Star Asia Investment : Semi-Annual Report for the 11th Fiscal Period

Star Asia Investment Corporation

http://starasia-reit.com/en/

Semi-Annual Report

for the 11th Fiscal Period

from February 1, 2021 to July 31, 2021

Star Asia Investment Corporation (Securities CODE 3468)

Atago Greem Hills MORI Tower, 18th Floor 2-5-1 Atago, Minato - ku, Tokyo, Japan

Investment

Philosophy

Basic Principles

Star Asia Investment Corporation (SAR) makes investments through a "unitholders' interest-first" mindset in principle, entrusting asset management to Star Asia Investment Management Co., Ltd., which belongs to Star Asia, an independent real estate investment group that has accumulated a track record in the Japanese real estate market.

SAR aims to maximize unitholders' interests by conducting flexible and agile portfolio management based on its unique market analyses while focusing on income stability and growth of income, and implementing highly transparent management that discloses information necessary for unitholders in a timely and appropriate manner.

Contents

To Our Unitholders	2
Portfolio Overview	6
Financial Summary	8
Balance Sheet	10
Statement of Income and Retained Earnings	12	STABILITY
Statement of Changes in Unitholders' Equity	13
Statement of Cash Distributions	14
Statement of Cash Flows	15
Notes to Financial Statements	16
Supplementary Schedules	36
Independent Auditor's Report	43

FUND MANAGEMENT

Characteristics of Star Asia Investment Corporation (SAR)

1. A diversified REIT

Portfolio developed with diversified assets located mainly in the Tokyo Area (Note 1)

FOR INVESTORS

2. Steady growth

Pursuit of internal growth by the Asset Manager with abundant experience and know-how as well as

external growth based on asset management performed by the Star Asia Group

3. Initiatives focusing on unitholder value

Constant, "out-of-the-box" active management

GROWTH

Investment policy

TOKYO AREA	Prioritized,	Achieving income stability	Investment primarily
focused investment	and growth through	in middle-size assets (Note 2)
	in the Tokyo Area (Note 1)	diversification of asset
	Investment ratio 70% or	types
	higher in the Tokyo Area

(Note 1) "Tokyo area": "Tokyo area" refers to Tokyo's 23 wards and the cities of Kawasaki and Yokohama for office properties and retail facili- ties, and Tokyo and the three prefectures of Kanagawa, Saitama and Chiba for residential properties, logistics facilities, hotels and student residences.

(Note 2) "Middle-size assets" are properties with acquisition prices of less than JPY10bn.

To Our Unitholders

Star Asia Investment Corporation

Executive Director

Atsushi Kato

Message

We appreciate your continued support and guidance of Star Asia Investment Corporation (SAR) and the asset management company Star Asia Investment Management Co., Ltd.

We believe that there are people facing unprecedented crisis and challenges caused by the novel coronavirus (COVID-19) pandemic among our shareholders, so we would like to express our sincere hope that such conditions will be resolved, and that peaceful daily life will be regained as early as possible.

SAR achieved steady growth by continuously executing measures in pursuing to maximize unitholders' interests since its listing in April 2016. The asset size as of the end of 11th Fiscal Period is 166.7 billion yen and this was recently expanded to 179.6 billion yen (60 properties) with the acquisition of properties through a public offering executed in August 2021. The executed acquisitions of properties are positioned as the initial step towards the asset size target of 300 billion yen in the medium-term management plan established in March 2021, and we consider focusing on external growth more than ever going forward to achieve the target.

During the 11th Fiscal Period, the timing to regain peaceful daily life from the COVID-19 infection continued to be uncertain in Japan. On the other hand, SAR believes that there were signs that future economic conditions will turn upward, such as the Tokyo Olympic Games being successfully held and the increase in vaccination rate.

Under such circumstances, as a result of conducting management pursuing maximization of unitholders' interests as well as seeking to maintain and enhance rent revenue from the portfolio, reduce construction costs with increased order quantity of repair works, etc. and cost reductions with adjustments, etc., SAR posted operating revenue of 5,560 million yen, ordinary income of 2,407 million yen, net income of 2,407 million yen and cash distribution per unit of 1,462 yen.

Five-year trajectory since listing

To a new phase of growth

Basis of

R&I

Negative

JCR

Aiming further improvement of ratings and

A-

Goodwill

A

growth

early inclusion in global indices

8.89 billion yen

(Stable)

(Stable)

Diversified growth through active management

1st Public

Pursue growth in asset size based on

Initiatives

(Three public offerings, seven asset

Offering since

support by Star Asia Group

replacements, the Merger)

the Merger

(Ex: Capital recycling by Star Asia Group)

Acquisition of properties through the first Offering since the Merger

		JPY 12.9 bn	JPY 179.6 bn
	JPY 166.7 bn	7properties
		Form of Offering
		Domestic offering
Asset size		No. of offered Investment Units
(Based on		115,000 units
Acquisition	five years
Issue Price (Offer Price)
price)	since listing
approx. 2.7x	57,330 yen
Payment Date
		August 17, 2021
		Total No. of Issued Investment
JPY 61.4 bn	Units after the Offering
1,789,389 units
18	53		60
properties	properties		properties

IPO	End of July 2021	Acquisitions with	After	Medium-Term
(April 2016)	(11th Fiscal Period)	the Offering	Acquisition	Management Plan

(Note)	Credit ratings are the long-term issuer rating (JCR) and issuer rating (R&I) for SAR as of the date of this document, not credit ratings
	for SAR's investment units

We would like to report on the performance results as well as express our deep gratitude to our unitholders for your support and understanding.

We thank you for your continued support and encouragement and we hope that peaceful daily life will be regained from the COVID-19 pandemic as early as possible, as well as for your good health.

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3

To Our Unitholders

Progress of Medium-Term Management Plan

SAR believes that it entered into a new growth phase as the foundations to accelerate growth are being prepared with (1) expanding its asset size to over 165 billion yen with the realization of merger (August 2020), (2) obtaining ratings of A (stable) from Japan Credit Rating Agency, Ltd. (JCR), A- (stable) from Rating and Investment Information, Inc. (R&I), (3) attaining a gain on negative goodwill (approx. 8.89 billion yen) associated with the merger, and that it is assumed to become a constituent of a global index (FTSE EPRA/NAREIT) at an early stage.

In March 2021, about five years since listing, SAR formulated a medium-term management plan for next five years to achieve (1) an asset size of 300 billion yen and (2) a distribution per unit of 1,600 yen (approx. 2% growth per annum) by 2026.

As the first step to achieve this target, SAR acquired seven properties (total acquisition price: 12.96 billion yen) in August 2021 as mentioned above. The newly acquired properties are comprised of two office buildings that have internal growth potential, one urban retail facility with the anticipation that peaceful daily life will be regained from the COVID-19 pandemic and increased value can be expected, and four residential properties that have high ratios of family type units where stable occupancy rates can be expected. Furthermore, regarding the distribution per unit, SAR forecasts 1,476 yen for the fiscal period ending July 31, 2022, which is a 1.4% growth compared to the forecast for the fiscal period ending January 31, 2022.

SAR will, in order to realize targets of the medium-term management plan, capitalize on the support from Star Asia group regarding expansion of asset size and cooperate with the sub-sponsor NIPPON KANZAI group with regards to growth of distribution per unit as well as execute management that pursues the maximization of unitholders' interests.

Progression Status of Medium-Term Management Plan (Formulated in March 2021)

The asset size increased by 12.9 billion yen to total 179.6 billion yen due to the properties acquired in August 2021, and normal distribution per unit (forecast) increased by 1.4% to 1,476 yen (forecast for the fiscal period ending July 2022).

Initiatives Related to ESG

SAR is enhancing its initiatives related to ESG, which has become a global policy issue. SAR newly established at Star Asia Investment Management, the Sustainability Promotion Division to strengthen initiatives related ESG and organized the Sustainability Promotion Committee to clarify responsibilities related to the initiatives as well as to discuss and decide on various measures and policies.

In March 2021, lead by the Sustainability Promotion Division, SAR set up goals regarding GHG (greenhouse gases), energy consumption, water resource management and waste management with 2019 as the reference year as its initiatives related to E (environment). For these goals, SAR is continuing efforts toward achievement by asking for the cooperation of property managers and tenants of SAR's properties. Regarding the degree of goal achievement, the annual figures and how its effects will be measured are planned to be disclosed on SAR's website.

In addition, SAR participated in the 2021 GRESB Real Estate Assessment as part of its ESG-related initiatives. In its first participation, SAR was awarded "3 Stars" and "Green Star" ratings. The purpose of participation in the assessment is not about achieving a high assessment in itself, but SAR believes it is more important to fulfill its responsibilities as a J-REIT with a public nature by executing measures aiming to establish better environment (E), society (S) and governance (G) through enhancing the assessment.

ESG Policy

Our Company, as a member of the Star Asia Group, shares its Investment Philosophy and Guiding Principles. Furthermore, as the asset management company for Star Asia Investment Corporation, we engage in the real estate investment management business while giving consideration to the environment, society, and governance (hereinafter, collectively referred to as "ESG") in order to enhance corporate value and exert comprehensive competitiveness while pursuing long-term sustainability and recognizing the role Star Asia Investment Corporation has been given in society in accordance with our basic philosophy of "Client First."

1	Action towards Climate Change
2	Consideration towards Resource Circulation, Water Use, and Biodiversity
3	Pursuit of Health, Safety, and well-being

Assets Size

As of the end of July 2021	166.7 billion
Properties acquired August 2021	12.9 billion
As of the end of August 2021	179.6 billion

Priority measures going forward:

• Think "outside the box" and consider all measures.
• Sponsor pipeline (The fund's assets under management of JPY 141.3 billion, pursuit development deals)
• Find deals through the asset management company's own unique network.
• Conduct asset replacements as necessary.

Asset Size (Target): JPY 300 billion

Indicative number of properties 100

Distribution Per Unit

Previous Normal Forecasted	1,455 yen
Distribution Per Unit (12th Fiscal Period)
+1.4%
Current Normal Forecasted	1,476 yen
Distribution Per Unit (13th Fiscal Period)

Priority measures going forward:

• Cooperate with sub-sponsor (Nippon Kanzai Group)
• Resolve rent gaps in the office portfolio.
• Reduce costs leveraging on the economy of scale
• Rebuild the property management system to suit the portfolio mix.
• Optimize repair costs/ capital expenditures.

Distribution Per Unit (Target): 1,600 yen or more

Growth objective of 2% per annum

4	Securing and Developing Human Capital
5	Stakeholder Engagement
6	Establishing and Organizing a Governance System

New Organization of the Asset Management Company

(Establishment of Sustainability Promotion Committee and Sustainability Promotion Division)

Shareholder's Meeting

Corporate Auditor

Bord of Directors Meeting

Sustainability Promotion Committee		Compliance Committee

Investment Committee

President and CEO

Compliance Officer

Investment Management Division

Sustainability Promotion Division

Finance Management Division

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5

Portfolio Overview (As of August 31, 2021)

OFC-01

OFC-03

OFC-04

OFC-06

OFC-08

OFC-09

RSC-09

RSC-10

RSC-11

RSC-12

RSC-13

RSC-14

Minami-Azabu

Honmachibashi

Nishi-Shinjuku

Shibuya MK Building

Asahi Building

Hakata-eki

Urban Park Koenji

Urban Park Ichigao

Urban Park Gyotoku

Shiroi Logiman

Urban Park Sekime

Urban Park Imazato

Shibuya Building

Tower

Matsuya Building

East Place

Completed: Jun. 15, 1993

Completed: Feb. 8, 2010

Completed: May 28, 1987

Completed: Jul. 31, 1993

Completed: Nov. 25, 1994

Completed: Feb. 24, 1986

Completed: Oct. 13, 1987

Completed: Jul. 10, 1998

Completed: Mar. 24, 1995

Completed: May 9, 1995

Completed: Aug. 18, 1989

Completed: Dec. 20, 1991

OFC-10

OFC-11

OFC-12

OFC-13

OFC-14

OFC-15

RSC-15

RSC-16

RSC-17

RSC-18

RSC-19

RSC-20

Nihonbashi Hamacho

Amusement Media

Higashi-Kobe

Amusement Media

Seishin BLDG.

NK BLDG.

Urban Park Yoyogi

Urban Park

Urban Park Mitsuike

Urban Park Ryogoku

Urban Park

Urban Park

Park Building

Gakuin Honkan

Center Building

Gakuin Shinkan

Tokiwadai Koen

Koen

Mizonokuchi

Miyamaedaira

Completed: Jul. 13, 1992

Completed: Nov. 2, 1994

Completed: Jan. 6, 1992

Completed: Jan. 25, 1999

Completed: Mar. 31, 1989

Completed: Oct. 28, 1991

Completed: Sep. 4, 2017

Completed: Feb. 17, 1994

Completed: Mar. 24, 1992

Completed: Oct. 31, 1997

Completed: Aug. 23, 1988

Completed: Jun. 10, 2021

OFC-16

OFC-17

OFC-18

OFC-19

OFC-20

OFC-21

RSC-21

LGC-01

LGC-02

LGC-03

LGC-04

LGC-05

Tsukasamachi

Takadanobaba

Azabu Amerex

Hiei-Kudan BLDG.

Shin-Yokohama

The Portal Akihabara

Urban Park Tsurumi

Iwatsuki Logistics

Yokohama Logistics

Funabashi Logistics

Baraki Logistics

Tokorozawa

BLDG.

Access

BLDG.

Nara BLDG.

Completed:

Logistics

Completed: Jan. 20, 1988

Completed: Jan. 14, 1994

Completed: Jun. 30, 1988

Completed: Sep. 17, 1991

Completed: Mar. 17, 1992

Completed: May 31, 2002

Completed: Feb. 17, 1994

Completed: Oct. 29, 2014

Completed: Oct. 1, 1994

Sep. 25, 1992 (Building 1)

Completed: Aug. 14, 2015

Completed: Apr. 30, 1999

Aug. 5, 1997 (Building 2)

OFC-22

OFC-23

RTL-01

RTL-02

RTL-03

RTL-05

LGC-07

LGC-08

LGC-09

LGC-10

HTL-01

HTL-02

OHA Building

Urban Center

La Park Kishiwada

Suroy Mall

Seiyu Minakuchi

BAGUS Ikebukuro

Funabashi Nishiura

Matsubushi

Funabashi Hi-Tech

Funabashi Hi-Tech

R&B Hotel Umeda

Smile Hotel Namba

Hakata

Chikushino

West

Logistics II

Logistics

Park Factory I

Park Factory II

East

Completed: May 30, 1990

Completed: Aug. 27, 2020

Completed: Aug. 30, 1994

Completed: Jun. 22, 2007

Completed: May 31, 1999

Completed: Nov. 20, 1992

Completed:

Completed: Mar. 31, 1997

Completed: May 19, 2003

Completed: Sep. 5, 2001

Completed: Oct. 20, 2000

Completed: Feb. 6, 2008

Mar. 20, 1991 (Warehouse)

May 15, 1972

(Factory)

May 13, 1986

(Office)

RSC-01

RSC-02

RSC-05

RSC-06

RSC-07

RSC-08

HTL-03

HTL-04

HTL-05

HTL-06

HTL-07

HTL-08

Urban Park

Urban Park Daikanyama

Urban Park Namba

Urban Park Gokokuji

Urban Park Kashiwa

Urban Park

BEST WESTERN

BEST WESTERN

Hotel WBF Fukuoka

GLANSIT

Best Western Tokyo

KOKO HOTEL

Azabujuban

Completed:

Ryokuchi Koen

Tokyo Nishikasai

Yokohama

Tenjin Minami

AKIHABARA

Nishikasai Grande

Osaka Namba

Completed: Nov. 29, 1999

Nov. 15, 1982 (Existing)

Completed: Jun. 9, 2013

Completed: Feb. 28, 1990

Completed: Aug. 28, 1997

Completed: Mar. 10, 1989

Completed: Mar. 19, 1991

Completed: Sep. 21, 1987

Completed: Feb. 20, 2017

Completed: Sep. 20, 2017

Completed: Feb. 7, 2017

Completed: Apr. 7, 2017

May 30, 2006 (Newly built)

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