Starts Proceed Investment : REIT Financial Report for 33rd Fiscal Period

REIT Financial Report for 33rd Fiscal Period

			June 14, 2022
REIT Securities Issuer:	Starts Proceed Investment Corporation	Listing: Tokyo Stock Exchange
Securities Code:	8979	URL:https://www.sp-inv.co.jp
Representative:	Kazuya Hiraide, Executive Director
Asset Management Company:	Starts Asset Management Co., Ltd.
Representative:	Kazuya Hiraide, President
Contact:	Hideki Hamaguchi,
	General Manager of Financial Control and Administration Division
	TEL: [phone] (main)
Scheduled date of submission of securities report:	July 28, 2022
Scheduled date of commencement of distribution payout:	July 15, 2022
Preparation of supplementary explanatory materials on financial results:	Yes	/ No
Holding of briefing session on financial results:	Yes	/ No
		(for analysts and institutional investors)

[Amounts are rounded down to the nearest million yen]

1. Status of Management and Assets in 33rd Fiscal Period

Starts Proceed Investment Corporation's 33rd fiscal period is the period from November 1, 2021, to April 30, 2022.

(1) Management Status			[% figures represent the increase (decrease) compared with the previous period]
Fiscal	Operating revenue		Operating income	Ordinary income		Net income
period
	million yen	%		million yen	%	million yen	%	million yen	%
33rd	3,224	1.5		1,413	3.1	1,199		3.4	1,197	3.4
32nd	3,177	0.5		1,370	0.6	1,159		(0.3)	1,157	(2.1)
				Ratio of	Ratio of				Ratio of
Fiscal	Net income		net income to	ordinary income to
	ordinary income to
period	per unit			equity	total assets
			operating revenue
				[Return on equity]	[Return on assets]
		yen				%			%				%
33rd		4,717				2.8			1.3				37.2
32nd		4,562				2.7			1.3				36.5
(2) Distributions Status
	Distribution		Total		Distribution	Total						Ratio of
Fiscal			in excess of	distributions		Distribution
per unit	distributions				distributions to
period		earnings	in excess of		payout ratio
[excluding distribution	[excluding distributions					net assets
	in excess of earnings]	in excess of earnings]		per unit	earnings
	yen		million yen		yen	million yen			%			%
33rd	4,718		1,197		-	-			100.0			2.8
32nd	4,563		1,157		-	-			100.0			2.7

Note: Distribution payout ratio is rounded down to one decimal place.

(3) Financial Position

Fiscal	Total assets	Net assets	Equity ratio	Net assets per unit
period
	million yen	million yen	%	yen
33rd	90,240	43,380	48.1	170,940
32nd	90,258	43,341	48.0	170,785
(4) Status of Cash Flows
Fiscal	Net cash	Net cash	Net cash	Cash and
provided by (used in)	provided by (used in)	provided by (used in)	cash equivalents
period
operating activities	investing activities	financing activities	at end of period
	million yen	million yen	million yen	million yen
33rd	2,494	(834)	(1,171)	4,028
32nd	2,145	(732)	(1,182)	3,539

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2. Forecast for Management Status in 34th Fiscal Period and 35th Fiscal Period

Starts Proceed Investment Corporation's 34th fiscal period is the period from May 1, 2022, to October 31, 2022. Starts Proceed Investment Corporation's 35th fiscal period is the period from November 1, 2022, to April 30, 2023.

[% figures represent the increase (decrease) compared with the previous period]

Fiscal	Operating revenue	Operating income	Ordinary income	Net income
period
	million yen	%	million yen	%	million yen	%	million yen	%
34th	3,135	(2.7)	1,385	(2.0)	1,156	(3.5)	1,154	(3.6)
35th	3,165	1.0	1,392	0.5	1,161	0.4	1,159	0.4

Fiscal	Distribution per unit	Distribution in excess of earnings per unit
period	[excluding distribution in excess of earnings]
		yen		yen
34th		4,550		-
35th		4,570		-
[Reference] Forecast net income per unit	34th fiscal period: 4,550 yen	35th fiscal period: 4,570 yen

3. Other

(1) Changes in Accounting Policies, Changes in Accounting Estimates and Retrospective Restatement

(a) Changes in accounting policies accompanying amendments to accounting standards, etc.: None

(b) Changes in accounting policies other than in (a):	None
(c) Changes in accounting estimates:	None
(d) Retrospective restatement:	None

1. Total Number of Investment Units Issued and Outstanding

1. Total number of investment units (including own investment units) issued and outstanding at end of period

33rd fiscal period:	253,777 units	32nd fiscal period:	253,777 units
(b) Number of own investment units at end of period
33rd fiscal period:	-	32nd fiscal period:	-

• Financial reports are not subject to audit by a certified public accountant or an audit company.
• Special notations

The outlook for management status and other forward-looking statements contained in this report are based on information currently available to and certain assumptions deemed reasonable by Starts Proceed Investment Corporation. Accordingly, actual management status and other results may differ materially due to a variety of factors. In addition, the forecast is not a guarantee of the amount of distributions.

For the assumptions underlying the forecast for management status, please refer to "Assumptions Underlying Forecast for Management Status in 34th Fiscal Period and 35th Fiscal Period" presented on pages 9 to 10.

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Starts Proceed Investment Corporation (8979) Financial Report for 33rd Fiscal Period

Table of Contents
1. Management Status .....................................................................................................................................	4
A. Management Status....................................................................................................................................................	4
(1)	Overview of Fiscal Period under Review ....................................................................................................................	4
(2)	Outlook for Next Fiscal Period ....................................................................................................................................	6
B. Investment Risks ......................................................................................................................................................	10
2. Financial Statements ..................................................................................................................................	11
(1)	Balance Sheets.........................................................................................................................................................	11
(2)	Statements of Income...............................................................................................................................................	13
(3)	Statements of Changes in Unitholders' Equity..........................................................................................................	14
(4)	Statements of Cash Distributions..............................................................................................................................	16
(5)	Statements of Cash Flows ........................................................................................................................................	17

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Starts Proceed Investment Corporation (8979) Financial Report for 33rd Fiscal Period

1. Management Status

A. Management Status

1. Overview of Fiscal Period under Review

1. Brief Background of the Investment Corporation
   Starts Proceed Investment Corporation ("SPI") was established on May 2, 2005, with 150 million yen in capital (750 units) based on the Act on Investment Trusts and Investment Corporations (Act No. 198 of 1951; including amendments thereto) (the "Investment Trusts Act"), completed registration with the Kanto Local Finance Bureau based on Article 187 of the Investment Trusts Act on June 15, 2005 (Registration No. 37 issued by the Director-General of the Kanto Local Finance Bureau), implemented additional issuance of investment units through public offering (21,600 units) on November 29, 2005, and listed on Jasdaq Securities Exchange, Inc. (currently Tokyo Stock Exchange, Inc. JASDAQ Market) (Securities Code: 8979) the next day. After three capital increases through public offering and other developments since listing on the JASDAQ Market, SPI listed on the Tokyo Stock Exchange, Inc. Real Estate Investment Trust Securities Market (Securities Code: 8979) on July 27, 2010, and this was accompanied by an application for delisting being filed with the JASDAQ Market on August 10, 2010, and the delisting from the JASDAQ Market taking effect on October 1, 2010.
   SPI entrusts asset management to Starts Asset Management Co., Ltd. (the "Asset Management Company") and sets the focus of management on investment in real estate of which the principal use is use as rental housing ("rental housing") as well as specified assets (the meaning provided in Article 2, Paragraph 1 of the Investment Trusts Act; the same hereinafter) backed mainly by rental housing. SPI also invests in monthly rental apartments, serviced apartments, hotels, residential facilities for the elderly (collectively referred to as "rental housing, etc." together with "rental housing"), which are assets related to rental housing, and real estate from which income can be expected due to other leasing revenue or specified assets backed by such real estate. As it invests in rental housing, etc., SPI adopts the basic policy of setting rental housing for average-income households in particular, the demand for which SPI believes to be the most stable, as the primary investment target. In addition, SPI takes measures, such as leveraging the capabilities of the Starts Group, to enhance asset management efficiency, with an aim to secure steady growth of assets under management and stable earnings over the medium to long term.
   As of the end of the fiscal period under review (33rd fiscal period: from November 1, 2021, to April 30, 2022), the total number of investment units issued and outstanding is 253,777 units, total assets amount to 90,240 million yen, and unitholders' capital (net) amounts to 41,684 million yen.
2. Investment Environment
   In the 33rd fiscal period, the Japanese economy had continued to be in a strong sense of stagnation due in part to the impact of priority measures to prevent the spread of infection being issued with the resurgence of COVID-19 (variants), but dining out, travel and other consumer spending did show signs of gradually picking up after the measures were lifted. On the other hand, financial and economic sanctions on Russia for its invasion of Ukraine, soaring energy and food prices, the U.S. monetary tightening and other factors are making global economic trends extremely uncertain. Even under the COVID-19 pandemic, its impact on SPI, such as a decrease in rent revenue, found to date has been extremely limited as SPI is a REIT specializing in housing. As such, SPI does not foresee any concern of its operations being affected by the pandemic in the short term.
   Under such circumstances, demand trends in the rental housing market in which SPI invests have continued to be stable in the Tokyo metropolitan area, Osaka, Nagoya, Fukuoka, Sendai, and other major metropolitan areas, and rental apartments owned by listed REITs specializing in housing have also maintained high occupancy rates.
   In the secondary real estate market, a robust property acquisition appetite continued to be seen among investors amid the ongoing favorable fund procurement environment. This, combined with limited supply of quality properties, has kept competition in property acquisition overheated, leaving transaction prices at a high level.
3. Management Performance
   In the 33rd fiscal period, SPI conducted asset replacement through acquisition of (C-87) Proceed Kinshicho 2 (acquisition price: 537 million yen) on April 1, 2022, and disposition of (C-30) Proceed Nakanoshimbashi (disposition price: 760 million yen) on April 28, 2022, to avoid increase in costs for major repairs, etc. seen as necessary as properties age in addition to risk of a future drop in prices due to a decline in competitiveness, etc. caused by aging facilities. As a result, SPI's portfolio as of the end of the 33rd fiscal period consists of 106 properties with acquisition prices totaling 88,359 million yen and a total leasable floor area of 192,005.05 m2.

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Starts Proceed Investment Corporation (8979) Financial Report for 33rd Fiscal Period

In close collaboration with the property management company Starts Amenity Corporation, the Asset Management Company made efforts to reduce building maintenance and management costs while striving to increase rent, the receipt of key money and other revenue. The Asset Management Company also promoted leasing activities in coordination with leasing agents by setting finely tuned leasing conditions based on deeper understanding of regional characteristics and advantages of individual properties as well as thorough comparative analyses of nearby competing properties. Moreover, ongoing efforts were made to put vacant space into service quickly with an aim of maintaining the high occupancy rate. These measures worked to maintain the occupancy rate of the entire portfolio at a stable level of over 96% throughout the period and resulted in a period-average occupancy rate of 96.5% and period- end occupancy rate of 96.3%.

As ESG initiatives, electric power contracts for 71 of the portfolio properties were changed to 100% renewable electricity plans as an initiative contributing to "reduction of greenhouse gas emissions and energy consumption," which is one of the material issues that SPI has identified based on its ESG policy. Through the initiative, virtually zero CO2 emissions will be achieved with respect to electricity used by the properties with the concerned electricity plans (common areas). In addition, SPI acquired the Building-HousingEnergy-Efficiency Labeling System (BELS) Certification for one property ((G-34) Proceed Sendai Kamisugi) in April 2022.

1. Status of Fund Procurement
   In the 33rd fiscal period, SPI issued the Third Series Unsecured Investment Corporation Bond of 1,500 million yen below and borrowed a long-term loan of 2,820 million yen (term: 5.5 years) to repay a long- term loan of 4,320 million yen due for repayment on November 24, 2021.

Name:	Starts Proceed Third Series Unsecured Investment Corporation Bond
	(with pari passu conditions among specified investment corporation bonds)
	(Green Bonds)
Issue amount:	1,500 million yen
Interest rate:	0.800% per annum
Issue date:	November 18, 2021
Redemption date:	November 18, 2031
Security and guarantee:	Unsecured and unguaranteed

As a result, the period-end balance of interest-bearing liabilities totaled 45,646 million yen, comprising 9,963 million yen in current portion of long-term loans payable, 32,182 million yen in long-term loans payable and 3,500 million yen in investment corporation bonds as of the end of the 33rd fiscal period, with the period-end LTV ratio standing at 50.6%.

As of the date of this document, SPI has acquired the following credit ratings.

Credit rating agency	Credit rating
Japan Credit Rating Agency, Ltd.	Long-term issuer rating		Bond rating
(JCR)	A- (Positive)		A-

1. Overview of Business Performance and Distributions
   As a result of the management described above, business performance recorded for the 33rd fiscal period was operating revenue of 3,224 million yen, operating income of 1,413 million yen, ordinary income of 1,199 million yen and net income of 1,197 million yen.
   Concerning distributions, to ensure that the maximum amount of distributions of earnings is included in deductible expenses based on application of Article 67-15 of the Act on Special Measures Concerning Taxation (Act No. 26 of 1957; including amendments thereto) (the "Special Taxation Measures Act"), SPI distributes the entire amount of unappropriated retained earnings, excluding fractions of distribution per investment unit of less than 1 yen. Accordingly, SPI declared a distribution per investment unit of 4,718 yen.

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