AEON REIT Investment : 21st Fiscal Period(Ended Jul. 2023) Semi-Annual Report

21st Period

Semi-Annual Report

For the fiscal period ended July 31, 2023

AEON REIT Investment Corporation

https://www.aeon-jreit.co.jp/en/index.html

AEON REIT invests primarily in retail and related properties* that form the backbone of local communities.

Retail and related properties are an integral part of the communities in which they are located. We believe that these properties and facilities in which we invest form the backbone of local communities and their retail business infrastructure.

We also aim to ensure stable income and achieve steady portfolio growth over the medium-to-long term by investing in retail and related properties that contribute to the betterment of individual lives and local communities.

*Refers to retail facilities, logistics facilities and related facilities. Retail facilities refers to facilities containing retail businesses and other merchandising businesses, entertainment and amusement facilities and other facilities that attract customers (including parking lots and equipment and systems for logistics). Logistics facilities refers to warehouses and other storage facilities for distribution and transport of merchandise and other goods.

AEON MALL Wakayama

Contents

AEON REIT Characteristics	2	Financial Section (Audited)
To Our Unitholders	4	Balance Sheets	53
Environmental Certification and Assessment	7	Statements of Income	54
Financial Highlights	8	Statements of Changes in Net Assets	55
AEON REIT as Seen through the Numbers	9	Statements of Cash Distributions	56
Financial Strategy / Risk Management	10	Statements of Cash Flows	57
Growth Strategy	12	Additional Information	58
AEON REIT's Portfolio	15	Notes to Financial Statements	59
Strong Fundamentals	16	Supplemental Schedules	82
Effective and Effiicient Financial Management....	16	Independent Auditor's Report	94
HighlyTransparent Management Structure	18	Structure and Formation of Investment	97
Investment Policy / Distribution Policy	22	Corporation / Profiile of the Asset Manager
	98
Management's Discussion and Analysis	38	Investor Information

1

AEON REIT Characteristics

We invest primarily in the retail properties of the AEON Group.

Investment Focused on Large-Scale Retail Properties

We invest primarily in retail properties that are an integral part of the communities in which they are located. In this asset class, we are structuring a portfolio of large-scale retail properties that we expect to generate stable cash flow over the medium-to-long term.

			Investment Percentage*
		Type	Domestic Real Estate	Overseas Real Estate
			85% or more	15% or less
	Large-scale	Super regional shopping centers (SRSC)
	retail	Regional shopping centers (RSC)	80% or more
Retail	properties
Community shopping centers (CSC)
properties,
Other retail	Neighborhood shopping centers (NSC)
etc.	20% or less
	properties	Supermarkets (SM)
		Logistics facilities	10% or less

*Investment percentage is calculated on an acquisition price basis.

Share of large-scale

retail properties in our portfolio

Currently

93.4%

(As of July 31, 2023)

Collaboration with the AEON Group for Stability and Growth

We maintain stability with long-term sources of earnings by investing in retail properties operated by the AEON Group, a leading retailer and developer of large-scale retail properties throughout Japan. We also leverage the AEON Group's retail property expertise to generate growth.

Stable Finances

Group

Consolidated operating

revenue

¥9,116.8 billion

AEON Group employees

Approx. 570,000 (As of February 28, 2023)

Our conservative financial management is based on clear financial policies for target LTV and other matters. As a result, we have strong, stable relationships with financial institutions, primarily megabanks. We have also received a long-term issuer rating of AA from Japan Credit Rating Agency, Ltd.

Highly Transparent Management

Japan Credit Rating

Agency, Ltd.

long-term issuer rating

AA

(Stable)

For asset acquisitions from the AEON Group or any other related-party transaction, the decision-making process includes a mechanism to incorporate the opinions of independent third parties having no relationship with the Aeon Group. This creates highly transparent management that ensures win-win relationships with both unitholders and the AEON Group. Please refer to page 18 for details.

Introduction of Cumulative Investment Unit Purchase Program

On May 1, 2014, we introduced a program that enables directors and employees of AEON REIT and the Asset Manager to acquire AEON REIT's investment units using a cumulative investment program through securities firms.

The program will help to further raise awareness toward enhancing the value of AEON REIT's investment unit price and improving business performance to provide greater financial motivation in line with the interests of unitholders.

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AEON REIT Investment Corporation

Initiatives on Sustainability

AEON REIT cares about Environmental, Social and Governance (ESG) issues in all aspects of its operations and cooperates with its stakeholders for such purposes.

Sustainability Policy

1. Environmental Initiatives

1. In order to achieve the realization of a low-carbon society, work to continuously improve energy effciency and reduce emis- sions of greenhouse gases through the use of renewal sources of energy.
2. Promote peaceful coexistence with the natural environment by paying consideration to the conservation of ecosystems, and through tree planting activities and other real estate management initiatives.
3. In order to achieve sustainable use of resources, work towards conservation and recycling of resources through the promotion of water saving and the 3Rs (Reduce, Reuse, Recycle) with regard to the use of resources.
4. Observe and conform to environmental-related laws and regulations, etc., and endeavor to prevent environmental pollution.

2. Cooperation with Stakeholders

1. By carrying out education and training with regard to environmental issues, endeavor to raise the environmental awareness of our corporate offcers and to pay care and attention to the diversity and work-life balance of our employees.
2. By utilizing the total, comprehensive power of the AEON Group, endeavor to provide comfortable work environments to the employees of end tenants/associates as well as those of other partner companies, and work to build a sound and healthy cooperative relationships.
3. In order to facilitate the advancement of ESG initiatives across the entire supply chain for our real estate operations, endeavor to implement a green procurement strategy.
4. Provide support for volunteer activities and places/opportunities for people from local communities to gather for educational and information exchanges, and endeavor to cooperate with communities as a hub for reconstruction efforts in times of disasters.
5. Proactively disclose information regarding ESG issues to investors and endeavor to communicate openly with them, and work continuously towards obtaining Green Building certifcation.

Establishment of Materiality (Key Issues)

AEON REIT has identifed 14 topics as its materiality (key issues) regarding sustainability issues, and selected 8 of them as priority themes.

Focus will be placed on the priority themes going forward to investigate specifc measures and setting of KPIs.

Priority themes

	Environment				Social				Governance
Opportunities in green buildings			Local community engagement and		Corporate governance
					sustainable development
Climate change			Safety and security of owned properties		Compliance and risk management
Biodiversity and land use			Human capital development

TCFD qualitative analysis disclosure

In August 2022, we add a climate change page to our website, where we disclosed our qualitative analysis in line with the TCFD recommendations.

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AEON MALL Wakayama

To Our Unitholders

Nobuaki Seki

Representative Director and President

AEON Reit Management Co., Ltd.

Q1	Can you give us an overview of the fiscal period ended July 2023
	(February 1, 2023 to July 31, 2023)?

In the fscal period ended July 31, 2023, we implemented a number of initiatives to achieve the medium -term targets announced in September 2022.

First is our most important target, cash distribution under normal operations, which is

the level of distribution based on the original earning capacity of a proper- ty, excluding the impact of temporary increase or decrease in expenses associated with acquisition. Cash distribution under normal operations was ¥3,270 at the time of last year's announcement, but it has grown to ¥3,335 as of the end of this fscal period. This is mainly due to an increase in income from the acquisition of two properties in February, AEON MALL Wakayama and AEON

MALL Miyakonojo Ekimae. Both properties are "Community Infrastructure Assets" and are expected to contribute to earnings over the medium to long term. As a result of these two acquisitions, our

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AEON REIT Investment Corporation

portfolio size, one of our three key targets, has grown from ¥447.0 billion at the time of the announcement to ¥468.3 billion.

In addition, to build a system to constantly obtain information on properties of even higher quality, we concluded a new pipeline support agreement with United Super Markets Holdings Inc. (U.S.M.H.).

To date, AEON REIT has carefully selected and acquired properties managed by the Group that are competitive over the medium to long term to expand its portfolio size and grow its distributions. The conclusion of this new support agreement is based on the belief that securing a pipeline and expanding the number of support partners are crucial to increasing the probability of property acquisitions for future growth.

This brings the number of companies with pipeline support agreements to 13.

U.S.M.H. is a holding company that owns three operating companies with supermarkets in the Tokyo metropolitan area: "Maruetsu," "Kasumi" and "MaxValue Kanto." As of the end of February 2023, it had consolidated sales of approximately ¥690 billion and operated 529 stores.

Since information on properties will be centralized at the holding company, U.S.M.H. will serve as a contact point for AEON REIT to confrm the buying and selling needs of the operating companies under its control. Although AEON REIT can expect to expand its foundation with properties that have different characteristics from the past, it does not intend to immediately increase the number of small and medium-sized properties. However, we believe it is important for us to be able to diversify by con-

AEON MALL Miyakonojo Ekimae

sidering properties with different characteristics, given the fact that sales tended to decline more in larger retail areas during the pandemic.

Next is our second key target, fnances. The Japan Credit Rating Agency, Ltd. (JCR), an external rating agency, upgraded our long-term issuer credit rating from AA- (Positive) to AA (Stable) in June, thus achieving the medium-term target. Reasons included the fact that we have controlled our fnan- cial indicators appropriately as we have steadily increased our portfolio size since listing.

For example, we have kept the ratio of interest -bearing debt within an appropriate range in accordance with the current environment and have worked to extend the term of debt fnancing while keeping fundraising costs low. In addition, we have promoted diversifcation of sources and means of fundraising. I believe these efforts led to the upgrade.

With this upgrade, we will consider maintaining and improving costs and further diversifying our sources to achieve more stable fundraising.

Finally, in sustainability, our third key target, we continued to obtain the highest rating of fve stars from the GRESB Real Estate Assessment, an external evaluation institution. Our MSCI ESG rating, another external evaluation institution, is currently BB, but we are actively working to achieve our medium-term target of A.

In addition, we obtained or reobtained third-party real estate sustainability certifcations for seven properties.

The three properties with new certifcations all achieved the equivalent of four stars or higher, while two of the four properties recertifying leveled

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To Our Unitholders

	Announcement of medium-term	21st FP			Medium-term target
		targets (Sep. 2022)
Cash
distribution									¥3,600
under normal		¥3,270			¥3,335
operations
		Period-end forecast	(Note)
Portfolio size								¥600.0 billion
	¥447.0 billion		¥468.3 billion
	GRESB Real Estate	5 stars	5 stars				5 stars
	Assessment
	MSCI ESG Rating	BB	BB				A
Sustainability	Third-party certifca-	80.4 %	82.5 %	Achieved	80 %+
tion rate (4+ stars)
	Third-party certifca-	84.9 %	86.8 %	Achieved	85 %+
	tion rate (3+ stars)
	CO2 emissions						Promotion of CO2 emissions
	reduction							reduction with Group
Long-term		AA- (Positive)	AA (Stable)	Achieved		AA
issuer credit
rating (JCR)

Note: The calculation is based on the forecast of distributions per unit for the fscal period ending July 31, 2024 (23rd fscal period).

up one rank from the previous evaluation to the highest rating.

While each property scored differently in the various categories, high scores were awarded for building energy conservation, disaster resilience and user convenience and comfort. As a result, our third-party real estate sustainability certifcation rate rose from

80.4% to 82.5% for four stars or higher and from 84.9% to 86.8% for three stars or higher, achieving our medium-term targets for both groupings.

However, our goal is not to acquire third-party certifcation but rather to continue our sustainability initiatives, so we will keep working to maintain our ratings.

Q2 Do you have a message for the unitholders?

While operational concerns like infation, surging energy prices, rising market interest rates will not disappear, these are also times when AEON REIT's strengths of stability and growth potential shine.

When operating costs increase, we can adapt our fundraising methods and ensure the stability of distributions by utilizing our distribution reserve and distributions in excess of earnings. In addition, we

intend to grow by leveraging our abundant pipeline and cash on hand.

AEON REIT will continue to make the most of its strengths to advance initiatives so that we can be highly evaluated by unitholders.

We would greatly appreciate your continued support of AEON REIT.

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Environmental Certification and Assessment

AEON REIT Investment Corporation

AEON REIT aims to maximize unitholder value by setting medium-term sustainability targets and promoting further initiatives. We will continue to promote sustainability management together with the AEON Group.

Sustainability Targets

Aiming to be a top performer among J-REITs

GRESB Real Estate Assessment	MSCI ESG Rating	Third-party certification rate	Promotion of CO2 emissions
5 stars	A	4+ stars: 80%+ (3+ stars: 85%+)	reduction with Group

Third-Party Certification Rate

The properties operated by the AEON Group promote environmentally and socially friendly initiatives.

AEON REIT aims for a high rate of certifcation from third parties (external evaluation institutions) for the properties it owns.

Specifcally, this includes the DBJ Green Building Certifcation,

86.8%

Remain above

CASBEE certifcation and BELS certifcation.

In June 2023, AEON MALL Wakayama, AEON MALL Miya-

84.9%

84.9%

81.1%

85.0%

konojo Ekimae and AEON MALL Kasai-Hojo newly obtained

DBJ Green Building Certifcation, bringing our third-party

3+ stars 4+ stars

certifcation rate equivalent to three stars or higher from 84.9%

Remain

to 86.8%, and from 80.4% to 82.5% for four stars or higher,

80.4%

80.4%

76.8%

82.5%

above

80.0%

both achieving our medium-term targets. All three of the newly

acquired properties received ratings of four stars or higher, and

two of the four properties recertifed received the highest

19th

20th

After 7th public

21st

Medium-term

rating, up one rank from their previous ratings.

FP

FP

offering asset

FP

target

List of properties certified in the 21st Period

acquisition

Type of Certification

Property Name

Assessment Rank

AEON MALL Wakayama

Obtained 2023 ★★★★★ (highest rating)

New certification

AEON MALL Miyakonojo Ekimae

Obtained 2023 ★★★★

New certification

DBJ Green Building Certifcation

AEON MALL Kasai-Hojo

Obtained 2023 ★★★★

New certification

AEON MALL Tsuchiura

Obtained 2022 ★★★★★ (highest rating)

Recertification

AEON MALL Fukutsu

Obtained 2022 ★★★★★ (highest rating)

Recertification

AEON MALL Kahoku

Obtained 2022 ★★★★

Recertification

CASBEE for Building Certifcation

AEON MALL Kagoshima

S rank ★★★★★

Recertification

Initiatives to Reduce CO2 Emissions

Investment in facilities with high environmental performance

AEON REIT invests in the air-conditioning equipment in the properties it owns to reduce CO2 emissions by reducing the amount of energy used by the properties. We invested in AEON MALL Tomakomai in the 20th fscal period and AEON MALL Sapporo-Hiraoka in the 21st fscal period, reducing air conditioner electricity consumption at AEON MALL Tomakomai by 49%.

Air conditioner electricity consumption at AEON MALL Tomakomai (January-June total)

184,919kWh

49%(90,367kWh)

94,552kWh

Reduced electricity consumption

Initiatives to Improve External Evaluation

AEON REIT's MSCI ESG rating, which evaluates its ESG initiatives, was BB, the same as last year, but we will promote further initiatives and enhance disclosure in order to improve our rating. The results of our 2023 GRESB evaluation will be posted on our website as soon as they are fnalized.

Change in GRESB Real Estate Assessment and MSCI ESG Rating

GRESB Real Estate Assessment
5 star	5 star	5 star	5 star
3 star

MSCI ESG Rating

A

	BBB	BB	BB
BB	BB

2019	2020	2021	2022	2023 Medium-term
				target

7

Financial Highlights

As of July 31, 2023

Although operating costs as well as interest rates continue to rise, AEON REIT was able to close its 21st fiscal period thanks to stable distributions and growth potential leveraging the Group's collective capability, two of our unique strengths.

In the 21st fiscal period, we acquired two properties, AEON MALL Wakayama and AEON MALL Miyakonojo Ekimae.Through this, we took another step toward achieving the medium-term targets announced last year (September 2022) for both cash distribution under normal operations and portfolio size.

On the financial side, we improved our long-term issuer credit rating from the Japan Credit Rating Agency from AA- (Positive) to AA (Stable) in recognition of past performance, and achieved our third-party certification rate target by obtaining new sustainability certifications for portfolio properties in recognition of building energy conservation, disaster resilience and user convenience and comfort.

We will continue to work toward achieving our medium-term targets and earning the appreciation of our unitholders. We would greatly appreciate your continued support of

AEON REIT.

Nobuaki Seki, Executive Director

	20th Period Results	21st Period Results	22nd Period Forecast	23rd Period Forecast
	August 1, 2022 to	February 1, 2023 to	August 1, 2023 to	February 1, 2024 to
	January 31, 2023	July 31, 2023	January 31, 2024	July 31, 2024
	(Millions of yen)	(Millions of yen)	(Millions of yen)	(Millions of yen)
Operating Revenue	19,987	21,008	20,976	20,997
Net Income	6,724	7,047	7,036	7,004
Total Assets	433,395	452,485	-	-
Net Assets	236,638	247,392	-	-
Net Assets per Unit (Yen)	115,745	116,477	-	-
Distribution per Unit (Yen)	3,283	3,350	3,350	3,335

Changes in Distribution per Unit			21st Period distribution per unit	¥3,350
(Yen)
3,500					3,047 3,074 3,178 3,184	3,200 3,315	3,274 3,283 3,350 3,350 3,335
		3,019	2,926 3,029	2,956 3,066
3,000	2,724 2,790
2,500	2,461 2,473
2,000
1,500		1,450
	(Note)
1,000	686
500
0

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Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results

19th 20th 21st 22nd 23rd Period Period Period Period Period Results Results Results ForecastForecast

Note: AEON REIT temporarily made cash distribution in excess of retained earnings using depreciation that was recorded for the 7th Period, avoiding the situation of paying no cash distribution for the 7th Period.

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