HEIWA Real Estate REIT : Acquisition of Asset (HF SENDAI ITSUTSUBASHI RESIDENCE)

January 26, 2017

For Immediate Release

REIT Issuer HEIWA REAL ESTATE REIT, Inc.

9-1 Nihonbashi Kabuto-cho, Chuo-ku, Tokyo Masaaki Higashihara, Executive Director

(Securities Code: 8966) Asset Management Company

HEIWA REAL ESTATE Asset Management CO., LTD. Takaya Ichikawa, President & Representative Director

Inquiries: Yoshio Ito, General Manager, Planning & Finance Department

TEL. [phone]

Acquisition of Asset (HF SENDAI ITSUTSUBASHI RESIDENCE)

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

Details

1. Overview of the acquisition

(1)	Property number Property name (Note1)	Re-82 HF SENDAI ITSUTSUBASHI RESIDENCE
(2)	Type of specified asset	Real Estate
(3)	Investment Category	Residence
(4)	Investment Area	Regional Investment Area (Sendai City, Miyagi)
(5)	Proposed acquisition price (Note 2)	850,000 thousand yen
(6)	Agreement Execution date	January 26, 2017
(7)	Scheduled Acquisition date	February 23, 2017
(8)	Seller (Note 3)	Undisclosed
(9)	Acquisition financing	Cash on hand
(10)	Payment method	Payment of a deposit of 10 million yen upon the execution of the agreement and payment of the remaining amount at the time of delivery

(Note 1) The name of this property is currently Urban Flats Itsutsubashi, but it is to be changed to HF SENDAI ITSUTSUBASHI RESIDENCE on June 1, 2017 after the Investment Corporation has acquired it. Accordingly, its name after the change is recorded.

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

(Note 3)Undisclosed as consent cannot be obtained from the seller.

2． Reason for the transaction

Under the theme of the "Stable Growth Trajectory of HEIWA REAL ESTATE REIT, Inc.," the Investment Corporation is working to improve the quality of the portfolio over the medium to long term through portfolio replacement. It is also pursuing conventional external growth driven by the acquisition of properties, thereby maximizing unitholder value.

This property is well placed for easy access to a range of locations. It is a four-minute walk from Itsutsubashi Station on the Sendai Subway Nanboku Line. Itsutsubashi Station is one station from Aoba-dori Station (two minutes away), which is in the center of a business district, on the Senseki Line, and is two stations, or three minutes, from Hirose-dori Station, which is in the center of a commercial district. The property is within walking distance of Sendai Station. As described below, the specifications of the property fully meet the high requirements of single households, which are the main tenants of the property.

The Asset Management Company has decided to acquire the property based on its belief that the property will help the Investment Corporation to expand its portfolio, improve the quality of the portfolio, and expand and stabilize its cash flows.

We will continuously aim to attain further external growth and increase the profitability and quality of the portfolio from the perspective of increasing unitholder value, thereby ensuring steady growth in the operating assets and stable earnings over the medium to long term.

3．Details of the property acquisition

The characteristic of the property to be acquired are as per below.

Re-82 HF SENDAI ITSUTSUBASHI RESIDENCE

(1) Location

・This property is around a four-minute walk from Itsutsubashi Station on the Sendai Subway Nanboku Line, and is well placed for access to a major business district. The nearest station is one station, or two minutes, from Sendai Station, where there is a concentration of offices and commercial facilities. ・In the area where this property is located, Tohoku University and Tohoku Gakuin University are also located. There are large office buildings in the neighborhood. There is therefore demand from single people who focus on access for commuting.

(2) Building

・Each unit in the building is around 34 m2 and has a dining and kitchen area and a further room. Demand is mainly anticipated from single people. ・In terms of equipment, the property takes security into consideration. It is equipped with a self-locking door and a door phone with a TV monitor. Each unit has separate rooms for the bath and the toilet, a bathroom dryer, and a warm-water bidet toilet. The property fully meets the needs of single people, who are the main tenants, and is highly competitive compared with other properties in the neighborhood.

Property number / Property name		Re-82 HF SENDAI ITSUTSUBASHI RESIDENCE
Type of asset		Real Estate
Location (Note 1)		(Lot Number) 2-518 Itsutsubashi Aoba-ku, Sendai City, Miyagi (Building address on real estate registry) 2-4-19 Itsutsubashi Aoba-ku, Sendai City, Miyagi
Land	Form of ownership	Ownership
	Area (Note 1)	420.14 ㎡
	Use District (Note 2)	Commercial area
	Building Coverage Ratio(Note 3)	80％
	Floor Area Ratio(Note 3)	500％

Building	Form of ownership	Ownership
	Use (Note 1)	Residence
	Structure/Floors (Note 1)	Reinforced concrete, flat roof, 12 floors above ground
	Total Floor Space(Note 1)	2,049.77 ㎡
	Construction Completion Date (Note 1)	November 15, 2006
	Construction Client	Suncity Corporation
	Constructor	Fujita Corporation
	Architect	AL limited company -First class architect office
	Structural Designer	Shiomi Corporation
	Building Certification	JAPAN ERI Co., Ltd.
Property Management Company		HASEKO LIVENET, Inc.
Master Lease Company		HASEKO LIVENET, Inc.
Master Lease Type		Pass through
Collateral (Note 4)		None
Tenant details (Note 5)
Total Leasable Units	55 units
Total Leased Units	54 units
Total rent income	51,513 thousand yen
Leasehold and security deposits	7,967 thousand yen
Total leased floor space	1,858.71 ㎡
Total leasable floor space	1,893.21 ㎡
Occupancy rates (Based on Floor Space)	98.2％
NOI Yield (Note 6)		5.4％
Outline of the engineering report		Survey Company	Tokyo Bldg.-Tech Center Co., Ltd.
		Survey Date	December 20, 2016
		Replacement Value	451,000 thousand yen
		Probable Maximum Loss (PML)	2.0％
		Long-term repairs (next 15years)	40,540 thousand yen
Overview of Real Estate Appraisal Report		Appraiser	Japan Real Estate Institute
		Value Date	November 30, 2016
		Appraisal Value	877,000 thousand yen
Other items of special note		N/A

(Note1) "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, and Item 1 of the City Planning Act.

(Note 3) "Building Coverage Ratio" is the ratio of the building area of the building to the site area as stipulated in Article 53 of the Building Standards Act. The "Floor Area Ratio" is the ratio of the total floor space of the building to the site area as stipulated in Article 52 of the Building Standards Act.

(Note 4）There is a mortgage on the property, but it will be wound up on the date of delivery.

(Note 5) Figures in "Tenant details" are as of January 10, 2017.

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, vending machines and such as well as consumption tax) as of January 10, 2017, based on lease agreements and sub-leasing agreements concluded between the seller and end tenants, with amounts below a thousand yen round off.

(Note 6) "NOI Yields" 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 acquisition

The seller of the property is a domestic business company, but is undisclosed due to the wishes of the seller. The seller is not a party that has a special interest relationship with the Investment Corporation or the Asset Management Company.

1. Status of previous owner, etc. of the property to be acquired

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

2. Broker Profile

   The broker of the property is a domestic business company, but is undisclosed due to the wishes of the broker. The broker is not a party that has a special interest relationship with the Investment Corporation or the Asset Management Company.

3. Outlook

   The acquisition of the asset will have minimal impact on the management status of the Investment Corporation for the fiscal period ending May 2017 (the 31st fiscal period) and November 2017(the 32nd fiscal period) disclosed in the financial report for the fiscal period ending November 2016,and no change will be made to the management status forecast.

4. Overview of the appraisal report

Property number/ Property name				Re-82 HF SENDAI ITSUTSUBASHI RESIDENCE
Appraisal value				877,000 thousand yen
Appraiser				Morii Appraisal & Investment Consulting Inc.
Value date				November 29, 2016
Item				Content (1,000 yen) (Note 1)	Overview, etc.
Value				877,000
Value indicated by the income approach (direct capitalization method)			888,000
Effective gross income		57,315
Potential total profits	59,724	Assessment based on unit prices of rents that can be received at a steady rate over the medium to long term.
Losses from vacancies, etc.	2,409	Posted losses from vacancies after coming up with an assessment on steady occupancy rates over the medium to long term.
Operating expenses		11,083
Management fees	1,714	Posted after taking into account the individual characteristics of the target real estate and by referring to anticipated maintenance and management costs as well as maintenance and management costs for comparable real estate, including the actual numbers from past fiscal years.
Property Management fee	1,094	Posted after taking into account the individual characteristics of the target real estate as well as the compensation rate for comparable real estate, among other factors.
Utilities expenses	1,200	Posted after referring to actual costs in past fiscal years as well as taking into account the individual characteristics of the target real estate as well as utilities expenses of comparable real estate.
Maintenance and repair cost	1,384	Posted after taking into account actual results from past fiscal years, levels of costs for comparable real estate as well as maintenance and repair costs in ER.
Tenant advertisement	2,073	Posted by referring to expected terms of the contract and lease