Daiwa Securities Living Investment : Financial Report

(1) Status of Management

English Translation

The following is an English translation of the original Japanese document and is being provided for informational purposes only.

	31st Fiscal Period Financial Report (REIT)
		November 17, 2021
REIT Issuer:	Daiwa Securities Living Investment Corporation	Stock Exchange Listing: Tokyo Stock Exchange
Securities Code:	8986	URL: https://www.daiwa-securities-living.co.jp/en
Representative:	Ikuo Shoda, Executive Officer
Asset Manager:	Daiwa Real Estate Asset Management Co., Ltd.
Representative:	Toshio Fukushima, President and Chief Executive Officer
Inquiries:	Kentaro Azumi, General Manager, Corporate Division	TEL: [phone]

Scheduled date of submission of semiannual securities report:	December 22, 2021
Scheduled date of commencement of distribution payment:	December 15, 2021
Preparation of supplementary financial results briefing materials:	Yes
Holding of financial results briefing session:	Yes (for analysts and institutional investors)
	(Amounts are rounded down to the nearest million yen)

1. Status of Operations and Assets for the 31st Fiscal Period (from April 1, 2021 to September 30, 2021)

(% figures indicate the percentage of increase (decrease) over the previous fiscal period)

	Operating revenue	Operating profit		Ordinary profit		Profit
	Million yen		%	Million yen		%	Million yen			%	Million yen	%
31st period	10,811		3.1		5,090		(0.2)	4,433			(0.6)		4,432	(0.6)
30th period	10,487		(9.9)		5,101		5.0	4,457			(11.4)		4,457	(27.3)
	Earnings per unit	Return on equity (ROE)	Ratio of ordinary income	Ratio of ordinary income
	to total assets		to operating revenues
			Yen				%				%			%
31st period			2,079				2.8				1.3			41.0
30th period			2,117				2.9				1.4			42.5
(2) Status of Distributions
	Distribution per unit	Total distributions	Distribution in	Total distributions				Ratio of
	(excluding	(excluding
	excess of earnings	in excess of		Payout ratio	distributions to
	distribution in	distribution in
	per unit	earnings				net assets
	excess of earnings)	excess of earnings)
	Yen	Million yen			Yen	Million yen			%		%
31st period	2,160			4,604			－	－			103.9		2.9
30th period	2,160		4,604			－	－			103.3		2.9

(Note 1) The source of funds for payment of distributions for the 31st fiscal period is the amount of unappropriated retained earnings after including reserve for temporary difference adjustments of ¥171 million, and differs from profit.

(Note 2) The source of funds for payment of distributions for the 30th fiscal period is the amount of unappropriated retained earnings after including reserve for temporary difference adjustments of ¥146 million, and differs from profit.

(Note 3) Dividend payout ratio for the 30th fiscal period is calculated by the following formula since issuance of new investment units was implemented. Dividend payout ratio = [Total distribution amount ÷ Profit] × 100

(3) Financial Position

	Total assets	Net assets	Capital adequacy ratio	Net assets per unit
	Million yen	Million yen	%	Yen
31st period	336,301	157,295	46.8	73,793
30th period	335,601	157,466	46.9	73,874
(4) Status of Cash Flows
	Net cash provided by	Net cash provided by	Net cash provided by	Cash and cash equivalents
	(used in) operating	(used in) investing	(used in) financing	at the end of the fiscal
	activities	activities	activities	period
	Million yen	Million yen	Million yen	Million yen
31st period	6,672	(7,045)	(3,678)	13,849
30th period	6,450	(21,632)	20,872	17,900

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English Translation

The following is an English translation of the original Japanese document and is being provided for informational purposes only.

2. Earnings Forecast for the 32nd Fiscal Period (from October 1, 2021, to March 31, 2022) and the 33rd Fiscal Period (from April 1, 2022, to September 30, 2022)

			(% figures indicate the percentage of increase (decrease) over the previous fiscal period)
										Distribution per unit	Distribution
	Operating revenue	Operating profit	Ordinary profit	Profit		(excluding	in excess of
		distribution in excess	earnings per
										of earnings)	unit
	Million yen	%	Million yen	%	Million yen	%	Million yen		%	Yen	Yen
32nd period	11,228	3.9	5,330	4.7	4,602	3.8	4,601		3.8	2,180	－
33rd period	11,286	0.5	5,327	(0.1)	4,635	0.7	4,635		0.7	2,180	－

(Reference) Expected earnings per unit (32nd fiscal period): ¥2,087; Expected earnings per unit (33rd fiscal period): ¥2,102

(Note) The source of funds for payment of distributions for the 32nd fiscal period is the amount of profit after adding reversal of reserve for temporary difference adjustments of ¥204 million and thus it differs from the amount of profit. The source of funds for payment of distributions for the 33rd fiscal period is the amount of profit after adding reversal of reserve for temporary difference adjustments of ¥171 million and thus it differs from the amount of profit. For the details of earnings forecast above, please refer to "1. Management Status, (4) Earnings Outlook" later in this document.

• Other
• 1. Changes in Accounting Policies, Changes in Accounting Estimates, and Retrospective Restatement

①	Changes in accounting policies accompanying amendments to accounting standards:	Yes
②	Changes in accounting policies other than ① :	No
③	Changes in accounting estimates:	No
④	Retrospective restatement:	No

(Note) For details, please refer to "Notes on Changes in Accounting Policies" on page 25.

1. Total Number of Investment Units Issued and Outstanding

• Total number of investment units issued and outstanding (including treasury investment units) at the end of the fiscal period

	31st fiscal period	2,131,546 units	30th fiscal period	2,131,546 units
② Total number of treasury investment units at the end of the fiscal period
	31st fiscal period	0 units	30th fiscal period	0 units

(Note) For the number of investment units used as the base for calculating earnings per unit, please refer to "Notes on Per Unit Information" on page 33.

• Financial reports are exempt from the audit by a certified public accountant or an auditing firm.
• Special note

The earnings outlook and other forward-looking statements contained in this document are based on information currently available to and certain assumptions deemed reasonable by Daiwa Securities Living Investment Corporation (hereinafter the "Investment Corporation"). Consequently, actual results may differ materially depending on a number of factors.

In addition, the forecast is not intended as a guarantee of the amount of distributions. Regarding assumptions for earnings forecast and matters to consider when using the earnings forecast, please refer to "1. Management Status, (4) Earnings Outlook" on page 13.

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English Translation
The following is an English translation of the original Japanese document
and is being provided for informational purposes only.
○ Contents
1. Management Status ...................................................................................................................................................................	4
(1) Management Status..............................................................................................................................................................	4
(2)	Investment Risk...................................................................................................................................................................	9
(3)	Significant Events after the Closing of Accounts ...................................................................................................................	9
(4)	Earnings Outlook ...............................................................................................................................................................	13
2. Financial Statements ...............................................................................................................................................................	16
(1)	Balance Sheet ....................................................................................................................................................................	16
(2)	Statement of Income ..........................................................................................................................................................	18
(3)	Statement of Unitholders' Equity........................................................................................................................................	19
(4)	Statement of Cash Distributions .........................................................................................................................................	21
(5)	Statement of Cash Flows....................................................................................................................................................	22
(6)	Notes on the Going Concern Assumption............................................................................................................................	24
(7)	Notes on Matters Concerning Significant Accounting Policies.............................................................................................	24
(8)	Notes on Changes in Accounting Policies ...........................................................................................................................	25
(9)	Notes on Changes in Presentation Methods.........................................................................................................................	25
(10) Notes to Financial Statements...........................................................................................................................................	26
(11) Changes in Total Number of Investment Units Issued and Outstanding ..............................................................................	37
3. Reference Information.............................................................................................................................................................	38
(1)	Information on Price of Assets under Management..............................................................................................................	38
(2)	Status of Capital Expenditure .............................................................................................................................................	43

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English Translation

The following is an English translation of the original Japanese document and is being provided for informational purposes only.

1. Management Status

1. Management Status

• Overview of the Fiscal Period under Review

(a) Profile of the Investment Corporation

The Investment Corporation was established on October 7, 2005 based on the provisions of the Act on Investment Trusts and Investment Corporations (Act No. 198 of 1951, as amended), and listed as a "housing-specific REIT" on the Tokyo Stock Exchange Real Estate Investment Trust market (stock code 8986) on June 22, 2006. The Investment Corporation merged with Prospect Reit Investment Corporation in an absorption-type merger on July 1, 2010, and since then, it has been seeking to steadily enhance distributions, primarily by improving the quality of its portfolio through the replacement of properties (acquiring new properties and disposing of existing properties), strengthening overall operations by improving occupancy rates and other factors, and reducing costs by decreasing expenses for interest-bearing debt and other items. Furthermore, as a result of an absorption-type merger (hereinafter the "Merger") whereby the Investment Corporation is the surviving corporation and Nippon Healthcare Investment Corporation (hereinafter "NHI") is the absorbed corporation on April 1, 2020, upon which the trade name was changed from "Japan Rental Housing Investments Inc." to "Daiwa Securities Living Investment Corporation" and healthcare facilities added to the portfolio, the Investment Corporation is now managed as a "REIT that comprehensively provides comfortable living spaces that 'support life and lifestyle of everyone' suited to each life stage."

The properties under management at the end of September 2021 consisted of 232 properties with a total acquisition price of ¥329,772 million and a total rentable floor area of 724,715.07 square meters.

(b) Investment Environment

Although the Japanese economy was still in a severe condition in the fiscal period under review due to the effects of the declaration of emergency following the re-expansion of COVID-19, a recovery trend has gradually begun to appear.

Amid such, rental residential properties owned by listed residential REITs enjoyed a relatively stable management environment as seen in their maintenance of stable occupancy rates when compared with other sectors. On the other hand, in the real estate investment market, the stable cash flows of rental residential properties attracted the enduring interests of investors and the low-interest-rate environment also continued, intensifying competition for property acquisition by domestic and foreign investors. Also, for healthcare facilities, the social demand for private nursing homes and other facilities for the elderly is increasing year by year as the proportion of the elderly population in the total population increases.

(c) Management Performance

To enhance the Investment Corporation's investment unit value, the Asset Manager focused on: a. External growth through the acquisition of new properties; b. Continuing to strengthen overall operations (the maintenance of high occupancy rates, the maximization of rent and other income and the reduction of expenses related to leasing business); c. Strengthening of financing (the extension of borrowing periods and the diversification of due dates, etc.); and d. Sustainability initiatives.

a. External growth through acquisition of new properties

In the fiscal period under review, the Investment Corporation acquired 6 rental housing (total acquisition price: ¥6,220 million) under the more intensified competition for property acquisition. These properties contributed partially to the revenues of the Investment Corporation in the fiscal period under review and are expected to make full-period contribution toward expanding revenues in the next fiscal period and onward.

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English Translation

The following is an English translation of the original Japanese document and is being provided for informational purposes only.

			Acquisition
Property name	Property type	Acquisition date	price
(thousand yen)
			(Note 1)
Gran Casa Sumiyoshi (Note 2)		April 14, 2021	1,140,000
Gran Casa Ueno Ikenohata (Note 3)		April 15, 2021	1,420,000
Gran Casa Ueno Iriya (Note 4)	Rental housing	June 1, 2021	1,225,893
Gran Casa Itabashi EAST (Note 5)	June 23, 2021	955,000
Gran Casa Monzennakacho (Note 6)		August 3, 2021	780,000
Gran Casa Magome II (Note 7)		September 1, 2021	700,000
Total			6,220,893

(Note 1) Acquisition price does not include acquisition expenses, adjustments to property tax and city planning tax, and consumption tax and local consumption tax.

(Note 2) The property name of "(Temporary name) Mouri 1-chome PJ" was changed to "Gran Casa Sumiyoshi" on April 14, 2021. The same applies hereinafter.

(Note 3) The property name of "(Temporary name) L'GENTE Ueno Ikenohata" was changed to "Gran Casa Ueno Ikenohata" on April 15, 2021. The same applies hereinafter.

(Note 4) The property name of "(Temporary name) Iriya PJ" was changed to "Gran Casa Ueno Iriya" on June 1, 2021. The same applies hereinafter. (Note 5) The property name was changed to "Gran Casa Itabashi EAST" on June 23, 2021. The same applies hereinafter.

(Note 6) The property name of "(Temporary name) Eitai PJ" was changed to "Gran Casa Monzennakacho" on August 3, 2021. The same applies hereinafter. (Note 7) The property name of "(Temporary name) Nakamagome PJ" was changed to "Gran Casa Magome II" on September 1, 2021. The same applies

hereinafter.

b. Continuing to strengthen overall operations i. Strategy for managing rental housing

As a result of use of the Daily Occupancy Forecasting System and the continued focus on a range of existing initiatives and other measures by the Asset Manager, the average occupancy rate during the period stood at 98.1% (98.5% in the previous fiscal period). In addition, as a result of continuing to focus on also increasing the rent at the time of replacement (Note), an increase in rent from the previous rent was achieved for 812 contracts out of 1,249 (the total number of new contracts) in the fiscal period under review. The percentage of contracts with higher rent (based on the number of contracts) was 65.0%. The percentage of change in rent at tenant turnover (based on rent) rose 1.5 percentage points (an increase of 1.6 percentage points in the previous fiscal period), continuing an upward trend and contributing to higher revenues as in the previous fiscal period.

As for expenses related to leasing business, the Asset Manager focused on a range of existing initiatives, including the reduction of repair expenses and expenses for work to restore properties to their original state through the High-Cost Construction Approval Committee, and the reduction of utilities expenses due to the effect of introducing LED lights and other measures.

Continuing from the previous fiscal period, the fiscal period under review saw movements that are different from those in the past years in the rental market due to the COVID-19 crisis, centering on studio-type residences in central Tokyo. However, measures such as a campaign to conclude contracts were conducted at an early stage, minimizing the decline in occupancy rate.

(Note) The rent at the time of replacement is calculated by excluding properties for which the previous rent is unknown due to newly acquired properties and the cancellation of the sublease contract and rooms for rent whose use is other than as a residence.

(Existing initiatives)

• "Daily Occupancy Forecasting System" (an IT system independently self-developed by the Asset Manager, the system predicts occupancy rates at the end of every month on a daily basis, helps understand dynamic information regarding individual vacancies, and shortens the cycle for identifying individual vacancies, conducting onsite inspections, investigating causes, taking action, and verifying effects; introduced in October 2011). With the commencement of the operation of the IT system that was upgraded to a new version in May 2015, a mechanism that is able to ascertain various types of information including occupancy rates on the Internet in real time has been set in place.
• "Three-weekRule" (minimizing opportunity losses by fully enforcing a rule to fully restore properties to their original state within three weeks of tenants vacating; introduced in October 2010)
• "Downtime 60 days" (a policy to conclude a new contract within 60 days of tenants vacating; introduced in October 2012)
• "Action 30 days" (focused response to achieve the best rent at the earliest in the first 30 days after beginning to seek tenants; focused response to vacancies of 30 days after beginning to seek tenants, which was introduced in October 2013, has been changed to a more aggressive initiative based on the "Management Policy by Property" newly introduced in April 2016) to further improve occupancy rates and profitability by shortening vacancy periods
• Taking stronger action on "Key Focus Properties (introduced in April 2011)" and "Long-term Vacancies" (vacancies over 60 days; introduced in October 2010)
• "High-CostConstruction Approval Committee" (a committee conducting a detailed, systematic examination of the content

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