Heiwa Real Estate REIT : Additional Documentation for Press Release "Notice Concerning the Issuance of New Investment Units and Secondary Offering of Investment Units"

This documentation is the English translation of the Japanese announcement on May 20, 2024

Additional Documentation for Press Release "Notice Concerning the Issuance of New Investment Units and Secondary Offering of Investment Units"

May 20, 2024

(Note) SHINWA ESAKA BUILDING: Entrance

Disclaimer

This document arranges in order details released in the Notice Concerning Issuance of New Investment Units and Secondary Offering of Investment Units, and the Notice Concerning Acquisition of Domestic Assets (Kitahama 1-Chome Heiwa Building and Kita Nijo Building) dated May 20, 2024, and additional information incidental thereto. Please refer to the Notice Concerning Issuance of New Investment Units and Secondary Offering of Investment Units dated May 20, 2024 for the details of the offerings.

This document is not a disclosure document or a report on asset management based on the Financial Instruments and Exchange Act, the Act on Investment Trusts and Investment Corporations, and Government Ordinances, Cabinet Office Ordinances and regulations incidental thereto. This document is aimed at providing information. It was not prepared as a solicitation for investment. The Investment Corporation requests that investors make investments at their own discretion and on their own responsibility after reading, without fail, the prospectus for the issuance of new investment units and the offerings of investment units, and amendments thereto (if any amendment is made) prepared by the Investment Corporation. The Investment Corporation does not aim to offer specific products, solicit them, or recommend their purchase or sale through any information at its official website where this document is published (the "Website"), or any information published thereat or at sites linked to materials published thereat.

The details of this document include the Investment Corporation's strategies, targets, forecasts, other future outlooks related to its performance, and the descriptions of estimates associated with those matters. Those forward-looking statements are based on certain suppositions, assumptions and assessments the Investment Corporation and HEIWA REAL ESTATE Asset Management Co., Ltd. (the "Asset Management Company"), the company managing assets for the Investment Corporation, made from information available at the time when this document was prepared. There are risks and uncertainties inherent in the statements, which along with suppositions and other factors may have an impact. Therefore, the strategies, targets and forecasts contained in this document do not guarantee the performance, operating results, financial position and the like of the Investment Corporation in the future. Actual results may differ materially from the performance, operating results, financial position and the like in the future indicated, explicitly or implicitly, by the presence of those statements associated with the forecasts and the like. The Investment Corporation does not guarantee or promise the achievement of the forward- looking statements, either. Please refer to the Notes stated below for suppositions and assumptions for the forward-looking statements.

This document contains charts, data, etc. prepared by the Asset Management Company based on information provided to the Investment Corporation and the Asset Management Company or published by third parties, and also contains present analyses, judgments, and other views of the Investment Corporation and the Asset Management Company. It is possible that different views may exist on these matters, and that the Investment Corporation and the Asset Manager may change their views in the future.

The Investment Corporation makes the content of this document doubly sure. However, the Investment Corporation does not guarantee the accuracy, reliability, validity and fairness of its content. Please note that the content may be subject to revision or cancellation without notice.

The Investment Corporation prohibits the duplication or other unauthorized use of the content of this document without prior consent.

Real estate investment trust issuer: HEIWA REAL ESTATE REIT, Inc. (securities code: 8966) Asset management company: HEIWA REAL ESTATE Asset Management Co., Ltd. (financial instruments business operator No. 316 (Financial Instruments Business) registered with the Director General of the Kanto Local Finance Bureau, and a member of the Investment Trusts Association, Japan)

Heiwa Real Estate REIT, Inc. makes no assurance or warranty with respect to the completeness or accuracy of this English translation. In the event of any discrepancy between the Japanese original and this English translation, the Japanese original shall prevail. For complete and accurate information, please refer to the Japanese original.

1

Intentionally Blank

2

Offering highlights

Steady Growth & Sustainable Profit

1✓ Completion of new acquisitions of assets that will provide the basis for future internal growth

• Secured growth funds to finance future internal growth through the acquisition of carefully selected properties with a high rent gap
• Significantly improved quality of portfolio through strategic asset replacement, internal growth, etc.
• Aiming to continue flexible property acquisitions by once again securing acquisition capacity through the Offering

Pursuit of internal growth of existing properties through added value renovation, aiming for

1. achievement of NEXT VISION II
2. • Aiming to further accelerate rent increases and maximize the value of real estate through proactive value-enhancing construction
   • Realized unrealized gain through continual property disposition (planning to record gain on sales for 15 consecutive fiscal periods), strengthening unitholder returns while at the same time controlling internal reserves
   • Aiming for sustainable unitholder returns and dividend growth through utilization of gain on sales and internal reserves
3. Potential attractiveness as a target for investment through the new NISA (Nippon Individual Savings Account: Japanese ISA)
4. • Delivered distribution increases for 11 consecutive years since 2012 and aiming to maintain sustainable distribution growth going forward by drawing on abundant internal reserves
   • Yield is attractive compared with other J-REITs and investment products, reflecting ongoing implementation of diverse corporate actions

3

Offering summary

Summary of Assets Acquired

Number of Properties	Total Acquisition Price	Total Appraisal Value	Average NOI Yield	Average Occupancy Rate
(planned)	99.5%
5 properties		13.1 billion yen	4.9%
11.5 billion yen
	(as of March 31, 2024)
	Office					Residence
Asset to be Acquired	Asset to be Acquired			Asset Acquired in the 45th FP		Asset Acquired in the 45th FP
Asset Management	Warehousing				Sponsor		Asset Management
Company					Company

Warehousing

Kita Nijo Building		HF HIKIFUNE RESIDENCE

Asset to be Acquired

100% Ownership of the

Entire Building

Sponsor

Kitahama 1-Chome Heiwa

SHINWA ESAKA BUILDINGBuildingHF KITASENJU RESIDENCE

(additional acquisition：25％)

Assets

Disposed

HF NIHONBASHI

HF NAKANOSHIMA

HAMACHO

RESIDENCE

BUILDING

Strategy for Asset Replacement

Key factors considered in the

selection of assets to be disposed by the Investment Corporation

• Assets with inferior future profitability relative to the portfolio
• Old small residence
• Assets that encompass a variety of potential risks
• Assets with high potential for unrealized gains

Continuous external growth through asset replacement

• Improvement of portfolio quality through continuous asset replacement
• Return profits from the gain on sales and control of internal reserve balance, while promoting the continuous acquisition of assets using the funds from the disposition

			The End of the 44th FP		Assets Acquired		Assets Disposed		After the Transaction
			126 properties		5 properties		2 properties		128 properties
	Number of Properties
			(including one additional acquisition of
					trust beneficiary rights）
	Total Acquisition Price (planned)		228.4 billion yen		11.5 billion yen		2.3 billion yen		237.6 billion yen
		51.2% / 48.8%	66.3% / 33.7%	80.7% / 19.3%	51.6% / 48.4%
	Office / Residence Ratio
					3.8% / 2.9%
	NOI Yield / NOI Yield After Depreciation		5.1% / 4.1%	4.9% / 4.2%	5.0% / 4.1%
				(Ratio of NOI to the scheduled disposition price)
	LTV / Appraisal-basedLTV		46.7% / 40.3%					45.6% / 39.4%
	NAV per unit	149,798 yen						151,087 yen

4

1 Completion of new acquisitions of assets that will provide the basis for future internal growth

SHINWA ESAKA BUILDING

5

Expanded internal growth potential of office by leveraging rent gaps through new acquisitions

• Acquired properties with a high rent gap to expand the scope for future internal growth
• Achieved early rent increases after acquisition for several properties

Track record of rent increases at office properties acquired since the 40th fiscal period (November 2021)

Rent gap of assets to be acquired

Properties

Month of increase (planned) Percentage of rent increase

Properties

Month of increase (planned)

Percentage of rent increase

Asset to be

Heiwa	Kitahama
Building	-Chome
	1

March 2027	Rent revision 48 tsubo	6.3%
March 2025	Rent revision 48 tsubo	6.7%
July 2024	Rent revision 48 tsubo	5.6%
March 2024	Rent revision 48 tsubo	6.2%
October 2023	Rent revision 30 tsubo	3.4%

(Right	IWAMOTOCHO TWINBUILDING
）

October 2023	Rent revision	94 tsubo	8.1%
February 2023	Rent revision	94 tsubo	3.6%

acquired

Rent gap ratio

-53.7%

Heiwa Real Estate

Kitahama Building

SAKAE CENTER BUILDING

Shinsaibashi

FRONT

Building

September 2023	Rent revision 48 tsubo	4.4%
April 2024	Rent revision 48 tsubo	3.3％
October 2023	Rent revision 48 tsubo	14.3%
August 2023	Tenant replacement 25 tsubo	28.6%
August 2023	Rent revision 23 tsubo	6.7%
December 2025	Rent revision 40 tsubo	9.1%
December 2024	Rent revision 40 tsubo	10.0%
July 2024	Rent revision 70 tsubo	4.3%
May 2024	Tenant replacement 19 tsubo	13.6%
March 2024	Rent revision 63 tsubo	9.1%
March 2024	Rent revision 127 tsubo	4.5%
February 2024	Tenant replacement 42 tsubo	18.2%
December 2023	Rent revision 16 tsubo	5.0%
May 2023	Rent revision 84 tsubo	9.1%
April 2023	Rent revision 70 tsubo	4.5%
April 2023	Rent revision 42 tsubo	4.5%
March 2023	Rent revision 48 tsubo	10.0%
September 2023	Rent revision 74 tsubo	6.7%
September 2023	Rent revision 32 tsubo	6.7%
September 2023	Rent revision 40 tsubo	5.7%

BUILDING (Left	IWAMOTOCHO TWIN SAKAE
）
	Faret East Building
	HF ESAKA BUILDING
	OSAKI CN BUILDING

January 2024	Rent revision	19 tsubo	12.7％
January 2024	Rent revision	19 tsubo	9.1%
December 2023	Rent revision	19 tsubo	11.3%
November 2023	Rent revision	19 tsubo	6.5%
October 2023	Tenant replacement	19 tsubo	71.2%
April 2024	Rent revision	46 tsubo	1.9%
April 2023	Tenant replacement	92 tsubo	13.4%
April 2024	Rent revision	84 tsubo	10.0%
April 2024	Rent revision	86 tsubo	9.1%
April 2024	Rent revision	21 tsubo	9.1%
April 2024	Rent revision	475 tsubo	8.3%
April 2023	Rent revision	53 tsubo	22.2%
April 2023	Tenant replacement	58 tsubo	20.0%
November 2022	Tenant replacement	112 tsubo	5.0%
June 2022	Rent revision	237 tsubo	11.1%
June 2022	Rent revision	114 tsubo	11.1%
January 2022	Tenant replacement	125 tsubo	16.2%

(As of the end of March

2024)

SHINWA ESAKA

BUILDING

-21.5%

(As of the end of March

2024)

Kitahama 1-Chome

Heiwa Building

(Addtionnal acquisition: 25%）

-16.7%

(As of the end of March

2024)

Kita Nijo Building

Achieved early rent increases after acquisition for several properties

(Note) Cases of rent reduction on tenant replacement were as follows: 2 cases (40 tsubo and 21 tsubo) at SAKAE CENTER BUILDING, 2 cases (94 tsubo and 32 tsubo) at IWAMOTOCHO TWIN BUILDING, and 1 case (19 tsubo) at IWAMOTOCHO TWIN SAKAE BUILDING.

6

Actively revised rent upward and maintained high occupancy (occupancy rate (Note) of 98.3% for offices and 98.0% for residences)

• The rent gap ratio for office buildings in the portfolio increased due to a limited decline in market rents and acquisition of properties with high rent gaps
• The rent gap ratio for residences has been -2.7% since the 45th fiscal period (contracted as of March 31, 2024), increasing compared to the end of the previous period (November 30, 2024)

Office

Residence

Rent revisions

Contracted as of March

(thousand yen)			31, 2024
20,000				(Data for April and May
			2024 is not reflected)
			8,964	5,107
		5,013	(4.8%)
10,000		(2.9%)
	(5.6%)		13,967
				(5.5%)

0

(thousand yen)

20,000

10,000

2,085

(0.2%)

0

12,094 (1.2%)

2,281

(0.3%)

13,437 (1.5%)

Contracted as of March

31, 2024

(Data for April and May 2024 is not reflected)

10,963

(1.6%)

-10,000	-23,401	-4,822
(25.0%)
-20,000	(-1.9%)

Rent increase on tenant replacement Rent increase on lease renewal Rent reduction on tenant replacement

Rent reduction on lease renewal Net rent fluctuation (%)

	-4,148
-10,000	(-0.5%)

Rent increase on tenant replacement Rent increase on lease renewal

Rent reduction on tenant replacement

Rent reduction on lease renewal Net rent fluctuation (%)

-30,000

40th FP	41st FP	42nd FP	43rd FP	44th FP	45th FP
Nov. 2021	May 2022	Nov. 2022	May 2023	Nov. 2023	After 44th FP

-20,000
40th FP	41st FP
Nov. 2021	May 2022

42nd FP	43rd FP	44th FP	45th FP
Nov. 2022	May 2023	Nov. 2023	After 44th FP

Rent gap ratio

(million yen）	(million yen）

400						Total contracted rent above market rent (left axis)		）	0%	150
						Total contracted rent below market rent (left axis)		）
300						Rent gap ratio (right axis)
													100
200													-2%		45
						83	88	118	118	50	34
100	64	68

0						-4%	0
-100		-4.5%	-4.4%				-50	-0.9%	-0.4%
-4.7%	-4.9%
-4.9%
-200				-6%		-62	-59
-194	-208	-222	-226				-100
-300			-6.4%
			-279
-400					-336	-8%	-150
40th FP	41st FP	42nd FP	43rd FP	44th FP	45th FP			40th FP	41st FP
Nov. 2021	May 2022	Nov. 2022	May 2023	Nov. 2023	After 44th FP			Nov. 2021	May 2022

	Total contracted rent above market rent (left axis)		6%
	Total contracted rent below market rent (left axis)
	Rent gap ratio (right axis)
71				4%
	38	34		2%
			16
0.4%				0%
	-1.1%	-1.4%		-2%
-57
	-76	-83	-2.7%	-4%
			-109
				-6%
42nd FP	43rd FP	44th FP	45th FP
Nov. 2022	May 2023	Nov. 2023	After 44th FP

(Note) Occupancy rates are as of March 31, 2024.

7

Significantly improved quality of portfolio through strategic asset replacement, internal growth, etc.

	Performance in the 19th FP (after merger with JSR, 31 May 2011)			Performance after the Transaction

			NOI (million yen) :	3,164
			NOI Yield :	4.6%
			Unrealized Gain/Loss:	- 8.1%
	120%
	110%
		Office	：22 properties
	100%
		Residence ：64 properties
	90%
	Hotel	：4 properties
Unrealized	80%					Reconstruction of portfolio
60%					and active portfolio replacement
	70%					Utilization of sponsor pipeline,
						continuous property acquisition
Gain/Loss	50%					Improved earning power
	40%					Rise of occupancy rate
	30%					Upward rent revisions
					Cost reductions
	20%					Improvement of real estate market conditions
	10%
					Decreased Cap Rate
	0%
					Improved appraisal value

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

-10%

-20%

-30%

-40%

NOI Yield

Unrealized Gain/Loss

120%

110%

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

-10%

-20%

-30%

-40%

NOI (million yen) :	5,791
NOI Yield :	5.0%
Unrealized Gain/Loss:	+25.3%

Office ：44 properties

Residence ：84 properties

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

NOI Yield

8

Overview of the assets acquired ① - Office

SHINWA ESAKA BUILDING

Other area

Asset Management Company network

• An office building that is one minute walk from Esaka Station on the Osaka Metro Midosuji Line, has a high rent gap ratio, and boasts an advantageous size in the area

Sumitomo Mitsui Bank

Esaka Branch

HANDS

Esaka Store

Mizuho Bank

Esaka Branch

MUFG Bank Esaka Branch

Acquisition date	June 14, 2024
Acquisition price	5,001 million yen
Appraisal value	5,630 million yen
Location	Esakacho, Suita-city, Osaka
Access	1-minute walk from Esaka Station on the Osaka Metro
Midosuji Line and Kita-Osaka Kyuko Line Nanboku Line
Total floor space	9,979.52㎡
Occupancy rates	99.0% (as of the end of March 2024)
Construction completion date	January 12, 1990
NOI yield /NOI yield after depreciation	5.4% / 4.9%

• An office property close to the nearest station, a one-minute walk from Esaka Station on the Osaka Metro Midosuji Line and Kita-Osaka Kyuko Line Nanboku Line, and offering good access to main business areas and commercial districts in Osaka City.
• Total floor space is approximately 3,000 tsubo, and the leasable area on the standard floor is approximately 270 tsubo, which is an advantageous size in the area where the property is located. Also highly appealing to tenants who use commercial vehicles as it has a large parking lot that can accommodate 65 cars (62 cars in mechanical parking, 2 cars in flatbed parking, and 1 visitor car).
• The property underwent renovation work of air-conditioning equipment and renewal work on the first floor entrance, etc. in 2020 and exterior wall repair work in 2023, and the rent gap ratio as of March 31, 2024 was -53.7%, suggesting a potential increase in rent income in the future.

Average vacancy rate/Average rent index in Esaka area since January 2020

	Average vacancy rate (%)	Average rent index
6%	(left axis)	(right axis)	112%
5%			108%
4%			104%
3%			100%
2%			96%
1%			92%
0%			0%
January 2020	January 2021 January 2022	January 2023	January 2024

(Note) The average rent index is index with average rent in Esaka area in January 2020 set as 100%.

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