Heiwa Real Estate REIT : Notice Concerning Acquisition of Assets (Kitahama 1-Chome Heiwa Building and Heiwa Real Estate Kitahama Building)

May 22, 2023

This notice is the English translation of the Japanese announcement on May 22, 2023

REIT Issuer

HEIWA REAL ESTATE REIT, Inc.

5-1 Nihonbashi Kabuto-cho,Chuo-ku, Tokyo

Aya Motomura, Executive Director

(Securities Code: 8966)

Asset Management Company

HEIWA REAL ESTATE Asset Management CO., LTD.

Masanori Hirano, Representative Director, President and Chief Executive Officer Inquiries: Junichi Kawamura, Managing Officer and General Manager of Planning & Finance Department TEL. [phone]

Notice Concerning Acquisition of Assets

(Kitahama 1-Chome Heiwa Building and Heiwa Real Estate Kitahama Building)

HEIWA REAL ESTATE REIT, Inc. (the "Investment Corporation") announced today that HEIWA REAL ESTATE Asset Management CO., LTD. (the "Asset Management Company"), the company to which the Investment Corporation entrusts its asset management operations, decided to execute the acquisition (the "Acquisition") of assets (the "Assets to be acquired"). The details are as follows.

As Heiwa Real Estate Co., Ltd., the seller of the assets to be acquired is considered an interested party, etc. as defined by the Financial Instruments and Exchange Act (the "FIEA") and the Act on Investment Trusts and Investment Corporations (the "Investment Trust Act") as well as an interested party under the Regulations to Prevent Acts in Conflict of Interest of the Asset Management Company, the Asset Management Company has performed decision-making procedures required under the said regulations and other rules prior to conducting a transaction with the counterparty.

Details

1. Overview of the acquisition

Property		Type of	Investment	Investment Area	Proposed	Appraisal
Property Name	Acquisition Price	Value
Number	Specified Asset	Category	(Note 1)
	(million yen) (Note 2)	(million yen)
		Trust beneficial		Regional investment
	Kitahama 1-Chome Heiwa	interest in real
Of-55	Building	estate	Office	area	3,370	3,495
	(quasi-co-ownership		(Osaka-City, Osaka)
		interest: 75%)
	Heiwa Real Estate	Trust beneficial		Regional investment
Of-56	interest in real	Office	area	1,650	1,770
Kitahama Building
	estate		(Osala-City, Osaka)
		Total			5,020	5,265

(Note 1) The Primary Investment Area refers to the 23 Wards of Tokyo, the Secondary Investment Area refers to Tokyo excluding the Primary Investment Area, major urban areas in Kanagawa Prefecture, Chiba Prefecture and Saitama Prefecture, and the Regional Investment Area refers to major urban areas in the metropolitan area excluding the Primary Investment Area and the Secondary Investment Area. The

metropolitan area is the urban area and the surrounding municipalities that are socially and economically connected to Tokyo and the central cities of the metropolitan area are the special wards of Tokyo and the government-designated cities. The same will apply below.

(Note 2) "Proposed acquisition price" is the price described in the trust beneficial interest transaction agreement (consumption tax excluded), and does not include the amounts of settlement for fixed property tax, city planning tax, etc

(1) Agreement execution date:	May 22, 2023
(2)	Scheduled acquisition date:	June 6, 2023
(3) Seller:	Heiwa Real Estate Co., Ltd.
(4) Acquisition financing:	The proceeds from the issuance of new investment units (Note) and cash on
		hand
(5)	Payment method:	Lump-sum payment at time of delivery
(6)	Brokerage:	Not applicable

(Note) For more details, please refer to "Notice Concerning Issuance of New Investment Units and Secondary Offering of Investment Units" announced today.

2. Reason for the acquisition

The Investment Corporation will continue to implement its basic principles, namely the steady growth of its investment portfolio and the achievement of medium and long term sustainable profit. We will aim to maximize unitholder value by striking a balance between steady growth & sustainable profit. We have decided on the acquisition because we expect strong and sustained external growth, further improvement of portfolio quality and profitability, and the increase of unitholder value through public offerings and property acquisitions for three consecutive years (2021, 2022 and 2023).

Each of the assets to be acquired was constructed as part of a redevelopment project for Kitahama district in Osaka conducted by Heiwa Real Estate Co., Ltd. (referred to as "Heiwa Real Estate" in 2. Reason for the Acquisition), the sponsor. The construction completion of Osaka Securities Exchange Building., Hotel Brighton City Osaka Kitahama and Kitahama Tower & Plaza was followed by that of Heiwa Real Estate Kitahama Building in 2011 and Kitahama 1-chome Heiwa Building in 2015. The Kitahama district in Osaka where the assets to be acquired are located had a long history as a prosperous financial center, bringing together many money exchangers, etc. It still forms a vibrant financial district around Osaka Securities Exchange. The assets to be acquired were constructed on the site of the former main wing and annex of Osaka Shoken Kaikan Building. which were home to many securities brokerage firms. Moreover, on the land where Kitahama 1-chome Heiwa Building is located was a Japanese restaurant where Okubo Toshimichi, Kido Takayoshi, Itagaki Taisuke held the Osaka Conference of 1875. The restaurant still exists in the new building with a stone monument at its gate, giving a feeling of the depth of the history of the district as one of Japan's political and economic centers. We decided on the acquisition considering that the acquisition of two office buildings in Kitahama district, which is an important base of Heiwa Real Estate in Kansai district and is deeply related to its origin, will be of great benefit to the Investment Corporation's portfolio management in the future.

1. Kitahama 1-Chome Heiwa Building
   The acquired property has direct access through an underpass to Kitahama Station of the Osaka Metro Sakaisuji Line and the Keihan Railway's Keihan Main Line and Yodoyabashi Station of the Osaka Metro Midosuji Line, offering excellent convenience of transportation. On the north side of the acquired property is the spectacular scenery of Nakanoshima Park located on the other side of the Tosabori River. It is a sophisticated office building that can offer comfortable office space, with a terrace along the Tosabori River.

In terms of the level of the facilities provided, the acquired property has a ceiling height of 2,700mm, a 100mm office automation equipment floor, individual air-conditioning, vibration control systems (TMD dampers and oil dampers), LED lighting for the entire building and installation of solar power generation panels. Moreover, the property has received the highest evaluation rank of S based on the CASBEE scale, which assesses and certifies the environmental performance of buildings. As the property has excellent environmental features, it is expected to contribute to the Investment Corporation's initiatives towards the realization of a low-carbon society.

1. Heiwa Real Estate Kitahama Building
   The acquired property has direct access through an underpass to Kitahama Station of the Osaka Metro Sakaisuji Line and the Keihan Railway's Keihan Main Line and Yodoyabashi Station of the Osaka Metro Midosuji Line, offering excellent convenience of transportation. The acquired property is located approximately 250m away from Kitahama 1-chome Heiwa Building on the Tosabori Street and offers, from the north side of the building through the glass curtain wall, an unbroken view of Nakanoshima Park and peripheral area, in the same manner as Kitahama 1-chome Heiwa Building.
   In terms of the level of the facilities provided, the acquired property has a ceiling height of 2,700mm, a 100mm office automation equipment floor and individual air-conditioning, making it highly competitive compared to other properties in the peripheral area.

3. Details of the properties to be acquired

Of-55 Kitahama 1-Chome Heiwa Building

Property number / Property name	Of-55 Kitahama 1-Chome Heiwa Building
Type of asset	Trust beneficial interest in real estate (quasi-co-ownership interest: 75%)
Trustee (Planned)	Mitsubishi UFJ Trust and Banking Corporation
Trust term (Planned)	From June 6, 2023 to June 30, 2033
		(Building address on real estate registry)
Location (Note 1)	1-29-1, Kitahama, Chuo-ku, Osaka City, Osaka, and 7 others
(Lot number)
		1-1-14, Kitahama, Chuo-ku, Osaka City, Osaka
	Form of ownership	Ownership
	Area (Note 1)	Entire site: 651.63 ㎡
	Interest in the right of site: 488.72 ㎡ (Note 5)
Land	Use district (Note 2)	Commercial district
	Building coverage ratio	80%
	(Note 3)
	Floor area ratio (Note 4)	800%
	Form of ownership	Ownership
	Use (Note 1)	Office, store, parking
	Structure/Floors (Note 1)	Steel beam / steel-framed reinforced concrete
	Flat roof 1 floor below ground and 9 floors above ground
Building
Total floor space (Note 1)	Total floor space: 5,475.33 ㎡
	Proprietary area: 4,106.49 ㎡ (Note 5)
	Construction	February 28, 2015
	completion date (Note 1)
Collateral		None
Property management company	Heiwa Real Estate Property Management Co., Ltd.

Master lease company	Heiwa Real Estate Property Management Co., Ltd.
Master lease type	Pass through
Tenant details (Note 6)
	Total number of tenants	17
	Total rent income (Note 7)	147,617 thousand yen
	Leasehold and security	106,130 thousand yen
	deposits (Note 7)
	Total leased floor space	2,626.03 ㎡
	(Note 7)
	Total leasable floor space	2,714.28 ㎡
	(Note 7)
	Occupancy rates	96.7% (as of March 31, 2023)
	(Based on Floor Space)
NOI yield (Note 8)	4.3%
		Survey company	Tokyo Bldg.-Tech Center Co., Ltd.
		Survey date	August 19, 2022
Outline of the engineering report	Replacement value (Note 9)	952,500 thousand yen
Probable maximum loss (PML)	14.1%
		Long-term repairs	119,332 thousand yen
		(next 15years) (Note 10)
Overview of real estate	Appraiser	Tanizawa Sogo Appraisal Co., Ltd.
Value date	April 1, 2023
appraisal report
Appraisal value	3,495,000 thousand yen
		・The Investment Corporation plans to acquire 75% quasi-co-ownership interest
		in the trust beneficiary right and to conclude a letter of agreement with the other
		quasi-co-owner (Heiwa Real Estate) to specify that the quasi-co-ownership
		interest in the trust beneficiary right may not be transferred to any third party,
		other than the beneficiaries, except for cases in which Heiwa Real Estate transfers
		25% quasi-co-ownership interest in the trust beneficiary right to the Investment
		Corporation and in which the other beneficiary gives prior consent in writing.
		・A deck built above the river that is adjacent to north side of the real estate in
		trust is in use. - A deck built above the river that is adjacent to north side of the
Other items of special note	real estate in trust is in use. If the real estate in trust is transferred with the said
		deck, it would be necessary to conclude a memorandum of understanding on
		installation and operation of the deck above the river with Kitahama Waterfront
		Committee, which has obtained permission for occupancy of the deck above the
		river from the river management authority, and to perform other prescribed
		procedures. The Investment Corporation will perform the said procedures when it
		acquires the property.
		・Part of the underground structure in the land in trust crosses over the boundary
		to the adjacent land on the south side. A memorandum has been concluded
		regarding the crossing of the boundary.

(Note 1) "Location (excluding indication of residential address)," "Area," "Use," "Structure/Floor" "Total floor space" and "Construction completion date" are as stated in the real estate registry.

(Note 2) "Use district" is the type of use district as listed in Article 8, Paragraph 1, Item 1 of the City Planning Act.

(Note 3) Building-to-land ratio is the ratio of building area to site area as stipulated in Article 53 of the Building Standards Act, and is a figure determined by city planning according to zoning and other factors. The acquired property is a fireproof building in a commercial district and a fire prevention district, so the building-to-land ratio has been relaxed to 100%.

(Note 4) Floor-area ratio is the ratio of the total floor area of a building to the site area as stipulated in Article 52 of the Building Standards Act, and is a figure determined by city planning according to zoning and other factors.

(Note 5) "Interest in the right of site" is calculated by multiplying the site area or the total floor area of one building by quasi-co-ownership interest ratio (75%), rounded down to two decimal places.

(Note 6) Figures in "Tenant details" are as of March 31, 2023 and the amounts are rounded down to the nearest thousand yen. Furthermore, "Total rent income" is the annualized figure (multiplied by 12) of the monthly rent (including common expenses but not including fees for the usage of parking, storage rooms and such as well as consumption tax) as of March 31, 2023, based on lease agreements and sub-leasing agreements concluded between the trustee or the Investment Corporation and the master lease company or end tenants, with amounts below a thousand yen round off.

(Note 7) The figure is equivalent to the quasi-co-ownership interest in the trust beneficiary right (75%), which the Investment Corporation plans to acquire.

(Note 8) "NOI yield" indicates the NOI yield calculated by using the net operating income (NOI) for the 12 months, which serves as the assumption for the value indicated by the income approach under the direct capitalization method shown in the appraisal report for the property, and is rounded to the first decimal place.

(Note 9) The replacement value is calculated by multiplying the replacement value of one building as stated in the engineering report by the quasi-co-ownership interest ratio of 75%, rounded down to the nearest thousand yen.

(Note 10) The long-term repairs are calculated by multiplying The long-term repairs of one building as stated in the engineering report by the quasi-co-ownership interest ratio of 75%, rounded down to the nearest thousand yen.

Of-56 Heiwa Real Estate Kitahama Building

Property number / Property name	Of-56 Heiwa Real Estate Kitahama Building
Type of asset	Trust beneficial interest in real estate
Trustee (Planned)	Mitsubishi UFJ Trust and Banking Corporation
Trust term (Planned)	From June 6, 2023 to June 30, 2033
				(Building address on real estate registry)
Location (Note 1)	2-85-3,2-86-1,2-87-1, Kitahama, Chuo-ku, Osaka City, Osaka
(Lot number)
				2-1-5 Kitahama, Chuo-ku, Osaka City, Osaka
			Form of ownership	Ownership
			Area (Note 1)	287.71 ㎡
Land		Use district (Note 2)	Commercial district
	Building coverage ratio	80%
			(Note 3)
			Floor area ratio (Note 4)	800%
			Form of ownership (Note 5)	Ownership
			Use (Note 1)	Office, store
			Structure/Floors (Note 1)	Steel beam / steel-framed reinforced concrete
Building		Flat roof 1 floor below ground and 10 floors above ground
			Total floor space (Note 1)	2,315.59 ㎡
			Construction	October 1, 2011
			completion date (Note 1)
Collateral	None
Property management company	Heiwa Real Estate Property Management Co., Ltd.
Master lease company	Heiwa Real Estate Property Management Co., Ltd.
Master lease type	Pass through
Tenant details (Note 5)
		Total number of tenants	14
		Total rent income	74,637 thousand yen
		Leasehold and security	48,522 thousand yen
		deposits
		Total leased floor space	1,464.52 ㎡
		Total leasable floor space	1,623.62 ㎡
		Occupancy rates	90.2% (as of March 31, 2023)
		(Based on Floor Space)
NOI yield (Note 6)	4.5%