Heiwa Real Estate REIT : Notice Concerning Acquisition of Domestic Asset (PRIME TOWER YOKOHAMA)

July 31, 2023

For Immediate Release

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 Domestic Asset (PRIME TOWER YOKOHAMA)

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 asset (the "Asset to be acquired"). The details are as follows.

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		Secondary
	PRIME TOWER		Investment Area
Of-57	interest in real	Office	3,800	4,040
YOKOHAMA	(Yokohama-City,
	estate
			Kanagawa)

(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:	July 31, 2023
(2)	Scheduled acquisition date:	August 3, 2023
(3) Seller:	Undisclosed (Note)
(4) Acquisition financing:	Cash on hand and borrowings
(5)	Payment method:	Lump-sum payment at time of delivery
(6)	Brokerage:	Applicable

(Note) Undisclosed as consent cannot be obtained from the seller

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2. Reason for the acquisition

The Investment Corporation's Articles of Incorporation stipulates that the "targets and policies of asset management" is to ensure the steady growth of the investment portfolio and medium- to long-term sustainable profit. Under the Articles of Incorporation, the Investment Corporation seeks to expand its assets through continuous property acquisitions and to improve the quality and profitability of the portfolio by replacing assets. The Asset Management Company has evaluated the asset to be acquired on the following points and decided to acquire the property based on the belief that the acquisition would help realize the policy above and improve unitholder value.

The property to be acquired is a 3-minute walk from Nihon-odori Station on the Minatomirai Line of the Yokohama Minatomirai Railway and a 9-minute walk from Kannai Station on the JR Kehin-Tohoku Line (JR Negishi Line) and the Yokohama Municipal Subway Blue Line. With access to multiple train lines, the property offers excellent transportation accessibility. Kannai, where the property to be acquired is located, is a bustling area that is home to both Yokohama Stadium and Yokohama Chinatown. Government offices such as Yokohama District Court, Kanagawa Prefectural Office and Naka City Office of Yokohama are located nearby, as are the Yokohama branches of major companies, forming an office district. In addition, several redevelopment plans are underway in the area around Kannai Station, and further development is expected.

The property to be acquired features a standard floor of approximately 190 tsubo, a ceiling height of 2,530 mm, substantial parking accommodating 63 vehicles and individual air-conditioning systems. In addition, the property has been undergoing large-scale repair work on the exterior walls, mechanical parking, etc. from 2020 to 2021, and is highly competitive compared with other office buildings in the area. The property can be divided into lots of 11-86 tsubo, which is expected to capture a variety of demand and ensure stable demand. 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.

The expected NOI yield, which is calculated from the acquisition price and appraisal NOI, and the NOI yield after depreciation are 4.4% and 3.8% respectively, and based on the appraisal value and acquisition price, unrealized gain is expected to be 240 million yen.

3. Details of the asset to be acquired

Of-57 PRIME TOWER YOKOHAMA

Property number / Property name	Of-57 PRIME TOWER YOKOHAMA
Type of asset	Trust beneficial interest in real estate
Trustee (Planned)	Sumitomo Mitsui Trust Bank, Limited
Trust term (Planned)	From August 3, 2023 to August 31, 2033
		(Building address on real estate registry)
Location (Note 1)	89-6, Yamashitacho, Naka-ku, Yokohama City, Kanagawa
(Lot number)
		89-6, Yamashitacho, Naka-ku, Yokohama City, Kanagawa
	Form of ownership	Ownership
Land	Area (Note 1)	1,241.48 ㎡
	Use district (Note 2)	Commercial district
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			Building coverage ratio	80%
			(Note 3)
			Floor area ratio (Note 4)	700%・600%
			Form of ownership	Ownership
			Use (Note 1)	Office, parking
			Structure/Floors (Note 1)	Steel-framed reinforced concrete and reinforced concrete
Building		Flat roof 2 floors below ground and 8 floors above ground
			Total floor space (Note 1)	7,555.33 ㎡
			Construction	January 24, 1986
			completion date (Note 1)
Collateral	None
Property management company	Toyo Real Estate Property Management Co.,Ltd.
Master lease company	Toyo Real Estate Property Management Co.,Ltd.
Master lease type	Pass through
Tenant details (Note 5)
		Total number of tenants	14
		Total rent income	180,799 thousand yen
		Leasehold and security	153,120 thousand yen
		deposits
		Total leased floor space	4,446.55 ㎡
		Total leasable floor space	4,446.55 ㎡
		Occupancy rates	100% (as of June 30, 2023)
		(Based on Floor Space)
NOI yield (Note 6)	4.4%
				Survey company	Tokyo Bldg.-Tech Center Co., Ltd.
				Survey date	June 8, 2023
Outline of the engineering report	Replacement value	2,124,000 thousand yen
Probable maximum loss (PML)	6.2%
				Long-term repairs	319,300 thousand yen
				(next 15years)
Overview of real estate	Appraiser	JLL Morii Valuation & Advisory K.K.
Value date	July 1, 2023
appraisal report
Appraisal value	4,040,000 thousand yen
				・Regarding the public road on the northwest side of the property, an urban
				planning road (Oosanbashi Urafune Route 3.3.6: Planned width of the road: 25
				meters. Approximately 5 meters setback from the current road surface) is
				planned to be constructed. When the project is implemented and part of the
				land of the property is used for said road, the property to be acquired could be
				an existing non-conforming building.
				・Part of the road surface tiles, part of the gatepost, part of the concrete, part of
Other items of special note	the fence, and part of the concrete block wall cross the border from the
adjacent land on the north side to the property to be acquired. A memorandum
				has been concluded regarding the crossing of the boundary.
				・Part of the fence and part of the stonemasonry cross the border from the
				adjacent land on the east side to the property to be acquired. A memorandum
				has been concluded regarding the crossing of the boundary.
				・We received a notice of cancellation dated March 21, 2023 from one tenant
				(leased floor space: 284.82 ㎡) to the effect that the tenant will cancel the
				property on October 1, 2023.

(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.

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(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.

(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. At the property to be acquired, the floor area ratio is 700% in the area up to 35 m from the city planning road planning line on the west side and 600% in the area over 35 m.

(Note 5) Figures in "Tenant details" are as of June 30, 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 June 30, 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 6) "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.

4. Overview of the seller

The seller is a domestic special purpose company, but it is undisclosed due to consent cannot be obtained. The seller is not a party that has a special interest relationship with the Investment Corporation or the Asset Management Company.

5. Status of previous owner, etc. of the asset to be acquired

The acquisition is not acquisition from any persons having a special interest in the Investment Corporation or the Asset Management Company.

6. Broker profile

The broker for the acquisition is a domestic business company, but the Investment Corporation has decided not to disclose it because its consent has not been obtained. The broker does not fall under a party with a special interest in the Investment Corporation and the Asset Management Company.

7. Outlook

For the impact of the acquisition on the management status forecast for the fiscal period ending November 2023 (the 44th Fiscal Period) published in the 43rd Fiscal Period Financial Report dated July 14, 2023 is minor, and the management status forecasts will remain unchanged.

8. Overview of the appraisal report

Property number / Property name	Of-57 PRIME TOWER YOKOHAMA
Appraisal value	4,040,000 thousand yen
Appraiser	JLL Morii Valuation & Advisory K.K.
Value date	July 1, 2023
Item	Content	Overview, etc.
(thousand yen)
Value	4,040,000	Estimated by linking indicated value by DCF method and indicated
value by direct capitalization method.
	Value indicated by the income
	approach (direct capitalization	4,260,000
	method)
		Effective gross income	242,436
			Potential total profits	254,720	Appraised by reference to the current rent level and rental cases in
			the surrounding area.
			Losses from vacancies,	12,284	Appraised after the consideration of standard vacancy rate and the
			etc.	individuality of the target property.
		Operating expenses	75,968

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				Management fees	15,000	Assumed with reference to levels of similar properties.
				Property management	4,424	Assumed with reference to levels of similar properties.
				fee
				Utilities expenses	27,761	Assumed with reference to levels of similar properties.
				Maintenance and repair	6,386	Based on the judgment that the estimate in engineering report was
				cost	appropriate, recorded at 30% of the standardized amount.
				Tenant advertisement	2,206	Appraised after consideration of local practices and the rate of
				expenses, etc.	tenants vacating the target property.
				Public charges and	19,469	Appraised, taking into account the fluctuation rate and depreciation
				taxes	over time, based on the actual performance.
				Casualty insurance	322	The amount equivalent to 0.02% of replacement cost was posted.
				premiums
				Other expenses	400	Miscellaneous administrative expenses, etc. were posted.
			Net operating income (NOI)	166,468
			Interest on lump-sum	1,687	Estimated based on an assessed investment yield of 1.0%.
			payments
			Capital expenditures	14,901	Based on the judgment that the estimate in engineering report was
			appropriate, recorded at 70% of the standardized amount.
			Net cash flow (NCF)	153,254
			Capitalization rate	3.6%	Appraised by considering the income and capital fluctuation risk,
			in addition to the discount rate.
		Value indicated by the income
		approach (discounted cash flow	3,950,000
		method)
						Based on trends in interest rates on long-term government bonds,
						etc., a comprehensive assessment was made by taking into account
			Discount rate	3.3%	market trends, etc., considering a reference basis yield for an area
			that is considered to have the lowest risk, while considering risk
						factors given the regional and individual characteristics of the
						target property.
			Terminal capitalization rate	3.7%	Assessed using the capitalization rate as the standard and by
			evaluating the uncertainty of future projections.
Value indicated by the cost approach	3,460,000
using the cost accounting method
	Percentage of land	90.7%
	Percentage of building	9.3%
Other notable items regarding the	－
appraisal as stated by the appraiser

(Note) The balance above is based on that in the appraisal report and is not that of the Investment Corporation or the Asset Management Company.

• Investment Corporation Website:https://www.heiwa-re.co.jp/en/

【Attachments】

(Attachment 1) Pictures and maps of the asset to be acquired

(Attachment 2) Portfolio list after acquisition and transfer of HF HATCHOBORI RESIDENCE III

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