Ichigo Office REIT Investment : Sale of Two Portfolio Assets(Ichigo Ofuna Building, Ichigo Kudan 2 Chome Building)

Make The World

More Sustainable

[Provisional Translation Only]

This English translation of the original Japanese document is provided solely for information purposes. Should there be any discrepancies between this translation and the Japanese original, the latter shall prevail.

April 26, 2024

Issuer

Ichigo Office REIT Investment Corporation ("Ichigo Office," 8975) 2-6-1Marunouchi, Chiyoda-ku,Tokyo

Representative: Keisuke Chiba, Executive Director

www.ichigo-office.co.jp/en

Asset Management Company

Ichigo Investment Advisors Co., Ltd.

Representative: Hiroshi Iwai, President

Inquiries: Yuji Kamo, Head of Ichigo Office

Tel: [phone]

Sale of Two Portfolio Assets

(Ichigo Ofuna Building, Ichigo Kudan 2 Chome Building)

Ichigo Office decided today to sell two assets, the Ichigo Ofuna Building and Ichigo Kudan 2 Chome Building.

1. Asset Sales Summary

(Total Appraisal Value: JPY 3,360 million, Total Sale Price: JPY 4,470 million)

Asset Number	O-56	O-18
Ichigo Kudan 2 Chome
Asset Name	Ichigo Ofuna Building
Building
Asset Type	Office	Office
Date Built	April 3, 1973	November 6, 1997
Legal Form of Asset	Trust beneficiary interest in real estate (juekiken)
Date Acquired	December 5, 2014	November 1, 2011
Buyer1	Third-Party Japanese	Third-Party Japanese
Company	Company
Broker	Third-Party Broker	Third-Party Broker
Sale Price2 (A)	JPY 2,420 million	JPY 2,050 million
Book Value3 (B)	JPY 1,981 million	JPY 750 million
Sale Price vs. Book
Value 4	JPY 438 million	JPY 1,299 million
(A) - (B)
Gains on Sale	JPY 260 million	JPY 1,060 million
Appraisal Value5	JPY 2,180 million	JPY 1,180 million
Contract Date	April 26, 2024	April 26, 2024
Closing Date	April 26, 2024	October 31, 2024

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1. The buyers, third-party Japanese companies, did not provide consent to disclose their names.
2. Sale Price is the sale price of the asset excluding incidental expenses such as fees and property, city planning, and consumption taxes.
3. Book Value is an estimate based upon the most recent book value (October 2023 fiscal period-end), adjusted for expected capital expenditures and depreciation through the Closing Date.
4. The difference between the Sale Price and Book Value is not equal to the gains on sale from today's sale.
5. Appraisal Value is calculated by Tanizawa Sogo Real Estate Appraisal as of October 31, 2023, pursuant to the appraisal guidelines stipulated in Ichigo Office's Articles of Incorporation and the rules of the Investment Trusts Association of Japan.

2. Sales Rationale

Ichigo Office continues to work to improve the quality of its portfolio and drive earnings by focusing its portfolio on high-quality,mid-size office assets that generate stable cash flow.

Of the two assets being sold today, the Ichigo Ofuna Building is an office building located in Kamakura City in Kanagawa Prefecture near Yokohama, and is a three- minute walk from Ofuna Station on the JR and Shonan Monorail Lines.

Since Ichigo Office's acquisition in 2014, the building had been fully occupied due to its attractive location near a train station. Although a major bank tenant departed on December 31, 2022 due to a branch reorganization, Ichigo Office successfully leased up part of the vacant space to a new store tenant searching for a convenient location and has maintained 85% occupancy since re-tenanting.

After exploring options to sell the building based on the policy described above, Ichigo Investment Advisors ("IIA") decided to accept an offer from the buyer for a price that exceeds book value and the recent appraisal value. The buyer recognized the building's convenient location and potential to attract retail tenants in the service industry.

The second asset being sold today is the Ichigo Kudan 2 Chome Building, a highly visible office building located an eight-minute walk from Ichigaya Station on the JR Sobu Line and a nine-minute walk from Kudanshita Station on the Tokyo Metro and Toei Subway Lines. After the building's sole tenant occupying the entire building departed in February 2022, Ichigo Office conducted value-add renovations of the entrance and common areas on each floor, and successfully leased up the building to a new tenant in August 2022 with a 38.5% increase in rent.

As a result, the building's appraisal value increased by 25.9% from JPY 937 million as of April 30, 2022 to JPY 1,180 million as of October 31, 2023. Please refer to Driving Growth via Value-AddCapex (Ichigo Kudan 2 Chome Building)on the next page for details.

Given that the new tenant's rent is near the upper limit of rent in the area, IIA determined that it would be difficult to further increase rent. As such, after exploring options to sell the building based on its policy described above, IIA decided to accept an offer from the buyer for a price that is 2.7 times book value and 1.7 times recent appraisal value. The buyer recognized the building's convenient location in a quiet neighborhood in central Tokyo.

IIA decided that the sale of this asset would drive long-term shareholder value in light of anticipated increases in capital expenditures required for repairs and facility upgrades to maintain and drive the building's competitiveness, and the uncertain outlook for rent

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levels in the area.

With these asset sales, Ichigo Office's post-transaction portfolio will be 97.6% office assets. Ichigo Office will use the proceeds from the asset sales for strategic investments such as asset acquisitions and value-add capex.

Driving Growth via Value-Add Capex (Ichigo Kudan 2 Chome Building)

• February 2022: Departure of sole tenant that occupied the entire building since Ichigo Office's acquisition due to tenant moving to its parent company office
• Ichigo Office conducted value-add to renovate building entrance and common areas to achieve re-tenanting at a higher rent (Value-add capex: JPY 34 million)
• August 2022: Leased up entire building to a new tenant occupying the entire building with a 38.5% increase in rent

Entrance (Before)

Elevator Hall (After)

Outcomes

Entrance (After)

Occupancy

Feb 28, 2022	100%
Mar 31, 2022	0%
Aug 31, 2022	100%
Mar 31, 2024	100%

NOI

2021	JPY 45M
(Before
p.a.
Re-tenanting)
2023	JPY 63M
(After
p.a.
Re-tenanting)

Appraisal Value

Apr 2022	JPY 937M
Oct 2022	JPY 1,160M
Apr 2023	JPY 1,160M
Oct 2023	JPY 1,180M

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3. Asset Details

(1) Ichigo Ofuna Building

Asset Overview

Asset Name

Ichigo Ofuna Building

Form of Ownership

Trust beneficiary interest in real estate (juekiken)

Location

1-26-29 Ofuna, Kamakura City, Kanagawa Prefecture

Trust Beneficiary

Sumitomo Mitsui Trust Bank, Limited

Trust Beneficiary Period

September 30, 2004 to September 30, 2024

Property Right

Freehold

Land

Area

1,461.04m2

Zoning

Residential

Coverage Ratio

60%

Floor Area Ratio

200%

Property Right

Freehold

Use

Office/Parking Lot

Building

Structure

Reinforced Concrete, B1F/8F

Total Floor Area

3,323.93m2

Date Built

April 3, 1973

Number of

Tenants

10 (as of March 31, 2024)

Monthly Rental Income

JPY 8.970 million (as of March 31, 2024)

Tenant Security Deposits

JPY 89.054 million (as of March 31, 2024)

Leasable Area

2,176.47m2 (as of March 31, 2024)

Leased Area

1,884.05m2 (as of March 31, 2024)

Occupancy

Apr 2022

Oct 2022

Apr 2023

Aug 2023

Mar 2024

100%

100%

94.3%

83.3%

86.6%

Acquisition Price

JPY 2,000 million

Appraisal

Appraiser

Tanizawa Sogo Real Estate Appraisal Co., Ltd.

Appraisal Date

October 31, 2023

Value

Appraisal Value

JPY 2,180 million

Monthly rental income and tenant security deposits are based on the monthly rental income (including common area service income) and tenant security deposits pursuant to tenant rental contracts.

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Appraisal Details

Asset Name		Ichigo Ofuna Building
Appraisal Value		JPY 2,180,000,000
Appraiser		Tanizawa Sogo Real Estate Appraisal Co., Ltd.
Appraisal Date		October 31, 2023
				Amount (JPY)				Note
									Calculated using an income approach,
Appraisal Value	2,180,000,000				with a DCF valuation as a basis and
			verified using a direct capitalization
									valuation
	Value by Direct Capitalization	2,190,000,000
	Method
		Income	148,753,944
			Maximum Obtainable						Based on expected long-term, stable
			158,532,047				rental income, common area service
			Rental Income
								income, and other income
			Vacancy Loss	9,778,103				Based on a vacancy rate of 5.0%
		Expenses	31,477,829
			Administrative and						Based on management expenses
			8,540,468				pursuant to management agreement
			Maintenance Expenses
								and historical actual amounts
			Utility Expenses	10,264,233				Based on historical actual amounts
									Based on engineering reports,
									reference to similar assets, and a 3:7
			Repair Expenses	1,660,000				(Repair Expenses: Capital
						Expenditure) allocation based on the
									Corporate Tax Law Basic Interpretive
									Regulations
			PM Fee	2,770,992				Based on existing contractual fees
			Leasing Brokerage Fees	849,842				Based on assumption that 10% of
									tenants will change annually
			Taxes	6,970,100				Based on FY2023 actual amounts
			Insurance Premiums	273,440				Based on quotes from insurance
									companies
			Other Expenses	148,754				Based on historical actual amounts
		Net Operating Income	117,276,115
		(NOI)
			Income on Investment of	820,383				Based on a 1.0% investment yield
			Deposits Received
									Based on engineering reports,
									reference to similar assets, and a 3:7
			Capital	4,150,000				(Repair Expenses: Capital
			Expenditure				Expenditure) allocation based on the
									Corporate Tax Law Basic Interpretive
									Regulations
		Net Profit	113,946,498
									Based on transactions of similar assets,
		Cap Rate	5.2%				while taking into account the discount
									rate

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	Value via DCF Method	2,180,000,000
		Discount Rate	5.1%	Base rate adjusted for individual risks
				assuming a holding period of ten years
		Terminal Cap Rate	5.4%	Cap rate adjusted for uncertainties
Value via Cost Approach	2,130,000,000
				Based upon the value recorded in the
	Ratio of Land	86.1%	government land assessment
	(koujikakaku) and transactions of
				similar assets
				Based on current replacement costs
	Ratio of Building	13.9%	and depreciation due to building age
				from engineering reports
			Notes

Given that demand for the building comes primarily from investors making decisions based on profitability, Ichigo Office believes the price has been determined based on profitability in light of the building's current condition and competitiveness.

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(2) Ichigo Kudan 2 Chome Building

Asset Overview

Asset Name

Ichigo Kudan 2 Chome Building

Form of Ownership

Trust beneficiary interest in real estate (juekiken)

Location

2-8-4 Kudan Minami, Chiyoda-ku, Tokyo

Trust Beneficiary

Resona Bank

Trust Beneficiary Period

June 29, 2011 to June 30, 2031

Property Right

Freehold

Land

Area

322.74m2

Zoning

Commercial

Coverage Ratio

80%

Floor Area Ratio

500%

Property Right

Freehold

Use

Office

Building

Structure

Steel/Reinforced Concrete, B1F/7F

Total Floor Area

1,664.79m2

Date Built

November 6, 1997

Number of

Tenants

1 (as of March 31, 2024)

Monthly Rental Income2

JPY 6.891 million (as of March 31, 2024)

Tenant Security Deposits2

JPY 53.6 million (as of March 31, 2024)

Leasable Area

1,265.76m2 (as of March 31, 2024)

Leased Area

1,265.76m2 (as of March 31, 2024)

Occupancy

Apr 2022

Oct 2022

Apr 2023

Aug 2023

Mar 2024

-

100%

100%

100%

100%

Acquisition Price

JPY 763 million

Appraisal

Appraiser

Daiwa Real Estate Appraisal Co., Ltd.

Appraisal Date

October 31, 2023

Value

Appraisal Value

JPY 1,180 million

Monthly rental income and tenant security deposits are based on the monthly rental income (including common area service income) and tenant security deposits pursuant to tenant rental contracts.

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Appraisal Details

Asset Name		Ichigo Kudan 2 Chome Building
Appraisal Value		JPY 1,180,000,000
Appraiser		Daiwa Real Estate Appraisal Co., Ltd.
Appraisal Date		October 31, 2023
				Amount (JPY)				Note
									Calculated using an income approach,
Appraisal Value	1,180,000,000				with a DCF valuation as a basis and
			verified using a direct capitalization
									valuation
	Value by Direct Capitalization	1,100,000,000
	Method
		Income	69,112,419
			Maximum Obtainable						Based on expected long-term, stable
			72,748,020				rental income, common area service
			Rental Income
								income, and other income
			Vacancy Loss	3,635,601				Based on a vacancy rate of 5.0%
		Expenses	20,836,171
			Administrative and	5,307,060				Based on historical actual amounts
			Maintenance Expenses
			Utility Expenses	3,377,220				Based on historical actual amounts
			Repair Expenses	1,817,417				Based on the average of the past 12
						years of engineering reports
			PM Fee	1,869,973				Based on existing contractual fees
									Equivalent to 1.0 month rent for a new
			Leasing Brokerage Fees	556,539				tenant based on tenant acquisition
									costs at similar assets
			Taxes	7,397,900				Based on FY2023 actual amounts
			Insurance Premiums	164,500				Based on current actual amounts
			Other Expenses	345,562				0.5% of rent revenue as reserves
		Net Operating Income	48,276,248
		(NOI)
			Income on Investment of	556,539				Based on a 1.0% investment yield
			Deposits Received
			Capital	4,930,500				Based on the average of the past 12
			Expenditure				years of engineering reports
		Net Profit	43,902,287
		Cap Rate	4.0%
	Value via DCF Method	1,210,000,000
		Discount Rate	3.9%				Based on transactions of similar assets
									and the yields of financial assets
									Based upon current NOI adjusted for
		Terminal Cap Rate	4.2%				expected marketability at the end of
									ownership period.
Value via Cost Approach	965,000,000
									Based upon the value recorded in the
	Ratio of Land	82.6%				government land assessment
				(koujikakaku) and transactions of
									similar assets

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Ratio of Building

17.4%

Notes

Based on current replacement costs and depreciation due to building age from engineering reports

Given that demand for the building comes primarily from investors making decisions based on profitability and investment returns, Ichigo Office determined that the value by direct capitalization method, which takes into consideration the market price from a profitability perspective, is more appropriate than the value via cost approach.

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4. Buyer Profiles

Ichigo Ofuna Building and Ichigo Kudan 2 Chome Building

Name	The buyers, both of which are domestic operating companies, did
not provide consent to disclose their names.
Relationship to	The buyers do not have any material capital, personnel, or
Ichigo Office or	transactional relationship with Ichigo Office or IIA. In addition,
Ichigo Investment	the buyers are not related parties as defined in the Act on Trusts
Advisors (IIA)	and Investment Corporations or the internal rules of IIA.

5. Forward Commitment (Ichigo Kudan 2 Chome Building)

Because the contract date for the Ichigo Kudan 2 Chome Building is October 31, 2024, six months and five days from today, the asset sale constitutes a forward commitment by Ichigo Office as stipulated in the Comprehensive Guidelines for Supervision of Financial Instruments Business Operators by the Financial Services Agency1.

In the event of a violation of the provisions of the asset sale by Ichigo Office or the buyer, the other party shall have the right to terminate the sale and claim up to 10% of the sale price as a penalty.

Because Ichigo Office is the seller, it is highly unlikely that Ichigo Office will incur the penalty or suffer a negative material impact on its financial position.

1 Refers to a post-dated purchase and 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.

6. Transaction Method

Lump-sum payments will be made for both the Ichigo Ofuna Building and the Ichigo Kudan 2 Chome Building at the time of each sale.

7. Use of Proceeds

Ichigo Office will retain c. JPY 100 million of the c. JPY 260 million of gains on sale for the Ichigo Ofuna Building and c. JPY 100 million of the c. JPY 1.06 billion of gains on sale for the Ichigo Kudan 2 Chome Building as retained earnings without incurring a tax burden, and distribute the remaining amounts as dividends to shareholders for the April 2024 fiscal period and the October 2024 fiscal period, respectively. Gains on sale is calculated by subtracting book value, brokerage fee, IIA's gains on sale performance fee, and other asset sale-related expenses from each building's sale price.

Ichigo Office will deploy the remainder of the sales proceeds towards strategic investments such as asset acquisitions and value-add renovations.

8. Earnings Impact

Today's sales have been factored into Ichigo Office's April 2024 and October 2024 fiscal period earnings forecast announced in today's release, "Upward Earnings Forecast Revisions for the April 2024 Fiscal Period & October 2024 Fiscal Period."

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