent level of similar properties with the same supply
					and demand and its trend, in consideration of the mid-to-
					long term competitiveness of the property.
				- 7 -

			Loss from vacancy	17 million yen	Recorded based on the past vacancy ratio and the
					standard vacancy ratio of the similar properties in
					consideration of the competitiveness of the property.
		Operating expense	61 million yen
			Maintenance	9 million yen	Based on the current contract amount.
			Utility cost	4 million yen	Assessed in reference to the past results.
			Repair	9 million yen	Assessed based on 12-year average repair costs in the
					engineering report.
			Property management	6 million yen	Based on the current contract amount.
			Fee
			Advertisement and	9 million yen	Assumed leasing costs worth two months' rent for new
			other leasing cost		tenants in reference to the leasing costs of similar
					properties.
			Tax	19 million yen	Recorded based on the actual results for 2020 in
					consideration of burden level and land price trend.
			Insurance	0 million yen	Recorded based on the recent results
			Other cost	2 million yen	Assumed 0.6% of operating revenue as other operation
					costs.
					Recorded local community fee and internet usage fee
					based on the results.
		Net operating income	148 million yen
		(NOI)
			Investment income of	0 million yen	Assessed with the investment yield set at 1.0%
			lump sum
			Capital expenditure	13 million yen	Assessed based on the 12-year average renewal charges
					in the engineering report in consideration of the
					construction management fee.
		Net cash flow (NCF)	135 million yen
		Cap rate	4.9%	Assessed by adjusting yields in similar types with
					spreads attributable to the property's location, the
					characteristics of the building and conditions,
					additionally in consideration of cap rate of appraisal
					value for J-REIT properties in similar areas of the same
					supply and demand
	Value based on Discounted	2,760 million yen
	Cash Flow method
		Discount rate	4.7%	Assessed by comparing with cases of similar real estate
					transactions and adding individuality of real estate to
					yield of financial assets
		Terminal cap rate	5.1%	Assessed based on capitalization rate, comprehensively
					taking into account future uncertainties.
Value based on cost method	2,850 million yen
	Proportion of land	35.8%
	Proportion of building	64.2%
Items applied to adjustments in valuation approach and	None
the determination of the appraisal value

• DHR's website:https://www.daiwahouse-reit.co.jp/en/

Portfolio status after the Disposition

Asset class	Number of properties	Acquisition price (million yen)	Investment ratio (Note)
Logistics properties	62	properties	406,241	49.6%
Residential properties	130	properties	242,533	29.6%
Retail properties	23	properties	123,219	15.1%
Hotel properties	5	properties	19,110	2.3%
Other assets	6	properties	27,260	3.3%
Portfolio Total	226	properties	818,363	100.0%

(Note) Investment ratio indicates the ratio of the acquisition price for each asset to the total acquisition price, rounded to the nearest tenth.

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