Daiwa Securities Living Investment : Financial Report

English Translation

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

34th Fiscal Period Financial Report (REIT)

		May 23, 2023
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:	Yoshio Urata, Executive Officer
Asset Manager:	Daiwa Real Estate Asset Management Co., Ltd.
Representative:	Yoshiki Nishigaki, President and Chief Executive Officer
Inquiries:	Kentaro Azumi, General Manager, Corporate Division	TEL: [phone]

Scheduled date of submission of semiannual securities report:	June 22, 2023
Scheduled date of commencement of distribution payment:	June 15, 2023
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 34th Fiscal Period (from October 1, 2022 to March 31, 2023)

(1) Management Status	(% 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	%
34th Fiscal Period	11,898		4.0		5,571		4.3	4,829			3.8		4,828	3.8
33rd Fiscal Period	11,436		1.5		5,341		0.3	4,653			0.7		4,652	0.7
	Earnings per unit	Return on equity (ROE)	Ratio of ordinary income	Ratio of ordinary income
	to total assets		to operating revenues
			Yen				%				%			%
34th Fiscal Period			2,136				2.9				1.3			40.6
33rd Fiscal Period			2,110				2.8				1.3			40.7
(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			%		%
34th Fiscal Period	2,200			4,973			－	－			103.0		2.9
33rd Fiscal Period	2,180			4,806			－	－			103.3		2.9

(Note 1) The source of funds for payment of distributions for the 34th fiscal period is the amount of unappropriated retained earnings after including reserve for temporary difference adjustments of ¥145 million and differs from profit.

(Note 2) The source of funds for payment of distributions for the 33rd fiscal period is the amount of unappropriated retained earnings after including reserve for temporary difference adjustments of ¥153 million, and differs from profit.

(Note 3) Dividend payout ratio for the 34th fiscal period is calculated by the following formula since issuance of new investment units was implemented.

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
34th Fiscal Period	366,565	171,436	46.8	75,826
33rd Fiscal Period	353,676	165,218	46.7	74,932
(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
34th Fiscal Period	7,629	(19,263)	7,813	13,944
33rd Fiscal Period	7,101	(2,447)	(2,006)	17,764

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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 35th Fiscal Period (from April 1, 2023 to September 30, 2023) and the 36th Fiscal Period (from October 1, 2023 to March 31, 2024)

(% 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
		distributions in	earnings per
										excess of earnings)	unit
	Million		Million		Million		Million
	yen	%	yen	%	yen	%	yen		%	Yen	Yen
35th period	11,892	(0.0)	5,482	(1.6)	4,749	(1.7)	4,748		(1.7)	2,200	－
36th period	11,866	(0.2)	5,509	0.5	4,763	0.3	4,763		0.3	2,200	－

(Reference) Expected earnings per unit (35th fiscal period): ¥2,100; Expected earnings per unit (36th fiscal period): ¥2,106

(Note) The source of funds for payment of distributions for the 35th fiscal period is the amount of profit after adding reversal of reserve for temporary difference adjustments of ¥225 million and thus it differs from the amount of profit. The source of funds for payment of distributions for the 36th fiscal period is the amount of profit after adding reversal of reserve for temporary difference adjustments of ¥210 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	No
② Changes in accounting policies other than ①	No
③ Changes in accounting estimates	No
④ Retrospective restatement	No

1. Total Number of Investment Units Issued and Outstanding
2. • Total number of investment units issued and outstanding (including treasury investment units) at the end of the fiscal period

34th Fiscal Period

2,260,890 units

33rd Fiscal Period

2,204,890 units

• Total number of treasury investment units at the end of the fiscal period

34th Fiscal Period

0 units

33rd 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 28.

• 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 10.

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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.
Table of Contents
1. Management Status	4
(1)	Management Status	4
(2)	Investment Risk	9
(3)	Significant Events after the Closing of Accounts	10
(4)	Earnings Outlook	10
2. Financial Statements	13
(1)	Balance Sheet	13
(2)	Statement of Income	15
(3)	Statement of Unitholders' Equity	16
(4)	Statement of Cash Distributions	18
(5)	Statement of Cash Flows	19
(6)	Notes on the Going Concern Assumption	20
(7)	Notes on Matters Concerning Significant Accounting Policies	20
(8)	Notes to Financial Statements	21
(9)	Changes in Total Number of Investment Units Issued and Outstanding	29
3. Reference Information	30
(1)	Information on Price of Assets under Management	30
(2)	Status of Capital Expenditure	36

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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

1. 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 March 2023 consisted of 248 properties with a total acquisition price of ¥363,237 million and a total rentable floor area of 766,035.49 square meters.
2. Investment Environment
   During the fiscal period under review, Japanese economy showed positive signs as various regulations to prevent the spread of COVID-19 were eased and the underlying tone in the March 2023 Consumer Confidence Survey was revised upward to "showing signs of recovery" from "showing signs of weakness" in the previous month. On the other hand, there were times when market volatility increased due to monetary policies of various countries, such as concerns over prolonged monetary tightening in Europe and the U.S., and the expansion of the fluctuation range for the long-term interest rate at the Bank of Japan's monetary policy meeting in December 2022.
   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, with investor interest in the stable cash flows of rental residential properties staying robust and the continued low-interest-rate environment in Japan, competition for property acquisition by domestic and foreign investors continues to be severe. Furthermore, for healthcare facilities, social demand for private nursing homes and other facilities for the elderly is increasing year by year as the proportion of the elderly in the total population increases.

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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 Performance
   To enhance investment unit value, focus was placed on a. External growth through the acquisition of new properties; b. Continuing to strengthen overall operations; c. Strengthening of financing; and d. Sustainability initiatives.
2. 1. External growth through acquisition of new properties
      In the fiscal period under review, the Investment Corporation acquired seven rental housing (total acquisition price: ¥11,258 million) and one healthcare facility (acquisition price: ¥6,280 million), totaling eight properties (total acquisition price: ¥17,538 million) amid increasingly intensified competition for property acquisition. These properties contributed to the revenues of the Investment Corporation in the fiscal period under review and are expected to make a contribution toward expanding revenues in the next fiscal period onward.

					Acquisition price
	Property name	Property type	Acquisition date	(thousand yen)
					(Note)
Gran Casa Minamisenju		October 4, 2022	1,159,000
Gran Casa Hikifune		October 4, 2022	2,760,000
Serenite Namba Plie		October 4, 2022	2,739,200
Gran Casa Oji	Rental housing	October 4, 2022	1,150,000
Gran Casa Ryogoku East		October 4, 2022	1,120,000
Gran Casa Tabata		October 4, 2022	825,000
Gran Casa Kuramae		March 6, 2023	1,505,000
	Rental housing total			11,258,200
	Sunny Life Shibaura		Healthcare facilities	October 4, 2022	6,280,000
	Healthcare facilities total			6,280,000
	Total			17,538,200
(Note)	Acquisition price does not include acquisition expenses, adjustments to property tax and city planning tax, and consumption tax and local
	consumption tax.

1. 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 Daiwa Real Estate Asset Management Co., Ltd., the asset management company of the Investment Corporation (hereinafter the "Asset Manager"), the average occupancy rate during the period stood at 98.6% (97.9% 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 850 out of 1,268 contracts (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 67.0%. The percentage of change in rent at tenant turnover (based on rent) rose by 1.9% (an increase of 1.5% 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.

In the fiscal period under review, in consideration of the trend in the rental market with shifting to post-pandemic lifestyles due to changes in economic conditions, campaigns to conclude contracts and revision of terms and conditions of contracts were carried out, resulting in occupancy rates improving from the previous period.

(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.

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