Advance Residence Investment : Notice Concerning Acquisition of Investment Asset (RESIDIA Kunitachi)

June 28, 2024

For Immediate Release

Real Estate Investment Trust Securities Issuer:

Advance Residence Investment Corporation

(Securities Code：3269)

1-105Kanda-Jinbocho,Chiyoda-ku, Tokyo

Representative: Wataru Higuchi, Executive Director

Asset Management Company:

ITOCHU REIT Management Co., Ltd.

Representative: Junichi Shoji, Representative Director,

President & CEO

Inquiries:	Isao Kudo, Executive Officer
	(TEL. [phone])

Notice Concerning Acquisition of Real Estate Trust Beneficiary Interest in Japan

(RESIDIA Kunitachi)

ITOCHU REIT Management Co., Ltd. (IRM), the asset management company to which Advance Residence Investment Corporation (ADR) entrusts the management of its assets, announced its decision today to have ADR acquire an asset located in Japan (hereafter, the "Acquisition") as detailed below as part of ADR`s growth strategy. In addition, the seller of the Acquisition falls under the category of an interested party, etc. as defined in the Investment Trust and Investment Corporations Act (Act No.198 of 1951; as amended, the "Investment Trusts Act"), and also falls under the category of an interested party under the internal rules of IRM, and therefore, IRM has obtained the prior consent of ADR based on the approval of its Board of Directors.

1. Summary of the Acquisition

Property Name	RESIDIA Kunitachi
(Type of asset)	(Beneficiary Interests in Trust)
Acquisition Price (Note 1)	1,260 million yen (93.3%)
(Price / Appraisal ratio)
Appraisal Value (Note 2)	1,350 million yen
NOI Yield (Note 3)	4.3%
Yield after Depreciation (Note 4)	3.5%
Building Age (Note 5)	6.8years
Seller	ITOCHU Corporation
Broker Availability	None
Scheduled Contract Date	June 28, 2024
	December 4, 2024
Scheduled Acquisition Date	or
	a date to be separately agreed upon with the seller
Acquisition Financing	Borrowings and cash on hand
(Payment Method)	(Lump-sum payment on delivery)

(Note 1) "Acquisition Price" refers to the purchase price written in the beneficiary transfer agreements for the asset-to-be-acquired and does not include various expenses needed for the acquisition such as taxes and public dues.

(Note 2) "Appraisal Value" of the asset-to-be-acquired is as of May 31, 2024.

(Note 3) "NOI Yield" is calculated as follows: annualized NOI written in the appraisal document at the time of the acquisition of the asset-to-be acquired and calculated using direct capitalization method / acquisition price x 100. The calculated yield is rounded at the second decimal point.

(Note 4) "Yield after Deprecation" is calculated as follows: (annualized NOI written in the appraisal document at the time of the acquisition of the asset-to-be-acquired and calculated using direct capitalization method - annual depreciation cost) / acquisition price x 100. The calculated yield is rounded at the second decimal point. As in the case with the existing portfolio of ADR, the depreciation cost of the assets-to-be-acquired is calculated by ADR, using the straight-line method under certain assumptions and estimated at 10,119 thousand yen a year.

(Note 5) "Building Age" is the age of the building as of the date of this document and is rounded at the second decimal point.

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2. Reason for the Acquisition

IRM decided on the following acquisition pursuant to the target and policy of asset management as stipulated in the Articles of Incorporation of ADR, for steady increase in asset size and diversification and enhancement of the portfolio. The decision to acquire this property was based on an evaluation of Features of the Property, etc., as stated in "3. Summary of the Asset-To-Be-Acquired".

In the real estate trading market, the supply of new, high-quality rental housing in good locations is limited, and the trading prices of properties in central metropolitan areas, where stable rental demand can be expected, continue to remain high, creating a difficult acquisition environment.

In this environment, ADR has decided to acquire the property developed by IRM's sponsors, ITOCHU Corporation. The Building Age of the Asset-To-Be-Acquired is 6.8 years, which is much lower than the average Building Age of the entire portfolio of 17.0 years (Note6) as of the fiscal period ended January 31, 2024.

(Note 6) The Average Building Age for the entire portfolio is the weighted average Building Age of the properties in the portfolio, weighted by Acquisition Price and rounded to the second decimal place.

3. Summary of the Asset-To-Be-Acquired

	Property Name		RESIDIA Kunitachi		Property Number		S-037
	Type of asset		Beneficiary Interests in Trust
	Trustee		Sumitomo Mitsui Trust Bank, Limited (planned)
	Trust Contract Period		From December 4, 2024 to December 31, 2034 (planned)
	Address		1-7-10 Higashi, Kunitachi City, Tokyo
				Type of Ownership		Ownership		Zoning		Commercial district
	Land
				Land Area		224.79 ㎡		FAR / Building Coverage		600%/80%、500%/80%
						Ratio
				Structure / Floors		Reinforced concrete structure with a flat-topped roof; 12 stories
				Type of Ownership		Ownership		Use		Apartment, store
				Total Floor Space		1,610.82 ㎡		Construction Completion		September 26, 2017
						Date
	Building			Building Designer		GODA KOUMUTEN CO., Ltd. First-class Architect's Office
				Structural Engineer		CROSS Factory Co., First-class Architect's Office,
				Construction		GODA KOUMUTEN CO., Ltd. Tokyo Head Office
				Contractor
				Building Certification		Good Eyes Building Inspection Organization, Inc.
				Agency
				Building Inspection		Good Eyes Building Inspection Organization, Inc.
				Agency
	Collateral		None
	Appraisal value		1,350,000 thousand yen		Appraisal date		as of May 31, 2024
	Appraiser		Japan Real Estate Institute
	Property Management Company		ITOCHU Urban Community Co., Ltd.(planned)
	Master Lessee		ITOCHU Urban Community Co., Ltd.		Master Lease type		Pass-through
		(planned)
	Lease Conditions

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Total Tenants

1

Point in Time

As of May 31, 2024

Leasable Units

54

Leased Units

52

Leasable Floor Area

1,230.92 ㎡

Occupancy Rate (based

96.6%

Leased Area

1,188.48 ㎡

on floor area)

Total Monthly Rent

5,623 thousand yen

Deposits, Guarantees, etc.

16,082 thousand yen

Number of Units by Type

Single

Compact

Family

Large

Other

（Excluding Operated Rental

53

0

0

0

1

Residence）

Number of Operated Rental

0

Residence

Features of the Property

・This property is conveniently located just a 2-minute walk from Kunitachi Station on the JR Chuo Line, and with access to Kichijoji Station in 18 minutes and Shinjuku Station in 33 minutes, it is expected to be popular not only with nearby university students and working adults in the area, but also with single adults working in the city center.

・This property is located along a shopping street lined with a variety of shops, making it a convenient place to live.

Other Relevant Information

A portion of the land (approx. 27.8 ㎡) is located within the area of an urban planning road ((3, 4, 6 Kunitachi Station Higashi Line) with a planned width of 16m), and the plan was decided on October 5, 1961, but it has not been designated as a priority development route between fiscal years 2016 and 2025, and its commercialization is undecided. In the future, it is possible that the portion of the building located on the expropriated land will need to be removed due to expropriation.

Summary of Building Conditions Investigation Report

		Investigator		Tokio Marine dR Co., Ltd.		Investigation Report		June 6, 2024
				Date
		Emergency Repair Costs		-
		Short-term Repair Costs		-
		(within 1 year)
		Long-term Repair Costs		28,117 thousand yen
		(within 12 years)
		Building Replacement Price		404,000 thousand yen
Summary of Earthquake Risk Analysis
		Investigator		Tokio Marine dR Co., Ltd.		Investigation Report		June 6, 2024
				Date
		Probable Maximum Loss		4.1%
		Ratio（PML)

Matters concerning Earthquake Resistance, etc.

This property has been notified of the structural calculation conformity assessment by the designated structural calculation inspection institute in accordance (Tokyo Bldg-Tech Center Co.,Ltd) with the revision of the Building Standard Act that came into effect in June 2007.

Please refer to "Notes and definitions on items on the tables in the press releases for asset acquisition" on ADR`s website for details on items on the above table.

(https://www.adr-reit.com/en/ir/news/)

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4. Financial Impact on ADR in the Event of Failure to Fulfill Forward Commitment, etc.

Beneficiary Interests in Trust transfer agreements (hereafter, the "Agreement") for the asset-to-be-acquired

constitutes a forward commitment, etc.(Note) by an investment corporation defined in the Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc. published by the Financial Services Agency.

The Agreement provides that if ADR or the seller violates a provision of the Agreement, the counterparty has the right to terminate the Agreement and claim an amount equivalent to 20% of the transaction price of the asset-to-be-acquired as penalty.

However, ADR is not obliged to pay penalties to the seller for the expiration or cancellation of the Agreement except where ADR is at fault.

(Note) Refers to a postdated sales agreement under which payment and property delivery shall be made at least one month after the conclusion of the

agreement, or any other agreement similar thereto.

5. Summary of the Seller

Name	ITOCHU Corporation
Address	3-1-3 Umeda, Kita-ku, Osaka City, Osaka
Representative	Keita Ishii, President and Chief Operating Officer
		ITOCHU is involved in domestic trading, import/export, and overseas trading of various
Principal business	products such as textile,	machinery, metals, energy, chemicals, food, general product, realty,
information, insurance, logistics, construction, and finance, as well as business investment in
		Japan and overseas.
Capital	253,448 million yen
Data of establishment	December 1, 1949
Total assets	14,489,701 million yen (as of March 31, 2024)
Total capital	5,992,121 million yen (as of March 31, 2024)
Major shareholders and	The Master Trust Bank of Japan, Ltd. (16.09%) etc. (as of March 31, 2024)
Shareholding ratio
Relationship with ADR and IRM
		As of the end of January 2024, the company owns 2.4% of ADR's outstanding shares. In addition, as
	Capital relations	of today, the company directly owns 80.0% of the total number of IRM's outstanding shares, and
	indirectly owns 20.0% of the total number of IRM's outstanding shares through the company's wholly
		owned subsidiary, ITOCHU Real Estate Development Co., Ltd
		As of today, the following number of IRM's executives and employees have been dispatched or
	Personnel relations	seconded from the company.
		1 full-time board member	2 part-time board member 1 seconded employees
		The company has entered into an agreement with ADR and IRM concerning preferential negotiation
		rights.
	Business relations	The following is a summary of specified asset sales transactions, etc. for the fiscal period ended
		January 31, 2024.
		Bought amount 2,862 million yen, 2 properties /Sold amount 0 yen
	Related	Although the company is not a related party of ADR, it is a parent company of IRM and therefore a
	parties' status	related party of IRM under the Regulations for Consolidated Financial Statements.

6. Status of the Seller

Status of Property Owners,	Previous owner, etc.	The time before last owner, etc.
etc.
	Name	ITOCHU Corporation	Other than those with a special interest
	Special Interests.	Interested party as defined in the
	Relationship with a	-
	internal rules of IRM
	certain person
	Background and reason	Rental residence	-
	for acquisition, etc.	development objectives
		4

	Acquisition Price	Omitted for development purposes	-
		(Land)
	Acquisition period	September 2015	-
	(Building)
		October 2017

7. Transactions with Interested Parties, etc.

ITOCHU Corporation, the seller for the Acquisition, falls under the category of an interested party, etc. as defined in the Investment Trust Act and the internal rules of IRM. Therefore IRM has obtained ADR's prior consent based on the approval by ADR's Board of Directors.

In addition, ITOCHU Urban Community Co., Ltd., which is scheduled to be the master lease and property management company for the asset-to-be-acquired, falls under the category of an interested party under the IRM's internal rules. Therefore, IRM has gone through the necessary deliberation, resolution and other procedures as stipulated in the internal rules.

8. Broker Profile

Not applicable.

9. Outlook

The impact of this Acquisition on the earnings forecasts for the 28th fiscal period (from February 1, 2024 to July 31, 2024) and the 29th fiscal period (from August 1 to January 31, 2025), published in the Brief Summary of Kessan Tanshin (Financial Report) dated March 14, 2024, will be negligible, and no change will be made to the forecast.

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10. Summary of the Appraisal Report

Property name	RESIDIA Kunitachi
Appraisal Value	1,350,000 thousand yen
Appraiser	Japan Real Estate Institute
Appraisal date	as of May 31, 2024

（thousand yen）

				Items	Value	Summary
Income Capitalization Approach Value	1,350,000	Estimated the income value of the subject property by relating the income value obtained by the
DCF method to the income value obtained by the direct capitalization method.
	Direct Capitalization Price ((6)/(7))	1,360,000
		(1) Total Potential Income	69,267
			Total Potential Income	72,023
				Rental income	69,959	Appraised, taking into account the rent based on the current lease agreement and the rent that
				would be paid if the subject property were newly leased, etc.
				Other income	2,064	Renewal fee income is recorded based on an assessment of the average annual turnover rate of
				tenants and the average contract period.
			Losses from Vacancies, etc.	2,756	Recorded after assessing a stable mid- to long-term Occupancy rate level based on the occupancy
			status and supply-demand trends of similar properties, as well as the occupancy status and future
						trends for the subject property.
			Losses from Delinquencies	0	The Company determined that no recording is required, taking into account the situation of the
			lessee and other factors.
		(2) Expenses from rental business	14,599
			Maintenance and Management Fees	2,646	The amount is recorded in consideration of the individual characteristics of the subject property,
			with reference to scheduled contract and the level of similar properties.
			Utilities Costs	800	The amount is recorded with reference to the actual results of past fiscal years and taking into
			consideration the level of similar properties and the individual characteristics of the subject
						property.
						In addition to the restoration costs based on the level of restoration costs normally incurred and
			Repair Costs	1,313	the lessor's share of such costs, repair and maintenance costs were recorded by taking into
			consideration the actual amounts in previous years, the level of similar properties, and the annual
						average of repair and renewal costs in engineering reports, etc.
			Property Manager Fees	1,230	Recorded with reference to the remuneration rate based on the terms of the scheduled contract,
			etc., and taking into consideration the remuneration rate for similar properties and the individual
						characteristics of the subject property.
						Administrative fees required when recruiting new tenants, with reference to contract terms and
			Leasing Expenses	3,467	lease terms of similar properties, and advertising expenses, etc., with reference to actual results of
			previous years, and renewal fees, etc., taking into account the average annual replacement rate
						and occupancy rate, etc.
			Taxes and Public Dues	3,958	Recorded based on tax and public dues related documents, etc.
			Insurance Premium	85	Recorded in consideration of premiums based on insurance policies and premium rates for
			buildings similar to the subject building.
			Other Expenses	1,100	Internet usage fees, etc. are recorded.
		(3) Net Operating Income (NOI, (1)-(2))	54,668
			(4) Earnings from Deposits	157	Appraised by multiplying the amount obtained by multiplying the occupancy rate by the number
			of months of stable security deposits over the medium to long term, and then by the assumed
						investment yield of 1.0%.
						The appraisal was made based on the assumption that the expected future expenditures would be
			(5) Capital Expenditures	1,640	accumulated on average each period, taking into account the level of Capital Expenditures of
			similar properties, Building Age, and the average annual amount of repair and renewal expenses
						in the engineering report, etc.
		(6) Net Cash Flow DCF Price	53,185
		((3)+(4)-(5))
						Appraised by adding/subtracting the spread resulting from the subject property's location,
		(7) Cap Rate	3.9%	building conditions, and other conditions to/from the standard yield of each area, and also by
		taking into account future uncertainties and transaction yields on similar properties, etc.
	DCF price	1,340,000
		Discount Rate	3.7%	Appraised by comprehensively taking into account the individual characteristics of the subject
		property, etc., with reference to the investment yields, etc., in transactions with similar properties.
		Terminal Cap Rate	4.0%	Appraised by comprehensively considering future trends of investment yields, riskiness of the
		subject property as an investment, general forecasts of future economic growth rates, and trends
						of real estate prices and rents, etc., with reference to the transaction yields of similar properties.
Cost Approach Value	1,290,000
	Land ratio	71.2%
	Building Ratio	28.8%
Other items considered by the appraiser in the appraisal	None
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Appendix

Appendix 1. Photos of the Asset-To-Be-Acquired

Appendix 2. Map of the Asset-To-Be-Acquired:1-7-10 Higashi, Kunitachi City, Tokyo

About Advance Residence Investment Corporation

Advance Residence Investment Corporation is the largest J-REIT specializing in residential properties and is managed by ITOCHU REIT Management Co., Ltd. (IRM), the asset management company of the ITOCHU Group, investing in over 280 rental apartments located mostly in central Tokyo and in other major cities throughout Japan (AUM over 490 billion yen). ADR can be expected have a stable dividend in the long-term and can be considered as a defensive J-REIT, on back of the stable income from residential assets and with the largest dividend reserve among J-REITs.

"Advance" is the common brand name of the real estate investment corporation managed by ITOCHU REIT Management Co., Ltd.

ADR's website:https://www.adr-reit.com/en/

IRM's website :https://www.itc-rm.co.jp/en/

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