Tokyu REIT : Notice Concerning Acquisition (Meguro Higashiyama Building) of Domestic Real Estate

March 17, 2022

Real Estate Investment Trust Unit Issuer:

TOKYU REIT, Inc.

1-12-1, Dogenzaka,

Shibuya-ku, Tokyo, 150-0043, Japan

Kazuyoshi Kashiwazaki

Executive Director

(Securities Code: 8957)

Investment Management Company:

Tokyu Real Estate Investment Management Inc.

Representative:

Kazuyoshi Kashiwazaki

Representative Director & President, Chief Executive Officer

Inquiries:

Yuji Shimizu

General Manager, Finance and IR

TEL: [phone]

Notice Concerning Acquisition (Meguro Higashiyama Building) of Domestic Real Estate

TOKYU REIT, Inc. ("TOKYU REIT") today announced that its investment management company, Tokyu Real Estate Investment Management Inc. ("Tokyu REIM"), had decided to acquire domestic real estate (referred to as the "Acquisition"). Brief details are as follows.

1. Acquisition Details

Property Name	Meguro Higashiyama Building
Location	1-4-4, Higashiyama, Meguro-ku, Tokyo
Acquisition Price	¥8,100 million
(Excluding acquisition-related costs, property tax, city planning tax, etc.)
Seller	Domestic company (Please refer to "5. Seller Profile")
Brokerage	Yes
Decision of Acquisition	March 17, 2022
Contract Date	March 17, 2022
Acquisition Date	March 24, 2022
Payment of	March 24, 2022
Acquisition Costs

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2. Rationale

TOKYU REIT strives to improve the quality of its portfolio, taking into consideration trends in the capital market and real estate investment market as well as the growth potential of the portfolio's cash flow in the medium to long term. The Acquisition will be conducted as part of these efforts in accordance with the "Scope and Policy of Investment Management" as outlined in the Articles of Incorporation of TOKYU REIT.

The Nakameguro area, in which Meguro Higashiyama Building (the "Asset to Be Acquired") is located, is a flourishing area with many offices of IT, apparel and entertainment companies as well as restaurants and such.

The Asset to Be Acquired is a highly visible office building facing Yamate-dori Avenue and located approximately a six- minute walk from Naka-meguro Station on the Tokyu Toyoko Line and Tokyo Metro Hibiya Line. With a total rentable area of 6,152.43 m2, it is exceptionally large for an office building in the Nakameguro area. While the building is 27 years old, it is well maintained, receiving appropriate large-scale renovation work such as the replacement of air-conditioning equipment and lighting. In addition, a medium to long term increase in value of the Asset to Be Acquired can be expected thanks to its location in a priority investment target area of TOKYU REIT and in Greater SHIBUYA (Note 1), in which redevelopment led by Tokyu Group is under way.

The NOI yield for the latest one year calculated by excluding special factors based on estimated rent level and occupancy rate as of the acquisition date is 3.8%, and stable profit contribution over the medium to long term is expected.

TOKYU REIT judged the Acquisition would further stabilize cashflow and increase total returns (Note 2).

TOKYU REIT will continue to conduct investment management while closely monitoring trends in capital and real estate investment markets, all the while adhering to its investment policy. TOKYU REIT will strive to build a portfolio that leads to improvement in asset value and growth of net income per investment unit.

(Note 1) Within a 2.5-km radius of Shibuya Station

(Note 2) Total income comprising income returns (rental income, etc.) and future capital returns (sale income) of each fiscal period.

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3. Details of Asset to Be Acquired

Property Name

Type of Specified Asset

Meguro Higashiyama Building

Domestic real estate

Location

Registered

Land:	1-1316-1,1-1318-1,1-1318-2,1-1318-3,1-1318-4,1-1319-1,1-1319-2,
1-1319-3,1-1319-4, Higashiyama, Meguro-ku, Tokyo
Building:	1-1316-1,1-1318-1,1-1318-2,1-1318-3,1-1318-4,1-1319-1,1-1319-2,
1-1319-3,1-1319-4, Higashiyama, Meguro-ku, Tokyo

Residential

Access

Use

Area Classification

Site/Floor Area (Registered)

1-4-4, Higashiyama, Meguro-ku, Tokyo

Approximately a six-minute walk from Naka-meguro Station on the Tokyu Toyoko Line and Tokyo Metro Hibiya Line

Office

Commercial district

Land:	1,572.38 m2
Building:	8,540.29 m2

Structure (Registered)	SRC/S/RC, 8F
Completion Date (Registered)	March 1995
Design Company	Azusa Sekkei Co., Ltd.
Construction Company	Mitsui Construction Industry Co., Ltd.
Inspection Authority	Tokyo Metropolitan Government
	PML (Probable Maximum Loss) of 5.0% is based on the earthquake risk assessment
	(detailed) report prepared by Engineering and Risk Services Corporation and OYO
	RMS Corporation (as of February 22, 2022). PML refers to the expected damages
	caused by earthquakes. Although there is no single authoritative definition of PML,
Earthquake Resistance	it refers to the percentage of expected damages caused by a small- to large-scale
	earthquake that may happen within the next 475 years to the replacement value.
	Calculations also include data relating to individual property surveys, assessment of
	building conditions, conformity to architectural design, ground conditions of the
	relevant site, surveys of local factors and structural evaluation.
Type of Ownership	Land:	Proprietary ownership (Note 1)
Building:	Compartmentalized Ownership (Note 2)
Acquisition Date	March 24, 2022
Acquisition Price	¥8,100 million
Appraisal Value	¥8,330 million (effective date of value: February 1, 2022)
Appraiser: Japan Real Estate Institute

Building Assessment Reporter

Date of Building Assessment Report

Property Management Company

Security/Guarantee

Special Items

Tokio Marine dR Co., Ltd.

February 21, 2022

TOKYU CORPORATION

TOKYU REIT has no plan to pledge collateral after the acquisition.

1. The current owner has been granted subsidies for an energy-saving promotion business from the Environmentally Symbiotic Housing Promotion Council. If the property is to be transferred, etc. during a period of 10 years from March 31, 2016, the approval of the Environmentally Symbiotic Housing Promotion Council is required. This is relevant in this case as TOKYU REIT is inheriting the position of the seller.
2. An area of the boundary between the property and an adjoining property has not been confirmed with that property's owner, but there is a boundary confirmation agreement with part of the co-owners of that property. The applicable Legal Affairs Bureau has filed a land survey map for both properties.

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Special Items

	Total Number of Tenants
	Assumed Total Rental Income
	Lease Deposits and
	Guarantee Deposits
	Estimated NOI
Details
Estimated NOI after
	Depreciation
Lease	Total Leased Area
Total Rentable Area
	Occupancy Rate
	Occupancy Rates
	over the Last Five Years

1. As part of the site was sold as project land for a city planning road, the building has become a non-conforming building and therefore may not be in accord with building laws and regulations. In particular, the building's floor area ratio is at approximately 570% while the designated floor area ratio is 500%, so it is possible that the building may not maintain its current size upon reconstruction.
2. A previous owner had conducted a soil contamination survey for the land. The results showed that the land's elution of fluorine and cyanide exceeding the standard level. In acquiring the property, TOKYU REIT commissioned Tokio Marine dR Co., Ltd. to conduct a soil contamination risk survey. The company reported that the groundwater was not found to be used for drinking and that there is thought to be little health risk as the ground surface is covered.
3. There is a remaining registration of a building which no longer exists on the land. Procedures for registration of loss of property is currently underway and is scheduled to be completed by the day before the delivery of the property.
4. Malfunction of an exhaust fan in the rooftop elevator machine room has been found, but this is scheduled to be resolved by the day before the delivery of the property at the seller's expense and responsibility.
5. An outdoor advertisement permit for a first-floor tenant's outdoor advertisement could not be confirmed, but the situation is scheduled to be resolved at the seller's expense and responsibility by the end of April 2022 by ensuring that the outdoor advertisement is not in violation of any laws.

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¥420 million a year

¥306 million

¥310 million a year

¥275 million a year

4,742.40 m2

6,152.43 m2

77.1 %

As of	As of	As of	As of	As of
January 31,	January 31,	January 31,	January 31,	January 31,
2018	2019	2020	2021	2022
86.5 %	100.0 %	100.0 %	93.9 %	77.1 %

(Note 1) A part of the southwest side of the subject land (Approximately 100.86 m2) is used for passage as a road based on Article 42, Paragraph 2 of the Building Standards Act (Paragraph 2 road).

(Note 2) All compartmentalized ownership of the building is scheduled to be acquired.

*The total number of tenants, total leased area, lease deposits/guarantee deposits, and occupancy rate are as of the end of January 2022.

• Assumed total rental income, Estimated NOI and Estimated NOI after depreciation are the estimated annual figure excluding special factors from the revenue and expenditure of the acquisition fiscal year (not the forecast figure for the current fiscal period) and are based on the following assumptions.
• 1. Total rental income is the estimated figures of total income from the property based on an expected annual average occupancy rate (95.7%) as of the acquisition date (March 24, 2022).
  2. Taxes and public dues are projected to be the same amount as the fiscal 2021 assessment amount.
  3. Repairs and maintenance expenses are calculated based on expected figures assumed for the next one-year period.

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4. Property Appraisal Summary

(JPY in thousands) (rounded down to the nearest specified unit)

Property Name: Meguro Higashiyama Building	Estimation	Notes
Appraisal Firm: Japan Real Estate Institute
Effective Date of Value	Feb. 1, 2022	-
Type of Value	Market Value	-
Appraisal Value	¥8,330,000	The value indicted by the income approach
	Value Indicated by Income Capitalization Approach	¥8,330,000	The same weight on both the value indicated by the direct
	capitalization method and that by the DCF method.
		Value Indicated by Direct Capitalization Method	¥8,380,000	-
			(1) Operating Revenue (a.−b.)	¥441,137	-
				a. Potential Gross Income		The stabilized rent and common area maintenance charges,
				(rental income, common area charges	¥467,566	which were based on the current rents and the market
				income, utilities reimbursement, etc.)		rent/CAM charges
						The stabilized occupancy rate, which was based on the past
				b. Vacancy Loss	¥26,429	occupancy rate of the subject property and its future
				prediction as well as the occupancy rate of similar properties

in the local market

(2) Operating Expenses (c.+d.+e.+f.+g.+h.+i. +j.)	¥112,994
	c. Building Maintenance Cost	¥32,400
	d. Utilities Expenses	¥20,590
	e. Repair Expenses	¥12,495
	f. Property Management Fee	¥9,232

-

The characteristics of the subject property, its previous years' numbers, and the maintenance cost of similar properties

The previous years' numbers of the subject property and its occupancy rate of rentable space

The past figures of the subject property in addition to its future management plan, the cost levels of similar buildings, and the annual average repair/replacement costs in the available engineering report of the subject property.

The characteristics of the subject property and the management fees of similar properties as well as the previous years' numbers of the subject property

g. Tenant Solicitation Expenses, etc.

h. Property Taxes

i. Property Insurance

j. Other Expenses

1. Net Operating Income (NOI) ((1)−(2))
2. Investment Profits from Refundable Deposits
3. Capital Expenditure

¥2,994

¥34,211

¥446

¥626

¥328,143

¥3,839

¥30,230

The annual average amount of the subject property based on the expected turnover rate of tenants

Estimated taxes payable based on the subject property's taxable assessed value, which is listed in its property tax information, and its tax increment limit

The subject property's current premiums and those of similar properties

The actual figure of the subject property

-

(The outstanding deposit amount based on the stabilized security deposit and occupancy rate) x (An invested yield of 1.0% per annum)

We assumed that a constant amount for capital expenditures would be set aside on a yearly basis considering the building age of the subject property, typical annual expenditures of similar properties, and the amount of repair/replacement expenditures estimated in the engineering report.

		(6) Net Cash Flow (NCF) ((3)+(4)−(5))	¥301,752	-
		(7) Overall Capitalization Rate	3.6%	-
	Value Indicated by DCF Method	¥8,280,000	-
		Discount Rate	3.3%	-
		Terminal Capitalization Rate	3.6%	-
Value Indicated by Cost Approach	¥8,200,000	-
	Ratio of Land Value	90.0%	-
	Ratio of Building Value	10.0%	-

	We placed the most emphasis on the value indicated by the income capitalization
Reconciliation before Arriving at the Value Conclusion	approach, which we judged better reflects the actual price formation process in
the commercial real estate market. We used the value indicated by the cost
	approach for reference only.

The above appraisal value conclusion is a value opinion as of the effective date of value, indicated by the licensed real estate appraiser in conformity with the Japanese Real Estate Appraisal Act and Real Estate Appraisal Standards. A reappraisal of the same property could result in another value if it were carried out either by a different appraiser, with different methods, or at a different time. This appraisal does not guarantee or assure, at present or in the future, any sales transactions at the concluded

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