Starts Proceed Investment : 31st Semi-Annual Report

31st Fiscal Period

Asset Management Report

Starts Proceed Investment Corporation

3-1-8 Nihonbashi, Chuo-ku, Tokyo

From: November 1, 2020

To: April 30, 2021

I. To Our Unitholders

We express our sincere appreciation to all unitholders for your continued loyal patronage to Starts Proceed Investment Corporation.

Having settled the 31st fiscal period ended April 2021 (November 1, 2020 - April 30, 2021), we would like to report on the management status and performance results for the period.

During the fiscal period under review, Starts Proceed conducted asset replacement through disposition of Proceed Yachiyo Midorigaoka I and Proceed Yachiyo Midorigaoka II and acquisition of Proceed Nagareyama Otakanomori. This was conducted from the viewpoint of avoiding cost increases for major repairs, etc. required as properties age, as well as the risk of a future drop in prices due to a decline in competitiveness, etc. caused by aging facilities. Consequently, Starts Proceed's portfolio as of the end of the 31st fiscal period consists of 106 properties with a total acquisition price of 88,268 million yen. Starts Proceed also worked to reduce building maintenance and management costs while striving to improve the rent levels and increase the receipt of key money and other revenue. As a result of these endeavors, Starts Proceed posted operating revenue of 3,160 million yen, ordinary income of 1,163 million yen and net income of 1,183 million yen for the 31st fiscal period. Distribution per unit came to 4,663 yen, surpassing the forecast announced earlier.

Going forward, we are resolved to achieve steady growth of our assets under management and secure stable earnings from a medium- to long-term perspective by making the most of the expertise of the Starts Group, the sponsor, in an effort to further enhance unitholder value.

We ask you, our unitholders, to extend to us your continued consideration and support of our operations.

Kazuya Hiraide

Chief Executive Officer

Starts Proceed Investment Corporation

President

Starts Asset Management Co., Ltd.

1. Asset Management Report

1. Overview of Asset Management

1. Management and other performance highlight of the investment corporation

		27th period	28th period	29th period	30th period	31st period
Fiscal Period	unit	(From November	(From May 1,	(From November	(From May 1,	(From November
1, 2018 to April 30,	2019 to October	1, 2019 to April 30,	2020 to October	1, 2020 to April 30,
		2019)	31, 2019)	2020)	31, 2020)	2021)
Operating revenues	million		3,144		3,094		4,048		3,352		3,160
yen
[Of which, Property leasing	million		(3,119)		(3,089)		(3,116)		(3,106)		(3,113)
business revenues]	yen
Operating Expenses	million		1,769		1,730		1,790		1,769		1,797
yen
[Of which, Property leasing	million		(1,349)		(1,321)		(1,362)		(1,354)		(1,374)
business revenues]	yen
Operating income	million		1,374		1,364		2,257		1,582		1,362
yen
Ordinary income	million		1,178		1,154		1,685		1,394		1,163
yen
Net income (a)	million		1,177		1,152		1,683		1,392		1,183
yen
Total assets (b)	million		90,190		89,804		90,295		90,411		90,191
yen
Net assets (c)	million		42,960		42,936		43,467		43,576		43,366
yen
Unitholders' capital (net) (note 2)	million		41,684		41,684		41,684		41,684		41,684
	yen
Total number of investment units	units		253,777		253,777		253,777		253,777		253,777
issued and outstanding (d)	yen
Net assets per unit (c)÷(d)		169,285		169,188		171,282		171,711		170,886
Distribution per unit (note 3)	yen		4,585		4,541		6,635		5,487		4,662
Total Distributions (e)	million		1,177		1,152		1,283		1,392		1,183
yen
Distribution per unit (e)÷(d)	yen		4,638		4,542		5,059		5,488		4,663
[Of which, distribution of	yen		(4,638)		(4,542)		(5,059)		(5,488)		(4,663)
earnings per unit]											(-)
[Of which, distribution in	yen		(-)		(-)		(-)		(-)
excess of earnings per unit]
Return on assets (note 4)	%	1.3	(2.6)	1.3	(2.5)	1.9	(3.8)	1.5	(3.1)	1.3	(2.6)
Return on equity (note 4)	%	2.7	(5.5)	2.7	(5.3)	3.9	(7.8)	3.2	(6.3)	2.7	(5.5)
Equity ratio (c)÷(b)	%		47.6		47.8		48.1		48.2		48.1
Distribution payout ratio (note 4)	%		99.9		100.0		76.2		100.0		100.0
[Other Reference Information]
Number of investments properties	units		106		106		106		107		106
(note 5)
Total number of leasable units	units		5,224		5,255		5,225		5,227		5,226
(note 5)
Gross Leasable area	m2	193,457.11	194,608.52	193,117.03	193,846.29	192,166.37
Period-end occupancy rate	%		96.3		95.7		95.9		95.2		95.4
(note 5)
million
Depreciation and amortization		618		619		629		650		650
yen
Capital expenditures	million		112		117		137		81		114
yen
Property leasing NOI (Net	million		2,388		2,386		2,382		2,401		2,389
Operating Income) (note4)	yen
FFO (Funds from Operations) per	yen		6,994		6,978		6,956		7,086		7,051
unit (note4)
FFO multiple (note 4)	times		12.3		15.2		13.1		14.2		16.0
Debt service coverage ratio	times		12.5		11.8		15.6		13.1		12.0
(note 4)
Earnings before interest,	million		1,952		1,936		2,471		2,211		2,000
depreciation and amortization	yen
Interest expenses	million		156		164		158		169		167
yen
Total interest-bearing liabilities	million		46,046		45,646		45,646		45,646		45,646
yen
LTV (Loan-To-Value) ratio	%		51.1		50.8		50.6		50.5		50.6
(note 4)
Number of days of management	days		181		184		182		184		181

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(Note 1) All amounts are rounded down, and the figures with decimal places calculated for percentage or averaged are rounded off, however distribution payout ratio are rounded down to one decimal place.

(Note 2) Unitholders' capital (net) indicates the amount for unitholders' capital after subtracting the amount of deduction from unitholders' capital.

(Note 3) Net income per unit is calculated by dividing net income by the daily weighted average number of investment units issued and outstanding.

(Note 4) The indicators presented are calculated as follows:

In addition, for return on assets and return on equity, figures converted based on the number of days of management are shown in brackets.

Return on assets	Ordinary income ÷ Average total assets
Average total assets = (Total assets at beginning of period + Total assets at the end of period) ÷ 2
Return on equity	Net income ÷ Average net assets
Average net assets = (Net assets at beginning of period + Net assets at the end of period) ÷ 2
	Distribution per unit ÷ Net income per unit
	Because there were changes in the number of investment units during the 27th Fiscal Period, due
Distribution payout ratio	to repurchase and cancellation performed for own investment units, distribution payout ratio is
	calculated based on the following equation:
	Total distribution (not including distribution in excess of earnings per unit) / net income
Property leasing NOI	Property leasing income (loss) [Real estate rent revenue − Expenses related to rent business] +
Depreciation and amortization.
	(Net income + Depreciation and amortization + Other depreciation and amortization − Gain
FFO per unit	(loss) on sales of real estate properties + related expenses as sales of real estate ) ÷ Total number
	of investment units issued and outstanding
FFO multiple	Investment unit price at the end of period ÷ Annualized FFO per unit
Debt service coverage	Earnings before interest, depreciation and amortization ÷ Interest expenses
ratio
LTV ratio	Total interest-bearing liabilities ÷ Total assets

(Note 5) The number of investment properties are indicated in units that are generally accepted to be one. In addition, the total number of leasable units is the number of units that are leasable for residential, office, retail and other uses, and the period-end occupancy rate is the leased area expressed as a percentage of gross leasable area as at the date of settlement of accounts.

(Note 6) Fiscal Period is a six-month period, which ends at the end of April and October of each year.

1. Development in management of assets in the fiscal period under review
2. 1. Brief Background of the Investment Corporation

Starts Proceed Investment Corporation ("Starts Proceed") was established on May 2, 2005, with 150 million yen in capital (750 units) based on the Act on Investment Trusts and Investment Corporations (Act No. 198 of 1951; including amendments thereto) (the "Investment Trust Act"), completed registration with the Kanto Local Finance Bureau based on Article 187 of the Investment Trust Act on June 15, 2005 (Registration No. 37 issued by the Director-General of the Kanto Local Finance Bureau), implemented additional issuance of investment units through public offering (21,600 units) on November 29, 2005, and listed on Jasdaq Securities Exchange, Inc. (currently Tokyo Stock Exchange, Inc. JASDAQ Market) (Securities Code: 8979) the next day. After three capital increases through public offering and other developments since listing on the JASDAQ Market, Starts Proceed listed on the Tokyo Stock Exchange, Inc. Real Estate Investment Trust Securities Market (Securities Code: 8979) on July 27, 2010, and this was accompanied by an application for delisting being filed with the JASDAQ Market on August 10, 2010, and the delisting from the JASDAQ Market taking effect on October 1, 2010.

Starts Proceed entrusts asset management to Starts Asset Management Co., Ltd. (the "Asset Management Company") and sets the focus of management on investment in real estate of which the principal use is use as rental housing ("rental housing") as well as specified assets (the meaning provided in Article 2, Paragraph 1 of the Investment Trust Act; the same hereinafter) backed mainly by rental housing. In addition, Starts Proceed also invests in monthly rental apartments, serviced apartments, hotels, residential facilities for the elderly (collectively referred to as "rental housing, etc." together with "rental housing"), which are related to rental housing, and real estate from which income can be expected due to other leasing revenue or specified assets backed by such real estate. In investment in rental housing, etc., Starts Proceed adopts the basic policy of particularly setting rental housing for average-income households, the demand for which Starts Proceed believes to be the most stable, as the primary investment target. In addition, Starts Proceed takes measures, such as leveraging the capabilities of the Starts Group, to achieve enhancement of management efficiency, with an aim to secure steady growth and stable revenue of assets under management over the medium to long term.

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As of the end of the fiscal period under review (31st fiscal period: from November 1, 2020, to April 30, 2021), the total number of investment units issued and outstanding is 253,777 units, total assets amount to 90,191 million yen, and unitholders' capital (net amount) amounts to 41,684 million yen.

1. Investment environment and management performance

In the 31st fiscal period, while the Japanese economy continued to experience a harsh situation with deterioration in service consumption due to the impact of COVID-19, recovery was seen centering on the manufacturing sector given partial recovery in exports and capital investment. However, being a REIT specializing in housing, Starts Proceed does not foresee concerns regarding the impact of the COVID-19 crisis on its operations in the short term given the extremely limited impact of decrease in revenue from rent and such found at this point in time.

Under such circumstances, demand trends in the market for rental housing in which Starts Proceed invests have continued to be stable in the Tokyo metropolitan area, Osaka, Nagoya, Fukuoka, Sendai, and other major metropolitan areas, and rental apartments owned by listed REITs specializing in housing have also maintained high occupancy rates.

In the secondary real estate market, while a robust investment appetite continued to be seen among listed REITs, private REITs and other investors in Japan and abroad amid the ongoing favorable fund procurement environment, competition in property acquisition has remained intense with limited supply of quality properties, leaving transaction prices at a high level.

In the 31st fiscal period, Starts Proceed conducted asset replacement through disposition of two properties on April 26, 2021 - (C-21) Proceed Yachiyo Midorigaoka I (disposition price: 415 million yen) and (C-22) Proceed Yachiyo Midorigaoka II (disposition price: 370.5 million yen) - and acquisition of one property on April 27, 2021

• (C-85)Proceed Nagareyama Otakanomori (acquisition price: 1,069 million yen) to avoid increase in costs for major repairs, etc. seen as necessary as properties age in addition to risk of a future drop in prices due to a decline in competitiveness, etc. caused by aging facilities. As a result, Starts Proceed's portfolio as of the end of the 31st fiscal period consists of 106 properties with acquisition prices totaling 88,268 million yen and a total leasable floor area of 192,166.37 m2.
  In close collaboration with the property management company Starts Amenity Co., Ltd., the Asset Management Company made efforts to reduce building maintenance and management costs while striving to improve the rent levels and increase the receipt of key money and other revenue. In addition, with finely tuned leasing conditions set based on understanding of regional characteristics and advantages of individual properties as well as thorough comparative analyses of nearby competitive properties, leasing activities in coordination with leasing agents were promoted. Furthermore, ongoing efforts were made to put vacant space into service quickly with an aim of maintaining the high occupancy rate. These measures worked to maintain the occupancy rate of the entire portfolio at a stable level of over 95.0%, the target level, throughout the period and resulted in a period-average occupancy rate of 95.6% and period-end (April 30, 2021) occupancy rate of 95.4%.

1. Overview of financing

In the 31st fiscal period, Starts Proceed borrowed a long-term loan of 2,700 million yen (term: 6 years) and issued the Second Series Unsecured Investment Corporation Bond of 1,000 million yen below to repay a long-term loan of 3,700 million yen due for repayment on November 24, 2020. The interest rate of said borrowing has been substantively fixed through an interest rate swap agreement to hedge against the risk of an interest rate hike.

Name:	Starts Proceed Second Series Unsecured Investment Corporation Bond (with pari passu
	conditions among specified investment corporation bonds)
Issue amount:	1,000 million yen
Issue date:	0.540% per annum
Redemption date:	November 19, 2020
Redemption date:	November 19, 2025
Security and guarantee:	Unsecured and unguaranteed

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