2-4-8, Nagatacho, Chiyoda-ku, Tokyo, Japan https://www.daiwahouse-reit.co.jp/en/

Semi-Annual Report for the 27th Fiscal Period

From March 1, 2019 to August 31, 2019

https://www.daiwahouse-reit.co.jp/en/

Securities Code: 8984

DPL Misato

FOLEO Otsu Ichiriyama

Overview of the 27th Fiscal Period (From March 1, 2019 to August 31, 2019)

Creating Dreams, Building Hearts

Daiwa House Group symbol - the Endless Heart - represents the Group's vision of building endless emotional connections with each and every one of its customers, as well as the solidarity of the Daiwa House Group.

As a group that co-creates value for individuals, communities and people's lifestyles, the Daiwa House Group aims to think outside the box and always to create new value in each successive generation. The Daiwa House Group will continue to pass on the ideals on which Daiwa House was founded, and work to help realize a sustainable society.

We would like to report on the financial results and give an overview of operations of Daiwa House REIT Investment Corporation (hereinafter referred to as "DHR") in the 27th fiscal period (the fiscal period ended August 31, 2019).

DHR conducted its third capital increase through public offering since the merger in March 2019, and acquired 13 properties through the Daiwa House Group's pipeline in March and April 2019 (acquisition price of ¥67.0 billion). In August 2019, DHR sold one logistics property (sale price of ¥5.7 billion).

DHR's portfolio as of the end of the current fiscal period consisted of 228 properties with an asset size of ¥744.8 billion (total acquisition price). Furthermore, our occupancy rate at the end of the current fiscal period was 99.4%.

Regarding financial results for the current fiscal period, due to revenue contributions of properties acquired during the period and gain on sale of real estate properties associated with the sale of properties, we recorded operating revenues of ¥24,877 million, operating income of ¥10,702 million, and net income of ¥9,166 million. To calculate distribution, DHR reversed ¥2,920 million as the amount equivalent to amortization of goodwill and the difference between income associated with sale of properties, etc. for accounting and tax purposes, in which the income for tax purpose is larger than income for accounting purpose, from reserve for temporary difference adjustments to top up net income. As a result, distributions per unit amounted to ¥5,773.

DHR will work to continuously increase unitholder value by ensuring stable revenue and steady growth of its portfolio over the medium to long term through fully utilizing its sponsor Daiwa House Group's comprehensive strengths and knowhow regarding real estate development.

In closing, we ask for the continued support of our unitholders and the investment community as we move forward.

Jiro Kawanishi

Executive Director

Daiwa House REIT Investment Corporation

Koichi Tsuchida

President and CEO

Daiwa House Asset Management Co., Ltd.

Royal Parks Toyosu

Daiwa Roynet Hotel Yokohama Kannai

C O N T E N T S

Distributions Per Unit

27th Fiscal Period

(From March 1, 2019 to August 31, 2019)

5,773

Overview of the 27th Fiscal Period • • • • • • • • • • • • • • • • • • • • • • • • • • 3 Financial Highlights for the Fiscal Period Ended August 31, 2019 • • • • 4

Growth Strategy • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 6 ESG Initiatives • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 10 Portfolio Highlights • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 12 Portfolio Map • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 14 Financial Status • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 16

  1. Asset Management Report • • • • • • • • • • • • • • • • • • • • • • • • • • • 17
  1. Balance Sheets • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 53
  1. Statements of Income and Retained Earnings • • • • • • • • • • • 55 IV. Statements of Changes in Net Assets • • • • • • • • • • • • • • • • • 56
    V. Statements of Cash Flows • • • • • • • • • • • • • • • • • • • • • • • • • • • • 57
    VI. Notes to Financial Statements • • • • • • • • • • • • • • • • • • • • • • • • 58 VII. Independent Auditor's Report • • • • • • • • • • • • • • • • • • • • • • • • 80
    Investor Information • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 82

Distribution payments start date is November 11, 2019. ¥

Forecast distributions per unit(Note)

(From September 1, 2019 to February 29, 2020)

¥6,040 (From March 1, 2020 to August 31, 2020) ¥5,270

28th Fiscal Period

29th Fiscal Period

(Note) Forecast distributions refer to the forecast as of October 17, 2019, and actual distributions per unit may vary from this figure. These forecasts do not guarantee the amount of distributions.

2

3

Financial Highlights for the Fiscal Period Ended August 31, 2019

Statements of Income (Summary)

(Yen in millions)

Fiscal period

Fiscal period

ended

ended

February 28,

August 31,

Change

2019

2019

(26th period)

(27th period)

Operating revenues

23,127

24,877

1,750

Rental revenues

23,013

24,722

1,709

Gain on sale of real estate properties

113

154

41

Operating expenses

13,166

14,175

1,008

Rental expenses

9,184

10,062

877

Rental expenses

4,729

5,298

568

(excluding depreciation)

Depreciation

4,454

4,764

309

Other operating expenses

3,982

4,113

130

Amortization of goodwill

1,982

1,982

-

Operating income

9,960

10,702

742

Non-operating income

14

111

97

Non-operating expenses

1,377

1,647

270

Interest expenses and borrowing related

1,375

1,471

96

expenses

Ordinary income

8,597

9,166

568

Net income

8,597

9,166

568

Reversal of reserve for temporary difference

1,980

2,920

939

adjustments

Reversal (accumulation) of reserve for

(120)

(107)

13

distribution

Total distributions

10,457

11,978

1,521

Distributions per unit

¥5,427

¥5,773

¥346

Rental revenues

Revenue contributions for the full period for the properties acquired in the fiscal period ended February 28,

2019 (4 properties)

+¥175 million

Revenue contributions of the

properties acquired in the fiscal

period ended August 31, 2019

(13 properties)

+¥1,511 million

Gain on sale of real estate properties

Gain on sale of real estate properties in the sale of D Project Shin-Misato (logistics property)

Non-operating expenses

Costs incurred from the issuance of new investment units +¥173 million

Reversal of reserve for temporary difference adjustments

Reversal of the amount equivalent to amortization of goodwill and the difference between income associated with sale of properties, etc. for accounting and tax purposes (net of tax loss carryforwards, etc.)

Accumulation of reserve for distribution

Gain on adjustment of liabilities accumulated in voluntary reserve

Balance Sheets (Summary)

(Yen in millions)

As of

As of

February 28,

August 31,

Change

2019

2019

(26th period)

(27th period)

Total assets

777,727

841,236

63,508

Current assets

42,135

49,276

7,141

Non-current assets

735,501

791,877

56,375

Investment properties

654,523

712,856

58,332

Investment properties

Increase due to properties acquired

Intangible assets

75,368

73,338

(2,030)

(13 properties)

+¥67,404 million

Decrease due to properties sold

Goodwill

69,377

67,395

(1,982)

(1 property)

−¥5,584 million

Capital expenditures +¥778 million

Total liabilities

348,504

378,065

29,560

Depreciation

−¥4,764 million

Current liabilities

47,108

43,515

(3,592)

Interest-bearing debt

40,510

36,810

(3,700)

Interest-bearing debt

New loans

+¥27,500 million

Non-current liabilities

301,396

334,550

33,153

Reclassification of long-term loans

from non-current liabilities to current

Interest-bearing debt

280,758

311,958

31,200

liabilities

¥7,900 million

Net assets

429,223

463,170

33,947

Reserve for temporary difference

Reserve for temporary difference

8,804

6,823

(1,980)

adjustments

adjustments

Reversal of the amount equivalent to

Reserve for distribution

1,986

2,106

120

amortization of goodwill

−¥1,980 million

LTV (excluding goodwill)

45.4%

45.1%

(0.3) points

LTV (excluding goodwill)

LTV (including goodwill)

41.3%

41.5%

0.2 points

Decrease due to public offering

−0.3 points

Number of investment units issued

1,927,000

2,075,000

148,000

Number of investment units

units

units

units

issued

Net assets per unit

¥222,741

¥223,214

¥473

Increase due to public offering

+148,000 units

Operating revenues (Yen in millions)

24,877

22,211

23,127

21,015

19,700

Aug. 2017 Feb. 2018 Aug. 2018 Feb. 2019 Aug. 2019 (23rd period) (24th period) (25th period) (26th period) (27th period)

Operating income

(Yen in millions)

10,702

9,392

9,960

9,269

8,012

Aug. 2017 Feb. 2018 Aug. 2018 Feb. 2019 Aug. 2019 (23rd period) (24th period) (25th period) (26th period) (27th period)

Net income

(Yen in millions)

9,166

7,968

8,597

7,765

7,142

Aug. 2017 Feb. 2018 Aug. 2018 Feb. 2019 Aug. 2019 (23rd period) (24th period) (25th period) (26th period) (27th period)

Distributions per unit

(Yen)

5,773

5,194

5,046

5,427

4,964

Aug. 2017 Feb. 2018 Aug. 2018 Feb. 2019 Aug. 2019 (23rd period) (24th period) (25th period) (26th period) (27th period)

Total assets

(Yen in millions)

841,236

771,281

777,727

682,359

681,192

Aug. 2017 Feb. 2018 Aug. 2018 Feb. 2019 Aug. 2019 (23rd period) (24th period) (25th period) (26th period) (27th period)

LTV

(%)

excluding goodwill including goodwill

46.5 46.4 44.9 45.4 45.1

41.4

41.4

40.7

41.3

41.5

Aug. 2017 Feb. 2018 Aug. 2018 Feb. 2019 Aug. 2019 (23rd period)(24th period)(25th period)(26th period)(27th period)

4

5

Growth Strategy

Acquisition of New Assets

By raising funds of ¥35.2 billion through a public offering and ¥27.5 billion through new loans, DHR acquired 13 properties for a total acquisition price of ¥67.0 billion (NOI yield of 4.8%) in March and April 2019.

LB-060

D Project Itabashi Shingashi

Logistics (BTS type)

HO-003

Daiwa Roynet Hotel Nagoya Shinkansenguchi

Hotel

Located within walking distance of approx. three minutes from JR

Nagoya Station, addressing business and sightseeing needs

Favorable location

This stay-only hotel boasts excellent locational advantages, as it is located within walking distance of approx. three minutes from JR Nagoya Station. Also, the number of passengers using the station is expected to increase further when operation of the Linear Chuo Shinkansen starts.

Tenant

Daiwa Roynet Hotel is a major hotel chain operating across Japan and stable customer attraction can be expected.

Located in Tokyo 23 Wards, offering convenience as a hub for freight collection and delivery especially in northern Tokyo areas

Locational advantage

First logistics property in Tokyo 23 Wards acquired by DHR. Approx. 2.6 km from Takashimadaira IC on the Metropolitan Expressway Route 5 Ikebukuro Line, the location offers good accessibility.

Tenant

DHR concluded a long-term lease contract with KOKUBU GROUP CORP., which is developing a food and alcohol wholesale business mainly in the Greater Tokyo area.

Securing employment

Located within walking distance of approx. 12 minutes from Takashimadaira Station on the Toei Subway Mita Line, where sufficient workforce can be expected.

Acquisition date

April 10, 2019

Location

Itabashi Ward, Tokyo

Date of

December 1, 2014

construction

Acquisition price

¥12,300 million

Leasable area

33,763.46 m2

Lessee

KOKUBU GROUP

CORP.

Acquisition date

April 5, 2019

Location

Nagoya City, Aichi

Date of construction

July 3, 2001

Acquisition price

¥4,500 million

Leasable area

7,605.41 m2

Number of guest rooms

165

Lessee

Daiwa Royal

RM-012 iias Tsukuba (30% quasi co-ownership interest) Retail (mall type) Daiwa House Group Sublease

LB-057,LB-058,LB-059

D Project Kitahachioji I, II, III

RR-008

FOLEO Shobu

Logistics (BTS type)

Retail (roadside type)

Daiwa House Group Sublease

LB-061

D Project Sagamihara

LB-062

D Project Kuki VIII

LB-063

D Project Yokkaichi

Logistics (BTS type)

Logistics (BTS type)

Logistics (BTS type)

Large-scale retail property growing along with the local community

Favorable location

Located within walking distance of approx. four minutes from Kenkyu-gakuen Station on the Tsukuba Express, the newly emerging subcenter of Tsukuba City. Good accessibility by car facing three roads with a parking area for approx. 4,300 vehicles.

Largest scale in the region

Largest retail property within the 3km-radius area with a growing population especially among students and young families, consisting of over 200 stores.

Consideration for the environment

Eco-friendly property with installation of solar and solar/wind hybrid power generation systems, as well as an air-conditioning system using an ice thermal storage system using midnight power.

Acquisition date

April 5, 2019

Location

Tsukuba City, Ibaraki

Date of

September 29, 2008

construction

Acquisition price

¥10,320 million

Leasable area

41,670.12 m2

Lessee

Daiwa House

LB-064

D Project Ibaraki Ishioka

RR-007

Aoyama Tailor Bunkyo Sengoku Ekimae Store

OT-005

Nursery Room Berry Bear Omori Nishi Welcia Ota Omori Nishi Store

Logistics (BTS type)

Retail (roadside type)

Other

6

7

Growth Strategy

Sale of Assets

Number of properties

6 properties

Average NOI yield for the fiscal period ended

February 28, 2019

4.4 %

Average remaining lease term

7.6 years

Sale price

¥11,722 million

Average NOI yield after depreciation for the

fiscal period ended February 28, 2019

3.3 %

Average property age

11.1 years

(Yen in millions)

Distributions Per Unit

DHR upwardly revised its forecast distributions for the fiscal period ending February 29, 2020 to ¥6,040.

DHR's forecast distributions for the fiscal period ending August 31, 2020 are ¥5,270.

Effects on distribution of gain on sale

Asset

Property name

Location

Sale date

Acquisition price

Sale price

Appraisal value at

class

the time of sale

Logistics D Project Shin-Misato

Misato City, Saitama

August 30, 2019

5,710

5,755

5,750

Total of the fiscal period ended August 31, 2019

5,710

5,755

5,750

D Project Gifu

Anpachi District, Gifu

1,100

1,171

1,170

D Project Sapporo Minami

Kitahiroshima City,

818

863

862

Hokkaido

Logistics

D Project Sendai Minami

Iwanuma City, Miyagi

September 2, 2019

1,530

1,581

1,580

D Project Gotenba

Gotenba City,

1,140

1,141

1,140

Shizuoka

D Project Nishi-Hiroshima

Hiroshima City,

1,210

1,211

1,210

Hiroshima

Total of the fiscal period ending February 29, 2020

5,798

5,967

5,962

Total

11,508

11,722

11,712

Reasons for sale

Gain on sale for accounting purpose

Gain on sale for tax purpose (A)

Deductible tax loss carryforwards (B)

Distribution of gain on sale (A) - (B)

[Per unit]

Distribution of gain on sale

Gain on sale for accounting purpose

Accounting and tax difference in gain (net of tax loss carryforwards, etc.)

Aug. 2019 Result

Feb. 2020 Forecast

¥154 million

¥306 million

¥1,602 million

¥1,689 million

¥507 million

-

¥1,094 million

¥1,689 million

¥527¥814

¥74¥147

¥452¥666

To improve portfolio quality including area, remaining lease term, and property age, DHR sold six logistics properties previously owned by the former DHR since its IPO in November 2012 for ¥11.7 billion.

DHR aims to promote efficiency of portfolio management by selling the properties considered at risk for a potential decrease in NOI in the future due to rent reduction and increased repair and maintenance expenses, or less efficient due to the small size.

The amount after deducting the tax loss carryforwards from the accounting and tax difference from gain on sale for tax purpose exceeding gain on sale for accounting purpose will be distributed on top of net income.

DHR will distribute the accounting and tax difference as earnings distributions by reversing reserve for temporary difference adjustments.

Book values for accounting and tax purposes are different, since DHR inherited the properties from the former DHR at the merger in September 2016 at market value (appraisal value) for accounting purpose and at book value for tax purpose.

By selling the properties with large unrealized gain for tax purpose, DHR aims to realize unrealized gain and return the gain to unitholders as distribution.

D Project Shin-Misato

D Project Gifu

D Project Sapporo Minami

D Project Sendai Minami

D Project Gotenba

D Project Nishi-Hiroshima

Initiatives to Increase Attractiveness

Residential properties: Value enhancement projects

Mechanical parking lot removed and replaced with parking lot

Room layout change (changed the floor plan to 1 bedroom

capable of accommodating electric vehicles

+ 1 living-dining-kitchen room by installing a wall and movable

partition to a large studio apartment)

+¥603 (+11.7%)

¥5,170

¥5,773

+¥670

¥6,040

(+12.5%)

¥5,270

¥666

Gain on sale

¥452 Gain on sale

of properties

¥74

of properties

¥147

+¥814

+¥527

Decrease in

Increase in NOI

NOI due to sale

+¥32

of properties

-¥121

Decrease

¥5,246

in interest

¥5,370

¥5,226

Review of NOI incl.

¥5,270

expenses, etc.

front-loaded

+¥44

repair

-¥75

Review of

expenses incl.

interest expenses

+¥52

After

After

Before

Before

Charging device

8

Forecast

Result

Forecast

Revised

Forecast

(As of April 2019)

(As of April 2019)

forecast

Aug. 2019

Feb. 2020

Aug. 2020

■ Forecast (as of April 2019)

■ Result (excluding gain on sale)

■ Revised forecast (excluding gain on sale) / Forecast

  • Gain on sale for accounting purpose ■ Accounting and tax difference in gain (net of tax loss carryforwards, etc.)

9

ESG Initiatives

Sustainability Policy

1 Prevention of global warming

We will promote energy conservation measures through the installation of energy conservation equipment and so forth to realize a carbon-free society. We will also consider introduction of renewable energy power generation facilities and acquisition of properties that have such equipment installed.

5 Establishment of an internal framework and initiatives for employees

We will establish an internal framework for promoting sustainability and take steps to develop personnel by conducting regular employee education and training. We will also aim to create workplaces where people can work safely and healthily, and workplaces where diverse employees can work flexibly.

Status of Environmental Certifications

(as of September 30, 2019)

To increase the objectivity and reliability of DHR's initiatives in reducing the environmental burden of properties it owns, DHR intends to increase medium- to long-term asset value and pursue the acquisition of third-party external certifications

DBJ Green Building

Certification

(as of September 30, 2019)

2 properties

10 properties

9 properties

2

Harmony with the natural environment (preservation of

6

Building of trust relationships with external

biodiversity)

stakeholders

We will aim for a society that is able to pass on abundant natural

We aim to build trust relationships with external stakeholders and we will

resources to future generations in order to protect and improve natural

work on our suppliers to enhance the satisfaction of tenant customers

capital. We will also promote planting and management considering

and promote CSR in our supply chain. We will undertake neighborhood

harmony with the surrounding environment.

co-existence activities with local residents.

3

Conservation of natural resources (reducing waste,

7

Promotion of communication through information

protecting water resources)

disclosure

We will work towards the realization of a recycling-oriented society by

We will proactively disclose ESG-related information and utilize

promoting water conservation measures through the installation of water

dialogues with stakeholder such as investors in our future business

conservation equipment. We will also promote 3R activities (reduce,

activities. Furthermore, we will aim for continuous acquisition of Green

reuse, and recycle) for resources.

Building Certification.

4

Prevention of chemical pollution

8

Compliance with laws and regulations, and risk

management

We will aim to realize a society where people and ecosystems do not

We will comply with ESG-related laws and regulations. Moreover, we will

suffer adverse effects from chemical substances by promoting

strive to implement appropriate risk management, such as giving

reduction, substitution and appropriate management of harmful

consideration for the environmental and social impacts in risk

chemical substances when managing real estate, and taking efforts to

evaluations when acquiring real estate and promoting awareness of

minimize risks.

human rights.

Sustainability Target

DHR's asset manager, Daiwa House Asset Management Co., Ltd., recognizes matters such as energy saving and the reduction of greenhouse gas emissions in asset management operations as important environmental issues and has created individual policies to reduce the environmental burden.

Furthermore, we have established the following reduction target (medium to long term) for energy use.

For individual properties, reduce specific energy consumption and CO2 emission intensity

by 10% in the ten years from 2018 to 2027

and evaluations.

Number of properties that

Ratio of properties that have

have obtained

obtained environmental certifications

environmental certifications

(gross floor area basis)

28 properties

47.0 %

+6 properties

+8.2 points

compared with the end of March 2019

compared with the end of March 2019

Green Lease Agreement

We promoted the conclusion of green lease agreements and implemented initiatives in cooperation with tenants to reduce the environmental burden.

Installation of LED lights

Number of properties with green

Ratio of properties with green

lease agreements concluded

lease agreements concluded

(gross floor area basis)

36 properties

37.0 %

+8 properties

+12.0 points

compared with the end of March 2019

compared with the end of March 2019

5 properties

Total 26 properties

BELS Certification

(as of September 30, 2019)

3 properties

1 property

1 property

4 properties

Total 9 properties

CASBEE for Real Estate Certification

We were awarded an "S" rating (the highest) in our first CASBEE for Real Estate Certification.

iias Tsukuba

Consideration for Society

Establishing meeting places

Bicycle rentals

Provision of emergency communal well

Contributions to local communities

Cleanup activities

Japanese lessons

Neighborhood co-existence

activities

GRESB Real Estate Assessment

In the 2019 assessment, we received a "Green Star" rating.

In the "GRESB Rating" based on relative evaluation, we received a "3-Stars" rating.

We received an "A" rating (the highest) in the public disclosure rating.

GRESB: An annual benchmark assessment that evaluates ESG initiatives in the real estate sector

MUFG ESG Rating Certificate for J-REITs supported by JCR

Our broad initiatives in every ESG field were well received, earning us an "S" rating (the highest).

  • Implementing cleanup activities
  • Participating as a volunteer in "Japanese Lesson for People Returning from China"

Governance

Ensuring the presence of third parties in the decision-making flow to protect unitholder interests

In deciding to acquire assets from interested parties, following unanimous agreement by the Compliance Committee including third- party external experts, a weighted resolution by the Board of Directors and approval by a DHR officers meeting composed only of third parties are required.

Ownership of investment units by Daiwa House ("Same Boat Investment")

Number of investment units held by Daiwa House (holding ratio) 187,200 units (9.0%) (as of August 31, 2019)

10

Consideration for the Environment

LED lights

Solar and wind power generation facilities Large-scale green area

Rooftop greening

Employment of insulated sandwich panels Large-scale window space allowing the use of natural light Exterior greening, water-permeable paving Eco-friendly weeding by goats

11

Portfolio Highlights

Asset Size (acquisition price basis / as of September 2, 2019)

Trend of Occupancy Rate

223 properties ¥739.0 billion

As of August 31, 2019, the occupancy rate was 99.4%, as we continued to maintain stable operations.

（ ％ ）

…Portfolio total

…Logistics properties

…Residential properties

…Retail properties

…Hotel properties

…Other assets

100

Logistics

61 properties

¥373.6 billion

properties

21 properties

¥95.3 billion

Retail properties

5 properties

¥12.8 billion

Other assets

Residential

133 properties

¥246.4 billion

properties

3 properties

¥10.7 billion

Hotel properties

99

98

By asset class

Hotel 1.5%

Other assets

1.7%

Retail

12.9%

Core assets

98.3%

Residential

Logistics

50.6%

33.3%

By area

Other areas

Greater Tokyo area

20.6%

66.2%

Greater

Osaka

area

Three major

9.1%

metropolitan

areas of Japan

79.4%

Greater

Nagoya area

4.1%

By property age

10 years

Less than

or more

5 years

56.9%

11.7%

Less than

10 years

43.1%

5 years or more but less than 10 years 31.4%

97

96

95

End of Mar.

End of Apr.

End of May

End of Jun.

End of Jul.

End of Aug. End of Sep. End of Oct.

End of Nov. End of Dec.

End of Jan.

End of Feb. End of Mar.

End of Apr.

End of May

End of Jun.

End of Jul.

End of Aug.

2018

2018

2018

2018

2018

2018

2018

2018

2018

2018

2019

2019

2019

2019

2019

2019

2019

2019

Aug. 2018 (25th period)

Feb. 2019 (26th period)

Aug. 2019 (27th period)

Trend of Asset Size (acquisition price)

■ Assets acquired from the Daiwa House Group's pipeline

■ Assets acquired from third parties other than the Daiwa House Group

Public offering

Acquired 17 properties

¥73.3 billion (Note 1)

Sold 7 properties ¥10.1 billion (Note 2)

Acquired 7 properties

¥577.7 billion

¥577.7 billion

Merger

¥22.8 billion (Note 1)

Sold 1 property ¥0.3 billion (Note 2)

in September 2016

¥513.7 billion

¥491.3 billion

Ratio of assets

acquired from

the Daiwa House Group's

pipeline

55.9%

September 1, 2016

Feb. 2017

Aug. 2017

Feb. 2018

effective date of the Merger

Distributions per unit

¥4,800

¥4,964

¥5,194

(Note 1) Acquisition prices are listed. (Note 2) Sale prices are listed.

(Yen in billions)

Public offering

Acquired 13 properties

¥67.0 billion (Note 1)

Public offering

Sold 1 property ¥5.7 billion

(Note 2)

Sold 5 properties ¥5.9 billion (Note 2)

800

Acquired 4 properties

¥744.8 billion

¥96.9 billion (Note 1)

¥739.0 billion

¥12.7 billion

(Note 1)

Acquired 16 properties

Sold 1 property ¥1.2 billion (Note 2)

Sold 1 property ¥2.8 billion (Note 2)

¥671.7 billion

¥683.4 billion

700

600

Ratio of assets

acquired from

the Daiwa House Group's

pipeline

71.3%

500

400

0

Aug. 2018

Feb. 2019

Aug. 2019

As of September 2, 2019

¥5,046

¥5,427

¥5,773

12

13

Portfolio Map (as of September 2, 2019)

LB-044 D Project Kakegawa

LB-028 D Project Kuki V

OT-003 Naha Shin-Toshin Center Building (Daiwa Roynet Hotel Naha-Omoromachi)

Greater Nagoya area

Gifu

Aichi

Mie

Greater Osaka area

Kyoto Shiga

Hyogo

Osaka Nara

RE-081 Royal Parks Toyosu

RE-107 Royal Parks Hanakoganei

Logistics

Residential

RetailRM-012 iias Tsukuba

Hotel

Other

Greater Tokyo area

Tokyo 23

Wards

Adachi Ward

Saitama

Ibaraki

Itabashi Ward

Nerima Ward

Kita Ward

Katsushika Ward

Arakawa Ward

Toshima Ward

Sumida Ward

Bunkyo Ward

Shinjuku Ward

Taito Ward

Tokyo

Nakano Ward

Edogawa Ward

Suginami Ward

Chiyoda Ward

Minato Ward

Koto Ward

Chiba

Shibuya Ward

Chuo Ward

Kanagawa

Setagaya Ward

Meguro Ward

Shinagawa Ward

Ota Ward

14

15

Financial Status

Financial Policy

DHR is working to improve the stability of its financial base by maintaining and expanding its strong lender formation through initiatives geared toward diversifying methods of raising capital through issuance of investment corporation bonds, and by promoting use of long-term fixed rates on interest-bearing debt and staggering repayment dates. DHR's policy is to work toward stable financial operations by controlling our LTV (excluding goodwill) at around the 45% level.

I. Asset Management Report

  1. 1. Summary of Asset Management

  2. Historical Operating Results

23rd period

24th period

25th period

26th period

27th period

August 2017

February 2018

August 2018

February 2019

August 2019

Operating revenues (Note 1)

Yen in millions

21,015

19,700

22,211

23,127

24,877

Interest-bearingDebt (as of August 31, 2019)

We refinanced ¥11,600 million in March 2019 and took out ¥27,500 million in new loans in April 2019.

Total interest-bearing debt

¥348,768 million

Total loans

¥329,768 million

Total investment corporation bonds

¥19,000 million

LTV (excluding goodwill)

41.5%

LTV (including goodwill)

45.1%

Long-terminterest-bearing debt ratio

89.4%

Fixed interest ratio

95.2%

Average interest rate

0.74%

Average remaining maturity

4.9 years

Commitment line

¥25,000 million

Breakdown by Lender (as of August 31, 2019)

Lender

Loan balance

Ratio

(Yen in millions)

(%)

Sumitomo Mitsui Trust Bank, Limited

60,109

18.2

Sumitomo Mitsui Banking Corporation

60,100

18.2

MUFG Bank, Ltd.

56,954

17.3

Mizuho Bank, Ltd.

52,100

15.8

Development Bank of Japan Inc.

17,900

5.4

The Norinchukin Bank

13,810

4.2

Aozora Bank, Ltd.

13,061

4.0

Resona Bank, Limited

11,500

3.5

Mizuho Trust & Banking Co., Ltd.

7,908

2.4

Nippon Life Insurance Company

5,000

1.5

Shinsei Bank, Limited

5,000

1.5

Shinkin Central Bank

4,500

1.4

Mitsui Sumitomo Insurance Company, Limited

4,000

1.2

The Bank of Fukuoka, Ltd.

3,000

0.9

The Chiba Bank, Ltd.

2,465

0.7

The 77 Bank, Ltd.

2,000

0.6

The Nishi-Nippon City Bank, Ltd.

2,000

0.6

The Iyo Bank, Ltd.

1,500

0.5

The Chugoku Bank, Limited

1,500

0.5

The Shizuoka Bank, Ltd.

1,260

0.4

JAPAN POST INSURANCE Co., Ltd.

1,100

0.3

The Bank of Kyoto, Ltd.

1,000

0.3

The Dai-ichi Life Insurance Company, Limited

1,000

0.3

Taiyo Life Insurance Company

1,000

0.3

Total loans

329,768

100.0

(Note) The amounts were rounded down to the nearest million yen.

Of which, real estate rental revenues

Yen in millions

19,479

19,700

22,211

23,013

24,722

Operating expenses

Yen in millions

11,623

11,687

12,942

13,166

14,175

Of which, real estate rental expenses

Yen in millions

7,906

7,947

8,944

9,184

10,062

Operating income

Yen in millions

9,392

8,012

9,269

9,960

10,702

Ordinary income

Yen in millions

7,974

7,146

7,770

8,597

9,166

Net income

Yen in millions

7,968

7,142

7,765

8,597

9,166

Total assets

Yen in millions

682,359

681,192

771,281

777,727

841,236

Period-on-period changes

%

12.9

(0.2)

13.2

0.8

8.2

Net assets

Yen in millions

377,321

376,300

430,596

429,223

463,170

Period-on-period changes

%

14.2

(0.3)

14.4

(0.3)

7.9

Unitholders' capital

Yen in millions

108,136

108,136

163,230

163,230

198,492

Total number of investment units issued

Units

1,690,000

1,690,000

1,927,000

1,927,000

2,075,000

Net assets per unit

Yen

223,267

222,663

223,454

222,741

223,214

Total distributions

Yen in millions

8,389

8,777

9,723

10,457

11,978

Distributions per unit

Yen

4,964

5,194

5,046

5,427

5,773

Of which, earnings distributions per unit

Yen

4,964

5,194

5,046

5,427

5,773

Of which, distributions in excess of

Yen

-

-

-

-

-

earnings per unit

Ordinary income to total assets ratio (Note 2)

%

1.2

1.0

1.1

1.1

1.1

Annualized

%

2.5

2.1

2.1

2.2

2.2

Return on equity (Note 3)

%

2.3

1.9

1.9

2.0

2.1

Annualized

%

4.5

3.8

3.8

4.0

4.1

Equity ratio

%

55.3

55.2

55.8

55.2

55.1

Period-on-period changes

%

0.6

(0.1)

0.6

(0.6)

(0.1)

Payout ratio

%

104.0

122.9

123.6

121.7

130.6

Rental NOI (Note 4)

Yen in millions

15,286

15,503

17,563

18,283

19,424

FFO per unit (Note 5)

Yen

7,184

7,625

7,346

7,747

7,598

FFO multiple (Note 6)

Times

18.9

16.7

17.7

15.9

18.6

Diversifying Debt Maturities (as of August 31, 2019)

(Yen in millions)

30,000

Long-term loans

Investment corporation bonds

25,000

Commitment line

20,000

15,000

10,000

5,000

0

Feb. Aug. Feb. Aug. Feb. Aug. Feb. Aug. Feb. Aug. Feb. Aug. Feb. Aug. Feb. Aug. Feb. Aug. Feb. Aug.

Feb.

Aug.

Feb.

Aug.

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2038

Rating/Outlook (as of August 31, 2019)

On July 19, 2019, Rating and Investment Information, Inc. ("R&I") changed DHR's issuer rating from "A+ (Positive)" to "AA- (Stable)."

JCR

AA (Stable)

R&I

AA- (Stable)

(Japan Credit Rating Agency, Ltd.)

(Rating and Investment Information, Inc.)

16

Debt service coverage ratio (Note 7)

Times

15.4

14.4

14.2

14.8

14.6

Interest-bearing debt

Yen in millions

282,268

282,268

314,268

321,268

348,768

Interest-bearing debt to total assets ratio

%

41.4

41.4

40.7

41.3

41.5

(Note 8)

(Notes) 1. Operating revenues, etc., do not include consumption taxes.

  1. Ordinary income to total assets ratio = Ordinary income / ((Total assets at the beginning of period + Total assets at the end of period) / 2) × 100
  2. Return on equity = Net income / ((Net assets at the beginning of period + Net assets at the end of period) / 2) × 100
  3. Rental NOI = Real estate rental revenues - Real estate rental expenses + Depreciation and amortization during the period
  4. FFO per unit = (Net income + Depreciation and amortization + Amortization of goodwill + Amortization of investment corporation bond issuance costs + Amortization of trademark rights + Amortization of software +/- Loss/gain on sale of real estate properties +/- Extraordinary loss/income) / Total number of investment units issued
  5. FFO multiple = Investment unit price at the end of period / Annualized FFO per unit
  6. Debt service coverage ratio = Net income before interest, depreciation and amortization / Interest expenses
  7. Interest-bearingdebt to total assets ratio = Interest-bearing debt at the end of period / Total assets at the end of period × 100

17

I. Asset Management Report

(2) Asset Management during the Period

  1. Transition of DHR

Daiwa House REIT Investment Corporation (hereinafter referred to as the "DHR") is a real estate investment trust (J-REIT) whose sponsor is Daiwa House Industry Co., Ltd. (hereinafter referred to as "Daiwa House") and whose asset manager is Daiwa House Asset Management Co., Ltd. (hereinafter referred to as the "Asset Manager"), a wholly owned subsidiary of Daiwa House.

DHR was listed on the Real Estate Investment Trust (REIT) Market of Tokyo Stock Exchange, Inc. (hereinafter referred to as the "Tokyo Stock Exchange") on March 22, 2006, and then later merged with New City Residence Investment Corporation (hereinafter referred to as "NCR") on April 1, 2010 (hereinafter referred to as "the merger with NCR"). Subsequently on December 1, 2011, DHR changed its corporate name to Daiwa House Residential Investment Corporation (the corporation prior to change of corporate name to "Daiwa House REIT Investment Corporation" is hereinafter referred to as the "former DHI"), and accordingly changed its investment targets to residential properties.

The former Daiwa House REIT Investment Corporation (the Daiwa House REIT Investment Corporation, which was dissolved upon having merged with DHR as of September 1, 2016, is hereinafter referred to as the "former DHR") was established on September 14, 2007, whose asset manager was Daiwa House REIT Management Co., Ltd., a wholly owned subsidiary of Daiwa House. The former DHR was listed on the Tokyo Stock Exchange Real Estate Investment Trust (REIT) Market on November 28, 2012, as a REIT that targets investment in logistics and retail properties.

As of September 1, 2016, the former DHI and the former DHR (hereinafter collectively referred to as the "Investment Corporations") conducted an absorption-type merger (hereinafter referred to as the "Merger") whereby the former DHI was the surviving corporation and the former DHR was the absorbed corporation. DHR shifted to a diversified portfolio strategy, targeting investment in new asset classes such as hotel and office properties, in addition to those that the Investment Corporations had targeted for investment in the past, and changed its corporate name from Daiwa House Residential Investment Corporation to Daiwa House REIT Investment Corporation.

ii) Performance for the Current Fiscal Period

DHR raised ¥35.2 billion of capital in its third public offering since the Merger and acquired 13 properties for a total acquisition price (Note 1) of ¥67.0 billion through the Daiwa House Group (Note 2)'s pipeline, etc. in March and April 2019 by a combination of funds raised through public offering and loans. Furthermore, in August 2019, DHR sold one logistics property for a sales price of ¥5.7 billion. As a result, DHR's portfolio as of the end of the current fiscal period consists of 228 properties with an asset value of ¥744.8 billion (Note 3).

(Notes) 1. "Acquisition price" is the purchase price stipulated in the respective purchase agreements of assets owned by DHR (not including expenses pertaining to acquisitions, settlement money such as taxes and public dues, consumption taxes, or leasehold guarantee deposits, etc.), except as otherwise noted. However, the acquisition prices of properties previously owned by NCR have been presented as the appraisal values as of February 28, 2010, which were the prices received at the time of the merger with NCR, and the acquisition prices of properties previously owned by the former DHR have been presented as the appraisal values as of August 31, 2016, which were the prices received at the time of the merger with the former DHR. The "total acquisition price" has been rounded down to the nearest unit. The same shall apply hereinafter.

    1. The Daiwa House Group comprises Daiwa House, which is the parent company, 342 consolidated subsidiaries, 2 non-consolidated subsidiaries, 40 equity-method affiliates and 2 non-equity-method affiliates as of June 30, 2019. The Asset Manager is a member of the group. The same shall apply hereinafter.
    2. "Asset value" is the aggregate total of the acquisition prices of respective assets owned by DHR at respective points in time, except as otherwise noted. The same shall apply hereinafter.
  2. Overview of Financing

DHR arranged refinancing for the full amount of ¥11,600 million in loans due on March 27, 2019 and March 29, 2019. Furthermore, DHR conducted debt financing of total amount of ¥27,500 million on April 5, 2019 and April 10, 2019, to provide for some of the acquisition costs and the related expenses for the acquisition of properties through the Daiwa House Group's pipeline, etc.

As a result, the balance of interest-bearing debt outstanding as of the end of the current fiscal period amounted to ¥348,768 million (loan balance: ¥329,768 million, investment corporation bond balance: ¥19,000 million), which is an increase of ¥27,500 million in comparison with the previous fiscal period. As of the end of the current fiscal period, its LTV (including goodwill) (Note 1) was 41.5%, and its LTV (excluding goodwill) (Note 2) was 45.1%.

(Notes) 1. "LTV (including goodwill)" is obtained using the following formula. The same shall apply hereinafter.

LTV (including goodwill) = total amount of interest-bearing debt (loans + investment corporation bonds) ÷ total assets (including goodwill) × 100

2. "LTV (excluding goodwill)" is obtained using the following formula. The same shall apply hereinafter.

LTV (excluding goodwill) = total amount of interest-bearing debt (loans + investment corporation bonds) ÷ total assets (excluding goodwill) × 100

The credit ratings of DHR as of the end of the current fiscal period are as follows:

Rating agency

Type

Rating/Outlook

Rating and Investment Information, Inc. (R&I)

Issuer rating

AA- Stable

Japan Credit Rating Agency, Ltd. (JCR)

Long-term issuer rating

AA Stable

iv) Difference between Real Estate Appraisal Value and Book Value

The total appraisal value of assets held at the end of the current fiscal period was ¥822,248 million, and the amount of unrealized gain (Note) on the portfolio, which is the difference compared to the book value, was ¥103,676 million.

(Note) "Unrealized gain" is the positive valuation difference when the appraisal value exceeds the book value of real estate properties (excluding construction in progress and construction in progress in trust). (Negative valuation difference is referred to as unrealized loss.) The same shall apply hereinafter. Please note that unrealized gain is not guaranteed to be realized as a result of the sale of real estate.

v) Overview of Financial Results

As a result of the investment management activities mentioned above, in the current fiscal period, DHR posted operating revenues of ¥24,877 million, operating income of ¥10,702 million, ordinary income of ¥9,166 million, and net income of ¥9,166 million (¥4,417 per investment unit).

Furthermore, based on its distribution policy, DHR reversed ¥2,920 million (¥1,407 per investment unit) as the amount equivalent to amortization of goodwill and the difference between income associated with sale of properties, etc. for accounting and tax purposes from reserve for temporary difference adjustments to top up net income. As a result, total distributions amounted to ¥11,978 million (¥5,773 per investment unit).

18

(3) Summary of Capital Increase

Changes in DHR's total number of investment units issued and unitholders' capital for the most recent five years until August 31, 2019 are as follows:

Total number of

Unitholders' capital

investment units issued

Date

Event

(Yen in millions)

Remark

(Units)

Change

Balance

Change

Balance

March 1, 2015

Split of investment units

373,870

747,740

-

61,703

(Note 1)

September 1, 2016

Delivery by allotment due to merger

771,540

1,519,280

-

61,703

(Note 2)

March 21, 2017

Capital increase through public offering

156,720

1,676,000

42,625

104,328

(Note 3)

April 14, 2017

Capital increase through third-party allotment

14,000

1,690,000

3,807

108,136

(Note 4)

March 19, 2018

Capital increase through public offering

222,000

1,912,000

51,607

159,743

(Note 5)

April 13, 2018

Capital increase through third-party allotment

15,000

1,927,000

3,486

163,230

(Note 6)

March 1, 2019

Capital increase through public offering

138,000

2,065,000

32,879

196,110

(Note 7)

March 26, 2019

Capital increase through third-party allotment

10,000

2,075,000

2,382

198,492

(Note 8)

(Notes) 1. A 2-for-1 split of investment units was implemented with an effective date of March 1, 2015.

  1. At the time of the merger, which became effective as of September 1, 2016, DHR allotted 2.2 units of DHR per unit of the former DHR, and as a result, 771,540 new investment units were issued.
  2. Investment units were issued by public offering with an issue price of ¥280,868 per unit (paid-in amount: ¥271,983) in order to raise funds for the acquisition of new properties, etc.
  3. Additional investment units were issued with a paid-in amount of ¥271,983 per unit in order to raise funds for the acquisition of new properties, etc.
  4. Investment units were issued by public offering with an issue price of ¥239,806 per unit (paid-in amount: ¥232,465) in order to raise funds for the acquisition of new properties, etc.
  5. Additional investment units were issued with a paid-in amount of ¥232,465 per unit in order to raise funds for the acquisition of new properties, etc.
  6. Investment units were issued by public offering with an issue price of ¥245,784 per unit (paid-in amount: ¥238,260) in order to raise funds for the acquisition of new properties, etc.
  7. Additional investment units were issued with a paid-in amount of ¥238,260 per unit in order to raise funds for the acquisition of new properties, etc.

[Changes in market price of investment securities]

The highest and lowest prices and the closing prices at the beginning and the end of the period in the REIT section of the Tokyo Stock Exchange, on which DHR's investment securities are listed, by period are as follows:

23rd period

24th period

25th period

26th period

27th period

Fiscal period ended

August 2017

February 2018

August 2018

February 2019

August 2019

Highest

¥289,800

¥277,100

¥276,000

¥261,100

¥280,800

Lowest

¥248,500

¥250,800

¥244,000

¥238,800

¥241,700

Beginning of period

¥289,800

¥268,500

¥251,300

¥256,900

¥247,200

End of period

¥268,800

¥257,100

¥257,600

¥248,400

¥280,400

19

I. Asset Management Report

(4) Distributions

As indicated in "(5) Future Operating Policies and Issues to Be Addressed, ii) Future Operating Policies and Issues to Be Addressed, (b) Distribution Policy" below, DHR established the policy on how to use the voluntary reserve and implemented its distribution policy by utilizing the voluntary reserve. For the current fiscal period, DHR reversed ¥2,920 million as the amount equivalent to amortization of goodwill and difference of income from sale of properties, etc. for accounting and tax purposes from reserve for temporary difference adjustments to top up unappropriated retained earnings of ¥9,166 million, while at the same time, ¥107 million recorded as gain on adjustment of liabilities was accumulated as reserve for distribution. Consequently, total distributions amounted to ¥11,978 million, for distributions per unit of ¥5,773.

23rd period

24th period

25th period

26th period

27th period

From

From

From

From

From

March 1, 2017

September 1, 2017

March 1, 2018

September 1, 2018

March 1, 2019

to August 31, 2017

to February 28, 2018

to August 31, 2018

to February 28, 2019

to August 31, 2019

Unappropriated retained

earnings

7,968,070

7,142,344

7,765,290

8,597,087

9,166,085

(Yen in thousands)

Amount retained as

voluntary reserve (Note)

14,384,974

12,749,459

10,791,107

8,930,366

6,117,477

(Yen in thousands)

Total distributions

8,389,160

8,777,860

9,723,642

10,457,829

11,978,975

(Yen in thousands)

Distributions per unit

(Yen)

4,964

5,194

5,046

5,427

5,773

Of the above, total earnings

distributions

8,389,160

8,777,860

9,723,642

10,457,829

11,978,975

(Yen in thousands)

Earnings distributions per

4,964

5,194

5,046

5,427

5,773

unit

(Yen)

Of the above, total capital

-

-

-

-

-

refunds

Capital refunds per unit

-

-

-

-

-

Of total capital refunds, total

distributions deemed as

distributions from the

-

-

-

-

-

allowance for temporary

difference adjustments

Of capital refunds per

unit, temporary-

difference- adjustment-

-

-

-

-

-

allowance distributions

per unit

Of total capital refunds, total

distributions deemed as

-

-

-

-

-

distributions from capital

refunds for tax purposes

Of capital refunds per

unit, distributions deemed

as distributions from

-

-

-

-

-

capital refunds for tax

purposes per unit

(Note) Amount retained as voluntary reserve indicates the sum of the amount retained as reserve for temporary difference adjustments and reserve for distribution after accumulation and reversal of reserves.

20

(5) Future Operating Policies and Issues to Be Addressed

  1. Investment Environment

During the current fiscal period, despite weakness seen in exports, the Japanese economy is gradually recovering. Looking ahead, with improvements in the employment and personal income environments continuing and various policies producing effects, the gradual recovery is expected to continue. However, in addition to being cautious about the effects of increasing tension over trade issues on the global economy, we must also be aware of the future of the Chinese economy, uncertainty over global economic trends and policies, and fluctuations in financial and capital markets.

Amid these conditions, the J-REIT market was again valued for its stable distribution yields, capturing robust investment demand from foreign investors from the start of the year. Even after foreign investors became net sellers from April, investment trusts and life and non-life insurance companies became new buyers, and in July, the Tokyo Stock Exchange REIT Index recovered to the 2,000-point mark for the first time in eleven years and seven months, remaining strong thereafter.

The investment environment is expected to continue to be tough due to lowering capitalization rates used in real estate appraisals, rising land prices, soaring construction costs, and other factors. Nevertheless, DHR will continue to acquire high quality properties actively while making use of the Daiwa House Group's integrated capabilities, and real estate development knowhow.

ii) Future Operating Policies and Issues to Be Addressed

(a) Growth Strategy

Due to its shift to a diversified portfolio strategy as a result of the Merger, taking advantage of the expanded opportunities to acquire properties from an extensive range of asset classes, DHR aims to steadily grow its asset size while maximizing unitholder value by securing stable income over the long term.

Due to its shift to a diversified portfolio strategy, DHR's portfolio now includes a range of assets with varying risk-return profiles, and as of the date of this report, maintains high occupancy rates for assets held across all asset classes. By investing in various types of assets, DHR deems that it will be able to diversify its portfolio and mitigate the risk of excessive reliance on a limited number of tenants in order to boost portfolio income and generate cash flows that are more consistent.

DHR carefully selects and acquires assets that contribute to increasing unitholder value mainly through the Daiwa House Group's pipeline and plans to maintain its policy of selective investment going forward.

Furthermore, through continuous property replacement, DHR aims to increase the quality of its portfolio and realize increased unitholder value.

(b) Distribution Policy

As of the end of the current fiscal period, DHR had ¥6,823 million in reserve for temporary difference adjustments (before reversal for the current fiscal period; the amount after reversal is ¥3,903 million), and ¥2,106 million in reserve for distribution (before accumulation for the current fiscal period; the amount after accumulation is ¥2,214 million).

DHR changed part of its distribution policy in the fiscal period ended February 28, 2017 and made it a policy to reverse the amount equivalent to amortization of goodwill from the reserve for temporary difference adjustments and to use this to top up net income.

DHR plans to reverse the reserve for temporary difference adjustments (Note 1) in case of losses incurred in special cases such as loss on sale of real estate properties, in case of the dilution of distribution due to capital increase through public offering, in case of the inability to secure sufficient revenues accompanying a capital increase through public offering due to short operation periods of properties acquired during a fiscal period, or in the case of the occurrence of a difference between excess income associated with sale of properties for accounting and with that for tax purposes that causes a need for DHR to take action to maintain its conduit status.

Goodwill recognized from the Merger is amortized over 20 years using the straight-line method. As described above, although DHR plans to reverse the amount equivalent to amortization of goodwill from the reserve for temporary difference adjustments and distribute it, after the reversal of the reserve for temporary difference adjustments is complete, DHR plans to pay distributions in excess of earnings of the amount equivalent to amortization of goodwill (distribution accounted as an allowance for temporary difference adjustments).

DHR's policy is to flexibly utilize voluntary reserve and subsequently pay distributions in excess of earnings (distribution accounted as an allowance for temporary difference adjustments) to realize stabilization of distributions on a medium- to long-term basis (Note 2) while ensuring the level of distributions not impacted by the amortization of goodwill that accompanied the Merger.

(Notes) 1. DHR's reversals of reserve for temporary difference adjustments do not fall under distributions in excess of earnings (return of unitholders' capital).

  1. 2. Under the above distribution policy, DHR has the policy to stabilize distributions. However, it is not intended as a guarantee or promise of the payment of distribution and amounts thereof.

  2. Financial Strategy

DHR seeks as its basic policy to execute a well-planned and flexible financial strategy with the aim of ensuring sustainable income on a medium- to long-term basis, contributing to the steady growth and efficient management of its properties and creating management stability.

DHR is also working to improve the stability of its financial base by maintaining and expanding its strong lender formation through initiatives geared toward diversifying methods of raising capital through issuance of investment corporation bonds, and by promoting use of long-term fixed rates on interest-bearing debt and staggering repayment dates.

21

I. Asset Management Report

(6) Significant Events after Balance Sheet Date

Disposition of Assets

DHR disposed the following properties.

Asset name

D Project Gifu

Asset type

Trust beneficiary interest in real estate

Asset class

Logistics properties

Disposition price (Note 1)

¥1,171,000 thousand

Buyer (Note 2)

Godo Kaisha Heptagon

Date of disposition

September 2, 2019

Asset name

D Project Sapporo Minami

Asset type

Trust beneficiary interest in real estate

Asset class

Logistics properties

Disposition price (Note 1)

¥863,000 thousand

Buyer (Note 2)

Godo Kaisha Heptagon

Date of disposition

September 2, 2019

Asset name

D Project Sendai Minami

Asset type

Trust beneficiary interest in real estate

Asset class

Logistics properties

Disposition price (Note 1)

¥1,581,000 thousand

Buyer (Note 2)

Godo Kaisha Heptagon

Date of disposition

September 2, 2019

Asset name

D Project Gotenba

Asset type

Trust beneficiary interest in real estate

Asset class

Logistics properties

Disposition price (Note 1)

¥1,141,000 thousand

Buyer (Note 2)

Godo Kaisha Heptagon

Date of disposition

September 2, 2019

Asset name

D Project Nishi-Hiroshima

Asset type

Trust beneficiary interest in real estate

Asset class

Logistics properties

Disposition price (Note 1)

¥1,211,000 thousand

Buyer (Note 2)

Godo Kaisha Heptagon

Date of disposition

September 2, 2019

(Notes) 1. This figure does not include expenses pertaining to dispositions, settlement money such as taxes and public dues, consumption taxes, etc.

2. The buyer is a special purpose company (Tokutei Mokuteki Kaisha) on which Daiwa House, a parent company of the Asset Manager, may have a significant influence and is an interested party as defined in the Asset Manager's regulations on transactions with interested parties; however, is not an interested party, etc., as defined in the Act on Investment Trusts and Investment Corporations (Act No. 198 of 1951, as amended; hereinafter referred to as the "Investment Trusts Act").

The Asset Manager has gone through the necessary discussion and resolution procedures in accordance with its regulations on transactions with interested parties.

22

2. Overview of the Investment Corporation

(1) Status of Investment Units

23rd period

24th period

25th period

26th period

27th period

As of August 31,

As of February

As of August 31,

As of February

As of August 31,

2017

28, 2018

2018

28, 2019

2019

Total number of authorized investment units

8,000,000

8,000,000

8,000,000

8,000,000

8,000,000

Total number of investment units issued

1,690,000

1,690,000

1,927,000

1,927,000

2,075,000

Unitholders' capital

108,136,162

108,136,162

163,230,367

163,230,367

198,492,847

(Yen in thousands)

Number of unitholders

13,779

13,461

16,962

16,903

17,717

(2) Matters concerning Investment Units

The major unitholders as of August 31, 2019 are as follows:

Percentage of investment

Name

Number of investment units

units held against the total

held (Units)

number of investment units

issued (%) (Note)

Japan Trustee Services Bank, Ltd. (Trust account)

402,554

19.4

The Master Trust Bank of Japan, Ltd. (Trust account)

282,319

13.6

Daiwa House Industry Co., Ltd.

187,200

9.0

The Nomura Trust and Banking Co., Ltd. (Investment trust account)

74,486

3.6

State Street Bank - West Client - Treaty 505234

69,360

3.3

Trust & Custody Services Bank, Ltd. (Securities investment trust account)

50,553

2.4

JPMorgan Securities Japan Co., Ltd.

40,603

2.0

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.

36,337

1.8

State Street Bank and Trust Company 505103

25,767

1.2

The Shinkumi Federation Bank

18,856

0.9

Total

1,188,035

57.3

(Note) The percentages are rounded to the first decimal place.

(3) Officers

The following table provides information about the officers.

Total compensation per title

Title and post

Name

Major concurrent position

during the 27th period

(Yen in thousands)

Executive Director

Jiro Kawanishi

-

2,400

Certified Public Accountant and Enrolled Agent,

Tetsuya Iwasaki

Citia Certified Public Accountant Firm

2,100

Supervisory

Outside Director, Uoriki Co., Ltd.

Directors

Attorney, Ohhara Law Office

Hiroshi Ishikawa

Outside Director, Japan Medical Dynamic Marketing,

2,100

INC.

Accounting Auditor

Ernst & Young ShinNihon

-

36,500

LLC

(Notes) 1. The Executive Director and Supervisory Directors do not hold investment units of DHR under their own or another person's name. Any Supervisory Director may serve as an executive of a corporation other than those listed above, but such corporations including those listed above do not have any interest in DHR.

  1. Dismissal or non-reappointment of the Accounting Auditor shall be discussed at DHR's board of directors pursuant to the provisions of the Investment Trusts Act for dismissal, taking into full account all relevant factors for non-reappointment such as the quality of audits and compensation for audits.
  2. Compensation for the Accounting Auditor includes fees for the creation of comfort letters for the issuance of new investment units in March 2019.

23

I. Asset Management Report

(4) Asset Manager, Custodian and General Administrators

Business

Name

Asset Manager

Daiwa House Asset Management Co., Ltd.

Custodian

Sumitomo Mitsui Trust Bank, Limited

General Administrator

Sumitomo Mitsui Trust Bank, Limited

Transfer agent / Special account administrator

Sumitomo Mitsui Trust Bank, Limited

Administrator of investment corporation bonds

Sumitomo Mitsui Trust Bank, Limited, MUFG Bank, Ltd.

24

3. Portfolio of DHR

(1) Composition of Assets

The following table provides information about the composition of assets.

26th period

27th period

Type of assets

Asset class

Area

February 28, 2019

August 31, 2019

Total amount held

Percentage to

Total amount held

Percentage to

(Note 1)

(Yen in millions)

total assets

(Yen in millions)

total assets

(Note 2)

(%) (Note 3)

(Note 2)

(%) (Note 3)

Greater

23,854

3.1

23,746

2.8

Tokyo area

Three major

Greater

Residential

metropolitan

909

0.1

902

0.1

Nagoya area

Real estate

properties

areas of Japan

Greater

13,315

1.7

13,236

1.6

Osaka area

Other

5,329

0.7

5,290

0.6

Subtotal

43,408

5.6

43,175

5.1

Greater

206,536

26.6

239,691

28.5

Tokyo area

Three major

Greater

Logistics

metropolitan

15,426

2.0

16,828

2.0

Nagoya area

properties

areas of Japan

Greater

23,077

3.0

22,925

2.7

Osaka area

Other

90,356

11.6

93,849

11.2

Greater

168,091

21.6

167,228

19.9

Tokyo area

Three major

Greater

Residential

metropolitan

6,048

0.8

5,984

0.7

Nagoya area

properties

areas of Japan

Greater

6,132

0.8

6,061

0.7

Osaka area

Other

5,082

0.7

5,003

0.6

Trust beneficiary

Greater

26,780

3.4

32,544

3.9

Tokyo area

interests in real

Three major

Greater

estate

Retail

metropolitan

2,390

0.3

2,390

0.3

Nagoya area

properties

areas of Japan

Greater

20,534

2.6

20,422

2.4

Osaka area

Other

29,229

3.8

39,462

4.7

Greater

4,803

0.6

4,780

0.6

Tokyo area

Three major

Hotel

Greater

metropolitan

-

-

4,536

0.5

properties

Nagoya area

areas of Japan

Greater

1,476

0.2

1,467

0.2

Osaka area

Three major

Greater

metropolitan

1,919

0.2

3,281

0.4

Other assets

Tokyo area

areas of Japan

Other

9,217

1.2

9,159

1.1

Subtotal

617,103

79.3

675,621

80.3

Deposits and other assets

117,215

15.1

122,439

14.6

Total assets

777,727

100.0

841,236

100.0

(Notes) 1. Three major metropolitan areas of Japan in "Area" are the greater Tokyo area (Tokyo, Kanagawa, Saitama and Chiba, the same shall apply hereinafter), the greater Nagoya area (Aichi, Gifu and Mie, the same shall apply hereinafter) and the greater Osaka area (Osaka, Kyoto, Hyogo, Nara and Shiga, the same shall apply hereinafter). The same shall apply hereinafter.

  1. "Total amount held" represents the amounts recorded on the balance sheets as of the last day of each fiscal period (February 28, 2019 and August 31, 2019), which are rounded down to the nearest million yen. For real estate properties and trust beneficiary interests in real estate (may be referred to as "real estate in trust" or "trust beneficiary interests in real estate"), the amounts are their acquisition prices (including expenses associated with the acquisition) less accumulated depreciation.
  2. "Percentage to total assets" is rounded to the first decimal place.

25

I. Asset Management Report

(2) Principal Assets Held

The overview of principal assets held by DHR as of August 31, 2019 (top ten properties in terms of book value at the end of the period) is as follows:

Book value

Leasable area

Leased area

Occupancy

Rate to total real

estate rental

Property name

(Yen in millions)

(m2)

(m2)

rate (%)

Primary use

(Note 1)

(Note 2)

(Note 3)

(Note 4)

revenues (%)

(Note 5)

D Project Urayasu II

25,522

72,320.01

72,320.01

100.0

(Note 6)

Logistics

DPL Misato

16,617

55,864.47

55,864.47

100.0

(Note 6)

Logistics

D Project Hachioji

15,173

62,394.17

62,394.17

100.0

(Note 6)

Logistics

DPL Fukuoka Kasuya

13,177

73,747.85

73,482.06

99.6

(Note 6)

Logistics

D Project Itabashi Shingashi

12,350

33,763.46

33,763.46

100.0

(Note 6)

Logistics

D Project Inuyama

10,455

54,197.80

54,197.80

100.0

(Note 6)

Logistics

iias Tsukuba

10,368

41,670.12

41,670.12

100.0

1.1

Retail

D Project Nishiyodogawa

9,935

39,584.80

39,584.80

100.0

(Note 6)

Logistics

D Project Machida

9,209

50,490.39

50,490.39

100.0

(Note 6)

Logistics

D Project Urayasu I

9,123

36,515.81

36,515.81

100.0

(Note 6)

Logistics

Total

131,933

520,548.88

520,283.09

99.9

14.3

-

(Notes) 1. "Book value" is the amount recorded on the balance sheets as of August 31, 2019 (in the case of real estate and real estate in trust, "Book value" is the acquisition price (including expenses associated with the acquisition) less accumulated depreciation), which is rounded down to the nearest million yen.

    1. "Leasable area" means the leasable area of the building (or land in the case of land properties) in relation to each real estate or each real estate in trust which DHR believes is leasable as indicated in the relevant lease agreement or drawing of the building in relation to each real estate or each real estate in trust as of August 31, 2019. In the cases of each co-owned real estate or quasi co-owned trust beneficiary interests, the leasable area of the entire real estate multiplied by the ratio of co-ownership of the real estate or quasi co- ownership of the trust beneficiary interests in real estate held by DHR is provided.
    2. "Leased area" represents the leased area in the leasable area as indicated in the lease agreement in relation to each real estate or each real estate in trust as of August 31, 2019. However, in the case of a pass-through type master lease agreement entered into with the master lease company, the leased area to end-tenants, as indicated in the sublease agreement for each real estate or each real estate in trust as of August 31, 2019, is provided. As some lease agreements for each real estate or each real estate in trust may indicate leased area that includes portions not included in the gross floor area, the leased area may exceed the gross floor area. In particular, at logistics properties, when eaves are included in the leased area, the leased area may significantly exceed the gross floor area. In the cases of each co-owned real estate or quasi co-owned trust beneficiary interests, the leased area of the entire real estate multiplied by the ratio of co-ownership of the real estate or quasi co-ownership of the trust beneficiary interests in real estate held by DHR is provided.
    3. "Occupancy rate" represents the ratio of leased area to total leasable area of each real estate or each real estate in trust as of August 31, 2019, and it is rounded to the first decimal place.
    4. "Rate to total real estate rental revenues" is the rental revenues from each real estate or each real estate in trust expressed as a percentage of the total rental revenues from the entire portfolio, rounded to the first decimal place.
    5. Undisclosed as consent for disclosure has not been obtained from the lessee.
  2. Description of Portfolio

The overview of portfolio assets held by DHR as of August 31, 2019 (real estate and real estate in trust, etc.) is as follows:

Assessed

Leasable

value at the

Book value

Asset

end of period

(Yen in

Property name

Location (Note 1)

Form of ownership

area (m2)

class

(Note 2)

(Yen in

millions)

millions)

(Note 4)

(Note 3)

D Project Machida

2-1-6, Oyamagaoka, Machida City, Tokyo

Real estate in trust

50,490.39

9,830

9,209

D Project Hachioji

3-21-1,Minami-Osawa, Hachioji City, Tokyo

Real estate in trust

62,394.17

16,900

15,173

D Project Aikawa-Machi

4020-12, Aza Sakuradai, Nakatsu, Aikawa-machi,

Real estate in trust

14,240.84

4,400

3,768

Aiko District, Kanagawa

D Project Urayasu I

12-1, Chidori, Urayasu City, Chiba

Real estate in trust

36,515.81

9,960

9,123

D Project Urayasu II

11-5, Chidori, Urayasu City, Chiba

Real estate in trust

72,320.01

28,200

25,522

D Project Akanehama

3-2-8, Akanehama, Narashino City, Chiba

Real estate in trust

11,663.39

3,080

2,875

D Project Noda

1-1, Aza Tamei, Futatsuka, Noda City, Chiba

Real estate in trust

29,232.53

6,550

6,042

D Project Inuyama

5-5, Aza Takanebora, Inuyama City, Aichi

Real estate in trust

54,197.80

11,790

10,455

properties

D Project Sapporo Minami

449-9, Nanba Azamura-Higashi,Wanouchi-cho,

Real estate in trust

7,669.91

1,160

1,067

D Project Gifu (Note 6)

Anpachi District, Gifu

D Project Neyagawa

2-24-12, Shimeno, Neyagawa City, Osaka

Real estate in trust

11,151.51

6,320

5,834

Logistics

(Note 6)

5-7-2, Wattsu Chuo, Kitahiroshima City, Hokkaido

Real estate in trust

6,749.10

861

782

D Project Sendai Minami

D Project Morioka

3-18,Ogama-kazabayashi, Takizawa City, Iwate

Real estate in trust

9,558.32

1,210

1,165

(Note 6)

3-2-39,Kuko-Minami, Iwanuma City, Miyagi

Real estate in trust

11,052.27

1,580

1,512

D Project Tsuchiura

20-29, Aza Harayama, Hongo, Tsuchiura City,

Real estate in trust

17,448.86

3,540

3,241

Ibaraki

D Project Gotenba (Note 6)

2271-10, Aza Odori, Jinba, Gotenba City, Shizuoka

Real estate in trust

6,737.53

1,110

1,108

D Project Nishi-Hiroshima

2-3-11,Tomo-Minami, Asaminami Ward, Hiroshima

Real estate in trust

5,093.51

1,210

1,174

(Note 6)

City, Hiroshima

D Project Fukuoka Umi

384-15, Aza Noguchi, Oaza Ino, Umi-machi, Kasuya

Real estate in trust

24,729.56

4,570

4,133

District, Fukuoka

D Project Tosu

1624, Aza Hasuhara, Himekata-machi, Tosu City,

Real estate in trust

17,858.01

6,160

5,469

Saga

Assessed

Leasable

value at the

Book value

Asset

end of period

(Yen in

Property name

Location (Note 1)

Form of ownership

area (m2)

class

(Note 2)

(Yen in

millions)

millions)

(Note 4)

(Note 3)

D Project Kuki I

6004-2, Aza Taikoda, Shobu-cho Shobu, Kuki City,

Real estate in trust

22,708.72

4,150

3,785

Saitama

D Project Kuki II

6201-1, Aza Kazarimen, Shobu-cho Sanga, Kuki

Real estate in trust

50,490.00

8,660

7,782

City, Saitama

D Project Kawagoe I

3-2-3, Yoshinodai, Kawagoe City, Saitama

Real estate in trust

16,150.88

3,860

3,434

D Project Kawagoe II

3-2-4, Yoshinodai, Kawagoe City, Saitama

Real estate in trust

19,872.00

5,390

4,734

DPL Inuyama

1-8, Aza Nakahiratsuka, Oaza Haguroshinden,

Real estate in trust

21,628.50

4,220

3,808

Inuyama City, Aichi

D Project Fukuoka Hakozaki

5-2-1, Hakozakifuto, Higashi Ward, Fukuoka City,

Real estate in trust

34,710.80

4,630

4,198

Fukuoka

D Project Kuki III

6004-1, Aza Taikoda, Shobu-cho Shobu, Kuki City,

Real estate in trust

26,937.41

8,260

7,360

Saitama

D Project Kuki IV

6201-5, Aza Kazarimen, Shobu-cho Sanga, Kuki

Real estate in trust

26,460.00

5,980

5,337

City, Saitama

D Project Kuki V

6201-6, Aza Kazarimen, Shobu-cho Sanga, Kuki

Real estate in trust

47,320.89

8,900

8,037

City, Saitama

D Project Kuki VI

48-3,Kiyoku-cho, Kuki City, Saitama

Real estate in trust

29,244.66

5,520

4,966

D Project Yashio

50-1, Oaza Shin-machi, Yashio City, Saitama

Real estate in trust

21,965.04

6,790

6,223

D Project Nishiyodogawa

2-7-48, Nakashima, Nishiyodogawa Ward, Osaka

Real estate in trust

39,584.80

10,900

9,935

City, Osaka

D Project Matsudo

700-3, Aza Nishinooda, Kamihongo, Matsudo City,

Real estate in trust

26,776.67

7,760

7,187

Chiba

D Project Hibiki Nada

3-1-5,Hibiki-machi, Wakamatsu Ward, Kitakyushu

Real estate in trust

23,933.75

2,170

1,985

City, Fukuoka

D Project Morioka II

3-15,Ogama-kazabayashi, Takizawa City, Iwate

Real estate in trust

4,481.00

1,330

1,240

D Project Kawagoe III

2-8-55, Yoshinodai, Kawagoe City, Saitama

Real estate in trust

39,572.32

7,850

7,043

D Project Kazo

2-16-1, Okuwa, Kazo City, Saitama

Real estate in trust

18,371.10

3,460

3,227

D Project Urayasu III

12-1, Chidori, Urayasu City, Chiba

Real estate in trust

39,441.32

9,750

8,470

D Project Tomisato

7-2, Misawa, Tomisato City, Chiba

Real estate in trust

36,113.25

5,280

4,862

D Project Kyotanabe

3-50-1, Kannabidai, Kyotanabe City, Kyoto

Real estate in trust

10,965.68

3,710

3,472

D Project Sendai Izumi

2-9-1, Akedori, Izumi Ward, Sendai City, Miyagi

Real estate in trust

10,764.05

1,600

1,473

D Project Oyama

2333-34, Aza Atago, Oaza Hari, Oyama City, Tochigi

Real estate in trust

14,106.91

2,050

1,951

properties

D Project Sano

570-9,Nishiura-cho, Sano City, Tochigi

Real estate in trust

15,668.44

1,810

1,729

D Project Tatebayashi

110-8, Aza Uchiya, Shimosagawada-cho,

Real estate in trust

13,521.56

3,220

3,018

Tatebayashi City, Gunma

Logistics

D Project Kakegawa

653-14, Aza Oyabu, Sakagawa, Kakegawa City,

Real estate in trust

39,341.44

6,140

5,894

Hiroshima

D Project Hiroshima Seifu

Real estate in trust

19,004.72

4,050

3,738

Shizuoka

2-2-1, Tomonishi, Asaminami Ward, Hiroshima City,

D Project Tosu II

1621, Aza Hasuhara, Himekata-machi, Tosu City,

Real estate in trust

13,012.50

1,900

1,652

Saga

D Project Kawagoe IV

3-2-1, Yoshinodai, Kawagoe City, Saitama

Real estate in trust

24,684.47

5,920

5,562

D Project Kuki VII

6004-3, Aza Taikoda, Shobu-cho Shobu, Kuki City,

Real estate in trust

3,225.46

1,120

1,037

Saitama

D Project Chibakita

461-1, Naganumacho, Inage Ward, Chiba City,

Real estate in trust

24,368.86

8,060

7,586

Chiba

D Project Matsudo II

700-1, Aza Nishinooda, Kamihongo, Matsudo City,

Real estate in trust

25,305.82

8,350

8,139

Chiba

D Project Tomisato II

1-6, Misawa, Tomisato City, Chiba

Real estate in trust

40,870.56

7,080

6,818

D Project Osaka Hirabayashi

2-6-15, Hirabayashikita, Suminoe Ward, Osaka City,

Real estate in trust

22,485.08

4,300

3,683

Osaka

D Project Sendai Izumi II

3-1-1, Akedori, Izumi Ward, Sendai City, Miyagi

Real estate in trust

39,580.46

7,540

7,190

D Project Kaminokawa

2568-1, Aza Minamihara, Oaza Tako,

Real estate in trust

52,239.75

8,000

7,806

Kaminokawamachi, Kawachi District, Tochigi

D Project Fuji

2261-6, Aza Shiroyama, Obuchi, Fuji City, Shizuoka

Real estate in trust

23,795.40

3,630

3,554

D Project Tosu III

3-1-3, Yayoigaoka, Tosu City, Saga

Real estate in trust

65,215.07

9,440

9,074

D Project Kitahachioji I

2969-2, Ishikawamachi, Hachioji City, Tokyo

Real estate in trust

16,523.82

4,460

4,315

D Project Kitahachioji II

2969-18, Ishikawamachi, Hachioji City, Tokyo

Real estate in trust

21,402.20

5,890

5,725

D Project Kitahachioji III

2969-19, Ishikawamachi, Hachioji City, Tokyo

Real estate in trust

26,275.05

7,610

7,331

D Project Itabashi Shingashi

1-2-2, Shingashi, Itabachi Ward, Tokyo

Real estate in trust

33,763.46

12,400

12,350

D Project Sagamihara

1-2-31, Miyashimo, Chuo Ward, Sagamihara City,

Real estate in trust

16,599.30

3,980

3,916

Kanagawa

D Project Kuki VIII

49-3, Kiyokucho, Kuki City, Saitama

Real estate in trust

29,410.54

6,120

6,114

D Project Yokkaichi

1947-14, Nakamuracho, Yokkaichi City, Mie

Real estate in trust

6,185.46

1,500

1,497

D Project Ibaraki Ishioka

6-4, Kashiwabara, Ishioka City, Ibaraki

Real estate in trust

24,493.54

4,100

4,064

DPL Misato

1-3-5,Inter-Minami, Misato City, Saitama

Real estate in trust

55,864.47

17,900

16,617

DPL Fukuoka Kasuya

642-1, Aza Sanjyuroku, Oaza Uchihashi,

Real estate in trust

73,747.85

13,200

13,177

Kasuyamachi, Kasuya District, Fukuoka

DPL Kitakyushu

5-14, Sonekitamachi, Kokuraminami Ward,

Real estate in trust

26,672.98

3,580

3,476

Kitakyushu City, Fukuoka

Logistics properties - Subtotal

1,783,961.53

401,951

373,250

26

27

I. Asset Management Report

Assessed

Leasable

value at the

Book value

Asset

end of period

(Yen in

Property name

Location (Note 1)

Form of ownership

area (m2)

class

(Note 2)

(Yen in

millions)

millions)

(Note 4)

(Note 3)

Qiz Ebisu

4-3-1, Ebisu, Shibuya Ward, Tokyo

Real estate in trust

5,230.39

9,150

7,143

Castalia Azabujuban

2-7-5, Azabujuban, Minato Ward, Tokyo

Real estate in trust

3,492.93

4,510

4,153

Shichimenzaka

Castalia Shibakoen

3-32-10, Shiba, Minato Ward, Tokyo

Real estate in trust

2,707.51

2,390

2,409

Castalia Ginza

1-14-13, Ginza, Chuo Ward, Tokyo

Real estate in trust

2,226.42

2,330

2,310

Castalia Hiroo

3-13-3, Nishi Azabu, Minato Ward, Tokyo

Real estate in trust

1,621.59

2,000

2,051

Castalia Nihonbashi

11-2, Nihonbashi Kabuto-cho, Chuo Ward, Tokyo

Real estate in trust

1,458.73

1,210

1,047

Castalia Hacchobori

3-27-5, Hacchobori, Chuo Ward, Tokyo

Real estate in trust

2,969.57

2,360

2,060

Castalia Azabujuban

2-10-1, Azabujuban, Minato Ward, Tokyo

Real estate in trust

2,400.00

2,790

2,750

Castalia Azabujuban II

2-21-2, Azabujuban, Minato Ward, Tokyo

Real estate in trust

2,094.58

2,630

2,516

Castalia Shinjuku Natsumezaka

10-1,Kikui-cho, Shinjuku Ward, Tokyo

Real estate in trust

1,917.62

1,650

1,746

Castalia Ginza II

1-23-4, Ginza, Chuo Ward, Tokyo

Real estate in trust

1,817.56

1,790

1,647

Castalia Shibuya Sakuragaoka

29-21,Sakuragaoka-cho, Shibuya Ward, Tokyo

Real estate in trust

1,123.80

1,200

1,323

Castalia Nishi Azabu

1-3-12, Nishi Azabu, Minato Ward, Tokyo

Real estate in trust

2,779.77

2,530

2,337

Kasumicho

Castalia Ochanomizu

3-24-1,Kanda-Ogawamachi, Chiyoda Ward, Tokyo

Real estate in trust

2,559.21

2,310

1,681

Castalia Sangubashi

4-52-12, Yoyogi, Shibuya Ward, Tokyo

Real estate in trust

1,898.47

1,590

1,476

Castalia Suitengu

2-8-13, Nihonbashi Kakigaracho, Chuo Ward, Tokyo

Real estate in trust

1,940.94

1,580

1,209

Castalia Suitengu II

1-38-16, Nihonbashi Kakigaracho, Chuo Ward,

Real estate in trust

1,858.34

1,410

1,081

Tokyo

Castalia Shintomicho

3-10-10, Irifune, Chuo Ward, Tokyo

Real estate in trust

1,444.52

1,150

897

Castalia Shintomicho II

2-6-4, Irifune, Chuo Ward, Tokyo

Real estate in trust

1,244.54

1,010

805

Castalia Harajuku

3-55-3, Sendagaya, Shibuya Ward, Tokyo

Real estate in trust

1,225.26

993

851

Castalia Yoyogi Uehara

1-17-16, Uehara, Shibuya Ward, Tokyo

Real estate in trust

811.95

753

650

Castalia Sendagaya

2-9-10, Sendagaya, Shibuya Ward, Tokyo

Real estate in trust

803.03

669

550

Castalia Shinjuku 7 chome

7-17-16, Shinjuku, Shinjuku Ward, Tokyo

Real estate in trust

957.60

551

435

Castalia Ningyocho

7-15, Nihonbashi Tomisawacho, Chuo Ward, Tokyo

Real estate in trust

1,747.90

1,340

885

Castalia Ningyocho II

8-12, Nihonbashi Tomisawacho, Chuo Ward, Tokyo

Real estate in trust

1,826.80

1,470

981

Castalia Shin-Ochanomizu

2-3-3, Kanda Awaji-cho, Chiyoda Ward, Tokyo

Real estate in trust

1,308.38

1,120

844

Castalia Higashi Nihonbashi II

12-11, Nihonbashi Tomisawacho, Chuo Ward, Tokyo

Real estate in trust

2,117.46

1,770

1,238

properties

Castalia Jinbocho

2-40-8,Kanda-Jinbocho, Chiyoda Ward, Tokyo

Real estate in trust

1,628.80

1,520

1,069

Castalia Takanawadai

3-4-12, Takanawa, Minato Ward, Tokyo

Real estate in trust

1,147.44

1,070

809

Castalia Shintomicho III

2-8-8, Irifune, Chuo Ward, Tokyo

Real estate in trust

972.51

791

604

Castalia Shinjuku Gyoen

2-14-4, Shinjuku, Shinjuku Ward, Tokyo

Real estate in trust

3,594.16

3,400

2,578

Residential

Castalia Higashi Nihonbashi III

3-5-6,Higashi-Nihonbashi, Chuo Ward, Tokyo

Real estate in trust

1,105.20

849

600

Castalia Shinjuku Gyoen II

1-29-15, Shinjuku, Shinjuku Ward, Tokyo

Real estate in trust

668.79

564

466

Castalia Shintomicho IV

3-10-8, Irifune, Chuo Ward, Tokyo

Real estate in trust

681.00

521

390

Castalia Takanawadai II

3-5-6, Takanawa, Minato Ward, Tokyo

Real estate in trust

1,567.84

1,420

1,145

Castalia Minami Azabu

2-2-27, Minami Azabu, Minato Ward, Tokyo

Real estate in trust

882.67

759

610

Castalia Ginza III

8-18-2, Ginza, Chuo Ward, Tokyo

Real estate

3,494.42

3,150

2,706

Castalia Kayabacho

2-1, Nihonbashi Koami-cho, Chuo Ward, Tokyo

Real estate

4,602.95

3,370

2,497

Castalia Takanawa

2-17-12, Takanawa, Minato Ward, Tokyo

Real estate in trust

10,408.26

8,540

7,125

Castalia Higashi Nihonbashi

9-14, Nihonbashi Yokoyama-cho, Chuo Ward, Tokyo

Real estate

6,442.28

4,180

3,199

Castalia Shinjuku

2-6-11, Shinjuku, Shinjuku Ward, Tokyo

Real estate

3,150.80

3,540

2,814

Castalia Ichigaya

14-4, Ichigaya Yakuoji-machi, Shinjuku Ward, Tokyo

Real estate in trust

1,546.34

1,400

878

Shibaura Island Bloom Tower

4-20-2,4-20-3,4-20-4, Shibaura, Minato Ward,

Real estate in trust

16,849.50

9,200

6,573

Tokyo

Castalia Hatsudai

1-10-9, Honmachi, Shibuya Ward, Tokyo

Real estate in trust

3,077.05

2,460

1,940

Castalia Hatsudai II

1-33-7, Honmachi, Shibuya Ward, Tokyo

Real estate in trust

2,339.42

2,230

1,852

Castalia Ebisu

3-15-6, Ebisu, Shibuya Ward, Tokyo

Real estate in trust

1,659.71

1,680

1,395

Castalia Meguro Kamurozaka

4-31-23, Nishi Gotanda, Shinagawa Ward, Tokyo

Real estate in trust

4,967.97

4,670

3,996

Castalia Toritsudaigaku

1-4-1, Midorigaoka, Meguro Ward, Tokyo

Real estate in trust

863.70

538

578

Castalia Yukigaya

2-13-3, Higashi Yukigaya, Ota Ward, Tokyo

Real estate in trust

1,542.30

1,180

976

Castalia Yutenji

2-14-21, Yutenji, Meguro Ward, Tokyo

Real estate in trust

1,380.35

1,350

1,319

Castalia Otsuka

3-17-4, Minami Otsuka, Toshima Ward, Tokyo

Real estate in trust

1,871.70

1,690

1,291

Castalia Kikukawa

2-1-12, Kikukawa, Sumida Ward, Tokyo

Real estate in trust

1,168.18

823

708

Castalia Meguro

2-1-13, Meguro, Meguro Ward, Tokyo

Real estate in trust

1,414.73

1,120

869

Castalia Otsuka II

2-32-20,Higashi-Ikebukuro, Toshima Ward, Tokyo

Real estate in trust

1,784.50

1,330

969

Castalia Jiyugaoka

1-20-1, Jiyugaoka, Meguro Ward, Tokyo

Real estate in trust

1,472.47

1,440

1,153

Castalia Mejiro

2-8-16, Takada, Toshima Ward, Tokyo

Real estate in trust

1,658.90

1,130

919

Castalia Ikebukuro

3-1-12,Nishi-Ikebukuro, Toshima Ward, Tokyo

Real estate in trust

3,644.35

3,020

2,414

Castalia Kaname-cho

5-26-10Nishi-Ikebukuro, Toshima Ward, Tokyo

Real estate in trust

1,624.06

1,300

1,044

Castalia Tower Shinagawa

4-10-18, Higashi Shinagawa, Shinagawa Ward,

Real estate in trust

12,732.35

9,190

6,696

Seaside

Tokyo

Castalia Yakumo

2-20-5, Yakumo, Meguro Ward, Tokyo

Real estate

1,276.91

842

821

Castalia Togoshiekimae

1-7-16, Hiratsuka, Shinagawa Ward, Tokyo

Real estate

2,014.12

2,060

1,448

Castalia Honjo Azumabashi

3-7-11, Honjo, Sumida Ward, Tokyo

Real estate in trust

2,255.88

1,250

978

Castalia Kitazawa

1-15-5, Kitazawa, Setagaya Ward, Tokyo

Real estate in trust

1,220.16

869

752

Assessed

Leasable

value at the

Book value

Asset

end of period

(Yen in

Property name

Location (Note 1)

Form of ownership

area (m2)

class

(Note 2)

(Yen in

millions)

millions)

(Note 4)

(Note 3)

Castalia Monzennakacho

1-17-12, Fukuzumi, Koto Ward, Tokyo

Real estate in trust

887.94

616

470

Castalia Kamiikedai

1-4-15, Kamiikedai, Ota Ward, Tokyo

Real estate in trust

414.45

226

178

Castalia Morishita

1-16-12, Morishita, Koto Ward, Tokyo

Real estate in trust

1,383.90

1,070

787

Castalia Wakabayashikoen

4-39-4, Wakabayashi, Setagaya Ward, Tokyo

Real estate in trust

1,425.43

884

742

Castalia Asakusabashi

2-16-21,Yanagi-bashi, Taito Ward, Tokyo

Real estate in trust

1,537.84

999

724

Castalia Iriya

3-1-28, Shitaya, Taito Ward, Tokyo

Real estate in trust

1,415.15

682

514

Castalia Kita Ueno

1-15-5,Kita-Ueno, Taito Ward, Tokyo

Real estate in trust

4,197.66

2,950

2,366

Castalia Morishita II

2-12-11,Shin-Ohashi, Koto Ward, Tokyo

Real estate

1,275.60

857

607

Castalia Minowa

5-24-4, Negishi, Taito Ward, Tokyo

Real estate

2,406.41

1,630

1,280

Castalia Oyamadai

7-14-13, Todoroki, Setagaya Ward, Tokyo

Real estate

857.32

610

513

Castalia Nakano

2-12-13, Arai, Nakano Ward, Tokyo

Real estate

1,613.86

1,260

960

Castalia Yoga

1-3-12, Tamagawadai, Setagaya Ward, Tokyo

Real estate

1,472.38

1,170

860

Castalia Sumiyoshi

2-8-11, Sumiyoshi, Koto Ward, Tokyo

Real estate

1,362.60

1,050

834

Castalia Monzennakacho II

2-2-9, Tomioka, Koto Ward, Tokyo

Real estate

3,038.98

2,820

1,963

Castalia Oshiage

3-5-2, Mukoujima, Sumida Ward, Tokyo

Real estate

1,785.24

1,190

973

Castalia Kuramae

3-9-4, Kuramae, Taito Ward, Tokyo

Real estate

1,994.93

1,540

1,125

Castalia Nakanobu

4-7-11, Nakanobu, Shinagawa Ward, Tokyo

Real estate in trust

2,421.82

2,450

1,638

Royal Parks Toyosu

3-5-21, Toyosu, Koto Ward, Tokyo

Real estate in trust

18,112.03

9,950

6,037

Castalia Togoshi

5-2-1, Togoshi, Shinagawa Ward, Tokyo

Real estate in trust

2,629.59

2,480

1,570

Castalia Ooimachi

4-2-11, Ooi, Shinagawa Ward, Tokyo

Real estate

1,413.75

1,570

1,139

Castalia Omori

1-19-20, Omori kita, Ota Ward, Tokyo

Real estate in trust

2,046.36

1,830

1,400

Castalia Mishuku

1-3-39, Taishidou, Setagaya Ward, Tokyo

Real estate in trust

2,640.86

2,370

1,818

Castalia Arakawa

2-3-1, Arakawa, Arakawa Ward, Tokyo

Real estate in trust

3,797.92

2,210

1,566

Castalia Omori II

1-8-13, Omori kita, Ota Ward, Tokyo

Real estate in trust

2,818.70

3,010

2,243

Castalia Nakameguro

1-18-7, Aobadai, Meguro Ward, Tokyo

Real estate in trust

3,166.71

4,690

3,772

Castalia Meguro Chojyamaru

2-8-1, Kamiosaki, Shinagawa Ward, Tokyo

Real estate in trust

2,123.77

2,450

1,988

Castalia Meguro Takaban

1-6-19, Takaban, Meguro Ward, Tokyo

Real estate in trust

1,961.52

1,950

1,738

Castalia Omori III

5-21-11,Minami-ooi, Shinagawa Ward, Tokyo

Real estate in trust

2,004.80

1,790

1,459

Castalia Meguro Tairamachi

1-23-8, Tairamachi, Meguro Ward, Tokyo

Real estate in trust

1,278.52

1,360

1,196

properties

Royal Parks SEASIR

1-16-2, Nishiarai Sakae-cho, Adachi Ward, Tokyo

Real estate in trust

17,269.74

4,980

4,009

Castalia Honkomagome

6-21-2, Honkomagome, Bunkyo Ward, Tokyo

Real estate in trust

2,224.41

1,830

1,506

Cosmo Heim Musashikosugi

2-8, Kizuki Ise-cho, Nakahara Ward, Kawasaki City,

Real estate in trust

4,208.83

2,060

1,657

Kanagawa

Residential

Castalia Tsurumi

3-5-10, Tsurumi Chuo, Tsurumi Ward, Yokohama

Real estate in trust

1,452.09

771

582

City, Kanagawa

Castalia Funabashi

4-4-8, Honcho, Funabashi City, Chiba

Real estate in trust

1,552.01

810

688

Castalia Nishi Funabashi

4-19-16, Nishi Funa, Funabashi City, Chiba

Real estate in trust

1,597.32

972

737

Castalia Nogeyama

1-8-1, Hinodecho, Naka Ward, Yokohama City,

Real estate in trust

744.90

329

294

Kanagawa

Castalia Ichikawa

1-24-3, Ichikawa, Ichikawa City, Chiba

Real estate in trust

876.89

560

400

Royal Parks Hanakoganei

1-8-2, Hanakoganei, Kodaira City, Tokyo

Real estate in trust

18,153.57

6,350

4,819

Castalia Musashikosugi

2-21,Imaikami-cho, Nakahara Ward, Kawasaki City,

Real estate in trust

2,179.80

1,930

1,630

Kanagawa

Royal Parks Wakabadai

2-1-1, Wakabadai, Inagi City, Tokyo

Real estate in trust

21,367.93

4,770

3,835

Pacific Royal Court Minatomirai

5-3-3, Minatomirai, Nishi Ward, Yokohama City,

Real estate in trust

26,294.49

11,100

8,273

Urban Tower

Kanagawa

L-Place Shinkoyasu

3-298-1,Koyasu-dori, Kanagawa Ward, Yokohama

Real estate in trust

3,009.74

2,100

1,681

City, Kanagawa

Royal Parks Musashikosugi

13-8, Aza Shinjuku-kochi, Nakamaruko, Nakahara

Real estate in trust

3,808.97

1,320

973

Ward, Kawasaki City, Kanagawa

Castalia Sakaisuji Honmachi

1-3-7, Kyutarocho, Chuo Ward, Osaka City, Osaka

Real estate in trust

3,471.39

1,850

1,297

Castalia Shin-Umeda

6-8-21, Nakatsu, Kita Ward, Osaka City, Osaka

Real estate in trust

3,279.90

1,630

1,200

Castalia Abeno

2-4-37,Abeno-Suji, Abeno Ward, Osaka City, Osaka

Real estate

10,920.75

5,410

3,980

Castalia Sakae

4-16-10, Sakae, Naka Ward, Nagoya City, Aichi

Real estate

2,836.00

1,240

902

Castalia Maruyama Urasando

21-1-47, Minami Nijo Nishi, Chuo Ward, Sapporo

Real estate

1,522.89

510

358

City, Hokkaido

Castalia Maruyama

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

Real estate

6,100.31

1,990

1,523

Omotesando

Hokkaido

Castalia Higashi Hie

5-31,Hie-cho, Hakata Ward, Fukuoka City, Fukuoka

Real estate

3,061.60

1,070

832

Castalia Tower Nagahoribashi

1-15-25, Shimanouchi, Chuo Ward, Osaka City,

Real estate

8,747.40

4,700

2,911

Osaka

Castalia Sannomiya

3-2-31, Isobedori, Chuo Ward, Kobe City, Hyogo

Real estate

3,071.60

1,520

1,056

Castalia Kotodaikoen

3-10-24,Kokubun-cho, Aoba Ward, Sendai City,

Real estate

1,684.10

573

409

Miyagi

Castalia Ichibancho

1-6-27,1-6-30, Ichibancho, Aoba Ward, Sendai City,

Real estate

2,800.32

951

687

Miyagi

Castalia Omachi

2-5-8, Omachi, Aoba Ward, Sendai City, Miyagi

Real estate

2,149.08

832

596

Castalia Uemachidai

4-1-12, Uehonmachi Nishi, Chuo Ward, Osaka City,

Real estate

5,415.39

2,800

1,937

Osaka

28

29

I. Asset Management Report

Assessed

Leasable

value at the

Book value

Asset

end of period

(Yen in

Property name

Location (Note 1)

Form of ownership

area (m2)

class

(Note 2)

(Yen in

millions)

millions)

(Note 4)

(Note 3)

Castalia Tower Higobashi

1-2-24, Tosabori, Nishi Ward, Osaka City, Osaka

Real estate

6,230.20

3,580

2,351

Big Tower Minami Sanjo

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

Real estate in trust

8,661.19

2,700

1,284

City, Hokkaido

Castalia Fushimi

1-8-49, Nishiki, Naka Ward, Nagoya City, Aichi

Real estate in trust

7,022.69

3,180

1,935

Castalia Meieki Minami

1-12-22, Meiekiminami, Nakamura Ward, Nagoya

Real estate in trust

1,822.10

984

651

City, Aichi

properties

Castalia Yakuin

2-3-13, Imaizumi, Chuo Ward, Fukuoka City,

Real estate

2,784.83

1,210

880

Fukuoka

Castalia Tsutsujigaoka

4-2-35, Shintera, Wakabayashi Ward, Sendai City,

Real estate in trust

4,471.11

1,780

1,165

Castalia Mibu

79, Mibu Aiai-cho, Nakagyo Ward, Kyoto City, Kyoto

Real estate in trust

2,828.39

1,520

1,090

Residential

Miyagi

Castalia Ohori Bay Tower

1-6-6, Minato, Chuo Ward, Fukuoka City, Fukuoka

Real estate in trust

11,089.75

3,670

2,552

Royal Parks Namba

2-2-40, Minato machi, Naniwa Ward, Osaka City,

Real estate in trust

10,354.15

3,000

2,473

Osaka

Castalia Shigahondori

1-15-2, Wakabadori, Kita Ward, Nagoya City, Aichi

Real estate in trust

5,086.69

2,120

1,569

Castalia Kyoto Nishioji

100-1, Shichijyo Goshonouchi Minamimachi,

Real estate

2,035.37

1,090

998

Shimogyo Ward, Kyoto City, Kyoto

Castalia Ningyocho III

1-2-3, Nihonbashi Ningyocho, Chuo Ward, Tokyo

Real estate in trust

2,897.06

2,550

1,986

Royal Parks Umejima

5-25-33, Umeda, Adachi Ward, Tokyo

Real estate in trust

6,828.78

2,220

1,955

Castalia Shinsakae II

1-29-21, Shinsakae, Naka Ward, Nagoya City, Aichi

Real estate in trust

4,425.46

2,000

1,827

Residential properties - Subtotal

472,121.87

292,928

227,274

ACROSSMALL Shinkamagaya

2-12-1,Shin-Kamagaya, Kamagaya City, Chiba

Real estate in trust

41,742.84

8,530

7,538

FOLEO Hirakata

1-20-10, Koyamichi, Hirakata City, Osaka

Real estate in trust

16,390.96

4,670

4,467

QiZ GATE URAWA

3720, Aza Fudodani, Oaza Nakao, Midori Ward,

Real estate in trust

9,720.49

4,370

4,211

Saitama City, Saitama

UNICUS Takasaki

1150-5, Aza Nishikanai, Iizuka-machi, Takasaki City,

Real estate in trust

9,277.08

3,170

2,941

Gunma

ACROSSPLAZA Miyoshi

855-403, Aza Kitashinno, Oaza Fujikubo, Miyoshi-

Real estate in trust

24,018.00

3,970

3,740

(Land)

machi, Iruma District, Saitama

DREAM TOWN ALi

3-1-1, Hamada, Aomori City, Aomori

Real estate in trust

22,196.81

8,690

7,898

ASOBOX (Land)

2-2-16, Nakatsuguchi, Kokura Kita Ward, Kitakyushu

Real estate in trust

11,207.90

1,910

1,617

City, Fukuoka

FOLEO Ome Imai

3-10-9, Imai, Ome City, Tokyo

Real estate in trust

8,637.91

3,950

3,752

FOLEO Otsu Ichiriyama

7-1-1, Ichiriyama, Otsu City, Shiga

Real estate in trust

62,917.73

8,590

8,031

FOLEO Hakata

1-14-46, Higashinaka, Hakata Ward, Fukuoka City,

Real estate in trust

23,230.77

3,680

3,182

Fukuoka

(Note 5)

properties

ACROSSMALL Semboku

5-456-67, Harayamadai, Minami Ward, Sakai City,

Real estate in trust

30,824.72

3,880

3,383

(Land) (Note 7)

Osaka

iias Tsukuba

5-19, Kenkyugakuen, Tsukuba City, Ibaraki

Real estate in trust

41,670.12

10,350

10,368

Retail

LIFE Sagamihara Wakamatsu

5-19-5, Wakamatsu, Minami Ward, Sagamihara City,

Real estate in trust

2,973.44

1,810

1,652

Kanagawa

FOLEO Sendai Miyanomori

4-14-5, Higashisendai, Miyagino Ward, Sendai City,

Real estate in trust

19,845.72

7,380

6,837

Miyagi

ACROSSPLAZA Inazawa

5-1-1, Otsuka Minami, Inazawa City, Aichi

Real estate in trust

31,981.70

2,560

2,390

(Land)

Sports Depo and GOLF5

2-18-17, Kamikuzuhara, Kokuraminami Ward,

Real estate in trust

8,899.89

2,400

2,169

Kokurahigashi IC Store

Kitakyushu City, Fukuoka

Hiratsuka Retail Property

1-2, Kuryozutsumi, Hiratsuka City, Kanagawa

Real estate in trust

28,002.92

6,650

5,857

(Land)

Royal Home Center

1-540-1, Tamatsukuri, Chuo Ward, Osaka City,

Real estate in trust

6,669.74

5,260

4,541

Morinomiya (Land)

Osaka

Aoyama Tailor Bunkyo Sengoku

2-29-21, Honkomagome, Bunkyo Ward, Tokyo

Real estate in trust

1,066.95

779

770

Ekimae Store

FOLEO Shobu

6006-1, Aza Terada, Shobu, Shobucho, Kuki City,

Real estate in trust

19,104.17

5,050

5,021

Saitama

COMBOX310

1-107-1, Miyamachi, Mito City, Ibaraki

Real estate in trust

30,517.69

4,650

4,448

Retail properties - Subtotal

450,897.55

102,299

94,820

properties

Daiwa Roynet Hotel Yokohama

2-7-4, Hagoromocho, Naka Ward, Yokohama City,

Real estate in trust

7,932.37

5,050

4,780

Kannai

Kanagawa

Super Hotel JR Nara Station

500-1,Sanjo-cho, Nara City, Nara

Real estate in trust

2,637.18

1,500

1,467

Sanjo Street

Hotel

Daiwa Roynet Hotel Nagoya

1-23, Tsubakicho, Nakamura Ward, Nagoya City,

Real estate in trust

7,605.41

4,540

4,536

Shinkansenguchi

Aichi

Hotel properties - Subtotal

18,174.96

11,090

10,785

Assessed

Leasable

value at the

Book value

Asset

end of period

(Yen in

Property name

Location (Note 1)

Form of ownership

area (m2)

class

(Note 2)

(Yen in

millions)

millions)

(Note 4)

(Note 3)

Urban Living Inage

327-1,Sanno-cho, Inage Ward, Chiba City, Chiba

Real estate in trust

4,177.52

1,280

835

Aburatsubo Marina HILLS

1523-1, Aza Shirasu, Misaki-machi Moroiso, Miura

Real estate in trust

3,901.14

1,260

1,054

City, Kanagawa

assets

Naha Shin-Toshin Center

1-1-12, Omoromachi, Naha City, Okinawa

Real estate in trust

13,480.00

8,110

7,329

Naha-Omoromachi)

Building (Daiwa Roynet Hotel

Other

Sharp Hiroshima Building

2-13-4, Nishihara, Asaminami Ward, Hiroshima City,

Real estate in trust

3,064.89

1,960

1,830

Hiroshima

Nursery Room Berry Bear

Omori Nishi Welcia Ota Omori

5-25-21, Omorinishi, Ota Ward, Tokyo

Real estate in trust

1,345.60

1,370

1,390

Nishi Store

Other - Subtotal

25,969.15

13,980

12,441

Total

2,751,125.06

822,248

718,571

(Notes) 1.

"Location" means displayed address of each real estate or each real estate in trust. If a property does not have a displayed address, the address of the building in the register (when

there is more than one address, any of them) is shown. For land properties, the address of the land in the register is shown as location.

  1. "Leasable area" means the leasable area of the building (or land in the case of land properties) in relation to each real estate or each real estate in trust which DHR believes is leasable as indicated in the relevant lease agreement or drawing of the building in relation to each real estate or each real estate in trust as of August 31, 2019. In the cases of each co-owned real estate or quasi co-owned trust beneficiary interests, the leasable area of the entire real estate multiplied by the ratio of co-ownership of the real estate or quasi co- ownership of the trust beneficiary interests in real estate held by DHR is provided.
  2. "Assessed value at the end of period" is the appraisal value as of August 31, 2019 provided by real estate appraisers (Daiwa Real Estate Appraisal Co., Ltd., Chuo Real Estate Appraisal Co., Ltd., The Tanizawa Sōgō Appraisal Co., Ltd., Japan Real Estate Institute and JLL Morii Valuation & Advisory K.K.) in accordance with the Articles of Incorporation of DHR as well as "Regulations on Accounting of Investment Corporations." The amounts are rounded down to the nearest million yen. There is no special interest between DHR and each real estate appraiser.
  3. "Book value" is the amount recorded on the balance sheets as of August 31, 2019 (in the case of real estate and real estate in trust, "Book value" is the acquisition price (including expenses associated with the acquisition) less accumulated depreciation), which is rounded down to the nearest million yen.
  4. Separately from the building of this property, a part of the land of this property is leased to the lessee for the purpose of subleasing to Fukuoka Prefecture and other third parties as land for a police station, etc. The area of such leased land is not included in the leasable area.
  5. The sale of property was completed on September 2, 2019.
  6. On April 1, 2019, CROSS MALL (Land) changed its name to ACROSSMALL Semboku (Land). The same shall apply hereinafter.

30

31

I. Asset Management Report

The status of rental business related to each asset held by DHR is as follows:

26th period

27th period

(From September 1, 2018 to February 28, 2019)

(From March 1, 2019 to August 31, 2019)

Asset

Property name

Occupancy rate

Rental revenues

Rate to total real

Occupancy rate

Rental revenues

Rate to total real

class

(as of the end of

(during the period)

estate rental

(as of the end of

(during the period)

estate rental

period)

(Yen in

revenues

period)

(Yen in

revenues

(%) (Note 1)

thousands)

(%) (Note 2)

(%) (Note 1)

thousands)

(%) (Note 2)

D Project Machida

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Hachioji

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Aikawa-Machi

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Shin-Misato

100.0

(Note 3)

(Note 3)

-

(Note 3)

(Note 3)

(Note 4)

D Project Urayasu I

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Urayasu II

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Akanehama

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Noda

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Inuyama

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Gifu (Note 5)

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Neyagawa

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Sapporo Minami

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

(Note 5)

D Project Morioka

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Sendai Minami

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

(Note 5)

D Project Tsuchiura

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Gotenba (Note 5)

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Nishi-Hiroshima

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

(Note 5)

D Project Fukuoka Umi

100.0

127,702

0.6

100.0

129,028

0.5

D Project Tosu

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Kuki I

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Kuki II

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Kawagoe I

100.0

102,969

0.4

100.0

102,938

0.4

properties

D Project Kawagoe II

100.0

141,550

0.6

100.0

142,536

0.6

DPL Inuyama

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Fukuoka Hakozaki

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

Logistics

D Project Kuki III

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Kuki IV

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Kuki V

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Kuki VI

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Yashio

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Nishiyodogawa

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Matsudo

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Hibiki Nada

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Morioka II

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Kawagoe III

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Kazo

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Urayasu III

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Tomisato

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Kyotanabe

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Sendai Izumi

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Oyama

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Sano

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Tatebayashi

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Kakegawa

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Hiroshima Seifu

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Tosu II

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Kawagoe IV

100.0

161,065

0.7

100.0

161,023

0.7

D Project Kuki VII

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Chibakita

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Matsudo II

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Tomisato II

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Osaka Hirabayashi

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Sendai Izumi II

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Kaminokawa

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

26th period

27th period

(From September 1, 2018 to February 28, 2019)

(From March 1, 2019 to August 31, 2019)

Asset

Property name

Occupancy rate

Rental revenues

Rate to total real

Occupancy rate

Rental revenues

Rate to total real

class

(as of the end of

(during the period)

estate rental

(as of the end of

(during the period)

estate rental

period)

(Yen in

revenues

period)

(Yen in

revenues

(%) (Note 1)

thousands)

(%) (Note 2)

(%) (Note 1)

thousands)

(%) (Note 2)

D Project Fuji

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Tosu III

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

D Project Kitahachioji I

-

-

-

100.0

(Note 3)

(Note 3)

D Project Kitahachioji II

-

-

-

100.0

(Note 3)

(Note 3)

properties

D Project Kitahachioji III

-

-

-

100.0

(Note 3)

(Note 3)

D Project Itabashi Shingashi

-

-

-

100.0

(Note 3)

(Note 3)

D Project Sagamihara

-

-

-

100.0

80,548

0.3

Logistics

D Project Kuki VIII

-

-

-

100.0

(Note 3)

(Note 3)

D Project Yokkaichi

-

-

-

100.0

(Note 3)

(Note 3)

D Project Ibaraki Ishioka

-

-

-

100.0

(Note 3)

(Note 3)

DPL Misato

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

DPL Fukuoka Kasuya

100.0

(Note 3)

(Note 3)

99.6

(Note 3)

(Note 3)

DPL Kitakyushu

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

Logistics properties - Subtotal

100.0

10,017,054

43.5

100.0

11,021,257

44.6

Qiz Ebisu

99.4

235,449

1.0

96.4

235,051

1.0

Castalia Azabujuban

95.5

123,071

0.5

98.6

123,474

0.5

Shichimenzaka

Castalia Shibakoen

98.9

71,482

0.3

97.5

72,130

0.3

Castalia Ginza

95.6

67,234

0.3

95.1

69,062

0.3

Castalia Hiroo

100.0

52,197

0.2

93.5

53,415

0.2

Castalia Nihonbashi

96.6

38,793

0.2

96.6

38,905

0.2

Castalia Hacchobori

95.2

67,732

0.3

98.4

67,758

0.3

Castalia Azabujuban

100.0

75,954

0.3

98.5

75,192

0.3

Castalia Azabujuban II

95.2

68,289

0.3

98.6

69,064

0.3

Castalia Shinjuku Natsumezaka

100.0

47,741

0.2

98.5

46,145

0.2

Castalia Ginza II

93.5

51,395

0.2

100.0

51,675

0.2

Castalia Shibuya Sakuragaoka

100.0

35,276

0.2

90.1

35,457

0.1

Castalia Nishi Azabu

100.0

70,259

0.3

94.8

72,810

0.3

Kasumicho

Castalia Ochanomizu

100.0

60,403

0.3

97.1

60,724

0.2

Castalia Sangubashi

100.0

45,406

0.2

95.9

45,701

0.2

Castalia Suitengu

100.0

46,687

0.2

100.0

45,651

0.2

properties

Castalia Suitengu II

100.0

42,211

0.2

100.0

42,322

0.2

Castalia Shintomicho

96.7

33,750

0.1

98.0

33,922

0.1

Castalia Shintomicho II

100.0

29,168

0.1

94.4

29,309

0.1

Residential

Castalia Harajuku

100.0

28,490

0.1

100.0

27,216

0.1

Castalia Shinjuku 7 chome

100.0

18,888

0.1

94.6

19,337

0.1

Castalia Yoyogi Uehara

100.0

23,030

0.1

100.0

22,647

0.1

Castalia Sendagaya

100.0

20,331

0.1

100.0

20,084

0.1

Castalia Ningyocho

97.7

36,510

0.2

100.0

38,670

0.2

Castalia Ningyocho II

100.0

40,954

0.2

100.0

41,333

0.2

Castalia Shin-Ochanomizu

100.0

33,542

0.1

100.0

32,935

0.1

Castalia Higashi Nihonbashi II

100.0

51,020

0.2

98.8

51,001

0.2

Castalia Jinbocho

100.0

43,506

0.2

98.4

42,928

0.2

Castalia Shintomicho III

97.7

25,633

0.1

100.0

24,893

0.1

Castalia Shinjuku Gyoen

100.0

83,844

0.4

100.0

83,827

0.3

Castalia Takanawadai

100.0

30,491

0.1

100.0

30,847

0.1

Castalia Higashi Nihonbashi III

100.0

24,336

0.1

100.0

24,352

0.1

Castalia Shinjuku Gyoen II

100.0

16,261

0.1

100.0

16,554

0.1

Castalia Shintomicho IV

95.0

16,669

0.1

100.0

16,137

0.1

Castalia Takanawadai II

100.0

39,898

0.2

100.0

40,282

0.2

Castalia Minami Azabu

100.0

21,472

0.1

95.8

20,455

0.1

Castalia Ginza III

98.7

87,858

0.4

98.8

86,566

0.4

Castalia Kayabacho

98.9

97,448

0.4

100.0

98,193

0.4

Castalia Takanawa

97.6

251,183

1.1

98.5

253,869

1.0

Castalia Higashi Nihonbashi

100.0

142,962

0.6

100.0

142,978

0.6

Castalia Shinjuku

100.0

92,554

0.4

100.0

92,554

0.4

32

33

I. Asset Management Report

26th period

27th period

(From September 1, 2018 to February 28, 2019)

(From March 1, 2019 to August 31, 2019)

Asset

Property name

Occupancy rate

Rental revenues

Rate to total real

Occupancy rate

Rental revenues

Rate to total real

class

(as of the end of

(during the period)

estate rental

(as of the end of

(during the period)

estate rental

period)

(Yen in

revenues

period)

(Yen in

revenues

(%) (Note 1)

thousands)

(%) (Note 2)

(%) (Note 1)

thousands)

(%) (Note 2)

Castalia Ichigaya

100.0

40,263

0.2

96.5

41,111

0.2

Shibaura Island Bloom Tower

98.4

393,935

1.7

97.5

397,688

1.6

Castalia Hatsudai

97.2

69,914

0.3

97.5

71,707

0.3

Castalia Hatsudai II

100.0

60,375

0.3

100.0

61,032

0.2

Castalia Ebisu

100.0

42,855

0.2

97.5

44,540

0.2

Castalia Meguro Kamurozaka

94.5

126,414

0.5

95.9

133,732

0.5

Castalia Toritsudaigaku

96.9

20,011

0.1

92.8

20,646

0.1

Castalia Yukigaya

98.4

35,578

0.2

100.0

35,926

0.1

Castalia Yutenji

100.0

36,918

0.2

89.5

36,605

0.1

Castalia Otsuka

95.5

46,255

0.2

98.7

47,718

0.2

Castalia Kikukawa

100.0

27,465

0.1

98.0

31,611

0.1

Castalia Meguro

95.8

30,982

0.1

95.8

32,001

0.1

Castalia Otsuka II

97.7

39,288

0.2

98.3

37,585

0.2

Castalia Jiyugaoka

95.0

39,425

0.2

97.7

39,530

0.2

Castalia Mejiro

100.0

34,529

0.2

100.0

34,770

0.1

Castalia Ikebukuro

100.0

88,564

0.4

98.3

87,855

0.4

Castalia Kaname-cho

98.6

39,117

0.2

98.6

40,013

0.2

Castalia Tower Shinagawa

97.5

279,613

1.2

98.9

280,796

1.1

Seaside

Castalia Yakumo

100.0

25,863

0.1

100.0

25,095

0.1

Castalia Togoshiekimae

100.0

51,462

0.2

100.0

51,485

0.2

Castalia Honjo Azumabashi

94.3

39,237

0.2

96.5

38,484

0.2

Castalia Kitazawa

93.3

25,173

0.1

100.0

26,457

0.1

Castalia Monzennakacho

100.0

17,589

0.1

100.0

17,790

0.1

Castalia Kamiikedai

100.0

7,800

0.0

100.0

7,905

0.0

properties

Castalia Morishita

100.0

33,236

0.1

97.1

32,043

0.1

Castalia Wakabayashikoen

100.0

28,552

0.1

100.0

28,166

0.1

Castalia Asakusabashi

94.7

32,700

0.1

98.0

32,818

0.1

Residential

Castalia Iriya

100.0

22,639

0.1

100.0

22,653

0.1

Castalia Kita Ueno

98.4

90,741

0.4

99.0

91,751

0.4

Castalia Morishita II

100.0

28,702

0.1

100.0

29,284

0.1

Castalia Minowa

97.9

49,625

0.2

98.4

51,992

0.2

Castalia Oyamadai

94.2

17,130

0.1

100.0

18,123

0.1

Castalia Nakano

100.0

37,118

0.2

97.2

36,551

0.1

Castalia Yoga

97.2

32,399

0.1

96.6

33,633

0.1

Castalia Sumiyoshi

98.1

35,613

0.2

100.0

33,464

0.1

Castalia Monzennakacho II

100.0

69,444

0.3

97.2

69,976

0.3

Castalia Oshiage

100.0

36,404

0.2

100.0

40,118

0.2

Castalia Kuramae

100.0

44,458

0.2

100.0

43,807

0.2

Castalia Nakanobu

92.1

70,154

0.3

94.3

65,539

0.3

Royal Parks Toyosu

100.0

334,281

1.5

100.0

335,216

1.4

Castalia Togoshi

99.1

75,882

0.3

98.3

75,549

0.3

Castalia Ooimachi

100.0

39,156

0.2

100.0

39,748

0.2

Castalia Omori

96.8

53,367

0.2

96.9

53,779

0.2

Castalia Mishuku

94.8

69,159

0.3

98.9

70,002

0.3

Castalia Arakawa

96.8

67,666

0.3

94.9

67,624

0.3

Castalia Omori II

97.8

78,962

0.3

99.3

83,459

0.3

Castalia Nakameguro

98.4

119,700

0.5

96.4

116,713

0.5

Castalia Meguro Chojyamaru

98.8

64,900

0.3

97.0

64,180

0.3

Castalia Meguro Takaban

96.8

53,983

0.2

98.3

54,809

0.2

Castalia Omori III

98.7

49,171

0.2

98.8

49,973

0.2

Morino Tonari (Note 6)

-

17,165

0.1

-

-

-

Castalia Meguro Tairamachi

95.2

33,511

0.1

100.0

33,940

0.1

Royal Parks SEASIR

100.0

245,852

1.1

100.0

245,883

1.0

Castalia Honkomagome

100.0

50,744

0.2

96.6

50,293

0.2

Cosmo Heim Musashikosugi

100.0

59,004

0.3

100.0

59,048

0.2

Castalia Tsurumi

97.0

27,800

0.1

96.9

27,867

0.1

26th period

27th period

(From September 1, 2018 to February 28, 2019)

(From March 1, 2019 to August 31, 2019)

Asset

Property name

Occupancy rate

Rental revenues

Rate to total real

Occupancy rate

Rental revenues

Rate to total real

class

(as of the end of

(during the period)

estate rental

(as of the end of

(during the period)

estate rental

period)

(Yen in

revenues

period)

(Yen in

revenues

(%) (Note 1)

thousands)

(%) (Note 2)

(%) (Note 1)

thousands)

(%) (Note 2)

Castalia Funabashi

95.5

30,827

0.1

98.9

30,876

0.1

Castalia Nishi Funabashi

100.0

33,789

0.1

96.3

34,033

0.1

Castalia Nogeyama

100.0

14,713

0.1

100.0

14,667

0.1

Castalia Ichikawa

100.0

19,681

0.1

100.0

19,698

0.1

Royal Parks Hanakoganei

100.0

246,140

1.1

100.0

246,583

1.0

Castalia Musashikosugi

100.0

58,186

0.3

94.1

57,134

0.2

Royal Parks Wakabadai

100.0

266,030

1.2

100.0

275,594

1.1

Pacific Royal Court

100.0

520,501

2.3

100.0

520,105

2.1

Minatomirai Urban Tower

L-Place Shinkoyasu

100.0

57,036

0.2

100.0

56,964

0.2

Royal Parks Musashikosugi

100.0

68,338

0.3

100.0

68,136

0.3

Castalia Sakaisuji Honmachi

96.8

61,610

0.3

95.8

61,418

0.2

Castalia Shin-Umeda

95.8

56,648

0.2

97.2

55,197

0.2

Castalia Abeno

100.0

179,731

0.8

97.5

176,916

0.7

Castalia Sakae

96.4

44,799

0.2

100.0

46,126

0.2

Castalia Maruyama Urasando

95.4

19,845

0.1

97.7

19,522

0.1

properties

Castalia Maruyama Omotesando

90.7

75,389

0.3

84.4

71,781

0.3

Castalia Higashi Hie

96.8

43,309

0.2

96.8

43,938

0.2

Castalia Tower Nagahoribashi

98.2

166,248

0.7

96.0

159,778

0.6

Residential

Castalia Sannomiya

99.1

52,777

0.2

94.7

53,073

0.2

Castalia Kotodaikoen

97.6

23,875

0.1

100.0

24,838

0.1

Castalia Ichibancho

100.0

38,858

0.2

96.8

38,628

0.2

Castalia Omachi

97.2

34,025

0.1

97.2

33,584

0.1

Castalia Uemachidai

98.6

89,261

0.4

91.5

87,408

0.4

Castalia Tower Higobashi

95.6

133,124

0.6

96.8

132,824

0.5

Big Tower Minami Sanjo

94.6

110,220

0.5

90.3

110,352

0.4

Castalia Fushimi

96.5

107,179

0.5

87.0

101,530

0.4

Castalia Meieki Minami

95.9

32,034

0.1

95.8

31,674

0.1

Castalia Yakuin

99.2

42,223

0.2

100.0

42,553

0.2

Castalia Mibu

96.3

51,425

0.2

98.8

53,195

0.2

Castalia Tsutsujigaoka

99.0

60,090

0.3

98.7

61,437

0.2

Castalia Ohori Bay Tower

51.8

147,473

0.6

48.9

145,532

0.6

Royal Parks Namba

100.0

135,660

0.6

100.0

137,878

0.6

Castalia Shigahondori

97.2

74,484

0.3

90.3

71,412

0.3

Castalia Kyoto Nishioji

100.0

33,923

0.1

98.8

34,885

0.1

Castalia Ningyocho III

100.0

74,043

0.3

100.0

70,360

0.3

Royal Parks Umejima

100.0

102,852

0.4

100.0

103,407

0.4

Castalia Shinsakae II

100.0

60,503

0.3

100.0

61,301

0.2

Residential properties - Subtotal

97.4

9,544,130

41.5

96.7

9,549,910

38.6

ACROSSMALL Shinkamagaya

100.0

276,055

1.2

100.0

279,700

1.1

FOLEO Hirakata

92.8

269,536

1.2

92.8

264,820

1.1

QiZ GATE URAWA

100.0

214,539

0.9

99.7

223,331

0.9

UNICUS Takasaki

100.0

129,870

0.6

100.0

129,870

0.5

ACROSSPLAZA Miyoshi (Land)

100.0

94,284

0.4

100.0

94,284

0.4

DREAM TOWN ALi

100.0

392,653

1.7

100.0

394,677

1.6

properties

ASOBOX (Land)

100.0

47,076

0.2

100.0

47,076

0.2

FOLEO Ome Imai

100.0

128,820

0.6

100.0

128,820

0.5

FOLEO Otsu Ichiriyama

100.0

322,633

1.4

100.0

323,066

1.3

Retail

FOLEO Hakata

100.0

126,216

0.5

100.0

126,216

0.5

ACROSSMALL Semboku

100.0

42,388

0.2

100.0

90,606

0.4

(Land)

iias Tsukuba

-

-

-

100.0

261,583

1.1

LIFE Sagamihara Wakamatsu

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

FOLEO Sendai Miyanomori

100.0

238,500

1.0

100.0

238,682

1.0

ACROSSPLAZA Inazawa

100.0

69,660

0.3

100.0

69,660

0.3

(Land)

Sports Depo and GOLF5

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

Kokurahigashi IC Store

34

35

I. Asset Management Report

26th period

27th period

(From September 1, 2018 to February 28, 2019)

(From March 1, 2019 to August 31, 2019)

Asset

Property name

Occupancy rate

Rental revenues

Rate to total real

Occupancy rate

Rental revenues

Rate to total real

class

(as of the end of

(during the period)

estate rental

(as of the end of

(during the period)

estate rental

period)

(Yen in

revenues

period)

(Yen in

revenues

(%) (Note 1)

thousands)

(%) (Note 2)

(%) (Note 1)

thousands)

(%) (Note 2)

Hiratsuka Retail Property (Land)

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

properties

Royal Home Center

100.0

103,488

0.4

100.0

103,488

0.4

Sengoku Ekimae Store

-

-

-

100.0

(Note 3)

(Note 3)

Morinomiya (Land)

Aoyama Tailor Bunkyo

Retail

FOLEO Shobu

-

-

-

100.0

127,506

0.5

COMBOX310

100.0

69,600

0.3

100.0

148,800

0.6

Retail properties - Subtotal

99.7

2,789,389

12.1

99.7

3,335,242

13.5

properties

Daiwa Roynet Hotel

100.0

168,331

0.7

100.0

155,998

0.6

Yokohama Kannai

Super Hotel JR Nara Station

100.0

24,900

0.1

100.0

52,210

0.2

Sanjo Street

Hotel

Daiwa Roynet Hotel Nagoya

-

-

-

100.0

102,200

0.4

Shinkansenguchi

Hotel properties - Subtotal

100.0

193,231

0.8

100.0

310,408

1.3

Urban Living Inage

100.0

39,060

0.2

100.0

39,060

0.2

Aburatsubo Marina HILLS

100.0

43,749

0.2

100.0

43,749

0.2

assets

Naha Shin-Toshin Center

Building (Daiwa Roynet Hotel

100.0

328,739

1.4

100.0

331,818

1.3

Naha-Omoromachi)

Other

Sharp Hiroshima Building

100.0

(Note 3)

(Note 3)

100.0

(Note 3)

(Note 3)

Nursery Room Berry Bear

Omori Nishi Welcia Ota

-

-

-

100.0

(Note 3)

(Note 3)

Omori Nishi Store

Other - Subtotal

100.0

469,751

2.0

100.0

506,135

2.0

Total

99.5

23,013,558

100.0

99.4

24,722,954

100.0

(Notes) 1.

"Occupancy rate (as of the end of period)" is the leased floor space expressed as a percentage of the leasable floor space of each real estate or each real estate in trust as of

February 28, 2019 and August 31, 2019, rounded to the first decimal place.

    1. "Rate to total real estate rental revenues" is the rental revenues from each real estate or each real estate in trust expressed as a percentage of total rental revenues from the entire portfolio, rounded to the first decimal place.
    2. Undisclosed as consent for disclosure has not been obtained from the lessee.
    3. The sale of property was completed on August 30, 2019.
    4. The sale of property was completed on September 2, 2019.
    5. The sale of property was completed on December 7, 2018.
  2. Description of Renewable Energy Power Generation Facilities, etc.

Not applicable.

(5) Description of Operating Rights of Public Facilities, etc.

Not applicable.

(6) Summary of Outstanding Contracted Amount and Fair Value of Specified Transactions

The following summarizes contracted amount and fair value of specified transactions of DHR as of August 31, 2019.

Contracted amount (Yen in thousands) (Note 1)

Fair value

Category

Type

(Yen in thousands)

Portion due after one year

(Note 2) (Note 3)

Transaction other than

Interest rate swap transaction

Receipt: floating interest rate

106,168,000

88,758,000

(1,607,252)

market transaction

Payment: fixed interest rate

Total

106,168,000

88,758,000

(1,607,252)

(Notes) 1. "Contracted amount" is based on the notional principal amount.

  1. "Fair value" is quoted by counterparties based on the prevailing market interest rate.
  2. With respect to fair value amounts, the transactions for which the special treatment for interest rate swap contracts under the accounting standard for financial instruments is applied are not carried at fair value in the balance sheets.

(7) Status of Other Assets

Real estate and trust beneficiary interests in real estate are all listed in "(3) Description of Portfolio" presented earlier in this report. The following are other specified assets as of August 31, 2019.

(Yen in thousands)

Type

Issue name

Total face

Book value

Accrued

Prepaid

Fair value

Valuation

Remark

value

interest

accrued interest

gain or loss

30-year principal-

Deposited as

Government

stripped government

10,000

9,377

-

-

9,931

553

business security

bonds

bonds

deposit

(Series 27)

Total

10,000

9,377

-

-

9,931

553

(8) Holding of Assets by Country and Region

Not applicable.

36

37

I. Asset Management Report

4. Capital Expenditures for Properties Held

(1) Schedule of Capital Expenditures

The following table shows major scheduled capital expenditures for planned renovation work, etc. for owned properties (real estate, real estate in trust, etc.) as of August 31, 2019. The estimated construction cost includes the portion charged to expenses.

Property name

Purpose

Scheduled period

Estimated construction cost (Yen in thousands)

(Location)

Total amount

Payment during

Total amount

the period

paid

DPL Fukuoka Kasuya

Installment of LED lights in the

From July 2019

118,800

35,640

35,640

(Kasuya District, Fukuoka)

exclusive area

to September 2019

Tenant sign renewal

From April 2019

106,704

28,188

28,188

Qiz Ebisu

to November 2019

(Shibuya Ward, Tokyo)

Large-scale renovations

From October 2018

292,680

146,340

146,340

to November 2019

Castalia Nihonbashi

Large-scale renovations

From November 2019

42,790

-

-

(Chuo Ward, Tokyo)

to February 2020

Castalia Hatsudai

Large-scale renovations

From September 2019

91,300

-

-

(Shibuya Ward, Tokyo)

to February 2020

Castalia Tower Shinagawa

From August 2019

Seaside

Large-scale renovations

207,360

-

-

to March 2020

(Shinagawa Ward, Tokyo)

Castalia Nakano

Large-scale renovations

From November 2019

41,472

-

-

(Nakano Ward, Tokyo)

to March 2020

Royal Parks Musashikosugi

Preventive maintenance

From September 2019

construction in mechanical parking

12,734

-

-

(Kawasaki City, Kanagawa)

to September 2019

lots

Castalia Uemachidai

Large-scale renovations

From October 2019

126,940

-

-

(Osaka City, Osaka)

to February 2020

DREAM TOWN ALi

HVAC renewal in the common area

From October 2019

94,050

-

-

(Aomori City, Aomori)

to November 2019

(2) Capital Expenditures during the Period

For owned properties (real estate, real estate in trust, etc.), an overview of major construction work conducted during the current fiscal period that falls into DHR's capital expenditures is as follows. Capital expenditures during the current fiscal period were ¥778,741 thousand together with ¥833,301 thousand in repairs and maintenance expenses and ¥301,418 thousand in restoration costs classified as expenses for the current fiscal period, making a total of ¥1,913,461 thousand in construction work.

Property name

Purpose

Period

Construction cost

(Location)

(Yen in thousands)

D Project Morioka

Disaster recovery

From June 2019

27,181

(Takizawa City, Iwate)

to August 2019

Castalia Ichigaya

Large-scale renovations

From March 2019

22,500

(Shinjuku Ward, Tokyo)

to June 2019

Royal Parks Hanakoganei

Large-scale renovations

From February 2019

100,022

(Kodaira City, Tokyo)

to August 2019

ACROSSMALL

From November 2018

Shinkamagaya

Groundwater usage facilities installation construction

78,100

to March 2019

(Kamagaya City, Chiba)

(3) Cash Reserves for Long-Term Repair and Maintenance Plans

DHR sets aside the following cash reserves for repair and maintenance in order to provide for payment of funds for future maintenance of the value of assets and the renewal of facilities and equipment.

(Yen in thousands)

23rd period

24th period

25th period

26th period

27th period

Operating period

From

From

From

From

From

March 1, 2017

September 1, 2017

March 1, 2018

September 1, 2018

March 1, 2019

to August 31, 2017

to February 28, 2018

to August 31, 2018

to February 28, 2019

to August 31, 2019

Balance of reserves at

1,298,495

1,439,455

1,470,535

1,509,615

1,548,695

the beginning of period

Amount of reserves

140,960

39,080

39,080

39,080

39,080

during period

Amount of reversal of

-

8,000

-

-

-

reserves during period

Reserves carried forward

1,439,455

1,470,535

1,509,615

1,548,695

1,587,775

5. Expenses and Liabilities

(1) Expenses Incurred in Connection with Management of Assets

(Yen in thousands)

Item

26th period

27th period

From September 1, 2018 to February 28, 2019

From March 1, 2019 to August 31, 2019

Asset management fees (Note)

1,519,464

1,623,154

Asset custody fees

33,727

36,240

Administrative service fees

89,196

92,336

Directors' remuneration

6,600

6,600

Other expenses

351,000

372,568

Total

1,999,989

2,130,899

(Note) As for the asset management fees, in addition to the amount shown above, there were a management fee for property acquisition included in the cost of acquisition of individual investment properties, etc. of ¥39,900 thousand and a management fee for sale of properties of ¥6,000 thousand for the 26th period, and a management fee for property acquisition included in the cost of acquisition of individual investment properties, etc. of ¥167,725 thousand and a management fee for sale of properties of ¥14,387 thousand for the 27th period.

(2) Debt Financing

The status of loans per financial institution as of August 31, 2019 is as follows:

Classification

Balance at

Balance at

the

Average

the end of

Borrowing

beginning of

interest

Repayment

Method of

date

period

period

rate

date

repayment

Use

Note

Lender

(Yen in

(Yen in

(Note 1)

thousands)

thousands)

March 27,

1.07%

March 27,

Bullet

Unsecured

MUFG Bank, Ltd.

4,000,000

-

(Note 5)

and non-

2012

(Note 3)

2019

repayment

guaranteed

Sumitomo Mitsui Trust Bank,

2,000,000

-

Limited

Aozora Bank, Ltd.

2,000,000

-

The Norinchukin Bank

1,000,000

-

Unsecured

The Chiba Bank, Ltd.

March 31,

600,000

-

March 29,

Bullet

0.26%

(Note 6)

and non-

Sumitomo Mitsui Banking

2016

2019

repayment

500,000

-

guaranteed

Corporation

Mizuho Bank, Ltd.

500,000

-

loans

The Shizuoka Bank, Ltd.

500,000

-

The Bank of Fukuoka, Ltd.

500,000

-

long-term

Sumitomo Mitsui Banking

3,260,000

3,260,000

Corporation

Sumitomo Mitsui Trust Bank,

4,430,000

4,430,000

Limited

January

of

Aozora Bank, Ltd.

31, 2013

2,700,000

2,700,000

Unsecured

portion

0.96%

January 31,

Bullet

and

(Note 7)

and non-

MUFG Bank, Ltd.

2,260,000

2,260,000

(Note 2)

2020

repayment

February

guaranteed

Mizuho Bank, Ltd.

1,930,000

1,930,000

Current

28, 2013

Ltd.

1,830,000

1,830,000

Mizuho Trust & Banking Co.,

The Norinchukin Bank

1,000,000

1,000,000

Development Bank of Japan

January

0.96%

January 31,

Bullet

Unsecured

1,500,000

1,500,000

(Note 7)

and non-

Inc.

31, 2013

(Note 3)

2020

repayment

guaranteed

Sumitomo Mitsui Banking

2,000,000

2,000,000

Corporation

MUFG Bank, Ltd.

2,000,000

2,000,000

Unsecured

Sumitomo Mitsui Trust Bank,

November

1.29%

November

Bullet

2,000,000

2,000,000

(Note 4)

and non-

Limited

29, 2012

(Note 3)

29, 2019

repayment

guaranteed

Mizuho Bank, Ltd.

2,000,000

2,000,000

Development Bank of Japan

2,000,000

2,000,000

Inc.

38

39

I. Asset Management Report

Classification

Balance at

Balance at

the

Average

the end of

Borrowing

beginning of

interest

Repayment

Method of

date

period

period

rate

date

repayment

Use

Note

Lender

(Yen in

(Yen in

(Note 1)

thousands)

thousands)

Sumitomo Mitsui Trust Bank,

-

950,000

Limited

loans

MUFG Bank, Ltd.

-

1,950,000

term-long

Sumitomo Mitsui Banking

-

950,000

Corporation

September

March 31,

Bullet

Unsecured

0.21%

(Note 6)

and non-

Mizuho Bank, Ltd.

-

950,000

30, 2016

2020

repayment

guaranteed

of

Resona Bank, Limited

-

800,000

The Norinchukin Bank

-

500,000

portion

The Chiba Bank, Ltd.

-

500,000

Current

Shinsei Bank, Limited

-

300,000

Company, Limited

2015

-

1,000,000

(Note 3)

2020

repayment

(Note 4)

and non-

Mitsui Sumitomo Insurance

April 1,

0.57%

April 1,

Bullet

Unsecured

guaranteed

Subtotal

-

40,510,000

36,810,000

-

-

-

-

-

January

0.90%

January 31,

Bullet

Unsecured

The Norinchukin Bank

3,500,000

3,500,000

(Note 7)

and non-

31, 2014

(Note 2)

2021

repayment

guaranteed

Sumitomo Mitsui Banking

936,000

936,000

Corporation

Sumitomo Mitsui Trust Bank,

1,599,000

1,599,000

Limited

The Norinchukin Bank

January

1,510,000

1,510,000

0.61%

January 31,

Bullet

Unsecured

Aozora Bank, Ltd.

1,169,000

1,169,000

(Note 7)

and non-

30, 2015

(Note 2)

2022

repayment

Mizuho Bank, Ltd.

603,000

603,000

guaranteed

Mizuho Trust & Banking Co.,

454,000

454,000

Ltd.

MUFG Bank, Ltd.

437,000

437,000

The Chiba Bank, Ltd.

150,000

150,000

Development Bank of Japan

January

0.88%

January 31,

Bullet

Unsecured

2,000,000

2,000,000

(Note 7)

and non-

Inc.

30, 2015

(Note 3)

2024

repayment

guaranteed

loans

Sumitomo Mitsui Trust Bank,

2,030,000

2,030,000

Limited

Sumitomo Mitsui Banking

1,354,500

1,354,500

Long-term

Corporation

The Norinchukin Bank

1,600,000

1,600,000

Aozora Bank, Ltd.

1,192,000

1,192,000

Mizuho Bank, Ltd.

May 1,

1,017,000

1,017,000

0.66%

April 28,

Bullet

Unsecured

MUFG Bank, Ltd.

907,500

907,500

(Note 4)

and non-

2015

(Note 2)

2022

repayment

Mizuho Trust & Banking Co.,

524,000

524,000

guaranteed

Ltd.

Nippon Life Insurance Company

500,000

500,000

Development Bank of Japan

400,000

400,000

Inc.

The Shizuoka Bank, Ltd.

260,000

260,000

The Chiba Bank, Ltd.

215,000

215,000

Sumitomo Mitsui Banking

1,800,000

1,800,000

Corporation

MUFG Bank, Ltd.

3,200,000

3,200,000

Unsecured

Sumitomo Mitsui Trust Bank,

December

1,800,000

1,800,000

0.59%

December

Bullet

(Note 6)

and non-

Limited

28, 2015

(Note 2)

28, 2022

repayment

guaranteed

Mizuho Bank, Ltd.

1,800,000

1,800,000

Resona Bank, Limited

1,400,000

1,400,000

Shinsei Bank, Limited

500,000

500,000

Classification

Balance at

Balance at

the

Average

the end of

Borrowing

beginning of

interest

Repayment

Method of

date

period

period

rate

date

repayment

Use

Note

Lender

(Yen in

(Yen in

(Note 1)

thousands)

thousands)

Sumitomo Mitsui Trust Bank,

March 27,

1.50%

March 27,

Bullet

Unsecured

2,000,000

2,000,000

(Note 4)

and non-

Limited

2013

(Note 2)

2023

repayment

guaranteed

Sumitomo Mitsui Banking

500,000

500,000

Corporation

Unsecured

MUFG Bank, Ltd.

April 1,

1,000,000

1,000,000

1.05%

April 1,

Bullet

(Note 4)

and non-

Mizuho Bank, Ltd.

2014

1,000,000

1,000,000

(Note 2)

2021

repayment

guaranteed

Sumitomo Mitsui Trust Bank,

500,000

500,000

Limited

Sumitomo Mitsui Banking

1,000,000

1,000,000

Corporation

Unsecured

MUFG Bank, Ltd.

April 1,

1,000,000

1,000,000

1.21%

April 1,

Bullet

(Note 4)

and non-

Mizuho Bank, Ltd.

2014

1,000,000

1,000,000

(Note 2)

2022

repayment

guaranteed

Sumitomo Mitsui Trust Bank,

500,000

500,000

Limited

Sumitomo Mitsui Banking

1,000,000

1,000,000

Corporation

MUFG Bank, Ltd.

April 1,

1,000,000

1,000,000

1.52%

April 1,

Bullet

Unsecured

Sumitomo Mitsui Trust Bank,

(Note 4)

and non-

2014

500,000

500,000

(Note 2)

2024

repayment

Limited

guaranteed

Development Bank of Japan

500,000

500,000

Inc.

Sumitomo Mitsui Banking

500,000

500,000

Corporation

MUFG Bank, Ltd.

April 1,

500,000

500,000

2.03%

April 1,

Bullet

Unsecured

Sumitomo Mitsui Trust Bank,

(Note 4)

and non-

loans

2014

500,000

500,000

(Note 2)

2026

repayment

Limited

guaranteed

Long-term

Development Bank of Japan

500,000

500,000

Inc.

September

1.00%

September

Bullet

Unsecured

Nippon Life Insurance Company

1,000,000

1,000,000

(Note 4)

and non-

30, 2014

(Note 3)

29, 2023

repayment

guaranteed

Mitsui Sumitomo Insurance

April 1,

0.57%

April 1,

Bullet

Unsecured

1,000,000

-

(Note 4)

and non-

Company, Limited

2015

(Note 3)

2020

repayment

guaranteed

Sumitomo Mitsui Banking

1,000,000

1,000,000

Unsecured

Corporation

April 1,

0.87%

October 3,

Bullet

(Note 4)

and non-

Mizuho Bank, Ltd.

2015

1,000,000

1,000,000

(Note 2)

2022

repayment

guaranteed

The Norinchukin Bank

1,000,000

1,000,000

Sumitomo Mitsui Banking

1,000,000

1,000,000

Corporation

Unsecured

Sumitomo Mitsui Trust Bank,

April 1,

1,000,000

1,000,000

0.99%

October 2,

Bullet

(Note 4)

and non-

Limited

2015

(Note 2)

2023

repayment

guaranteed

Mizuho Bank, Ltd.

1,000,000

1,000,000

Resona Bank, Limited

1,000,000

1,000,000

Sumitomo Mitsui Banking

1,000,000

1,000,000

Corporation

Unsecured

Sumitomo Mitsui Trust Bank,

April 1,

1,000,000

1,000,000

1.23%

October 1,

Bullet

(Note 4)

and non-

Limited

2015

(Note 2)

2025

repayment

guaranteed

MUFG Bank, Ltd.

1,000,000

1,000,000

Mizuho Bank, Ltd.

1,000,000

1,000,000

April 1,

1.18%

October 1,

Bullet

Unsecured

MUFG Bank, Ltd.

3,000,000

3,000,000

(Note 4)

and non-

2015

(Note 3)

2025

repayment

guaranteed

Development Bank of Japan

April 1,

1.46%

April 1,

Bullet

Unsecured

1,500,000

1,500,000

(Note 4)

and non-

Inc.

2015

(Note 3)

2027

repayment

guaranteed

40

41

I. Asset Management Report

Classification

Balance at

Balance at

the

Average

the end of

Borrowing

beginning of

interest

Repayment

Method of

date

period

period

rate

date

repayment

Use

Note

Lender

(Yen in

(Yen in

(Note 1)

thousands)

thousands)

Sumitomo Mitsui Trust Bank,

1,000,000

1,000,000

Limited

Unsecured

MUFG Bank, Ltd.

September

1,000,000

1,000,000

0.65%

September

Bullet

(Note 4)

and non-

Sumitomo Mitsui Banking

28, 2015

(Note 2)

28, 2022

repayment

1,000,000

1,000,000

guaranteed

Corporation

Mizuho Bank, Ltd.

1,000,000

1,000,000

September

0.73%

September

Bullet

Unsecured

Nippon Life Insurance Company

1,000,000

1,000,000

(Note 4)

and non-

28, 2015

(Note 3)

30, 2024

repayment

guaranteed

Sumitomo Mitsui Banking

1,000,000

1,000,000

Corporation

Sumitomo Mitsui Trust Bank,

November

1,000,000

1,000,000

0.51%

November

Bullet

Unsecured

Limited

(Note 6)

and non-

30, 2015

(Note 2)

30, 2021

repayment

MUFG Bank, Ltd.

3,000,000

3,000,000

guaranteed

Mizuho Bank, Ltd.

1,000,000

1,000,000

Resona Bank, Limited

1,000,000

1,000,000

Sumitomo Mitsui Banking

1,000,000

1,000,000

Corporation

Unsecured

MUFG Bank, Ltd.

November

1,000,000

1,000,000

0.71%

May 31,

Bullet

(Note 6)

and non-

Sumitomo Mitsui Trust Bank,

30, 2015

(Note 2)

2023

repayment

1,000,000

1,000,000

guaranteed

Limited

loans

Mizuho Bank, Ltd.

1,000,000

1,000,000

Sumitomo Mitsui Banking

1,000,000

1,000,000

Corporation

Unsecured

term-Long

MUFG Bank, Ltd.

November

1,000,000

1,000,000

0.97%

May 30,

Bullet

(Note 6)

and non-

Sumitomo Mitsui Trust Bank,

30, 2015

(Note 2)

2025

repayment

1,000,000

1,000,000

guaranteed

Limited

Mizuho Bank, Ltd.

1,000,000

1,000,000

Sumitomo Mitsui Banking

1,000,000

1,000,000

Corporation

Unsecured

MUFG Bank, Ltd.

November

1,000,000

1,000,000

1.09%

May 29,

Bullet

(Note 6)

and non-

Sumitomo Mitsui Trust Bank,

30, 2015

(Note 2)

2026

repayment

1,000,000

1,000,000

guaranteed

Limited

Mizuho Bank, Ltd.

1,000,000

1,000,000

Sumitomo Mitsui Banking

1,500,000

1,500,000

Corporation

Sumitomo Mitsui Trust Bank,

1,500,000

1,500,000

Limited

MUFG Bank, Ltd.

2,000,000

2,000,000

Mizuho Bank, Ltd.

September

1,500,000

1,500,000

0.63%

September

Bullet

Unsecured

(Note 4)

and non-

Resona Bank, Limited

28, 2016

500,000

500,000

(Note 3)

29, 2025

repayment

guaranteed

Mizuho Trust & Banking Co.,

500,000

500,000

Ltd.

Shinsei Bank, Limited

500,000

500,000

Shinkin Central Bank

500,000

500,000

The Bank of Fukuoka, Ltd.

500,000

500,000

Development Bank of Japan

September

0.69%

September

Bullet

Unsecured

1,000,000

1,000,000

(Note 4)

and non-

Inc.

28, 2016

(Note 3)

28, 2026

repayment

guaranteed

Classification

Balance at

Balance at

the

Average

the end of

Borrowing

beginning of

interest

Repayment

Method of

date

period

period

rate

date

repayment

Use

Note

Lender

(Yen in

(Yen in

(Note 1)

thousands)

thousands)

Sumitomo Mitsui Trust Bank,

950,000

-

Limited

MUFG Bank, Ltd.

1,950,000

-

Sumitomo Mitsui Banking

950,000

-

Corporation

September

March 31,

Bullet

Unsecured

0.21%

(Note 6)

and non-

Mizuho Bank, Ltd.

950,000

-

30, 2016

2020

repayment

guaranteed

Resona Bank, Limited

800,000

-

The Norinchukin Bank

500,000

-

The Chiba Bank, Ltd.

500,000

-

Shinsei Bank, Limited

300,000

-

Sumitomo Mitsui Banking

1,700,000

1,700,000

Corporation

MUFG Bank, Ltd.

2,700,000

2,700,000

Sumitomo Mitsui Trust Bank,

September

1,700,000

1,700,000

0.41%

March 31,

Bullet

Unsecured

Limited

(Note 6)

and non-

30, 2016

(Note 3)

2023

repayment

Mizuho Bank, Ltd.

1,700,000

1,700,000

guaranteed

Aozora Bank, Ltd.

1,500,000

1,500,000

Resona Bank, Limited

800,000

800,000

Shinsei Bank, Limited

300,000

300,000

MUFG Bank, Ltd.

2,800,000

2,800,000

Sumitomo Mitsui Trust Bank,

1,800,000

1,800,000

Limited

Sumitomo Mitsui Banking

September

1,800,000

1,800,000

0.48%

March 29,

Bullet

Unsecured

Corporation

loans

(Note 6)

and non-

30, 2016

(Note 3)

2024

repayment

Mizuho Bank, Ltd.

1,800,000

1,800,000

guaranteed

Aozora Bank, Ltd.

1,500,000

1,500,000

term-Long

Resona Bank, Limited

900,000

900,000

Shinsei Bank, Limited

400,000

400,000

Sumitomo Mitsui Banking

3,000,000

3,000,000

Corporation

Mizuho Bank, Ltd.

November

3,000,000

3,000,000

0.87%

November

Bullet

Unsecured

MUFG Bank, Ltd.

5,000,000

5,000,000

(Note 6)

and non-

29, 2016

(Note 3)

30, 2026

repayment

Sumitomo Mitsui Trust Bank,

3,000,000

3,000,000

guaranteed

Limited

Resona Bank, Limited

1,000,000

1,000,000

Development Bank of Japan

March 9,

0.85%

March 31,

Bullet

Unsecured

2,000,000

2,000,000

(Note 8)

and non-

Inc.

2017

(Note 3)

2027

repayment

guaranteed

Mitsui Sumitomo Insurance

March 9,

0.55%

March 29,

Bullet

Unsecured

1,000,000

1,000,000

(Note 8)

and non-

Company, Limited

2017

(Note 3)

2024

repayment

guaranteed

Mizuho Bank, Ltd.

4,000,000

4,000,000

Sumitomo Mitsui Trust Bank,

4,000,000

4,000,000

Unsecured

Limited

March 31,

0.57%

September

Bullet

(Note 6)

and non-

MUFG Bank, Ltd.

2017

1,000,000

1,000,000

(Note 3)

29, 2023

repayment

guaranteed

Mizuho Trust & Banking Co.,

1,000,000

1,000,000

Ltd.

Sumitomo Mitsui Banking

4,000,000

4,000,000

Corporation

Aozora Bank, Ltd.

March 31,

2,500,000

2,500,000

0.70%

March 31,

Bullet

Unsecured

(Note 6)

and non-

Shinkin Central Bank

2017

2,000,000

2,000,000

(Note 3)

2025

repayment

guaranteed

MUFG Bank, Ltd.

1,500,000

1,500,000

Resona Bank, Limited

1,000,000

1,000,000

42

43

I. Asset Management Report

Classification

Balance at

Balance at

the

Average

the end of

Borrowing

beginning of

interest

Repayment

Method of

date

period

period

rate

date

repayment

Use

Note

Lender

(Yen in

(Yen in

(Note 1)

thousands)

thousands)

Sumitomo Mitsui Banking

2,200,000

2,200,000

Corporation

MUFG Bank, Ltd.

1,600,000

1,600,000

Unsecured

Sumitomo Mitsui Trust Bank,

April 11,

1,600,000

1,600,000

0.40%

April 30,

Bullet

(Note 4)

and non-

Limited

2017

(Note 3)

2021

repayment

guaranteed

Mizuho Bank, Ltd.

1,600,000

1,600,000

The Norinchukin Bank

1,500,000

1,500,000

Nippon Life Insurance Company

1,000,000

1,000,000

Sumitomo Mitsui Banking

1,800,000

1,800,000

Corporation

MUFG Bank, Ltd.

2,200,000

2,200,000

Mizuho Bank, Ltd.

1,200,000

1,200,000

Resona Bank, Limited

April 11,

1,100,000

1,100,000

0.76%

April 30,

Bullet

Unsecured

Mizuho Trust & Banking Co.,

(Note 4)

and non-

2017

1,000,000

1,000,000

(Note 3)

2026

repayment

Ltd.

guaranteed

Shinsei Bank, Limited

1,000,000

1,000,000

The Bank of Fukuoka, Ltd.

1,000,000

1,000,000

Sumitomo Mitsui Trust Bank,

700,000

700,000

Limited

Sumitomo Mitsui Banking

2,100,000

2,100,000

Corporation

MUFG Bank, Ltd.

3,700,000

3,700,000

Unsecured

Sumitomo Mitsui Trust Bank,

April 11,

1.02%

April 28,

Bullet

1,800,000

1,800,000

(Note 4)

and non-

Limited

2017

(Note 3)

2028

repayment

guaranteed

loans

Mizuho Bank, Ltd.

1,800,000

1,800,000

Mizuho Trust & Banking Co.,

600,000

600,000

Ltd.

Long-term

Sumitomo Mitsui Trust Bank,

3,400,000

3,400,000

Limited

Unsecured

Sumitomo Mitsui Banking

July 31,

3,400,000

3,400,000

0.89%

July 30,

Bullet

(Note 6)

Corporation

2017

(Note 3)

2027

repayment

and non-

guaranteed

Mizuho Bank, Ltd.

3,400,000

3,400,000

MUFG Bank, Ltd.

1,900,000

1,900,000

Sumitomo Mitsui Banking

2,500,000

2,500,000

Corporation

MUFG Bank, Ltd.

2,000,000

2,000,000

Development Bank of Japan

3,000,000

3,000,000

Inc.

Sumitomo Mitsui Trust Bank,

2,500,000

2,500,000

Limited

November

0.90%

November

Bullet

Unsecured

(Note 6)

and non-

Mizuho Bank, Ltd.

2,500,000

2,500,000

29, 2017

(Note 3)

30, 2027

repayment

guaranteed

The 77 Bank, Ltd.

1,000,000

1,000,000

The Nishi-Nippon City Bank,

1,000,000

1,000,000

Ltd.

The Iyo Bank, Ltd.

500,000

500,000

The Bank of Kyoto, Ltd.

500,000

500,000

The Chugoku Bank, Limited

500,000

500,000

Mitsui Sumitomo Insurance

March 27,

0.44%

March 31,

Bullet

Unsecured

1,000,000

1,000,000

(Note 4)

and non-

Company, Limited

2018

(Note 3)

2023

repayment

guaranteed

March 27,

0.75%

September

Bullet

Unsecured

MUFG Bank, Ltd.

1,500,000

1,500,000

(Note 4)

and non-

2018

(Note 3)

30, 2027

repayment

guaranteed

April 10,

0.43%

September

Bullet

Unsecured

Nippon Life Insurance Company

1,000,000

1,000,000

(Note 4)

and non-

2018

(Note 3)

9, 2022

repayment

guaranteed

Classification

Balance at

Balance at

the

Average

the end of

Borrowing

beginning of

interest

Repayment

Method of

date

period

period

rate

date

repayment

Use

Note

Lender

(Yen in

(Yen in

(Note 1)

thousands)

thousands)

Development Bank of Japan

April 10,

0.65%

April 30,

Bullet

Unsecured

2,000,000

2,000,000

(Note 4)

and non-

Inc.

2018

(Note 3)

2026

repayment

guaranteed

Sumitomo Mitsui Trust Bank,

1,000,000

1,000,000

Limited

Sumitomo Mitsui Banking

1,000,000

1,000,000

Corporation

Mizuho Bank, Ltd.

500,000

500,000

The Bank of Fukuoka, Ltd.

500,000

500,000

The Chiba Bank, Ltd.

April 10,

500,000

500,000

0.42%

April 28,

Bullet

Unsecured

(Note 4)

and non-

The 77 Bank, Ltd.

2018

500,000

500,000

(Note 3)

2022

repayment

guaranteed

The Nishi-Nippon City Bank,

500,000

500,000

Ltd.

The Shizuoka Bank, Ltd.

500,000

500,000

The Iyo Bank, Ltd.

500,000

500,000

The Bank of Kyoto, Ltd.

500,000

500,000

The Chugoku Bank, Limited

500,000

500,000

Sumitomo Mitsui Trust Bank,

500,000

500,000

Limited

Sumitomo Mitsui Banking

1,500,000

1,500,000

Corporation

Unsecured

Mizuho Bank, Ltd.

April 10,

1,000,000

1,000,000

0.52%

April 30,

Bullet

(Note 4)

and non-

2018

(Note 3)

2024

repayment

Aozora Bank, Ltd.

500,000

500,000

guaranteed

loans

The Norinchukin Bank

500,000

500,000

Shinsei Bank, Limited

500,000

500,000

Long-term

Shinkin Central Bank

500,000

500,000

Sumitomo Mitsui Trust Bank,

500,000

500,000

Limited

Sumitomo Mitsui Banking

1,500,000

1,500,000

Corporation

Mizuho Bank, Ltd.

500,000

500,000

Aozora Bank, Ltd.

April 10,

500,000

500,000

0.60%

April 30,

Bullet

Unsecured

(Note 4)

and non-

The Norinchukin Bank

2018

500,000

500,000

(Note 3)

2025

repayment

guaranteed

Resona Bank, Limited

500,000

500,000

Shinsei Bank, Limited

500,000

500,000

Shinkin Central Bank

500,000

500,000

Sumitomo Mitsui Trust Bank,

3,000,000

3,000,000

Limited

Sumitomo Mitsui Banking

3,000,000

3,000,000

Unsecured

Corporation

April 10,

0.89%

April 28,

Bullet

(Note 4)

and non-

Mizuho Bank, Ltd.

2018

2,500,000

2,500,000

(Note 3)

2028

repayment

guaranteed

Mizuho Trust & Banking Co.,

1,000,000

1,000,000

Ltd.

Resona Bank, Limited

500,000

500,000

The Dai-ichi Life Insurance

September

0.43%

September

Bullet

Unsecured

1,000,000

1,000,000

(Note 4)

and non-

Company, Limited

27, 2018

(Note 3)

29, 2023

repayment

guaranteed

September

0.60%

September

Bullet

Unsecured

Taiyo Life Insurance Company

1,000,000

1,000,000

(Note 4)

and non-

27, 2018

(Note 3)

30, 2025

repayment

guaranteed

44

45

I. Asset Management Report

Classification

Balance at

Balance at

the

Average

the end of

Borrowing

beginning of

interest

Repayment

Method of

date

period

period

rate

date

repayment

Use

Note

Lender

(Yen in

(Yen in

(Note 1)

thousands)

thousands)

Sumitomo Mitsui Banking

1,100,000

1,100,000

Corporation

Sumitomo Mitsui Trust Bank,

December

1,100,000

1,100,000

0.88%

December

Bullet

Unsecured

Limited

(Note 4)

and non-

7, 2018

(Note 3)

29, 2028

repayment

Mizuho Bank, Ltd.

1,100,000

1,100,000

guaranteed

Japan Post Insurance Co., Ltd.

1,100,000

1,100,000

MUFG Bank, Ltd.

600,000

600,000

Sumitomo Mitsui Trust Bank,

-

1,000,000

Limited

Unsecured

Sumitomo Mitsui Banking

March 27,

-

1,000,000

August 31,

Bullet

0.24%

(Note 6)

and non-

Corporation

2019

2022

repayment

guaranteed

MUFG Bank, Ltd.

-

1,000,000

Mizuho Bank, Ltd.

-

1,000,000

Sumitomo Mitsui Trust Bank,

-

2,200,000

Limited

Aozora Bank, Ltd.

-

1,500,000

The Norinchukin Bank

-

1,100,000

Unsecured

Sumitomo Mitsui Banking

March 29,

-

700,000

0.43%

September

Bullet

(Note 6)

and non-

Corporation

2019

(Note 3)

30, 2025

repayment

guaranteed

The Chiba Bank, Ltd.

-

600,000

Mizuho Bank, Ltd.

-

500,000

The Bank of Fukuoka, Ltd.

-

500,000

loans

The Shizuoka Bank, Ltd.

-

500,000

Mitsui Sumitomo Insurance

April 5,

0.45%

April 30,

Bullet

Unsecured

-

1,000,000

(Note 4)

and non-

Company, Limited

2019

(Note 3)

2026

repayment

-Longterm

guaranteed

April 5,

0.50%

April 30,

Bullet

Unsecured

Nippon Life Insurance Company

-

500,000

(Note 4)

and non-

2019

(Note 3)

2027

repayment

guaranteed

Development Bank of Japan

April 5,

0.59%

April 28,

Bullet

Unsecured

-

1,500,000

(Note 4)

and non-

Inc.

2019

(Note 3)

2028

repayment

guaranteed

Sumitomo Mitsui Banking

-

1,500,000

Corporation

Unsecured

Sumitomo Mitsui Trust Bank,

April 10,

-

1,500,000

October 31,

Bullet

0.29%

(Note 4)

and non-

Limited

2019

2022

repayment

guaranteed

MUFG Bank, Ltd.

-

1,500,000

Mizuho Bank, Ltd.

-

1,500,000

Sumitomo Mitsui Banking

-

1,000,000

Corporation

The Norinchukin Bank

-

1,100,000

Sumitomo Mitsui Trust Bank,

-

1,000,000

Limited

Shinsei Bank, Limited

-

1,000,000

Shinkin Central Bank

April 10,

-

1,000,000

0.39%

October 31,

Bullet

Unsecured

(Note 4)

and non-

The Bank of Fukuoka, Ltd.

2019

-

500,000

(Note 3)

2024

repayment

guaranteed

The Chiba Bank, Ltd.

-

500,000

The 77 Bank, Ltd.

-

500,000

THE NISHI-NIPPON CITY

-

500,000

BANK, LTD.

The Iyo Bank, Ltd.

-

500,000

The Chugoku Bank, Limited

-

500,000

Classification

Balance at

Balance at

the

Average

the end of

Borrowing

beginning of

interest

Repayment

Method of

date

period

period

rate

date

repayment

Use

Note

Lender

(Yen in

(Yen in

(Note 1)

thousands)

thousands)

Sumitomo Mitsui Banking

-

2,500,000

Corporation

loans

Mizuho Bank, Ltd.

-

2,700,000

Sumitomo Mitsui Trust Bank,

April 10,

-

2,500,000

0.75%

April 27,

Bullet

Unsecured

Limited

(Note 4)

term-Long

2019

(Note 2)

2029

repayment

and non-

Resona Bank, Limited

-

1,000,000

guaranteed

Mizuho Trust & Banking Co.,

-

1,000,000

Ltd.

MUFG Bank, Ltd.

-

700,000

Subtotal

-

261,758,000

292,958,000

-

-

-

-

-

Total

-

302,268,000

329,768,000

-

-

-

-

-

(Notes) 1. Average interest rate is the loan interest rate (weighted average during the applicable term) of the corresponding lenders, and is rounded to the second decimal place.

  1. DHR currently uses interest rate swaps to hedge interest rate fluctuation risk; accordingly, the indicated interest rates are the figures reflecting the effect of the interest rate swaps.
  2. This loan carries a fixed interest rate.
  3. To be used to purchase trust beneficiary interests in real estate and related expenses.
  4. To be used for purchase of rehabilitation obligations (investment corporation bonds) and repayment of rehabilitation obligations (loans).
  5. To be used for repayment of existing loans (refinancing fund).
  6. To be used for redemption of rehabilitation obligations (investment corporation bonds) and repayment of rehabilitation obligations (loans).
  7. To be used for redemption of investment corporation bonds.

46

47

I. Asset Management Report

(3) Investment Corporation Bonds

The status of investment corporation bonds issued as of August 31, 2019 is as follows:

Balance at

Balance at the

the beginning

Interest

Method of

Issue name

Issue date

end of period

Maturity

Use

Note

of period

rate

redemption

(Yen in thousands)

(Yen in thousands)

Daiwa House REIT

Investment Corporation

December

2,000,000

2,000,000

0.826%

December

Bullet

(Note 2)

Unsecured

1st Unsecured Investment

24, 2014

24, 2024

repayment

Corporation Bonds (Note 1)

Daiwa House Residential

Investment Corporation

January

3,000,000

3,000,000

0.35%

January

Bullet

(Note 3)

Unsecured

2nd Unsecured Investment

22, 2015

22, 2021

repayment

Corporation Bonds (Note 1)

Daiwa House Residential

Investment Corporation

January

3,000,000

3,000,000

0.67%

January

Bullet

(Note 3)

Unsecured

3rd Unsecured Investment

22, 2015

22, 2025

repayment

Corporation Bonds (Note 1)

Daiwa House REIT

Investment Corporation

December

4,000,000

4,000,000

0.24%

December

Bullet

(Note 2)

Unsecured

5th Unsecured Investment

20, 2016

20, 2021

repayment

Corporation Bonds (Note 1)

Daiwa House REIT

Investment Corporation

December

4,000,000

4,000,000

0.57%

December

Bullet

(Note 2)

Unsecured

6th Unsecured Investment

20, 2016

18, 2026

repayment

Corporation Bonds (Note 1)

Daiwa House REIT

Investment Corporation

July 30,

2,000,000

2,000,000

0.69%

July 30,

Bullet

(Note 2)

Unsecured

7th Unsecured Investment

2018

2030

repayment

Corporation Bonds (Note 1)

Daiwa House REIT

Investment Corporation

July 30,

1,000,000

1,000,000

1.03%

July 30,

Bullet

(Note 2)

Unsecured

8th Unsecured Investment

2018

2038

repayment

Corporation Bonds (Note 1)

Total

-

19,000,000

19,000,000

-

-

-

-

-

(Notes) 1. The bonds have pari passu conditions among specified investment corporation bonds.

    1. To be used for repayment of existing loans.
    2. To be used for redemption of rehabilitation obligations (investment corporation bonds) and repayment of rehabilitation obligations (loans).
  2. Short-TermInvestment Corporation Bonds

Not applicable.

(5) Unit Acquisition Rights

Not applicable.

48

6. Status of Acquisition and Sale during the Period

  1. Status of Acquisition and Sale of Properties and Asset-Backed Securities, Infrastructure Assets, and Infrastructure Related Asset

Acquisition

Sale

Property name

Acquisition

Sale price

Gain or loss

price

Book value

on sale

Acquisition date

Sale date

(Yen in millions)

(Yen in millions)

(Yen in millions)

(Yen in millions)

(Note 1)

(Note 1)

(Note 2)

Nursery Room Berry Bear Omori

March 12, 2019

1,380

-

-

-

-

Nishi Welcia Ota Omori Nishi Store

D Project Kitahachioji I

April 5, 2019

4,300

-

-

-

-

D Project Kitahachioji II

April 5, 2019

5,700

-

-

-

-

D Project Kitahachioji III

April 5, 2019

7,300

-

-

-

-

iias Tsukuba

April 5, 2019

10,320

-

-

-

-

Aoyama Tailor Bunkyo Sengoku

April 5, 2019

750

-

-

-

-

Ekimae Store

FOLEO Shobu

April 5, 2019

5,000

-

-

-

-

Daiwa Roynet Hotel Nagoya

April 5, 2019

4,500

-

-

-

-

Shinkansenguchi

D Project Itabashi Shingashi

April 10, 2019

12,300

-

-

-

-

D Project Sagamihara

April 10, 2019

3,900

-

-

-

-

D Project Kuki VIII

April 10, 2019

6,100

-

-

-

-

D Project Yokkaichi

April 10, 2019

1,490

-

-

-

-

D Project Ibaraki Ishioka

April 10, 2019

4,050

-

-

-

-

D Project Shin-Misato

-

-

August 30,

5,755

5,584

154

2019

Total

67,090

5,755

5,584

154

(Notes) 1. "Acquisition price" and "sale price" are the amounts that do not include the various expenses required in the acquisition or sale of the property, settlement money such as taxes and public dues, consumption taxes, and leasehold guarantee deposits, etc.

  1. 2. "Gain or loss on sale" represents the sale price less book value of sold property and any related expenses.

  2. Transaction of Other Assets

Not applicable. Other assets are mostly bank deposits or bank deposits in trust assets.

49

I. Asset Management Report

(3) Review on Value of Specified Assets

Properties, etc.

Acquisition price

Appraisal value

Date of

Acquisition

Property name

Transaction

Type of assets

or sale price

Appraisal agency

value

or sale

date

(Yen in millions)

(Yen in millions)

(Note 2)

appraised

(Note 1)

(Note 2)

(Note 2)

Nursery Room Berry

March 12,

Trust beneficiary

Daiwa Real

December

Acquisition

Bear Omori Nishi Welcia

interests in real

1,380

1,380

Estate Appraisal

2019

31, 2018

Ota Omori Nishi Store

estate

Co., Ltd.

Trust beneficiary

Japan Real

December

Acquisition

D Project Kitahachioji I

April 5, 2019

interests in real

4,300

4,360

Estate Institute

31, 2018

estate

Trust beneficiary

Japan Real

December

Acquisition

D Project Kitahachioji II

April 5, 2019

interests in real

5,700

5,760

Estate Institute

31, 2018

estate

Trust beneficiary

Japan Real

December

Acquisition

D Project Kitahachioji III

April 5, 2019

interests in real

7,300

7,450

Estate Institute

31, 2018

estate

Trust beneficiary

Japan Real

December

Acquisition

iias Tsukuba

April 5, 2019

interests in real

10,320

10,320

Estate Institute

31, 2018

estate

Aoyama Tailor Bunkyo

Trust beneficiary

Japan Real

December

Acquisition

April 5, 2019

interests in real

750

762

Sengoku Ekimae Store

estate

Estate Institute

31, 2018

Trust beneficiary

Japan Real

December

Acquisition

FOLEO Shobu

April 5, 2019

interests in real

5,000

5,050

Estate Institute

31, 2018

estate

Daiwa Roynet Hotel

Trust beneficiary

Daiwa Real

December

Acquisition

April 5, 2019

interests in real

4,500

4,540

Estate Appraisal

Nagoya Shinkansenguchi

31, 2018

estate

Co., Ltd.

D Project Itabashi

April 10,

Trust beneficiary

The Tanizawa

December

Acquisition

interests in real

12,300

12,400

Sōgō Appraisal

Shingashi

2019

estate

Co., Ltd.

31, 2018

April 10,

Trust beneficiary

The Tanizawa

December

Acquisition

D Project Sagamihara

interests in real

3,900

3,940

Sōgō Appraisal

2019

31, 2018

estate

Co., Ltd.

April 10,

Trust beneficiary

The Tanizawa

December

Acquisition

D Project Kuki VIII

interests in real

6,100

6,110

Sōgō Appraisal

2019

31, 2018

estate

Co., Ltd.

April 10,

Trust beneficiary

The Tanizawa

December

Acquisition

D Project Yokkaichi

interests in real

1,490

1,500

Sōgō Appraisal

2019

31, 2018

estate

Co., Ltd.

April 10,

Trust beneficiary

The Tanizawa

December

Acquisition

D Project Ibaraki Ishioka

interests in real

4,050

4,090

Sōgō Appraisal

2019

31, 2018

estate

Co., Ltd.

August 30,

Trust beneficiary

The Tanizawa

February 28,

Sale

D Project Shin-Misato

interests in real

5,755

5,750

Sōgō Appraisal

2019

2019

estate

Co., Ltd.

(Notes) 1.

"Acquisition price or sale price" is the amount that does not include the various expenses required in the acquisition or sale of the property, settlement money such as taxes and

public dues, consumption taxes, and leasehold guarantee deposits, etc.

2.

Appraisal value shown above is based on "Real estate appraisal standards, Chapter 3, Appraisal of the value of real estate that is subject to securitization."

50

(4) Transactions with Interested Parties, etc.

Purchase and sale transactions, etc. with interested parties, etc. (Note 1) for the 27th period are as follows:

i) Status of Transactions

Classification

Transaction amount, etc. (Note 2)

Purchase

Sale

Total

¥67,090 million

¥5,755 million

Breakdown of transactions with interested parties

Daiwa House Industry Co., Ltd.

¥45,290 million

(67.5%)

¥- million

(-%)

Nihon Jyutaku Ryutu Co., Ltd.

¥4,500 million

(6.7%)

¥- million

(-%)

Total

¥49,790 million

(74.2%)

¥- million

(-%)

  1. Amount of Fees Paid

Classification

Total amount paid (A)

Breakdown of transactions with interested parties, etc. (Note 1)

Rate to total amount

(Yen in thousands)

Payment recipient

Amount paid (B)

paid (B/A) (%)

(Yen in thousands)

Daiwa Living Co., Ltd.

557,609

42.4

Daiwa House Property Management Co., Ltd.

199,985

15.2

Management fees

1,314,771

Daiwa Information Service Co., Ltd.

178,274

13.6

Daiwa LifeNext Co., Ltd.

31,348

2.4

Daiwa Lease Co., Ltd.

3,332

0.3

Daiwa Living Co., Ltd.

340,843

40.9

Repairs and

Daiwa House Property Management Co., Ltd.

194,865

23.4

833,301

Daiwa Information Service Co., Ltd.

183,749

22.1

maintenance expenses

Daiwa Lease Co., Ltd.

12,082

1.4

Daiwa LifeNext Co., Ltd.

11,744

1.4

Restoration costs

301,418

Daiwa Living Co., Ltd.

212,484

70.5

Daiwa Living Co., Ltd.

52,977

42.4

Daiwa Information Service Co., Ltd.

11,564

9.2

Other rental expenses

125,046

Daiwa House Property Management Co., Ltd.

434

0.3

Daiwa LifeNext Co., Ltd.

284

0.2

Daiwa Lease Co., Ltd.

15

0.0

(Notes) 1. "Interested parties, etc." are interested parties, etc., of the Asset Manager with which DHR has concluded an asset management agreement as provided in Article 201, Paragraph 1 of the Investment Trusts Act, Article 123 of the Order for Enforcement of the Investment Trusts Act, Article 244-3 of Ordinance for Enforcement of Investment Trusts Act and Article 26, Item 27 of The Investment Trusts Association, Japan's Rules on Management Reports, etc., of Investment Trusts and Investment Corporations.

  1. 2. "Transaction amount, etc." is the amount that does not include the various expenses required in the acquisition or sale of the property, settlement money such as taxes and public dues, consumption taxes, and leasehold guarantee deposits, etc.

  2. Status of Transactions with Asset Manager Pertaining to Business Operated by Asset Manager as Subsidiary Business

Not applicable because the Asset Manager does not engage in any business as a subsidiary business that is a type I financial instruments business, type II financial instruments business, real estate brokerage or real estate specified joint enterprise.

51

I. Asset Management Report

7. Accounting

(1) Status of Assets, Liabilities, Principal and Income/Loss

Please refer to "Balance Sheets," "Statements of Income and Retained Earnings," "Statements of Changes in Net Assets," "Notes to Financial Statements" and "Distribution Information."

(2) Changes in Method to Calculate Depreciation Expenses

Not applicable.

(3) Changes in Method to Evaluate Properties and Infrastructure Assets

Not applicable.

(4) Status of Beneficiary Certificates of Investment Trust Established by DHR

Not applicable.

  1. Disclosure relating to Overseas Real Estate Holding Corporation and Real Estate Held by such Corporation

Not applicable.

8. Other

(1) Notice

There are no conclusions and changes of major contracts approved by DHR's board of directors during the current fiscal period.

(2) Treatment of Fractions in Amounts and Rates

Unless otherwise specified, amounts less than the units indicated are truncated, while values of ratio are rounded up or down to the nearest value of the last digit in this report.

52

II. Balance Sheets

Daiwa House REIT Investment Corporation

BALANCE SHEETS

As of February 28, 2019 and August 31, 2019

As of

February 28, 2019

August 31, 2019

(Yen in thousands)

Assets

Current assets:

Cash and bank deposits (Notes 3 and 4)

¥41,250,978

¥47,271,920

Operating accounts receivable

275,683

175,551

Prepaid expenses

609,658

627,313

Consumption taxes receivable

―

1,199,509

Other current assets

25

3,166

Allowance for doubtful accounts

(1,225)

(989)

Total current assets

42,135,120

49,276,472

Investment properties (Notes 8 and 9)

654,523,691

712,856,413

Other assets:

Goodwill (Note 7)

69,377,930

67,395,703

Leasehold rights in trust (Note 9)

5,987,926

5,940,513

Lease and guarantee deposits in trust

3,489,293

3,489,293

Guarantee deposits

261

195

Long-term prepaid expenses

2,110,873

2,184,143

Investment corporation bond issuance costs

90,823

82,464

Investment securities (Note 5)

9,360

9,377

Software

276

71

Trademark rights

2,059

1,780

Total other assets

81,068,804

79,103,544

Total assets

¥777,727,616

¥841,236,430

The accompanying notes are an integral part of these financial statements.

53

II. Balance Sheets

Daiwa House REIT Investment Corporation

BALANCE SHEETS

As of February 28, 2019 and August 31, 2019

As of

February 28, 2019

August 31, 2019

Liabilities

(Yen in thousands)

Current liabilities:

Operating accounts and other payable

¥1,364,351

¥1,512,500

Current portion of long-term loans (Notes 4, 6 and 15)

40,510,000

36,810,000

Accrued expenses

1,418,415

1,544,776

Accrued consumption taxes

398,538

―

Advances received

2,757,226

2,988,375

Unearned revenue

222,342

222,342

Deposits received

345,273

343,242

Other

91,929

94,179

Total current liabilities

47,108,077

43,515,417

Non-current liabilities:

Investment corporation bonds (Notes 4 and 14)

19,000,000

19,000,000

Long-term loans (Notes 4, 6 and 15)

261,758,000

292,958,000

Long-term unearned revenue

818,279

706,501

Tenant leasehold and security deposits

276,389

273,928

Tenant leasehold and security deposits in trust

17,854,492

19,885,704

Asset retirement obligations (Note 11)

626,251

640,015

Derivative liabilities (Notes 4 and 6)

1,063,056

1,085,876

Total non-current liabilities

301,396,469

334,550,025

Total liabilities

348,504,547

378,065,443

Net assets (Notes 12 and 13)

Unitholders' equity:

163,230,367

198,492,847

Unitholders' capital

Units authorized:

8,000,000 units as of February 28, 2019 and August 31, 2019

Units issued and outstanding:

1,927,000 units as of February 28, 2019 and

2,075,000 units as of August 31, 2019

Surplus

Capital surplus

247,667,563

247,667,563

Voluntary reserve

Reserve for temporary difference adjustments

8,804,571

6,823,576

Reserve for distribution

1,986,536

2,106,789

Total voluntary reserve

10,791,107

8,930,366

Unappropriated retained earnings

8,597,087

9,166,085

Total surplus

267,055,758

265,764,015

Total unitholders' equity

430,286,126

464,256,863

Valuation and translation adjustments

Deferred gains or losses on hedges (Note 6)

(1,063,056)

(1,085,876)

Total valuation and translation adjustments

(1,063,056)

(1,085,876)

Total net assets

429,223,069

463,170,986

Total liabilities and net assets

¥777,727,616

¥841,236,430

The accompanying notes are an integral part of these financial statements.

54

III. Statements of Income and Retained Earnings

Daiwa House REIT Investment Corporation

STATEMENTS OF INCOME AND RETAINED EARNINGS

For the fiscal periods ended February 28, 2019 and August 31, 2019

For the fiscal periods ended

February 28, 2019

August 31, 2019

Operating revenues:

(Yen in thousands)

Rental revenues (Note 10)

¥23,013,558

¥24,722,954

Gain on sale of investment properties (Note 18)

113,532

154,968

Total operating revenues

23,127,090

24,877,922

Operating expenses:

Rental expenses (Note 10)

9,184,698

10,062,619

Asset management fees

1,519,464

1,623,154

Asset custody fees

33,727

36,240

Administrative service fees

89,196

92,336

Directors' remuneration

6,600

6,600

Amortization of goodwill (Note 7)

1,982,226

1,982,226

Provision of allowance for doubtful accounts

―

107

Other operating expenses

351,000

372,460

Total operating expenses

13,166,914

14,175,746

Operating income

9,960,176

10,702,176

Non-operating revenues:

Interest income

166

197

Gain on forfeiture of unclaimed distributions

4,436

4,508

Reversal of allowance for doubtful accounts

266

―

Property tax adjustment at settlement

1,564

―

Refunded consumption taxes

6,720

―

Interest on tax refund

1,518

―

Gain on adjustment of liabilities

―

107,238

Other non-operating revenues

1

17

Total non-operating revenues

14,674

111,961

Non-operating expenses:

Interest expense

1,036,887

1,114,268

Interest expense on investment corporation bonds

51,092

52,527

Amortization of investment corporation bond issuance costs

8,358

8,358

Investment unit issuance expenses

―

173,770

Borrowing related expenses

278,819

296,456

Other non-operating expenses

2,000

2,065

Total non-operating expenses

1,377,157

1,647,447

Ordinary income

8,597,692

9,166,690

Income before income taxes

8,597,692

9,166,690

Income taxes-current (Note 17)

605

605

Net income

¥8,597,087

¥9,166,085

Unappropriated retained earnings

¥8,597,087

¥9,166,085

The accompanying notes are an integral part of these financial statements.

55

IV. Statements of Changes in Net Assets

Daiwa House REIT Investment Corporation

STATEMENTS OF CHANGES IN NET ASSETS

For the fiscal periods ended February 28, 2019 and August 31, 2019

V. Statements of Cash Flows

Daiwa House REIT Investment Corporation

STATEMENTS OF CASH FLOWS

For the fiscal periods ended February 28, 2019 and August 31, 2019

Valuation

and

Unitholders' equity

translation

adjustments

Surplus

Voluntary reserve

Number

Reserve for

Unappro-

Deferred

of units

issued

temporary

priated

Total

gains or

and out-

Unitholders'

Capital

difference

Reserve for

retained

unitholders'

losses on

Total net

standing

capital

surplus

adjustments distribution

earnings

equity

hedges

assets

(Units)

(Yen in thousands)

Balance as of August 31, 2018

1,927,000 ¥163,230,367 ¥247,667,563 ¥10,785,218

¥1,964,241

¥7,765,290

¥431,412,680

¥(816,561) ¥430,596,119

Changes during the period:

Cash flows from operating activities: Income before income taxes Depreciation and amortization Amortization of goodwill

Amortization of investment corporation bond issuance costs Amortization of trademark rights

Amortization of software

Loss on retirement of non-current assets Investment unit issuance expenses Interest income

Interest expense

(Increase) decrease in operating accounts receivable

For the fiscal periods ended

February 28, 2019

August 31, 2019

(Yen in thousands)

¥8,597,692

¥9,166,690

4,454,820

4,764,371

1,982,226

1,982,226

8,358

8,358

278

278

292

205

17,768

23,340

―

173,770

(166)

(197)

1,087,979

1,166,796

(98,934)

100,131

Reversal of reserve for temporary difference adjustments

Reserve for distribution Distributions from surplus

Net income

Net changes of items other than changes of unitholders' equity

Total changes during the period Balance as of February 28, 2019

―

―

―

(1,980,646)

―

1,980,646

―

―

―

―

―

―

―

22,295

(22,295)

―

―

―

―

―

―

―

―

(9,723,642)

(9,723,642)

―

(9,723,642)

―

―

―

―

―

8,597,087

8,597,087

―

8,597,087

―

―

―

―

―

―

―

(246,495)

(246,495)

―

―

―

(1,980,646)

22,295

831,797

(1,126,554)

(246,495)

(1,373,049)

1,927,000

¥163,230,367 ¥247,667,563

¥8,804,571

¥1,986,536

¥8,597,087

¥430,286,126

¥(1,063,056) ¥429,223,069

Decrease (increase) in accounts receivable Decrease (increase) in consumption taxes receivable Decrease (increase) in prepaid expenses

(Decrease) increase in operating accounts and other payable Increase in accrued expenses

Increase (decrease) in deposits received Increase in advances received

Decrease (increase) in long-term prepaid expenses Decrease in allowance for doubtful accounts Decrease in investment properties due to sales Decrease in investment properties in trust due to sales Other

127

(1,032)

3,950,194

(1,598,047)

8,790

(17,655)

(229,900)

386,328

29,267

125,303

18,038

(2,030)

81,741

231,149

174,045

(73,270)

(911)

(236)

1,044,407

―

  • 5,584,343
    104,553(77,839)

Changes during the period:

Issuance of investment units:

on March 1, 2019

138,000

32,879,880

―

―

―

―

32,879,880

―

32,879, 880

on March 26, 2019

10,000

2,382,600

―

―

―

―

2,382,600

―

2,382,600

Reversal of reserve for

temporary difference

adjustments

―

―

―

(1,980,994)

―

1,980,994

―

―

―

Reserve for distribution

―

―

―

―

120,252

(120,252)

―

―

―

Distributions from surplus

―

―

―

―

―

(10,457,829)

(10,457,829)

―

(10,457,829)

Net income

―

―

―

―

―

9,166,085

9,166,085

―

9,166,085

Net changes of items other

than changes of

unitholders' equity

―

―

―

―

―

―

―

(22,819)

(22,819)

Total changes during the period

148,000

35,262,480

―

(1,980,994)

120,252

568,998

33,970,736

(22,819)

33,947,917

Balance as of August 31, 2019

2,075,000

¥198,492,847 ¥247,667,563

¥6,823,576

¥2,106,789

¥9,166,085

¥464,256,863

¥(1,085,876) ¥463,170,986

The accompanying notes are an integral part of these financial statements.

Subtotal

Interest received

Interest paid

Income taxes paid

Net cash provided by operating activities

Cash flows from investing activities:

Acquisition of investment properties

Proceeds from tenant leasehold and security deposits Repayment of tenant leasehold and security deposits Proceeds from tenant leasehold and security deposits in trust Repayment of tenant leasehold and security deposits in trust

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from long-term loans Repayment of long-term loans

Proceeds from issuance of investment corporation bonds Distribution payment

Net cash provided by (used in) financing activities Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period (Note 3)

The accompanying notes are an integral part of these financial statements.

21,230,670 21,942,986

166197

(1,199,579) (1,277,516)

(603)(609)

20,030,654 20,665,057

(13,850,790) (68,893,608)

26,68230,950

(82,788)(15,939)

844,4862,825,798

(457,861)(728,043)

(13,520,271) (66,780,841)

7,000,000 39,100,000

  • (11,600,000)
  • 35,088,709
    (9,719,912) (10,451,983)
    (2,719,912) 52,136,726
    3,790,4706,020,942
    37,460,508 41,250,978

¥41,250,978 ¥47,271,920

56

57

VI. Notes to Financial Statements

Daiwa House REIT Investment Corporation

Notes to Financial Statements

As of and for the fiscal periods ended February 28, 2019 and August 31, 2019

Note 1 - Organization and Basis of Presentation

Organization

Daiwa House REIT Investment Corporation ("DHR") is a real estate investment trust whose sponsor is Daiwa House Industry Co., Ltd. ("Daiwa House") and whose asset manager is Daiwa House Asset Management Co., Ltd. (the "Asset Manager"), a wholly owned subsidiary of Daiwa House.

DHR was listed on the Real Estate Investment Trust ("REIT") Market of Tokyo Stock Exchange, Inc. ("TSE") on March 22, 2006, and then later merged with New City Residence Investment Corporation on April 1, 2010. Subsequently on December 1, 2011, DHR changed its corporate name to Daiwa House Residential Investment Corporation, and accordingly changed its investment targets to residential properties.

The former Daiwa House REIT Investment Corporation (the Daiwa House REIT Investment Corporation, which was dissolved upon the merger with DHR as of September 1, 2016, and hereinafter referred to as the "former DHR") was established on September 14, 2007, whose asset manager was Daiwa House REIT Management Co., Ltd., a wholly owned subsidiary of Daiwa House. The former DHR was listed on the TSE REIT Market on November 28, 2012, as a REIT that targeted investment in logistics and retail properties.

On September 1, 2016, DHR merged with the former DHR in an absorption-type merger with DHR as the surviving corporation, and changed its corporate name from Daiwa House Residential Investment Corporation to Daiwa House REIT Investment Corporation.

After the merger, DHR shifted to a diversified portfolio strategy, targeting investment in new asset classes such as hotel and office properties, in addition to those that DHR and the former DHR had targeted for investment in the past. As of August 31, 2019, DHR's portfolio included 228 properties at a total acquisition price of ¥744.8 billion.

During the fiscal period ended August 31, 2019, DHR issued 138,000 new investment units through a public offering with an offer price of ¥245,784 per unit (paid-in amount: ¥238,260 per unit) on March 1, 2019, and 10,000 new investment units through a third-party allotment also with a paid-in amount of ¥238,260 per unit on March 26, 2019.

Basis of Presentation

The accompanying financial statements have been prepared in accordance with the provisions set forth in the Act on Investment Trust and Investment Corporations (the "Investment Trust Act," Act No. 198 of 1951, as amended) the Financial Instruments and Exchange Act of Japan and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan ("Japanese GAAP"), which are different in certain respects as to application and disclosure requirements from International Financial Reporting Standards or accounting principles generally accepted in the United States of America.

The accompanying financial statements have been reformatted and translated into English from the financial statements of DHR prepared in accordance with Japanese GAAP. In preparing the accompanying financial statements, relevant notes have been expanded and certain reclassifications have been made from the Japanese GAAP financial statements. Certain supplementary information included in the statutory Japanese GAAP financial statements, but not required for fair presentation, is not presented in the accompanying financial statements.

DHR maintains its accounting records in Japanese yen, the currency of the country in which DHR operates. As permitted by the regulations under the Financial Instruments and Exchange Act, amounts of less than one thousand

58

yen have been omitted. Unless otherwise specified, amounts of less than the units indicated are truncated, while values of ratios are rounded up or down to the nearest value of the last digit in the accompanying financial statements. As a result, totals shown in the accompanying financial statements do not necessarily agree with the sums of the individual amounts.

DHR's fiscal period is a six-month period ending at end of February and August of each year.

Note 2 - Summary of Significant Accounting Policies

(a) Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and in trust, bank deposits and deposits in trust redeemable on demand, and short-term investments, which are readily convertible to cash, with maturities of three months or less from the date of acquisition, and insignificant risk of market value fluctuation.

(b) Investment Properties

Investment properties are stated at cost, net of accumulated depreciation. The cost of investment properties includes the allocated purchase price, related costs and expenses for acquisition. Depreciation is calculated on a straight-line basis over the estimated useful lives as stated below.

Years

Buildings

2 - 69

Structures

3 - 63

Machinery and equipment

7 - 28

Tools, furniture and fixtures

2 - 28

Costs related to the renovation, construction and improvement of properties are capitalized. Expenditures for repairs and maintenance, which do not add to the value or prolong the useful life of a property, are expensed as incurred.

(c) Intangible Assets

Intangible assets are amortized on a straight-line basis. The useful lives of major intangible assets are listed below.

Years

Goodwill

20

Computer software

5

Leasehold rights (general fixed-term land lease rights) are amortized on a straight-line basis over the life of each contract.

(d) Investment Corporation Bond Issuance Costs

Investment corporation bond issuance costs are amortized on a straight-line basis over the redemption periods.

(e) Investment Unit Issuance Expenses

The issuance costs of new investment units are expensed when incurred.

59

VI. Notes to Financial Statements

(f) Investment Securities

Held-to-maturity bonds are stated at amortized cost using the straight-line method.

(g) Revenue Recognition

Rental revenues including fixed rent revenues, variable rent revenues and common area charges, are recognized on an accrual basis over the term of each lease agreement.

(h) Taxes on Property and Equipment

Property and equipment are subject to various taxes, such as property taxes and city planning taxes. An owner of a property is registered in a record maintained by the local government of the applicable jurisdiction, and taxes are imposed on the owner registered in the record as of January 1, based on an assessment made by the local government. The taxes are determined in April to June of each year and are paid in four installments during the year.

When a property is purchased prior to January 1 of any given calendar year, taxes for the previous year are imposed on the seller. DHR pays the seller the corresponding amount of the taxes for the period from the property's acquisition date to December 31 of the previous year as included in the purchase price of the property, and capitalizes this amount as an acquisition cost of the property.

(i) Income Taxes

Deferred tax assets and liabilities are computed based on the differences between the financial reporting and income tax bases of assets and liabilities using the enacted tax rates.

(j) Allowance for Doubtful Accounts

To cover possible losses on collection, allowance for doubtful accounts is provided based on past experience for normal receivables and on an estimate of the collectability of receivables from companies in financial difficulty.

(k) Consumption Taxes

Consumption taxes withheld and consumption taxes paid are not included in the accompanying statements of income and retained earnings. Non-deductible consumption taxes for acquisition of assets are added on to the acquisition cost of each asset.

(l) Trust Beneficiary Interests

For trust beneficiary interests in real estate, each of the trust assets and liabilities as well as all income generated and expenses incurred in trusts are recorded in the relevant balance sheet and income statement accounts.

(m) Derivatives and Hedge Accounting

Deferral hedge accounting is applied for derivatives. DHR uses interest-rate swaps as hedging instruments in order to hedge the risk of interest rate fluctuations related to borrowings. Pursuant to Japanese GAAP, DHR applies the special accounting treatment to interest-rate swaps which qualify for hedge accounting and meet specific criteria. Under the special accounting treatment, the related differentials paid or received under such swap contracts can be

60

recognized and included in interest expenses or income of the hedged assets or liabilities, and the interest-rate swaps are not required to be measured at fair value separately.

The assessment of hedge effectiveness is omitted when the significant terms of the hedged item and hedging instrument, including the notional principal amount, are the same and changes in cash flows of the hedged item can be expected to be offset in full from the commencement of a hedge relationship and continuously thereafter. The assessment of hedge effectiveness is also omitted for all interest-rate swaps which meet the specific criteria under the special accounting treatment.

Note 3 - Cash and Cash Equivalents

Cash and cash equivalents shown in the statement of cash flows consist of the following balance sheet items.

As of

February 28, 2019

August 31, 2019

(Yen in thousands)

Cash and bank deposits

¥41,250,978

¥47,271,920

Cash and cash equivalents

¥41,250,978

¥47,271,920

Note 4 - Financial Instruments

(a) Qualitative Information on Financial Instruments

Policy on financial instruments

As a policy, when acquiring real estate and other properties, as well as when repaying its obligations, DHR raises necessary funds through loans from financial institutions, issuance of investment corporation bonds and issuance of investment units, etc. DHR carefully pays attention to ensure their financing to be long-term, cost effective and stable, while considering applying various financial methods and dispersing repayment dates.

DHR may use derivative financial instruments for such purposes as hedging interest rate fluctuation risk, but does not use them for speculative purposes. DHR currently uses interest-rate swaps to hedge interest rate fluctuation risk.

Surplus funds can be invested in securities or monetary claims; however, as a current policy of DHR, they are deposited in interest-bearing accounts.

Nature and extent of risks arising from financial instruments and risk management

The Asset Manager stipulates basic provisions of risk management in its risk management rules.

Investment corporation bonds and loans are used to finance acquisitions of real estate and repayments of loans. Although these financial instruments are exposed to liquidity risk, DHR controls such risk by maintaining the ratio of interest-bearing debt to total assets under a certain percentage, dispersing repayment dates, and retaining a certain amount of highly liquid cash and deposits.

Floating rate loans are exposed to the risk of interest rate fluctuations. In order to reduce the impact caused by rising interest rates, DHR closely monitors the movement of interest rates and intends to increase fixed rate loans.

Deposits are exposed to credit risks, including collapse of the financial institutions where deposits are made. DHR manages such risks through the use of liquid deposits.

61

VI. Notes to Financial Statements

Supplemental explanation concerning fair value of financial instruments

The fair value of financial instruments is determined by market prices, if available. When there is no observable market price available, the fair value is based on a price that is reasonably estimated. Since certain assumptions and factors are reflected in estimating the fair value, different assumptions and factors could result in a different value.

(b) Estimated Fair Value of Financial Instruments

Book value on the balance sheet, fair value and the difference as of February 28, 2019 and August 31, 2019 are as follows:

As of

February 28, 2019

August 31, 2019

(Yen in

thousands)

Assets

Book value

Fair value

Difference

Book value

Fair value

Difference

(1)

Cash and bank deposits

¥41,250,978

¥41,250,978

¥―

¥47,271,920

¥47,271,920

¥―

(2)

Investment securities:

Held-to-maturity bonds

9,360

9,228

(132)

9,377

9,931

553

Total

¥41,260,338

¥41,260,206

¥(132)

¥47,281,298

¥47,281,851

¥553

Liabilities

(3)

Current portion of long-

term loans

¥40,510,000

¥40,614,396

¥104,396

¥36,810,000

¥36,857,747

¥47,747

(4)

Investment corporation

19,000,000

19,129,020

129,020

19,000,000

19,314,231

314,231

bonds

(5)

Long-term loans

261,758,000

265,438,709

3,680,709

292,958,000

297,760,711

4,802,711

(6) Tenant leasehold and

603,606

596,174

(7,432)

598,329

603,296

4,967

security deposits in trust

Total

¥321,871,606

¥325,778,301 ¥3,906,694

¥349,366,329 ¥354,535,986

¥5,169,657

(7) Derivatives (*)

¥(1,063,056)

¥(1,063,056)

¥―

¥(1,085,876)

¥(1,085,876)

¥―

  1. Amounts arising from derivative transactions are shown on a net basis with any amounts inside parentheses ( ) indicating a net liability position.

Notes:

1. Methods to estimate fair value of financial instruments and matters regarding derivatives

Assets:

  1. Cash and bank deposits
    These instruments are settled in the short term and their fair value is approximately equal to their book value. Thus, the book value is used as the fair value.
  2. Investment securities
    The fair value is based on reference statistical prices for OTC bond transactions.
    For the book value on the balance sheet and the fair value of held-to-maturity bonds, and the difference between the two values, please refer to Note 5 - "Investment Securities" below.

Liabilities:

62

  1. Current portion of long-term loans and (5) Long-term loans
    For long-term loans with floating interest rates, their fair value is approximately equal to their book value. Thus, the book value is used as the fair value. However, for those which are hedged by interest rate swaps meeting hedge accounting criteria, DHR employs a method to calculate the fair value by discounting the total of the principal and interest accounted for under the special accounting treatment for interest rate swaps by an interest rate assumed to be applied if similar types of loans are entered into.
    For long-term loans with fixed interest rates, DHR employs a method to calculate the fair value by discounting the total of the principal and interest by an interest rate assumed to be applied if similar types of loans are entered into.
  2. Investment corporation bonds
    The fair value of these bonds is measured as the present value, which is calculated by discounting the total of principal and interest by the interest rate assumed based on the remaining period until maturity and credit risk.
  1. Tenant leasehold and security deposits in trust

For tenant leasehold and security deposit in trust whose fair value is reasonably estimated, the fair value is calculated by discounting future cash flows by the interest rate assumed for the remaining period of the lease.

  1. Derivatives
    Please refer to Note 6 - "Derivative Transactions" below.

2. Financial instruments whose fair value is deemed extremely difficult to determine

As of

February 28, 2019 August 31, 2019

(Yen in thousands)

Tenant leasehold and security deposits

¥276,389

¥273,928

Tenant leasehold and security deposits in trust

17,250,886

19,287,375

These are excluded from the scope of fair value disclosure because they are not marketable, and the actual deposit period is not estimable as leases may be cancelled, renewed or re-signed even if a lease term is set in the lease contract, which in turn makes it difficult to reasonably estimate future cash flows.

3. Redemption schedule for monetary claims after February 28, 2019 and August 31, 2019 is as follows:

Due within

Due after

Due after

Due after

Due after

Due after

one to

two to

three to

four to five

one year

five years

As of February 28, 2019

two years

three years

four years

years

(Yen in thousands)

Cash and bank deposits

¥41,250,978

¥―

¥―

¥―

¥―

¥―

Investment securities

―

―

―

―

―

10,000

Total

¥41,250,978

¥―

¥―

¥―

¥―

¥10,000

63

VI. Notes to Financial Statements

Due within

Due after

Due after

Due after

Due after

Due after

one to

two to

three to

four to five

one year

five years

As of August 31, 2019

two years

three years

four years

years

(Yen in thousands)

Cash and bank deposits

¥47,271,920

¥―

¥―

¥―

¥―

¥―

Investment securities

―

―

―

―

―

10,000

Total

¥47,271,920

¥―

¥―

¥―

¥―

¥10,000

4. Repayment schedule for investment corporation bonds and long-term loans after February 28, 2019 and August 31, 2019 is as follows:

Due within

Due after

Due after

Due after

Due after

Due after five

one to two

two to

three to four

four to five

As of February 28, 2019

one year

years

three years

years

years

years

(Yen in thousands)

Investment corporation bonds

¥―

¥3,000,000

¥4,000,000

¥―

¥―

¥12,000,000

Long-term loans (*)

40,510,000

11,400,000

26,358,000

38,500,000

35,400,000

150,100,000

Total

¥40,510,000 ¥14,400,000

¥30,358,000

¥38,500,000

¥35,400,000

¥162,100,000

Due within

Due after

Due after

Due after

Due after

Due after five

one to two

two to

three to four

four to five

As of August 31, 2019

one year

years

three years

years

years

years

(Yen in thousands)

Investment corporation bonds

¥―

¥3,000,000

¥4,000,000

¥―

¥―

¥12,000,000

Long-term loans (*)

36,810,000

16,000,000

37,858,000

41,900,000

38,000,000

159,200,000

Total

¥36,810,000 ¥19,000,000

¥41,858,000

¥41,900,000

¥38,000,000

¥171,200,000

(*) The figures above include the current portion.

64

Note 5 - Investment Securities

Investment securities held by DHR are Japanese government bonds deposited with the Tokyo Legal Affairs Bureau as business security deposits in accordance with the Building Lots and Building Transaction Business Act.

Book value on the balance sheet, fair value and the difference as of February 28, 2019 and August 31, 2019 are as follows:

As of

February 28, 2019

August 31, 2019

(Yen in

thousands)

Book value

Fair value

Difference

Book value

Fair value

Difference

Fair value exceeding the book value

Held-to-maturity bonds:

Government bonds

¥―

¥―

¥―

¥9,377

¥9,931

¥553

Subtotal

―

―

―

9,377

9,931

553

Fair value not exceeding the book value

Held-to-maturity bonds:

Government bonds

9,360

9,228

(132)

―

―

―

Subtotal

9,360

9,228

(132)

―

―

―

Total

¥9,360

¥9,228

¥(132)

¥9,377

¥9,931

¥553

Note 6 - Derivative Transactions

  1. Derivative Transactions for Which Hedge Accounting Has Not Been Applied -- None
  2. Derivative Transactions for Which Hedge Accounting Has Been Applied

Contract amount or notional principal amount of derivative transactions classified by hedge accounting method is as follows:

As of

February 28, 2019

August 31, 2019

(Yen in thousands)

Type of derivative

Hedged

Contract amount

Fair

Contract amount

Fair

Due after

Due after

transaction

item

Total

value

Total

value

one year

one year

Principle method

Interest-rate swap

Long-term

¥47,500,000 ¥47,500,000 ¥(1,063,056)

¥47,500,000

¥47,500,000 ¥(1,085,876)

Receive floating/

loan

Pay fixed

(Note 1)

(Note 1)

Special treatment for interest-rate swaps

Interest-rate swap

Long-term

Receive floating/

48,268,000 30,858,000

(Note 2)

58,668,000

41,258,000

(Note 2)

Pay fixed

loan

Total

¥95,768,000 ¥78,358,000 ¥(1,063,056)

¥106,168,000

¥88,758,000 ¥(1,085,876)

65

VI. Notes to Financial Statements

Notes:

  1. Fair value is quoted by counterparties based on the prevailing market interest rates.
  2. Under the special accounting treatment, interest-rate swaps are accounted for as part of the long-term loans, the hedged item; thus, the fair value is included in the fair value of the long-term loans. (Please refer to Note 4 - "Financial Instruments" above.)

Note 7 - Goodwill

On September 1, 2016, DHR merged with the former DHR in an absorption-type merger (the "Merger") with DHR as the surviving corporation and the former DHR as the absorbed corporation.

On the business combination date, consideration given for the acquisition was ¥219,425,976 thousand, which was the amount equivalent to the fair value of DHR investment units allotted, while the fair value of the net assets acquired from the former DHR was ¥140,136,912 thousand. The excess of the acquisition cost over the fair value of the net assets acquired, in the amount of ¥79,289,063 thousand, was recognized as goodwill upon the Merger. The amount of goodwill is amortized over 20 years using the straight-line method. As of February 28, 2019 and August 31, 2019, the unamortized balances of goodwill from the Merger were ¥69,377,930 thousand and ¥67,395,703 thousand, respectively.

Note 8 - Investment Properties

As of February 28, 2019 and August 31, 2019, investment properties consist of the following property and equipment and property and equipment in trust.

As of

February 28, 2019

August 31, 2019

(Yen in

thousands)

Acquisition

Accumulated

Net

Acquisition

Accumulated

Net

cost

depreciation

cost

depreciation

Property and equipment:

Land

¥20,879,124

¥―

¥20,879,124

¥20,879,124

¥―

¥20,879,124

Buildings

26,298,220

4,602,743

21,695,476

26,340,267

4,873,131

21,467,135

Structures

245,467

45,395

200,072

248,224

48,206

200,017

Machinery and equipment

472,105

138,790

333,314

478,877

149,748

329,128

Tools, furniture and fixtures

676,056

377,657

298,398

701,691

403,055

298,636

Property and equipment in trust:

Land

310,001,420

―

310,001,420

348,445,376

―

348,445,376

Buildings

323,844,247

31,322,569

292,521,677

346,715,583

35,285,398

311,430,184

Structures

7,302,031

688,505

6,613,525

8,370,382

846,472

7,523,909

Machinery and equipment

2,417,497

1,017,666

1,399,830

2,528,596

1,106,294

1,422,301

Tools, furniture and fixtures

967,046

401,423

565,623

1,098,003

463,313

634,689

Construction in progress

15,228

―

15,228

225,909

―

225,909

Total

¥693,118,444

¥38,594,752 ¥654,523,691

¥756,032,035

¥43,175,621 ¥712,856,413

66

Note 9 - Fair Value of Investment Properties

DHR owns logistics, residential, retail and hotel properties, and other assets for lease in the Tokyo metropolitan area and other areas for the purpose of earning rental revenues. The book value of these investment properties including leasehold rights in trust, net change in the book value and the fair value are as follows:

As of / For the fiscal periods ended

February 28, 2019

August 31, 2019

(Yen in thousands)

Book value:

Balance at beginning of the period

¥652,230,280

¥660,511,618

Net change during the period

8,281,337

58,285,309

Balance at end of the period

¥660,511,618

¥718,796,927

Fair value at end of the period

¥753,721,000

¥822,248,000

Notes:

  1. The book value above includes leasehold rights in trust of ¥5,987,926 thousand and ¥5,940,513 thousand as of February 28, 2019 and August 31, 2019, respectively.
  2. For the period ended February 28, 2019, the increase is mainly due to acquisitions of four properties including COMBOX310 (¥12,912,161 thousand), while the decrease is mainly attributable to the sale of Morino Tonari (¥1,044,407 thousand) and depreciation. For the period ended August 31, 2019, the increase is mainly due to acquisitions of 13 properties including D Project Itabashi Shingashi (¥67,660,160 thousand), while the decrease is mainly attributable to the sale of D Project Shin-Misato (¥5,584,343 thousand) and depreciation.
  3. The fair value at end of the period represents the value assessed by third-party real estate appraisers.

Note 10 - Rental Revenues and Expenses

Rental revenues generated from investment properties and related expenses for the periods ended February 28, 2019 and August 31, 2019 are as follows:

For the fiscal periods ended

February 28, 2019

August 31, 2019

(Yen in thousands)

Rental revenues:

¥23,149,693

Rental revenues

¥21,511,590

Common area charges

473,366

489,934

Subtotal

21,984,957

23,639,627

Other revenues related to property leasing:

Facility charges

382,753

388,843

Incidental revenues

283,633

282,426

Other revenues

362,213

412,056

Subtotal

1,028,600

1,083,326

Total rental revenues

¥23,013,558

¥24,722,954

67

VI. Notes to Financial Statements

For the fiscal periods ended

February 28, 2019

August 31, 2019

(Yen in thousands)

Rental expenses:

¥1,283,640

¥1,314,771

Management fees

Utilities

349,856

332,752

Taxes and public dues

1,432,107

1,798,996

Repairs

746,985

833,301

Restoration costs

230,219

301,418

Insurance premiums

27,558

29,840

Custodian fees

58,202

62,116

Depreciation and amortization

4,454,820

4,764,371

Other operating expenses

601,307

625,050

Total rental expenses

¥9,184,698

¥10,062,619

Operating income from property leasing activities

¥13,828,859

¥14,660,334

Note 11 - Asset Retirement Obligations

DHR recognizes asset retirement obligations associated with restoration obligations upon expiration of the fixed- term land lease agreements with some landowners and those associated with contractual and legal obligations for asbestos removal.

DHR estimates the useful life of applicable assets as the remaining period of the fixed-term land lease agreements (46 - 60 years), and uses 1.0 - 2.4% discount rates for the calculation of asset retirement obligations. For buildings containing asbestos, DHR estimates the useful life to be 35 years, and uses a 0.6% discount rate. Changes in asset retirement obligations for the periods ended February 28, 2019 and August 31, 2019 are as follows:

For the fiscal periods ended

February 28, 2019

August 31, 2019

(Yen in thousands)

Balance at beginning of the period

¥620,349

¥626,251

Increase due to acquisitions of property and equipment

―

7,783

Accretion expense

5,901

5,981

Balance at end of the period

¥626,251

¥640,015

Note 12 - Net Assets

DHR issues only non-par value units in accordance with the Investment Trust Act and all issue amounts of new units are designated as stated capital. DHR maintains net assets of at least ¥50,000 thousand as required by Paragraph 4 of Article 67 of the Investment Trust Act.

68

Note 13 - Distribution Information

In accordance with Article 37.1.1 of the bylaws set forth by DHR for cash distributions, the amount of distribution is limited to the amount of income and more than 90% of income available for distribution as set forth in Article 67.15 of the Special Taxation Measures Act of Japan (the "Measures"), which allows the REITs to deduct the amount of cash distributions from taxable income to avoid double taxation if certain requirements are met.

Also, DHR implemented its policy of stabilized distributions by utilizing a reserve for temporary difference adjustments. In accordance with the foresaid policy, a cash distribution is declared for the amount calculated by deducting the amount of accumulation of reserve for distribution from the total of unappropriated retained earnings and reversal of reserve for temporary difference adjustments.

Adopting the transitional measure stipulated in the paragraph 3 of supplementary provision of the "Ordinance on Accountings of Investment Corporations" (Cabinet Office Ordinance No. 27 of 2015), subsequent to February 28, 2017, DHR transferred the reserve for distribution of ¥14,748,347,148, which was the balance retained from gain on negative goodwill recognized in the past, to the reserve for temporary difference adjustments account. The Ordinance prescribes that, from the fiscal period following the period in which the amount is reserved, a minimum of 1% of the remaining balance shall be appropriated from reserve for temporary difference adjustments for cash distributions. Instead of appropriating the minimum amounts as set forth by the Ordinance, DHR appropriated the amounts equivalent to goodwill amortization expenses in accordance with the cash distribution policy set forth in the Articles of Incorporation from the fiscal period ended August 31, 2017.

In addition, for the fiscal period ended August 31, 2019, DHR sold one property and realized excess taxable income over accounting income. In order to distribute more than 90% of income available for distribution, DHR appropriated the amount equivalent to the tax-accounting mismatch.

Thus, the amounts appropriated for distributions related to the periods ended February 28, 2019 and August 31, 2019 were ¥1,980,994,520 and ¥2,920,127,436, respectively, which were greater than the aforementioned minimum amounts as set forth by the Ordinance.

No cash distribution exceeding the income amount set forth in Article 37.2 of the bylaws of DHR shall be made. Distributions related to the period but declared after the balance sheet date are summarized as follows:

For the fiscal periods ended

February 28, 2019

August 31, 2019

(Yen)

Total

Per unit

Total

Per unit

Unappropriated retained earnings

¥8,597,087,441

¥9,166,085,941

Reversal of voluntary reserve:

Reserve for temporary difference adjustments

1,980,994,520

2,920,127,436

Accumulation of voluntary reserve:

Reserve for distribution

(120,252,961)

(107,238,377)

Cash distributions

¥10,457,829,000

¥5,427

¥11,978,975,000

¥5,773

Retained earnings carried forward

¥―

¥―

69

VI. Notes to Financial Statements

Note 14 - Investment Corporation Bonds

The following summarizes the status of the DHR's unsecured investment corporation bonds with special pari passu conditions among specified investment corporation bonds as of February 28, 2019 and August 31, 2019. The bonds are to be repaid on a lump-sum basis on the maturity date.

As of

Description

Issue date

Maturity date

Interest

February 28, 2019

August 31, 2019

rate

(Yen in thousands)

Daiwa House REIT

December 24,

December 24,

0.826%

¥2,000,000

¥2,000,000

Investment Corporation

2014

2024

1st Unsecured Bonds

Daiwa House Residential

January 22,

January 22,

0.35%

3,000,000

3,000,000

Investment Corporation

2015

2021

2nd Unsecured Bonds

Daiwa House Residential

January 22,

January 22,

0.67%

3,000,000

3,000,000

Investment Corporation

2015

2025

3rd Unsecured Bonds

Daiwa House REIT

December 20,

December 20,

0.24%

4,000,000

4,000,000

Investment Corporation

2016

2021

5th Unsecured Bonds

Daiwa House REIT

December 20,

December 18,

0.57%

4,000,000

4,000,000

Investment Corporation

2016

2026

6th Unsecured Bonds

Daiwa House REIT

July 30, 2018

July 30, 2030

0.69%

2,000,000

2,000,000

Investment Corporation

7th Unsecured Bonds

Daiwa House REIT

July 30, 2018

July 30, 2038

1.03%

1,000,000

1,000,000

Investment Corporation

8th Unsecured Bonds

Total

¥19,000,000

¥19,000,000

70

Note 15 - Long-Term Loans

Long-term loans consist of borrowings from financial institutions under loan agreements. None of the loans are secured by collateral or guaranteed. The following table summarizes long-term loans as of February 28, 2019 and August 31, 2019.

As of

February 28, 2019

August 31, 2019

Due date

(Yen in thousands)

Interest

(Yen in thousands)

Interest

Long-term loans:

rate

rate

¥4,000,000

1.07%

¥―

―%

Fixed-ratelong-term loan

March 27, 2019

Floating-ratelong-term loan

March 29, 2019

7,600,000

0.26

―

―

Fixed-ratelong-term loan

November 29, 2019

10,000,000

1.29

10,000,000

1.29

Floating-ratelong-term loan (*)

January 31, 2020

17,410,000

0.96

17,410,000

0.96

Fixed-ratelong-term loan

January 31, 2020

1,500,000

0.96

1,500,000

0.96

Fixed-ratelong-term loan

April 1, 2020

1,000,000

0.57

1,000,000

0.57

Floating-ratelong-term loan

March 31, 2020

6,900,000

0.21

6,900,000

0.21

Floating-ratelong-term loan (*)

January 31, 2021

3,500,000

0.90

3,500,000

0.90

Floating-ratelong-term loan (*)

April 1, 2021

3,000,000

1.05

3,000,000

1.05

Floating-ratelong-term loan (*)

November 30, 2021

7,000,000

0.51

7,000,000

0.51

Fixed-ratelong-term loan

April 30, 2021

9,500,000

0.40

9,500,000

0.40

Floating-ratelong-term loan (*)

January 31, 2022

6,858,000

0.61

6,858,000

0.61

Floating-ratelong-term loan (*)

April 28, 2022

10,000,000

0.66

10,000,000

0.66

Floating-ratelong-term loan (*)

December 28, 2022

10,500,000

0.59

10,500,000

0.59

Floating-ratelong-term loan (*)

April 1, 2022

3,500,000

1.21

3,500,000

1.21

Floating-ratelong-term loan (*)

October 3, 2022

3,000,000

0.87

3,000,000

0.87

Floating-ratelong-term loan (*)

September 28, 2022

4,000,000

0.65

4,000,000

0.65

Fixed-ratelong-term loan

September 9, 2022

1,000,000

0.43

1,000,000

0.43

Fixed-ratelong-term loan

April 28, 2022

6,500,000

0.42

6,500,000

0.42

Floating-ratelong-term loan

August 31, 2022

―

―

4,000,000

0.24

Floating-ratelong-term loan

October 31, 2022

―

―

6,000,000

0.29

Floating-ratelong-term loan (*)

March 27, 2023

2,000,000

1.50

2,000,000

1.50

Fixed-ratelong-term loan

September 29, 2023

1,000,000

1.00

1,000,000

1.00

Floating-ratelong-term loan (*)

October 2, 2023

4,000,000

0.99

4,000,000

0.99

Floating-ratelong-term loan (*)

May 31, 2023

4,000,000

0.71

4,000,000

0.71

Fixed-ratelong-term loan

March 31, 2023

10,400,000

0.41

10,400,000

0.41

Fixed-ratelong-term loan

September 29, 2023

10,000,000

0.57

10,000,000

0.57

Fixed-ratelong-term loan

March 31, 2023

1,000,000

0.44

1,000,000

0.44

Fixed-ratelong-term loan

September 29, 2023

1,000,000

0.43

1,000,000

0.43

Fixed-ratelong-term loan

January 31, 2024

2,000,000

0.88

2,000,000

0.88

Floating-ratelong-term loan (*)

April 1, 2024

3,000,000

1.52

3,000,000

1.52

Fixed-ratelong-term loan

September 30, 2024

1,000,000

0.73

1,000,000

0.73

Fixed-ratelong-term loan

March 29, 2024

11,000,000

0.48

11,000,000

0.48

Fixed-ratelong-term loan

March 29, 2024

1,000,000

0.55

1,000,000

0.55

Fixed-ratelong-term loan

April 30, 2024

5,000,000

0.52

5,000,000

0.52

Fixed-ratelong-term loan

October 31, 2024

―

―

8,100,000

0.39

71

VI. Notes to Financial Statements

As of

February 28, 2019

August 31, 2019

Due date

(Yen in thousands)

Interest

(Yen in thousands)

Interest

Floating-ratelong-term loan (*)

rate

rate

October 1, 2025

4,000,000

1.23

4,000,000

1.23

Fixed-ratelong-term loan

October 1, 2025

3,000,000

1.18

3,000,000

1.18

Floating-ratelong-term loan (*)

May 30, 2025

4,000,000

0.97

4,000,000

0.97

Fixed-ratelong-term loan

September 29, 2025

9,000,000

0.63

9,000,000

0.63

Total amount of commitment line Balance executed as loans Unused line of credit

As of

February 28, 2019 August 31, 2019

(Yen in thousands)

¥25,000,000

¥25,000,000

―

―

¥25,000,000

¥25,000,000

Fixed-ratelong-term loan

March 31, 2025

11,000,000

0.70

11,000,000

0.70

Fixed-ratelong-term loan

April 30, 2025

5,000,000

0.60

5,000,000

0.60

Fixed-ratelong-term loan

September 30, 2025

1,000,000

0.60

1,000,000

0.60

Fixed-ratelong-term loan

September 30, 2025

―

―

7,600,000

0.43

Floating-ratelong-term loan (*)

April 1, 2026

2,000,000

2.03

2,000,000

2.03

Floating-ratelong-term loan (*)

May 29, 2026

4,000,000

1.09

4,000,000

1.09

Fixed-ratelong-term loan

September 28, 2026

1,000,000

0.69

1,000,000

0.69

Fixed-ratelong-term loan

November 30, 2026

15,000,000

0.87

15,000,000

0.87

Fixed-ratelong-term loan

April 30, 2026

10,000,000

0.76

10,000,000

0.76

Fixed-ratelong-term loan

April 30, 2026

2,000,000

0.65

2,000,000

0.65

Fixed-ratelong-term loan

April 30, 2026

―

―

1,000,000

0.45

Fixed-ratelong-term loan

April 1, 2027

1,500,000

1.46

1,500,000

1.46

Fixed-ratelong-term loan

March 31, 2027

2,000,000

0.85

2,000,000

0.85

Fixed-ratelong-term loan

July 30, 2027

12,100,000

0.89

12,100,000

0.89

Fixed-ratelong-term loan

November 30, 2027

16,000,000

0.90

16,000,000

0.90

Fixed-ratelong-term loan

September 30, 2027

1,500,000

0.75

1,500,000

0.75

Fixed-ratelong-term loan

April 30, 2027

―

―

500,000

0.50

Fixed-ratelong-term loan

April 28, 2028

10,000,000

1.02

10,000,000

1.02

Fixed-ratelong-term loan

April 28, 2028

10,000,000

0.89

10,000,000

0.89

Fixed-ratelong-term loan

December 29, 2028

5,000,000

0.88

5,000,000

0.88

Fixed-ratelong-term loan

April 28, 2028

―

―

1,500,000

0.59

Floating-ratelong-term loan (*)

April 27, 2029

―

―

10,400,000

0.75

Total long-term loans

302,268,000

329,768,000

Less: current portion

(40,510,000)

(36,810,000)

Long-term loans, less current

¥261,758,000

¥292,958,000

portion

  1. DHR entered into an interest-rate swap contract to hedge its exposure to interest rate fluctuation risk. The stated interest rate includes the effect of the interest-rate swap.

The stated interest rate is the weighted average interest rate for the applicable fiscal period and is rounded to the second decimal place.

The repayment schedule for short-term and long-term loans subsequent to February 28, 2019 and August 31, 2019 is disclosed in Note 4 - "Financial Instruments."

DHR has entered into a commitment line agreement with four financial institutions in order to secure flexible and stable financing. The status of the commitment line agreement as of February 28, 2019 and August 31, 2019 is as follows:

72

Note 16 - Lease Transactions

Future minimum lease revenues under existing non-cancelable operating leases as of February 28, 2019 and August 31, 2019 are as follows:

As of

February 28, 2019 August 31, 2019

(Yen in thousands)

Due within one year

¥21,668,874

¥24,663,669

Due after one year

142,417,289

173,714,404

Total

¥164,086,163

¥198,378,073

(This part is intentionally left blank)

73

VI. Notes to Financial Statements

Note 17 - Deferred Income Taxes

DHR is subject to Japanese corporate income taxes on all of its taxable income. However, DHR may deduct the amount distributed to its unitholders from its taxable income when certain requirements, including a requirement to distribute in excess of 90% of distributable profit for the fiscal period, are met under the Measures. If DHR does not satisfy all of the requirements as specified in the Measures, the entire taxable income of DHR will be subject to regular

  1. Significant Differences Between the Statutory Tax Rate and the Effective Tax Rate After Applying Deferred Income Tax Accounting

The following table summarizes the significant differences between the statutory tax rate and DHR's effective tax rate for financial statement purposes.

corporate income taxes in Japan.

(a) Significant Components of Deferred Tax Assets and Liabilities

Statutory tax rate Adjustments:

For the fiscal periods ended

February 28, 2019

August 31, 2019

31.51%

31.51%

Deferred tax assets:

Excess provision of allowance for doubtful accounts Deferred interest income

As of

February 28, 2019 August 31, 2019

(Yen in thousands)

¥386

¥311

328,554

293,333

Tax-deductible cash distributions paid

Use of loss carryforward assumed at the time of merger Amortization of goodwill

Change in valuation allowance Other

Effective tax rate

(37.87)

(41.18)

―

(1.51)

7.26

6.81

(0.92)

4.35

0.01

0.01

0.01%

0.01%

Valuation difference at the time of merger (Long-term prepaid expenses, etc.)

Valuation difference at the time of merger (Land and Buildings)

Loss carryforward assumed at the time of merger Asset retirement obligations

90

40

2,677,223

2,584,908

160,288

21,975

197,832

202,180

Note 18 - Gain on Sale of Investment Properties

For the period ended February 28, 2019, DHR sold one investment property and reported a gain as follows:

Deferred gains or losses on hedges Amortization of fixed-term land lease rights Other

Subtotal Valuation reserve

Total deferred tax assets

Deferred tax liabilities:

335,819

343,028

122,371

137,349

9,589

9,110

3,832,157

3,592,239

(3,832,157)

(3,592,239)

―

―

Morino Tonari

Proceeds from sale of investment properties Cost of investment properties sold

Other sales expenses

Gain on sale of investment properties

For the fiscal period

ended

February 28, 2019

(Yen in thousands)

¥1,200,000 1,044,407 42,060 ¥113,532

Valuation difference at the time of merger (Investment securities)

(740)

(720)

For the period ended August 31, 2019, DHR sold one investment property and reported a gain as follows:

Valuation difference at the time of merger (Land and Buildings)

Asset retirement costs Subtotal

Valuation reserve

Total deferred tax liabilities

Net deferred tax assets

(14,519,107)

(14,006,896)

(174,340)

(176,785)

(14,694,188)

(14,184,402)

14,694,188

14,184,402

―

―

¥―

¥―

D Project Shin-Misato

Proceeds from sale of investment properties

Cost of investment properties sold

For the fiscal period

ended

August 31, 2019

(Yen in thousands)

¥5,755,000 5,584,343 15,687

Based on the cash distribution policy set forth in Article 37 of the Articles of Incorporation, DHR may distribute an amount of cash that exceeds profit in order to minimize taxable income. DHR does not assume corporate income tax payments in future accounting periods; therefore, deferred tax liabilities are not recorded.

Other sales expenses

Gain on sale of investment properties

¥154,968

74

75

VI. Notes to Financial Statements

Note 19 - Per Unit Information

Earnings per unit for the periods ended February 28, 2019 and August 31, 2019 and net assets per unit as of February 28, 2019 and August 31, 2019 are as follows:

Note 21 - Segment Information

(a) Segment Information

Earnings per unit:

Net income per unit

Weighted average number of units outstanding (units)

Net assets per unit

For the fiscal periods ended

February 28, 2019

August 31, 2019

(Yen)

¥4,461¥4,420

1,927,000 2,073,641

As of

February 28, 2019 August 31, 2019

(Yen)

¥222,741¥223,214

Since DHR has been engaged in a single segment of the real estate leasing business, and there is no other business segment for disclosure, segment information has been omitted.

(b) Related Information

Information about products and services

Since operating revenues from external customers for a single segment of product and service account for over 90% of total operating revenues in DHR's statements of income and retained earnings for the periods ended February 28, 2019 and August 31, 2019, information about products and services has been omitted.

Information about geographic areas

Net income per unit is calculated by dividing net income by the weighted average number of investment units during the period. Net assets per unit are calculated by dividing net assets by the number of units outstanding at each balance sheet date. Diluted earnings per unit are not disclosed since there were no diluted units.

Note 20 - Related-Party Transactions

Related-party transactions for the periods ended February 28, 2019 and August 31, 2019 are as follows:

  1. Controlling Company and Major Corporate Investors -- None
  2. Affiliates -- None
  3. Transactions under Common Control -- None

(d) Directors and Major Individual Investors -- None

76

(1) Operating revenues

Since operating revenues from external customers within Japan account for over 90% of total operating revenues in DHR's statements of income and retained earnings for the periods ended February 28, 2019 and August 31, 2019, information about geographic areas has been omitted.

(2) Investment properties

Since over 90% of total investment properties on the balance sheets as of February 28, 2019 and August 31, 2019, are located within Japan, information about geographic areas on such investment properties has been omitted.

Information about major customers

Since there is not any customer accounting for 10% or more of total operating revenues in DHR's statements of income and retained earnings for the periods ended February 28, 2019 and August 31, 2019, information about major customers has been omitted.

77

VI. Notes to Financial Statements

Note 22 - Accounting Standards Issued But Not Yet Applied

As of August 31, 2019, DHR has not yet applied the following accounting standards and their implementation guidance.

(a) Accounting Standard for Revenue Recognition and its Implementation Guidance

"Accounting Standard for Revenue Recognition" (Accounting Standards Board of Japan ("ASBJ") Statement No. 29, March 30, 2018)

"Implementation Guidance on Accounting Standard for Revenue Recognition" (ASBJ Guidance No. 30, March 30, 2018)

(1) Overview

Conducting a joint project to clarify the comprehensive principles for recognizing revenues, the International Accounting Standards Board ("IASB") and the Financial Accounting Standards Board ("FASB") in the U.S. issued "Revenue from Contracts with Customers" (IFRS 15 by IASB and Topic 606 by FASB) in May 2014. IFRS 15 became effective from fiscal periods beginning on or after January 1, 2018 and Topic 606 became effective from fiscal periods beginning after December 15, 2017. Under these circumstances, ASBJ also developed a comprehensive accounting standard for revenue recognition and issued a new standard together with its implementation guidance.

As a basic policy for the development of the new standard, ASBJ determined to adopt the core principles of IFRS 15 in order to enhance comparability of financial statements, which is one of the benefits of consistency with IFRS 15. In addition, for any item to be considered arising from business practices in Japan, alternative treatments shall be added to the extent that comparability is not impaired.

(2) Scheduled date of application

DHR will apply the aforementioned standard and guidance from the beginning of the fiscal period ending February 28, 2022.

(3) Effect of application of the new accounting standard

The effect of application of the aforementioned standard on DHR's financial statements is currently under evaluation.

(b) Accounting Standard for Fair Value Measurement and its Implementation Guidance

"Accounting Standard for Fair Value Measurement" (ASBJ Statement No. 30, July 4, 2019)

"Implementation Guidance on Accounting Standard for Fair Value Measurement" (ASBJ Guidance No. 31, July 4, 2019)

(1) Overview

Developing accounting standards for fair value measurement, IASB and FASB issued new common fair value measurement in May 2011 (IFRS 13 by IASB and update to Topic 820 by FASB). IFRS 13 became effective from fiscal periods beginning on or after January 1, 2013 and Topic 820 became effective from fiscal periods beginning after December 15, 2011. Under these circumstances, ASBJ also developed an accounting standard for fair value measurement and issued a new standard together with its implementation guidance.

As a basic policy for the development of the new standard, ASBJ determined to generally adopt all the principles of IFRS 13 in order to enhance comparability of financial statements among domestic and overseas companies, by

78

applying the consistent measurement methods. However, for any item to be considered arising from business practices in Japan, other treatment for the item shall be determined to the extent that comparability is not impaired.

(2) Scheduled date of application

DHR will apply the aforementioned standard and guidance from the beginning of the fiscal period ending February 28, 2022.

(3) Effect of application of the new accounting standard

The effect of application of the aforementioned standard on DHR's financial statements is currently under evaluation.

Note 23 - Subsequent Events

Not applicable.

79

VII. Independent Auditor's Report

80

81

Investor Information

Investment Unit Price

Investment unit price (closing price)

Highest price during the 27th scal period (closing price):

¥280,800

Investment unit price (Yen)

Trading volume

Trading volume (Units)

(Yen)

Lowest price during the 27th scal period (closing price):

¥241,700

(Units)

Investment unit price at the end of the 27th scal period (closing price): ¥280,400

300,000

120,000

250,000

80,000

200,000

40,000

150,000

30,000

100,000

20,000

50,000

10,000

0

0

Mar. 22, May 31,

Nov. 30,

May 31,

Nov. 30,

May 31,

Nov. 30, May 31,

Nov. 30,

Aug. 31, Feb. 28,

Aug. 31,

Feb. 29,

Aug. 31, Feb. 28,

Aug. 31, Feb. 28,

Aug. 31, Feb. 28,

Aug. 31, Feb. 29,

Aug. 31,

Feb. 28,

Aug. 31,

Feb. 28,

Aug. 31, Feb. 28,

Aug. 31,

2006

2006

2006

2007

2007

2008

2008

2009

2009

2010

2011

2011

2012

2012

2013

2013

2014

2014

2015

2015

2016

2016

2017

2017

2018

2018

2019

2019

(Note) A 2-for-1 split of investment units was implemented on two occasions, effective as of March 1, 2013 and March 1, 2015.

With regard to investment unit price and trading volume until February 25, 2013, the value shown for investment unit price is divided by four, while the value shown for trading volume is multiplied by four in consideration of the said split of investment units.

Furthermore, from February 26, 2013 to February 24, 2015, the value shown for investment unit price is divided by two, and the value shown for trading volume is multiplied by two.

Procedures for Changes of Address, etc.

Please submit changes of address, name, etc., to your securities company, etc. For procedures regarding investment units registered in special accounts, please contact: Stock Transfer Agency Business Planning Dept. of Sumitomo Mitsui Trust Bank, Limited.

Receipt of Distributions

You can receive distributions when you bring your receipt for distributions to the local office of the Japan Post Bank in Japan or to a post office (bank agent). If the period for receiving distributions has elapsed, please contact the transfer agent Sumitomo Mitsui Trust Bank, Limited.

If you would like to specify an account to which future distributions will be transferred, please follow the procedures of your securities company, etc.

We will not pay and have no obligation to pay cash distributions not claimed within three years of the distribution date, as stipulated in our Articles of Incorporation. Please claim these as soon as possible.

Distribution Statement

The "Distribution Statement" delivered upon payment of distributions includes the "Payment Notice," referred to in the provisions of the Act on Special Measures Concerning Taxation. This document may be used as a supporting document when declaring income for tax purposes. However, for unitholders who have selected the system of dividend allotment to securities company accounts in proportion to the number of shares held, the amount of withholding tax will be calculated by your securities company, etc. For supporting documents when declaring income for tax purposes please confirm with your securities company, etc. Furthermore, unitholders who receive distributions by way of a receipt for distributions also receive a "Distribution Statement" enclosed with it.

Unitholders Data (as of August 31, 2019)

344

25

(1.9%)

(0.1%)

205

(1.2%)

493

(2.8%)

Number of unitholders

(17,717)

16,650

(94.0%)

127,929 units

100,765 units

(6.2%)

(4.9%)

472,084 units

(22.8%)

Number of

investment

units

(2,075,000 units)

222,948 units

1,151,274 units

(10.7%)

(55.5%)

Outline of the Social Security and Tax Number System Nicknamed "My Number System" with Regard to Investment Units

Residents in Japan are notified of their Social Security and Tax Number (nicknamed "My Number") by their city, town or village. My Number is required when performing tax-related procedures with regard to investment units.

Use of the My Number for Investment Unit Related Business

As stipulated by laws and regulations, it is now required to

[Contact address for inquiries on submitting My Number]

state the My Number of the unitholder on payment records

Unitholders whose investment units are managed by a securities account

that are submitted to the tax office.

Please direct your inquiries to your securities company, etc.

Unitholders are therefore requested to submit their My

Unitholders not conducting transactions via a securities company

Please call the following toll-free phone number.

Number to their securities company.

Stock Transfer Agency Business Planning Dept. of Sumitomo Mitsui

Individuals / Other

Financial institutions

Other domestic corporations

Foreign corporations and individuals

Securities firms

(Note) Ratios in parentheses are rounded to the nearest tenth.

Outline of the Asset Manager

Corporate Name : Daiwa House Asset Management Co., Ltd.

Location

: 7th Floor, Nissei Nagatacho Building, 2-4-8, Nagatacho, Chiyoda-ku, Tokyo 100-0014

Established

: September 1, 2004

Paid-in Capital

:

¥300 million

Shareholder

:

Daiwa House Industry Co., Ltd. (100%)

Trust Bank, Limited TEL: 0120-782-031

Note for Unitholders

Account closing date

Last day of February and August of each year

Date for determining distribution

Last day of February and August of each year

payments

(Distributions are to be paid within three months of each date.)

Unitholders' Meeting

To be held at least once every two years

Date for finalizing general meeting

Date set forth in Section 16.1 in the Articles of Incorporation by DHR

voting rights

Listing

REIT section of the Tokyo Stock Exchange (Securities code: 8984)

Public notices

The "Nikkei" newspaper (Nihon Keizai Shimbun)

Transfer agent

Sumitomo Mitsui Trust Bank, Limited

4-1, Marunouchi 1-chome,Chiyoda-ku, Tokyo 100-8233, JAPAN

Stock Transfer Agency Business Planning Dept. of Sumitomo Mitsui Trust Bank, Limited

Inquiries

8-4, Izumi 2-chome,Suginami-ku, Tokyo 168-0063, JAPAN

TEL: 0120-782-031(toll-free, available within Japan only)

Weekdays 9 a.m. to 5 p.m.

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Disclaimer

Daiwa House REIT Investment Corporation published this content on 26 November 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 November 2019 07:52:07 UTC