NTT UD REIT Investment : Financial REsults Material

http://nud-reit.co.jp/en

Urbannet Nakano Building

41st Semiannual Report

Fiscal Period

Ended April 30, 2023

1-5-1 Otemachi, Chiyoda Ward, Tokyo

http://nud-reit.co.jp/en

Securities Code: 8956

FEATURES OF

NTT UD REIT INVESTMENT CORPORATION

1 Comprehensive Support from NTT Urban Development,

the Sole Comprehensive Real Estate Company in the NTT Group

Since May 2010, when NTT Urban Development (NTT UD) participated as its sponsor, NTT UD REIT Investment Corporation (NUD) has received a broad range of support from NTT UD, including such pipeline support services as supply and information provision of new properties, as well as support for leasing activities and provision of property management operations.

■ Abundant track record of development and pipelines for office buildings

■ Operating capability in real estate rental business

■ Fund-raising capability based on its high credibility

Results of Property Acquisitions through NTT UD's Pipelines

(As of April 30, 2023)

• 2 Compound Portfolio with Office Buildings and Residential Properties as Main Investment Targets

• Mitigates the impact of economic fluctuations by combining asset types that have low correlation to each other in terms of market rent fluctuations
• Diversifies the tenant base into different types such as corporations and individuals

Portfolio Distribution by Asset Type

(As of April 30, 2023)

ResidenceOffice

Stability	Profitability
Stable demands even	Exerts strengths when the
in a receding economy	economy is recovering
28.4%	71.6%

• 3 Portfolio Focused in the Tokyo Economic Bloc

• Focuses investments in the Tokyo Economic Bloc, which enjoys an established economic base due to a high concentration of population and industry
• Partially expands the target investment area to Major Regional Cities (strengthening ties with NTT UD)

Portfolio Distribution by Geographical Area

(As of April 30, 2023)

Other

8.7%

Other sponsors

9.0%

17.5

18.1 bn yen bn yen

165.0

bn yen

NTT Urban Development

82.3%

Total acquisition price

since May 2010

200.6 billion yen

Major Regional Cities

4.0%

Urban Areas Surrounding Tokyo

3.7%

Other 18 Wards of Tokyo

22.9%

5 Central Wards of Tokyo

(Chiyoda Ward, Chuo Ward, Minato Ward, Shinjuku Ward and Shibuya Ward)

69.5%

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MESSAGE TO OUR UNITHOLDERS

41ST FISCAL PERIOD PERFORMANCE HIGHLIGHTS

Financial Results Highlights

Takeshi Oodera	Yutaka Torigoe
Executive Director	President and CEO
	(Asset management company)
NTT UD REIT Investment Corporation	NTT Urban Development Asset Management Corporation
(NUD)	(UDAM)

	Distribution per Unit (Note 1)
40th Fiscal Period (ended October 2022)	¥ 2,787
41st Fiscal Period (ended April 2023)	¥ 3,216

(Note 1) Number of outstanding investment units at end of period:

40th Fiscal Period: 1,401,635 units

41st Fiscal Period: 1,401,635 units

42nd Fiscal Period: 1,401,635 units (forecast)

On behalf of NTT UD REIT Investment Corporation (NUD), I would like to express our sincere gratitude for the loyal patronage of our unitholders.

With NTT Urban Development Corporation becoming its sole sponsor in October 2020, the Investment Corporation changed its name to NTT UD REIT Investment Corporation in April 2021. Since then, we have continued to ensure steady growth of the portfolio and secure stable earnings by further leveraging support from the sponsor.

In the 41st fiscal period that ended April 2023, NUD conducted an asset replacement transaction. Rokubancho Building, from which the sole tenant moved out during the period, was transferred to the sponsor (part of the ownership interest will be transferred in the 42nd fiscal period) and Urbannet Nakano Building, a property operating at stable occupancy, was acquired. Thanks to the support of the sponsor, NUD was able to achieve an early recovery in earnings and utilize unrealized gains for returns to unitholders.

As for the owned properties other than the replaced ones, the occupancy rate remained stable at over 95% for both office buildings and residential properties. As a result, NUD posted operating revenues of 12,346 million yen and net income of 5,007 million yen for the 41st fiscal period. Distribution per unit came to 3,216 yen, which surpassed the forecast of 3,150 yen for the period announced as of February 24, 2023. NUD's owned assets as of April 30, 2023, comprise 60 properties with 28 office buildings and 32 residential properties amounting to 275.1 billion yen in total.

Looking ahead, we at NUD will continue our utmost efforts to meet the expectations of our unitholders by realizing steady growth of assets and stable management over the medium to long term in line with the growth strategy of the NTT Group. We appreciate and request your continued support and encouragement.

Table	Features of NTT UD REIT Investment Corporation	1
Message to Our Unitholders	3	Balance Sheets	27
of	41st Fiscal Period Performance Highlights	4	Profit and Loss Statements	29
Contents
Status of External Growth	6	Statements of Changes in Unitholders' Equity	30
	Collaboration with the NTT Group	8	Cash Flow Statements	31
	Initiatives on ESG Awareness	9	Notes to Financial Statements	32
	Management Status in the 41st Fiscal Period	11	Other Information (Unaudited)	47
	Financial Status in the 41st Fiscal Period	13	Strategic Policies	51
	Property Portfolio	15
	Overview of Properties Owned	17	Independent Auditor's Report	59
	Organization of NUD	25
	Information for Unitholders	26

42nd Fiscal Period (ending October 2023)		¥ 3,150 (forecast)	(Note 2) The figure is based on what was announced
(Note 2)	Period Ended April 30, 2023 (November 1,
		in the Financial Report for the 41st Fiscal
			2022 - April 30, 2023) dated June 15, 2023.

		40th Fiscal Period	41st Fiscal Period
		(as of October 31, 2022)	(as of April 30, 2023)
Operating Revenues	10,618 million yen	12,346 million yen
Operating Income	4,339 million yen	5,447 million yen
Ordinary Income	3,909 million yen	5,007 million yen
Net Income	3,907 million yen	5,007 million yen
Total Assets	277,449 million yen	277,216 million yen
Net Assets	137,656 million yen	138,756 million yen
Net Assets Ratio	49.6%	50.1%
Net Assets per Unit	98,211 yen	98,996 yen
LTV (Note)	Total assets basis	45.4%	45.0%
Market value basis	38.8%	38.1%

(Note) LTV (Total assets basis) = interest-bearing liabilities / total assets × 100

LTV (Market value basis) = interest-bearing liabilities / (appraisal value of owned properties and beneficiary interests in trust + book value of preferred securities) × 100

Monthly Occupancy Rate for the 41st Fiscal Period

(%)

100

98		96.5%	96.6%			Residential
	96.6%	96.8%	96.5%	properties
	96.3%	96.4%		96.2%
	96.4%
96
96.4%	96.3%	96.3%			Total

94.1%94.3% 95.1%

94

94.5%

		Office
	93.2%	buildings
92	92.7%

90

End of Nov. 2022

End of Dec. 2022

End of Jan. 2023

End of Feb. 2023

End of Mar. 2023

End of Apr. 2023

(Note) The value related to the property backing the preferred securities of an SPC is not included in the calculation of the occupancy rate.

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(41st Fiscal Period Performance Highlights)

Portfolio Status

	40th Fiscal Period
	(as of October 31, 2022)
No. of properties	59 properties
Acquisition price	272.6 billion yen
Average building age (Note 1)	23.6 years
Occupancy rate at end of period	96.3%
No. of tenants	3,972
NOI yield (Note 2)	5.2%
Yield after depreciation (Note 3)	4.0%
Distribution by asset type	28.6%
■ Office Buildings	71.4%
■ Residential Properties

3.7% 4.0%

Distribution by geographical area

41st Fiscal Period

(as of April 30, 2023)

60 properties

275.1 billion yen

24.2 years

95.1%

3,954

4.9%

3.7%

28.4%

71.6%

3.7% 4.0%

STATUS OF EXTERNAL GROWTH

Property Replacement (41st Fiscal Period to 42nd Fiscal Period)

Leveraged sponsor support from NTT UD to replace Rokubancho Building, of which profitability is predicted to worsen significantly due to the move-out of the sole tenant, with Urbannet Nakano Building, which has been operating at stable occupancy. The transaction allowed NUD to secure stable revenue and expand its acquisition capacity.

Overview of Office Properties Replacement

Property Acquired in 41st Fiscal Period		Property transferred in 41st Fiscal Period
		to 42nd Fiscal Period
Urbannet Nakano Building		Rokubancho Building

■ 5 Central Wards of Tokyo	20.7%	22.9%
■ Other 18 Wards of Tokyo	71.5%	69.5%

■ Urban Areas Surrounding Tokyo

■ Major Regional Cities

(Note 1) Average building age is calculated by adding the building age of Akihabara UDX (that backs the preferred securities in which NUD holds 19.0% ownership).

(Note 2) NOI yield is calculated by using the following formulas. NOI yield = annualized rental NOI* / investment value**

• Annualized rental NOI = sum total of [(real estate rental income + depreciation + dividend income from preferred securities) x 2] of owned assets (including preferred securities) for each fiscal period
• Investment value = sum total of book value as of the end of each fiscal period of owned assets (including preferred securities) for each fiscal period

(Note 3) Yield after depreciation is calculated by using the following formulas.

Yield after depreciation = annualized real estate rental income* / investment value**

• Annualized real estate rental income = sum total of [(real estate rental income + dividend income from preferred securities) x 2] for owned assets (including preferred securities) for each fiscal period
• Investment value = sum total of book value as of the end of each fiscal period of owned assets (including preferred securities) for each fiscal period

Location		Nakano Ward, Tokyo		Chiyoda Ward, Tokyo
Seller/buyer		NTT Urban Development		NTT Urban Development
Acquisition/transfer date		March 14, 2023		First: April 7, 2023
		Second: May 26, 2023
		6,400 million yen		10,500 million yen
Acquisition/transfer price			First: 5,250 million yen
				Second: 5,250 million yen
Appraisal value		6,520 million yen		10,500 million yen
				41st Fiscal Period actual:
Gain on sale		-		1,471 million yen
		42nd Fiscal Period forecast:
				1,475 million yen
NOI/year (Note 1)		298 million yen		445 million yen
NOI yield (Note 2)	4.7%		Book value yield: 5.9%
	Fair value yield: 4.2%

(Note 1) Appraisal NOI is indicated for the acquired property, while annualized actual NOI for the 40th fiscal period is indicated for the transferred property.

(Note 2) The NOI yield of the acquired property is calculated by dividing the appraisal NOI (annual) by the acquisition price. For the transferred property, the book value yield is calculated by dividing the actual NOI (annual) for the 40th fiscal period by the book value at end of the 40th fiscal period, and the fair value yield is calculated by dividing the actual NOI (annual) for the 40th fiscal period by the appraisal value.

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6

(Status of External Growth)

Overview of Urbannet Nakano Building

Land area

2,812.61 m2

Total floor space

9,268.73 m2

Standard floor space

Approx. 440 tsubo

Completed

October 1988

Structure

Reinforced concrete

structure

Six stories with flat roof

Occupancy rate

100.0%

(As of April 30, 2023)

Location characteristics

• The area around the North side of Nakano Station where the property is located is close to Central Tokyo but includes an urban planning park of approx. 21,000 m2 (Shikinomori Park), making it an area that combines cutting-edge facilities with lush greenery and nature. With large-scale redevelopments planned in surrounding areas, further business concentration is expected in the future.
• The property faces Waseda-dori street and features good visibility, and can expect greater convenience as Nakano Ward Office is planned to be relocated to the adjacent land in 2024.

COLLABORATION

WITH THE NTT GROUP

Changes in Asset Size

NUD has steadily expanded its asset size since NTT UD became its sponsor.

(bn yen)	Acquisition, brokerage, information provision, etc.		NTT Urban Development Corporation		Other sponsors				Other
									272.6 272.6 275.1
	May 2010						261.8 260.0
				249.0 246.4 246.4 243.7 243.7 243.7 246.7		45.2			45.2		41.2
NTT UD took an equity stake	235.8		235.9 235.9
233.2	234.0
in the REIT's Asset Manager	60.2	60.2
224.4

								216.3	44.4		44.4	44.4	44.4	59.4	60.2	60.2	60.2	60.2	60.2	60.2
			196.5 196.5 196.5 199.4	44.4		44.4
			44.4
																						89.2
			44.4	44.4	44.4	44.4															89.2	89.2
	165.8 165.8
	146.0																			91.0	89.2
139.3	46.9							102.3	96.1	96.1	96.1	96.1	96.1	96.1	96.1	91.0	910	91.0	91.0
	46.9
46.9	46.9						110.5	102.3
			110.5	110.5	110.5	110.5
	104.6 104.6																			138.2 138.2 144.6
	99.1										95.3	95.3								110.6 110.6
92.4								88.9	92.5	93.4	93.4	90.1	90.1	92.4	92.4	92.4	95.4
							69.4	69.4
			41.5	41.5	41.5	44.4
	14.3	14.3
15th 16th 17th 18th 19th 20th	21st	22nd 23rd 24th	25th	26th 27th 28th 29th 30th 31st 32nd 33rd 34th 35th 36th 37th	38th 39th 40th 41st

period period period period period period period period period period period period period period period period period period period period period period period period period period period

Apr. 2010 Oct. 2010 Apr. 2011 Oct. 2011 Apr. 2012 Oct. 2012 Apr. 2013 Oct. 2013 Apr. 2014 Oct. 2014 Apr. 2015 Oct. 2015 Apr. 2016 Oct. 2016 Apr. 2017 Oct. 2017 Apr. 2018 Oct. 2018 Apr. 2019 Oct. 2019 Apr. 2020 Oct. 2020 Apr. 2021 Oct. 2021 Apr. 2022 Oct. 2022 Apr. 2023

Top 10 Tenants Occupying NUD's Office Buildings (as of April 30, 2023)

				NTT Group
Rank	Tenant name	Leased	Ratio	Property
floor space	(Note 1)
1	NTT Facilities, Inc.	10,994 m2	5.9%	Urban Ace Higobashi Building, etc.
2	DOCOMO CS, Inc.	10,525 m2	5.7%	Urbannet Ikebukuro Building
3	NTT Business Associe East Co., Ltd.	7,488 m2	4.0%	Urbannet Omori Building
4	Tokyo Legal Mind K.K.	7,139 m2	3.8%	Urbannet Nakano Building
5	NTT Finance Corporation	6,248 m2	3.4%	Urbannet Ikebukuro Building, etc.
6	MIRAIT ONE Corporation	5,325 m2	2.9%	Urbannet Gotanda NN Building, etc.
7	Nippon Telegraph and Telephone East Corporation	5,159 m2	2.8%	Tokyo Opera City Building
8	NTT Learning Systems Corporation	4,801 m2	2.6%	Urbannet Azabu Building
9	NTT DATA Corporation	3,552 m2	1.9%	Urbannet Mita Building
10	NTT Communications Corporation	2,817 m2	1.5%	Granpark
	Total	64,053 m2	34.5%

(Note) The ratio represents the percentage of the leased floor space of the relevant tenants to the gross area under lease of floors practically used for offices.

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