ORIX JREIT : Document

Presentation

Tanaka: Thank you very much for watching the ORIX JREIT Inc. financial results briefing for the fiscal period ended February 2024 presentation video.

I am Tanaka, President of ORIX Asset Management Corporation, the asset manager of ORIX JREIT Inc.

ORIX JREIT Inc., or OJR for short, was listed as Japan's first diversified REIT in June 2002. In the J-REIT market, the number of diversified REITs is increasing every year, and OJR, as a pioneer in this field, is pleased to announce the closing of its 44th fiscal period. We would like to express our sincere gratitude to our unitholders for your support.

I would now like to explain OJR's results for the current fiscal period, as well as our basic policies and strategies, which we have summarized as key messages.

Please see page three. Since its listing, OJR has worked steadily to improve the profitability and stability of its portfolio and to reduce financial costs and improve financial stability, resulting in growth in unitholder value.

We understand that the growth of unitholder value is of the essence entrusted to us by our unitholders. Particularly, we will pursue stable growth in net asset value (NAV) and distribution per unit (DPU).

DPU for the current period will be JPY3,902. DPU was increased by JPY2 from the forecast and JPY158 from the previous results.

I would like to continue with an explanation of operational measures for growth. In terms of acquisitions and dispositions, we have made asset replacements of JPY75.7 billion in acquisitions and JPY38.4 billion in dispositions since the previous period with the aim of improving the quality of our portfolio. I will explain more about this area, including specific results, later.

Next, I will explain our efforts to improve the profitability of existing properties. In terms of the macro environment, the negative factors such as deflation and COVID-19 are calming down. On the other hand, the weak yen has pushed up the prices of everything, especially construction materials. We also recognize that the environment surrounding OJR is shifting toward an inflationary trend after a long period of deflation, as the Bank of Japan has raised interest rates for the first time in 17 years. In this environment, we have succeeded in increasing NOI by over JPY500 million for the entire portfolio as a result of continuous improvement in occupancy rates, appropriate rent setting at the time of tenant replacement and contract renewal, and cost control. This is an effect of approximately JPY200 in terms of DPU.

Regarding financial management, we will adhere to a disciplined financial management policy based on long- term fixed-rate financing. As of today, the total amount of bank loans and investment corporation bonds is approximately JPY300 billion. I would like to take this opportunity to thank once again all the financial

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institutions that support OJR. Now, we are back in the world with positive interest rates, but for the time being, we expect the situation to remain unstable. As a countermeasure, we will also utilize variable interest rates and medium-term borrowings and manage our operations in consideration of the impact of rising interest rates.

Finally, I would like to explain sustainability or ESG. OJR has actively incorporated sustainability into its management to achieve stable growth in unitholder value. As a result, we have received the highest 5-star rating from the global real estate evaluation agency GRESB for three consecutive years. Going forward, we will continue to make steady efforts to achieve the goals we have set, including climate change countermeasures and sustainable finance procurement.

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Please see page four. OJR will pursue stable growth in unitholder value, particularly in net asset value (NAV) per unit and distribution per unit (DPU). Here are our results for the past 10 years, and you can see the steady growth. We have been announcing that our stabilized DPU is around JPY3,500 until the previous period, but we will aim for stable growth of DPU from JPY3,700 from now on.

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Please see page five. First, let me explain the background behind the increase in stabilized DPU from JPY3,500 to JPY3,700. As shown here, OJR has been promoting strategic replacement of its portfolio since last year. In the real estate transaction market, the cap rates have remained stable at low levels, and transactions continue to be carried out at high prices.

As a result, opportunities to acquire blue-chip properties have been limited. However, OJR has set up an acquisition team to promote external growth and has been striving to make selective dispositions and investments.

Here we show our results for last year. In terms of acquisitions, we cautiously selected and invested in 13 competitive properties totaling JPY75.7 billion that are expected to contribute to long-term earnings in the future. On the other hand, we disposed properties with less growth potential in order to improve the quality of the portfolio as a whole. As a result, NOI, which is the source of distribution, has increased by JPY1.7 billion on an annualized basis. Also, the NOI yield improved from 3.2% to 3.9%, and the age of the building rejuvenated from approximately 30 years to 16 years.

On the other hand, Hotel Nikko Himeji, which confronted impairment risk, and Seafort Square Center Building, which faced the risk of falling rents, were disposed to mitigate downside risk for the time being.

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Please see page six. As a result of this series of efforts, DPU for this fiscal period will be JPY3,902, an increase of JPY158 from the previous fiscal period.

I will explain the main factors classified into four categories. First, contributions from newly acquired properties, such as Sapporo 22 Square and SHINYOKOHAMA SQUARE BUILDING, was JPY90. On the other hand, the effect of disposition of Round-Cross Shiba Daimon and other properties was JPY6. JPY206 increase, which is the largest contribution, was from internal growth of existing properties, and there was JPY52 decrease due to an increase in SG&A expenses.

The forecasted DPU of JPY3,900 for this fiscal period, which was announced at the end of the previous period, included JPY233 of gain on disposition. Since over JPY3,900 DPU has become possible due to the contribution of newly acquired properties and internal growth of the existing properties as explained, the amount of the gain on disposition incurred in this period will be allocated to internal reserve.

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Please see page seven. Next, I will explain DPU forecast. As explained earlier, we will aim for stable growth of DPU from JPY3,700. On this basis, we have set DPU of JPY3,720 for the fiscal period ending August 2024 and JPY3,760 for the fiscal period ending February 2025.

I would like to explain the decrease of DPU from JPY3,902 to JPY3,720. In the fiscal period ending August 2024, profit contribution from acquired assets and rent increase from existing properties will continue, but this is due to the increase in the utility balance as a result of the sudden government policy change. Specifically, the decision was made to increase the renewable energy levy, in addition to the termination of the energy price mitigation measures for electricity and gas starting this spring. Like the major think tanks, we had expected that current economically conscious policy would continue. However, as things did not go as our expectation, we have reflected the impact of the recent policy change in our forecast.

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Please see page eight. On this page, we present DPU information presented earlier on a financial statement basis. We will also disclose financial statements by property type from this fiscal period, which we hope you will find useful. I will not go into the details today, but I would like to make one additional point.

As explained earlier, OJR has been allocating cash to property acquisitions for further growth since last year. As a result, we have succeeded in raising the annualized NOI by JPY1.7 billion and DPU by about JPY300 per period.

As a result, the cash and deposit balance was approximately JPY28 billion at the end of March, decreasing from JPY48.4 billion at the end of previous period. Although we always consider the option of returning surplus cash to investors through buy-back, OJR has been using cash to fund growth in order to increase unitholder value since last year. We would like to thank our unitholders for their understanding.

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Please see page 10. Here we show how additional measures and changes in the external environment will affect DPU.

For example, if we acquire properties using JPY5 billion of cash on hand, DPU will increase by approximately JPY25. While if we acquire properties by JPY10 billion of external borrowing, DPU will increase by approximately JPY25 as borrowing costs are imposed. The impact of the other items on DPU is also several tens of yen, respectively. Although unitholders may have different views on the upside and downside, we hope that they understand that the fluctuation factors are limited when viewed on an individual basis.

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Please see page 12. From here, I will explain the key points of internal growth for each property type, focusing on occupancy rates and rents of existing properties.

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