24th Fiscal Period(Ended Jan. 2025) Semi-Annual Report

AEON REIT Investment Corporation

https://www.aeon-jreit.co.jp/en/index.html

24th Period

Semi-Annual Report

For the fiscal period ended January 31, 2025

AEON REIT invests primarily in retail and related properties* that form the backbone of local communities.

Retail and related properties are an integral part of the communities in which they are located. We believe that these properties and facilities in which we invest form the backbone of local communities and their retail business infrastructure.

We also aim to ensure stable income and achieve steady portfolio growth over the medium-to-long term by investing in retail and related properties that contribute to the betterment of individual lives and local communities.

*Refers to retail facilities, logistics facilities and related facilities. Retail facilities refers to facilities containing retail businesses and other merchandising businesses, entertainment and amusement facilities and other facilities that attract customers (including parking lots and equipment and systems for logistics). Logistics facilities refers to warehouses and other storage facilities for distribution and transport of merchandise and other goods.

Contents

AEON REIT Characteristics 2

Financial Section (Audited)

AEON MALL Kurashiki

To Our Unitholders 4

Environmental Certification and Assessment 7

Financial Highlights 8

AEON REIT as Seen through the Numbers 9

Financial Strategy / Risk Management 10

Growth Strategy 12

AEON REIT's Portfolio 15

Strong Fundamentals 16

Effective and Efficient Financial Management 16

Highly Transparent Management Structure 18

Investment Policy / Distribution Policy 22

Management's Discussion and Analysis 38

Balance Sheets 54

Statements of Income 56

Statements of Changes in Net Assets 57

Statements of Cash Distributions 60

Statements of Cash Flows 62

Additional Information 63

Notes to Financial Statements 64

Supplemental Schedules 91

Independent Auditor's Report 105

Structure and Formation of Investment Corporation / Profile of the Asset Manager 108

Investor Information 109

AEON REIT Characteristics

We invest primarily in the retail properties of the AEON Group.

Investment Focused on Large-Scale Retail Properties

We invest primarily in retail properties that are an integral part of the communities in which they are located. In this asset class, we are structuring a portfolio of large-scale retail properties that we expect to generate stable cash flow over the medium-to-long term.

Share of large-scale retail properties in our portfolio

93.5

Currently

*Investment percentage is calculated on an acquisition price basis.

%

(As of January 31, 2025)

Collaboration with the AEON Group for Stability and Growth

We maintain stability with long-term sources of earnings by investing in retail properties operated by the AEON Group, a leading retailer and developer of large-scale retail properties throughout Japan. We also leverage the AEON Group's retail property expertise to generate growth.

Stable Finances

Group

Consolidated operating revenue

Approx. ¥9.5 trillion AEON Group employees Approx. 600,000

(As of February 29, 2024)

Our conservative financial management is based on clear financial policies for target LTV and other matters. As a result, we have strong, stable relationships with financial institutions, primarily megabanks. We have also received a long-term issuer rating of AA from Japan Credit Rating Agency, Ltd.

Japan Credit Rating Agency, Ltd.

long-term issuer rating

AA

Highly Transparent Management

(Stable)

For asset acquisitions from the AEON Group or any other related-party transaction, the decision-making process includes a mechanism to incorporate the opinions of independent third parties having no relationship with the Aeon Group. This creates highly transparent management that ensures win-win relationships with both unitholders and the AEON Group. Please refer to page 18 for details.

Initiatives on Sustainability

AEON REIT cares about Environmental, Social and Governance (ESG) issues in all aspects of its operations and cooperates with its stakeholders for such purposes.

Sustainability Policy

1. Environmental Initiatives

   1. In order to achieve the realization of a low-carbon society, work to continuously improve energy efficiency and reduce emissions of greenhouse gases through the use of renewal sources of energy.

   2. Promote peaceful coexistence with the natural environment by paying consideration to the conservation of ecosystems, and through tree planting activities and other real estate management initiatives.

   3. In order to achieve sustainable use of resources, work towards conservation and recycling of resources through the promotion of water saving and the 3Rs (Reduce, Reuse, Recycle) with regard to the use of resources.

   4. Observe and conform to environmental-related laws and regulations, etc., and endeavor to prevent environmental pollution.

2. Cooperation with Stakeholders

1. By carrying out education and training with regard to environmental issues, endeavor to raise the environmental awareness of our corporate officers and to pay care and attention to the diversity and work-life balance of our employees.

2. By utilizing the total, comprehensive power of the AEON Group, endeavor to provide comfortable work environments to the employees of end tenants/associates as well as those of other partner companies, and work to build a sound and healthy cooperative relationships.

3. In order to facilitate the advancement of ESG initiatives across the entire supply chain for our real estate operations, endeavor to implement a green procurement strategy.

4. Provide support for volunteer activities and places/opportunities for people from local communities to gather for educational and information exchanges, and endeavor to cooperate with communities as a hub for reconstruction efforts in times of disasters.

5. Proactively disclose information regarding ESG issues to investors and endeavor to communicate openly with them, and work continuously towards obtaining Green Building certification.

Establishment of Materiality (Key Issues)

AEON REIT has identified 14 topics as its materiality (key issues) regarding sustainability issues, and selected 8 of them as priority themes.

We have set KPIs for priority themes, and we are working to promote measures to achieve them.

Priority Themes

Environment

Opportunities in green buildings

Climate change

Biodiversity and land use

Social

Local community engagement and sustainable development

Safety and security of owned properties

Human capital development

Governance

Corporate governance

Compliance and risk management

TCFD Qualitative Analysis Disclosure

In August 2022, we add a climate change page to our website, where we disclosed our qualitative analysis in line with the TCFD recommendations.

Q 1

Can you provide us with an overview of the 24th fiscal period

(August 1, 2024 to January 31, 2025)?

To Our

Unitholders

N o b u a k i

S e k i

Representative Director and President AEON Reit Management Co., Ltd.

Although the overall J-REIT market remains weak, AEON REIT advanced initiatives to increase unitholder value and accomplish our medium-term targets while continuing to engage in dialogues with investors and internal consideration in the 24th fiscal period.

First, we continued to utilize our abundant cash

on hand, which is one of AEON REIT's strengths. Considering entering into the interest rate hike phase from the prolonged low interest rate phase, the recent undervalued investment unit price levels, in addition to the change in the operating environment including concerns such as rising operating costs due to inflation, we decided to acquire and cancel

Overview of acquisition and cancellation of treasury investment units*

Announcement

Actual results

No. of investment units acquired

24,000 units (maximum)

21,383 units

(1.0% of total number of investment units issued and outstanding)

Acquisition amount

¥3.0 billion (maximum)

¥2.7 billion

Acquisition price (P/NAV multiple)

0.85 times (target)

0.82 times

(Average acquisition price: ¥126,679)

Acquisition period

From September 17, 2024 to December 30, 2024

*Treasury investment units: The treasury investment on its own investment units of AEON REIT.

PIA CITY Miyashiro (Land)

KASUMI FOOD SQUARE Mitomigawa (Land) KASUMI FOOD SQUARE Hitachikamine (Land)

KASUMI Sakura Distribution Center (Land) KASUMI Chuo Distribution Center (Land)

our treasury investment units for the first time.

In addition, we conducted debt financing of ¥19.5 billion to fund the refinancing of borrowings of

¥19.5 billion maturing in October 2024, with longterm and fixed interest rates while reducing procurement costs compared with borrowings with the same term by partly utilizing a joint monetary trust scheme (green loan). In a joint monetary trust scheme (green loan), trust banks lend funds entrusted to them by investors, and in this case, the funds will be used solely for purposes such as

acquiring environmentally friendly properties, known as green buildings.

As a result of these efforts, distribution per unit for the 24th fiscal period (January 2025) was

¥3,360, which is an increase of ¥10 compared with our initial forecast.

Furthermore, in the 25th fiscal period, we are engaged in an unconventional action of disposing a property and acquiring land with leasehold interests in February 2025. Taking into account the expected increase in future repairs and maintenance expenses

To Our Unitholders

due to aging, we decided to sell AEON Mall Yamagata-Minami. In addition, we acquired land with leasehold interest in the above five properties; the first small- and medium-sized retail facilities and logistics facilities that support them for AEON Mall. This has further strengthened our earnings platform and diversified our portfolio.

Q 2

Can you provide us with some details on the briefing sessions for

individual investors held in the 24th fiscal period?

When considering future initiatives, we will be engaged in repeated internal discussions and analy-

In the 24th fiscal period, we held briefing sessions for individual investors at four venues. One was held at the Fukuoka venue through a securities company, and one each at the Nagoya, Tokyo and Osaka venues (in date order) solely by AEON REIT through the notification enclosed in the previous asset management report. At the Nagoya, Tokyo and Osaka venues, we mainly explained the asset management status of AEON REIT as an asset management reporting session, and many unitholders attended.

We received many questions from attendees and were able to have active dialogues with them. In the questionnaire survey after the briefing session, we received expressions of gratitude and opinions at each venue.

sis by referring to the valuable opinions of institutional and individual investors. For the status of AEON REIT, we cannot report everything as the time and information content in media such as materials and websites are limited.

Therefore, in the fiscal period under review, we held briefing sessions for individual investors mainly in the metropolitan areas to set up a forum where we can have face-to-face dialogues with our investors.

Nagoya venue (AEON MALL Nagoya Noritake Garden)

Recently, it was difficult to provide such opportunities due to the COVID-19 pandemic, but we intend to continue holding briefing sessions where we can have face-to-face dialogues after further improving operations and the contents reflecting the feedback we received.

Q 3

Do you have a message for unitholders?

AEON REIT promotes initiatives for the maintenance and improvement of unitholder value in pursuit of both the stability of distributions paid to unitholders and the growth potential of funds.

Going forward, we will continue to make efforts to receive high evaluation from our unitholders by fully utilizing the strengths of AEON REIT. We would greatly appreciate your continued support of AEON REIT.

Environmental Certification and Assessment

AEON REIT Investment Corporation

AEON REIT is pursuing sustainability-related initiatives in collaboration with the AEON Group. We set medium-term sustainability targets in 2022 and have undertaken various initiatives to achieve them. With the aim of maximizing unitholder value, we will continue to pursue sustainability management going forward.

Aiming to be a top performer among J-REITs

GRESB Real Estate Assessment

5 stars

MSCI ESG Rating

A

Third-party certification acquisition rate

4+ stars: 80%+

(3+ stars: 85%+)

Promotion of CO2emissions reduction with the AEON Group

Assessment by External Organizations in Fiscal Period Ended January 2024

1. GRESB Real Estate Assessment

   We obtained the highest rating, "5-star" under a five-level rating system, for five consecutive years. We have also acquired a "Green Star," indicating a participant that excels not just in management such as the development of policies and organizational structure for promoting ESG but also the environmental performance of its owned properties, for nine consecutive years. In the assessment measuring the comprehensiveness of ESG information disclosure, we have obtained the highest rating, "A-lev-el," for four consecutive years.

2. Reacquisition of DBJ Green Building Certification

   • As a result of various sustainability initiatives, seven properties reacquired certifications.

   • The initiatives of each property were evaluated, and rank for four properties in total was upgraded from 4 Stars to 5 Stars, which is the highest rank.

Property Name Assessment Rank

Up one rank

AEON MALL Kurashiki Obtained 2024 ★★★★★

AEON MALL

Shinrifu North Wing

Obtained 2024 ★★★★★

AEON MALL Takasaki Obtained 2024

★★★★★

AEON MALL Kurashiki AEON MALL Shinrifu North Wing

AEON MALL Narita Obtained 2024 ★★★★★ AEON MALL Shinkomatsu Obtained 2024 ★★★★★ AEON MALL Morioka Obtained 2024 ★★★★

AEON MALL Nogata Obtained 2024 ★★★★

AEON MALL Takasaki AEON MALL Narita

Third-party certification acquisition rate (as of January 31, 2025)

Medium-term target 80% or more

4★ or higher

83.7 %

Medium-term target 85% or more

3★ or higher

86.8 %

Financial Highlights

As of January 31, 2025

Changes in Distribution per Unit (Note)

(Yen) 4,000

3,315 3,274 3,283 3,350 3,350 3,340 3,360 3,400 3,400

2,724 2,790

3,178 3,184 3,200

3,019 2,926 3,029 2,956 3,066 3,047 3,074

2,461 2,473

1,450

686

3,500

3,000

2,500

2,000

1,500

1,000

500

24th Period distribution per unit

¥3,360

0

2nd

3rd

4th

5th

6th

7th

8th

9th

10th

11th

12th

13th

14th

15th

16th

17th

18th

19th

20th

21st

22nd

23rd

24th

25th

26th

Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period

Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results ForecastForecast

Note: Includes distribution in excess of earnings.

AEON REIT as Seen through the Numbers

As of January 31, 2025

AEON REIT Investment Corporation

Investment Properties

49 properties

Average Building Age (Note 1)

19.3 years

Total Acquisition Price (Note 2)

¥473.8 billion

Average Remaining Lease Term (Note 3)

11.9 years

Appraisal Value (Note 4)

¥510.4 billion

Occupancy Rate Based on

Unrealized Gain or Loss (Note 5)

(Appraisal Value minus Book Value)

+¥95.2 billion

Master Lease Agreements

100 %

+¥7.0 billion

(from the previous period)

Notes: 1. The weighted average figures based on acquisition price, with January 31, 2025 set as the reference date, are indicated.

1. Total acquisition price indicates the amount (the purchase prices, etc. stated in the sales agreements, etc.) excluding miscellaneous costs (brokerage commissions, taxes and dues, etc.) that were required for the acquisition of the portfolio properties.

2. Average remaining lease term indicates the weighted average figure using the acquisition price, based on the lease agreements for each property effective as of January 31, 2025.

3. The figure uses the appraisal value indicated in the respective appraisal reports with January 31, 2025 as the appraisal date, or survey price indicated in the respective survey reports of properties.

4. Unrealized gain or loss = Appraisal value at end of each fiscal period - book value at end of each fiscal period. For AEON MALL SEREMBAN 2, however, the fair value is used for appraisal.

5. The calculation of each figure (excluding 5. above) includes AEON MALL SEREMBAN 2, which AEON REIT owns through an overseas real estate holding corporation.

Number of Properties Held and Changes in Asset Size

(Billions of yen) 500

447.0 447.0 447.0

355.1 355.3 362.4 362.4

380.5 390.1 395.5 396.7

330.6

268.5

249.2

194.3 194.3

158.3 158.9 158.9

16 17 17 23 23 28 31 36 40 40 40 40 41 42 43 43 47 47 47 49 49 49 49

properties properties properties properties properties properties properties properties properties properties properties properties properties properties properties properties properties properties properties properties properties properties properties

450

400

350

300

250

200

150

468.3 468.3 473.8473.8

100

50

0

2nd

3rd

4th

5th

6th

7th

8th

9th

10th

11th

12th

13th

14th

15th

16th

17th

18th

19th

20th

21st

22nd

23rd

24th

Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results Results

Financial Strategy / Risk Management

Notes: 1. Includes refinancing (other than bridge loans) and debt financing for acquiring new properties.

2. The figures indicate the approximate amount of debt financing capacity when LTV (including tenant leasehold and security deposits) is raised to 50%. However, there is no guarantee or promise that AEON REIT can actually procure said amount.

AEON REIT is Working to Build a Financial Base that Can Survive Any Change in the Business Environment

As a rule, AEON REIT is simultaneously pursuing extension of remaining years to maturity and procurement of funds at low cost, in an effort to establish a financial base that can survive any change in the business environment.

(%)

Average interest rate for debt financing (Note 1) (left axis) Average remaining period to debt maturity (Note 2) (right axis) (Year)

1.00

0.90

0.80

0.70

0.00

14th Period Results

15th Period Results

16th Period Results

17th Period Results

18th Period Results

19th Period Results

20th Period Results

21st Period Results

22nd Period Results

23rd Period Results

0.92

24th Period Results

7.0

0.82

0.86

0.87

0.79

0.77

0.77

0.78

0.81

0.78

0.73

4.5

3.8

4.9

4.4

4.3

4.4

4.4

3.7

4.1

3.6

3.7

6.0

5.0

4.0

3.0

0.0

Notes: 1. Average interest rate for debt financing is calculated using the following formula:

Average interest rate for debt financing as of the end of each fiscal period = weighted average of the interest rate for each interest-bearing debt as of the end of each fiscal period based on the amount of each interest-bearing debt as of the end of each fiscal period

2. Average remaining period to debt maturity is calculated using the following formula:

Average remaining period to debt maturity as of the end of each fiscal period = average of the remaining periods to the repayment dates or redemption dates indicated in the loan agreements, etc. as of the end of each fiscal period, weighted by the amount of each interest-bearing debt as of the end of each fiscal period

AEON REIT endeavors to respond to any change in the market by diversifying maturities so that they are not concentrated in certain years.

AEON REIT disperses risks by diversifying procurement sources and methods, including diversification of lending financial institutions and issuance of investment corporation bonds.

Breakdown of Interest-Bearing Debt

(as of January 31, 2025)

Other (investment corporation bonds

and joint monetary trust)

35%

Financial institutions:

23

Megabanks (Note)

33%

Trust banks (Note) 12%

AEON REIT endeavors to keep the ratio of interest-bearing debt to total assets (LTV) at an appropriate level. If the upper limit of LTV including tenant leasehold and security deposits is set at 50%, the debt financing capacity stands at approximately ¥45 billion.

(%)

LTV (including tenant leasehold and security deposits) LTV (excluding tenant leasehold and security deposits) 50.0

45.0

43.5

44.9

44.8

44.9

44.7

44.5

44.6

44.8

44.6

44.3 45.0

40.0

35.0

0.0

39.9

14th Period Results

41.4

15th Period Results

41.3

16th Period Results

41.4

17th Period Results

41.4

18th Period Results

41.2

19th Period Results

41.3

20th Period Results

41.6

21st Period Results

41.5

22nd Period Results

41.1

23rd Period Results

41.8

24th Period Results

Risk Management Measures by AEON REIT

Diversified Investment

AEON REIT has diversified its investment areas and investment ratio per property (based on acquisition price) to promote risk diversification against disasters and environmental changes, etc.

Map of Areas Where AEON REIT Investment Ratio (10 Largest Properties)

Owns Properties

+

28 prefectures in Japan Malaysia

(as of January 31, 2025)

Areas where AEON REIT owns properties

AEON MALL KYOTO 4.5%

(as of January 31, 2025)

Others 62.6%

AEON LakeTown mori 4.5% AEON MALL Kurashiki 3.8% AEON MALL Fukutsu 3.8% AEON MALL Takasaki 3.6% AEON MALL Itamikoya 3.6% AEON MALL Wakayama 3.6% AEON MALL Mitouchihara 3.5%

AEON MALL Kofu Showa 3.3%

AEON MALL Shinkomatsu 3.2%

Purchase of Various Types of Insurance Abundant Cash on Hand

Purchase of

Earthquake and Fire Insurance

Change in Depreciation

(Billions of yen) Recorded annual depreciation of

AEON REIT has its portfolio of properties in Japan covered by earthquake and fire insurance in an effort to mitigate natural disaster risks.

Earthquake insurance money: up to ¥2,000 million per year (immunity of ¥50 million) (Note)

*Fire insurance also covers wind and flood damages from typhoons and heavy rain. Facility liability insurance also covers business indemnity.

(Note) Immunity for AEON LakeTown mori and AEON LakeTown kaze is ¥30 million, respectively.

6.0

4.0

2.0

approximately ¥10.5 billion

Implementation of Distribution in Excess of Earnings

0.0

17th FP

18th FP

19th FP

20th FP

21st FP

22nd FP

23rd FP

24th FP

25th FP

(Forecast)

26th FP

(Forecast)

In response to natural disasters and ensuing unexpected events resulting in temporary bearing of relevant expenses, distribution in excess of earnings will be implemented to ensure stability in disclosed distributions.

Abundant cash on hand generated from depreciation can be applied to a variety of uses, such as responding to sudden incidents.

Growth Strategy A long-term framework for stable earnings and collaboration with the AEON Group will drive growth.

A Growth Strategy Based on a Win-Win Relationship with the AEON Group

AEON REIT's growth strategy targets portfolio growth over the medium-to-long term by leveraging the comprehensive strengths of the AEON Group. This involves a sound, mutually reinforcing, win-win relationship with the objective of maximizing unitholder value.

Our Win-Win Relationship with the AEON Group

Increase distribution and improve unitholder value

2

3

AEON REIT

Acquire retail properties from the AEON Group

1

Sell retail properties to the REIT

3

1

AEON

Group

Make growth investments by leveraging funds obtained from property sales

2

Expand the asset size,

make asset management more stable and improve financing capabilities

Increase revenues and enhance corporate value

1. A Growth Strategy Based on Stable Earnings

   We will build a stable framework for earnings as the foundation for achieving growth by concluding longterm, fixed-base rent master lease agreements with the AEON Group for suburban retail properties with few or no local peers.

   Sublease agreements

Fixed-Base Rent over 20-Year Leasing Periods AEON REIT and the AEON Group conclude master lease agreements that provide AEON REIT with fixed-base rent over 20-year leasing periods, providing a long-term, stable source of earnings. AEON REIT enhances capital efficiency, stabilizes cash flow, and increases unitholder value over the medium-to-long term by providing an amount equivalent to depreciation expenses to internal reserves from which it periodically makes optimal distributions according to circumstances.

Lease Structure

1. Expansion and Enhancement of the Support System by the AEON Group

   In order to take advantage of the comprehensive strengths of the AEON Group, AEON REIT and the Asset Manager have concluded a sponsor support agreement and a trademark license agreement with AEON CO., LTD. as well as pipeline support agreements, shopping center management agreements and memorandums of understanding on investments in properties in Malaysia and logistics facilities management agreements with respective companies of the AEON Group.

   Sponsor support agreement

   Pipeline support agreements

   Trademark license agreement

   Shopping center management agreements

   Logistics facilities management agreements

   Memorandums of understanding on investments in properties in Malaysia

   Comprehensive strengths of the AEON Group

   Stable portfolio growth over the medium-to-long term

Sponsor

AEON CO., LTD.

Pipeline support companies Shopping center

management support companies

AEON Mall Co., Ltd. AEON Retail Co., Ltd. AEON Hokkaido Corporation

AEON KYUSHU Co., Ltd. AEON RYUKYU CO., LTD. AEON TOWN Co., Ltd.

The Daiei, Inc.

AEON TOHOKU Co., Ltd.

United Super Markets Holdings Inc.

Pipeline support companies Logistics facilities

management support companies

AEON Global SCM Co., Ltd.

AEON Food Supply Ltd.

Support companies related to investments in properties in Malaysia

AEON CO. (M) BHD. AEON BIG (M) SDN. BHD.

Major Large-Scale Retail Properties Developed by the AEON Group (As of January 31, 2025) (Including Properties under Development)

Major Shopping Centers developed by the AEON Group

Major Shopping Centers currently under development by AEON Group

Kinki Region

• AEON MALL Kusatsu

• AEON MALL Kyoto Katsuragawa

• AEON MALL Rinkusennan

• AEON MALL Dainichi

• AEON MALL Osaka Dome City

• AEON MALL Shijonawate

• AEON MALL Sakaiteppocho

• AEON Fujiidera Shopping Center

• AEON MALL Kobeminami

• AEON MALL Kashihara

  Chugoku and Shikoku Regions

• AEON MALL Tottorikita

• AEON Matsue Shopping Center

• AEON MALL Izumo

• AEON MALL Okayama

• AEON MALL Hiroshima Fuchu

• AEON MALL Hiroshima Gion

• THE OUTLETS HIROSHIMA

• AEON TOWN Houfu

• AEON MALL Tokushima

• AEON MALL Takamatsu

• AEON MALL Niihama

• AEON MALL Imabarishintoshi

• AEON MALL Kochi

  Kyushu and Okinawa Regions

• THE OUTLETS KITAKYUSHU

• AEON MALL Fukuokaito

• AEON MALL Yahatahigashi

• AEON Daito Shopping Center

• AEON Yatsushiro Shopping Center

  
  
  

• AEON MALL Sankoh

• AEON MALL Miyazaki

  Tokai and Hokuriku Regions

• AEON MALL Takaoka

• AEON MALL Tonami

• AEON MALL Hakusan

• AEON MALL Kakamigahara

• AEON MALL Toki

• AEON MALL Hamamatsuichino

• AEON MALL Toyokawa

• AEON MALL Odaka

• AEON MALL Nagoya Chaya

• AEON MALL Nagoya Noritake Garden

• AEON MALL Fuso

• AEON MALL Tokoname

• AEON MALL Nagakute

• AEON MALL Toin

• AEON MALL Tsuminami

  Hokkaido and Tohoku Regions

  
  
  

  • AEON MALL

    Around Asahikawa Station

  • AEON MALL Shimoda

  • AEON MALL Moriokaminami

  • AEON MALL Natori

  • AEON MALL Shinrifu South Wing

  • AEON MALL Sendai Uesugi

  • AEON MALL Akita

  • AEON MALL Tendo

  • AEON MALL Iwakionahama

  • AEON MALL Date

Kanto and Koushinetsu Regions

• AEON MALL Tsukuba

• AEON MALL Sanoshintoshi

• AEON MALL Urawamisono

• AEON MALL Hanyu

• AEON MALL Kasukabe

• AEON MALL Yono

• AEON MALL Ageo

• AEON MALL Kawaguchi

• AEON MALL Makuhari New City

• AEON MALL Kisarazu

• (tentative name) Hachioji North Interchange

• AEON MALL Hinode

• JIYUGAOKA de aone

• AEON Hadano Shopping Center

• AEON MALL Zama

• THE OUTLETS SHONAN HIRATSUKA

• CeeU Yokohama

• AEON MALL Niigataminami

• AEON MALL Sakudaira

• AEON MALL Matsumoto

• AEON MALL Suzaka

• AEON MALL Okinawa Rycom

Source: Prepared by the Asset Manager based on the information provided by AEON CO., LTD. and AEON MALL Co., Ltd. (as of January 31, 2025).

Note: AEON REIT neither owns nor plans to acquire any of these properties as of now.

Growth Strategy

1. Initiatives to Share Mutual Interests between Unitholders and the AEON Group

AEON REIT's Portfolio

As of January 31, 2025

AEON REIT Investment Corporation

RSC-1

RSC-2

RSC-16

RSC-17

RSC-18

RSC-19

RSC-24

AEON MALL Morioka

AEON MALL Ishinomaki AEON MALL

Sapporo-Hiraoka

AEON MALL

Kushiro-Showa

AEON MALL Shinrifu North Wing

AEON MALL

Yamagata-Minami

AEON MALL Tomakomai

RSC-6

AEON MALL Ogaki

RSC-7

AEON MALL Suzuka

RSC-8

AEON MALL Meiwa

RSC-20 AEON MALL

Yokkaichi-Kita

RSC-23

AEON MALL Kofu Showa

RSC-16 RSC-17

RSC-29

RSC-36

CSC-4

RSC-24

AEON MALL Kahoku AEON MALL Shinkomatsu AEON Ueda Shopping Center

Kinki, Chugoku and Shikoku Regions

RSC-9

RSC-10

RSC-11

RSC-12

RSC-15

RSC-1

AEON MALL Kasai-Hojo AEON MALL Hiezu

AEON MALL Kurashiki

AEON MALL Ayagawa

AEON MALL KYOTO

RSC-21

RSC-26

RSC-31

RSC-38

RSC-2 RSC-19 RSC-18

AEON MALL

Yamatokoriyama

AEON MALL Itamikoya

AEON MALL Kyoto Gojo AEON MALL Wakayama

RSC-29

RSC-34

SRSC-1

RSC-4 RSC-25

CSC-3

L-2

L-3

RSC-10

RSC-15 RSC-31

RSC-36 RSC-6

CSC-4

RSC-23

RSC-30 RSC-3

RSC-28 RSC-35

AEON Kireuriwari

AEON Minami-Osaka

Daiei-Ibaraki Process Center

RSC-11RSC-9

RSC-26

L-3

RSC-20

RSC-7

RSC-22

CSC-2

Existing

Shopping Center

RDC

RSC-32

RSC-13 RSC-37

RSC-12

CSC-3 RSC-38

L-2

RSC-21

RSC-8

CSC-1 RSC-33

SRSC-2 L-1 RSC-5

properties

Location of existing properties

RSC-13

AEON MALL Nogata

RSC-27

AEON MALL Kagoshima

RSC-27

RSC-39

SRSC-1

SRSC-2

RSC-3

RSC-4

RSC-32

AEON MALL Fukutsu

RSC-37

AEON MALL Sagayamato

AEON LakeTown mori

AEON LakeTown kaze

AEON MALL Mitouchihara AEON MALL Ota

RSC-39

AEON MALL Miyakonojo Ekimae

RSC-5

AEON Sagamihara Shopping Center

RSC-22

AEON MALL Chiba-

Newtown (Mall, Cinema and Sports building)

RSC-25

AEON MALL Oyama

RSC-28

AEON MALL Tsuchiura

ASEAN

Region

Malaysia

M-1

M-2

AEON Taman Universiti AEON MALL

• M-2 Shopping Centre SEREMBAN 2

  • M-1

RSC-30 AEON MALL

Shimotsuma

RSC-33 AEON MALL

Tamadaira woods

RSC-34

AEON MALL Takasaki

RSC-35

AEON MALL Narita

CSC-1

AEON Chigasaki-Chuo Shopping Center

CSC-2

AEON STYLE

Kemigawahama

L-1

Daiei-Kawasaki Process Center

Strong Fundamentals

Effective and Efficient Financial Management

We have clear financial policies to ensure a stable financial base and deploy capital strategically.

1. Strategic Cash Management

   Many large-scale retail properties are located in suburbs, and therefore have a shorter depreciation schedule than office or residential properties because building value accounts for a greater proportion of the real estate value. Consequently, depreciation expenses tend to be greater relative to real estate value. AEON REIT enhances capital efficiency, stabilizes cash flow, and increases unitholder value over the medium-

   to-long term by providing an amount equivalent to depreciation expenses to internal reserves from which it periodically makes optimal distributions according to circumstances.

   Increased capital efficiency through unit buy-backs

1. Stable Financial Base

   AEON REIT operates according to clear financial policies to maintain and improve its strong financial base. These policies include a target loan-to-value (LTV) (Note) ratio; a high ratio of long-term debt to total debt, which is currently 100.0 percent; a high ratio of fixed-rate debt to total debt, which is currently 100 percent; and diversification of lenders as of January 31, 2025.

   1. Financial Policies

      LTV	Maintain an LTV ratio of about 50 percent, with an upper limit of 60 percent
      Extended loan maturities and fixed interest rates	Commit to loan maturities according to cash flow conditions based on tenant lease terms and content
      Bank formation	Diversify lenders with a focus on megabanks

      Note: LTV: (Interest-bearing debt + Tenant leasehold and security deposits) ÷ Total assets × 100

   2. Debt (Including Investment Corporation Bonds) (As of January 31, 2025)

      Type	Lenders	Amount		Drawdown date/ Issue date	Due date/ Maturity date	Interest rate
      			Breakdown
      Current portion of long-term loans payable	Syndicate of lenders arranged by Mizuho Bank, Ltd., Sumitomo Mitsui Banking Corporation and Sumitomo Mitsui Trust Bank, Limited	¥6.6 billion	¥6.6 billion	May 31, 2016	October 20, 2025	Effective fixed rate (Note) 0.99100%
      		¥2.7 billion	¥2.7 billion	October 20, 2016	October 20, 2025	Effective fixed rate (Note) 0.87250%
      		¥4.0 billion	¥4.0 billion	October 22, 2018	October 20, 2025	Effective fixed rate (Note) 0.85100%
      		¥2.6 billion	¥2.6 billion	March 22, 2022	October 20, 2025	Effective fixed rate (Note) 0.42150%
      		¥3.0 billion	¥3.0 billion	October 20, 2022	October 20, 2025	Effective fixed rate (Note) 0.52750%
      Current portion of long-term loans payable (Green Finance)	Sumitomo Mitsui Trust Bank, Limited (Trust unit)	¥3.3 billion	¥3.3 billion	October 20, 2022	October 20, 2025	Effective fixed rate (Note) 0.52750%
      Long-term	Syndicate of lenders arranged by Mizuho Bank, Ltd., Sumitomo Mitsui Banking Corporation and Sumitomo Mitsui Trust Bank, Limited	¥1.0 billion	¥1.0 billion	February 29, 2016	October 20, 2027	Effective fixed rate (Note) 1.40730%
      		¥4.1 billion	¥4.1 billion	October 20, 2016	October 20, 2026	Effective fixed rate (Note) 1.00300%
      		¥5.0 billion	¥5.0 billion	March 28, 2017	October 20, 2026	Effective fixed rate (Note) 1.09710%
      		¥9.8 billion	¥4.8 billion	October 20, 2020	October 20, 2026	Effective fixed rate (Note) 0.51400%
      			¥5.0 billion		October 20, 2027	Effective fixed rate (Note) 0.61400%
      		¥19.1 billion	¥6.5 billion	October 20, 2021	October 20, 2026	Effective fixed rate (Note) 0.46000%
      			¥6.6 billion		October 20, 2028	Effective fixed rate (Note) 0.64900%
      			¥3.5 billion		October 22, 2029	Effective fixed rate (Note) 0.76900%
      			¥2.5 billion		October 20, 2031	Effective fixed rate (Note) 0.99700%
      		¥16.7 billion	¥8.6 billion	March 22, 2022	October 20, 2027	Effective fixed rate (Note) 0.62050%
      			¥5.1 billion		October 22, 2029	Effective fixed rate (Note) 0.89600%
      			¥3.0 billion		October 20, 2031	Effective fixed rate (Note) 1.13010%
      		¥10.3 billion	¥5.7 billion	October 20, 2022	October 20, 2027	Effective fixed rate (Note) 0.80750%
      			¥4.6 billion		October 22, 2029	Effective fixed rate (Note) 1.10300%
      		¥20.4 billion	¥3.9 billion	October 20, 2023	October 20, 2026	Effective fixed rate (Note) 0.69160%
      			¥4.5 billion		October 20, 2027	Effective fixed rate (Note) 0.88130%
      			¥4.5 billion		October 20, 2028	Effective fixed rate (Note) 1.05400%
      			¥4.5 billion		October 22, 2029	Effective fixed rate (Note) 1.25600%
      			¥3.0 billion		October 21, 2030	Effective fixed rate (Note) 1.44200%
      		¥17.5 billion	¥2.3 billion	October 21, 2024	October 20, 2027	Effective fixed rate (Note) 1.02790%
      			¥3.3 billion		October 20, 2028	Effective fixed rate (Note) 1.15870%
      			¥2.5 billion		October 22, 2029	Effective fixed rate (Note) 1.28100%
      			¥3.1 billion		October 21, 2030	Effective fixed rate (Note) 1.38600%
      			¥3.4 billion		October 20, 2031	Effective fixed rate (Note) 1.51900%
      			¥2.9 billion		October 20, 2032	Effective fixed rate (Note) 1.68000%
      Long-term (Green J-REIT Trust)	Mitsubishi UFJ Trust and Banking Corporation (Trust unit)	¥9.3 billion	¥5.3 billion	October 20, 2023	October 21, 2030	Effective fixed rate (Note) 1.42200%
      			¥4.0 billion		October 20, 2031	Effective fixed rate (Note) 1.60000%
      		¥2.0 billion	¥1.0 billion	October 21, 2024	October 20, 2031	Effective fixed rate (Note) 1.49900%
      			¥1.0 billion		October 20, 2032	Effective fixed rate (Note) 1.66000%
      Current portion of investment corporation bonds (1st Unsecured Investment Corporation Bond)		¥2.0 billion		October 13, 2015	October 10, 2025	Interest rate: 0.961% per annum
      2nd Unsecured Investment Corporation Bond		¥1.0 billion		October 19, 2016	October 20, 2026	Interest rate: 0.470% per annum
      3rd Unsecured Investment Corporation Bond		¥1.0 billion		October 19, 2016	October 20, 2036	Interest rate: 1.200% per annum
      4th Unsecured Investment Corporation Bond		¥2.0 billion		December 8, 2017	December 8, 2027	Interest rate: 0.680% per annum
      5th Unsecured Investment Corporation Bond		¥15.0 billion		December 7, 2018	December 7, 2028	Interest rate: 0.783% per annum
      6th Unsecured Investment Corporation Bond (Green Bonds)		¥12.0 billion		December 6, 2019	December 6, 2029	Interest rate: 0.726% per annum
      7th Unsecured Investment Corporation Bond (Sustainability Bonds)		¥18.0 billion		December 4, 2020	December 4, 2030	Interest rate: 0.992% per annum

      Note: While funds are borrowed at floating rates, the interest rates are fixed in effect by entering into interest rate swap agreements to hedge interest rate fluctuation risk. The figures are the interest rates calculated after taking into consideration the effect of interest rate swaps.

   3. Distribution of Maturities (As of January 31, 2025)

      As shown below in the distribution of maturities, we borrow at long-term, fixed interest rates and disperse the terms of repayment.

      ¥2.3

      ¥3.3

      ¥2.5

      ¥3.1

      Existing borrowings

      Investment corporation bonds

      ¥22.2

      ¥24.3

      ¥24.8

      ¥11.1

      ¥17.7

      ¥8.3

      ¥15.0

      ¥12.0

      ¥18.0

      ¥4.4

      ¥2.0

      ¥1.0

      ¥2.0

      ¥3.9

      ¥1.0

      ¥9.5

(Billions of yen) 30

20

10

New debt financing

0

2025 2026 2027 2028 2029 2030 2031 2032 2036

Japan Credit Rating Agency, Ltd.

AA [Stable]

As of the date of this publication, AEON REIT had received a longterm issuer rating of AA from Japan Credit Rating Agency, Ltd.

Highly Transparent Management Structure

We are deepening collaboration with the AEON Group and structuring management to make decisions that are appropriate for growth over the medium-to-long term.

Nobuaki Seki

Executive Director AEON REIT Investment Corporation

1. Transparent Decision-Making Process

   For asset acquisitions from the AEON Group or any other related-party transaction, the decision-making process includes a mechanism to incorporate the opinions of independent third parties having no relationship with the AEON Group as shown below.

   Disapproved

   Report to the Asset Manager's Board of Directors

Dropped or instructions given to modify content

Returned

Drafting of proposal by the responsible

department

Approval by the Compliance

Officer

Deliberation and resolution by the Investment

Committee*

Deliberation and resolution by the Compliance

Committee*

Approval by

Board of Directors

STOP

STOP

Dropped or instructions given to modify content

1. Unit Ownership by AEON CO., LTD. and Co-Ownership of Properties with the AEON Group

   AEON CO., LTD. carefully considers acquiring a portion of any new issue of units by AEON REIT, and maintains its holdings of AEON REIT units at the fixed percentage of 19.9 percent of total units issued. AEON REIT may engage in strategic co-ownership (including quasi co-ownership) of properties with AEON Group companies based on the sponsor support and pipeline support agreements after considering portfolio diversity and the particular features of properties.

2. Introduction of an Asset Management Fee Structure Linked to Distribution per Unit

   AEON REIT is introducing an asset management fee structure linked to distribution per unit for its Asset Manager, AEON Reit Management Co., Ltd. The structure should synergistically enhance AEON REIT's value.

   Asset management fee structure		Calculation method
   Asset management fees	Asset management fee I	Total assets x 0.3%(Note 1) x (asset management days ÷ 365)
   	Asset management fee II	Distribution per unit before subtraction of asset management fee II x NOI (Note 2) x 0.001%(Note 1) (rounded down to the nearest yen)
   Acquisition fee		Acquisition payment x 0.5%(Note 1) (Related-party transaction: acquisition payment x 0.25%)
   Disposition fee		Disposition receipts x 0.5%(Note 1) (Related-party transaction: no disposition fee)

   Notes: 1. Each rate shown above represents the maximum rate in each fee category.

   2. In the above table, net operating income (NOI) refers to real estate rental revenue for the relevant fiscal period less real estate leasing expenses (excluding depreciation and losses on disposal of fixed assets).

3. Our Policy for Compensation

   Our Articles of Incorporation provide that we may pay our executive director up to ¥1 million per month and each of our supervisory directors up to ¥1 million per month. Our Board of Directors is responsible for determining a reasonable compensation amount for our executive director and each of our supervisory directors, taking into account general price movements and wage movements. We do not have any unit-based compensation plan.

   Currently, our executive director is not receiving any compensation from us (although he, in his capacity as the Representative Director, President and Chief Executive Office of the Asset Manager, receives compensation from the Asset Manager).

4. Matters Concerning Officers

   The Executive Director, Supervisory Directors and Independent Auditor for the current fiscal period are as follows.

   Position	Name	Major additional post	Compensation or fee for the six months ended January 31, 2025 (Note 2) (Unit: Thousands of yen)
   Executive Director (Note 1)	Nobuaki Seki	Representative Director and President of AEON Reit Management Co., Ltd	-
   Supervisory Director (Note 1)	Yoko Seki	Attorney of the Ginza Prime Law Office	1,800
   	Makiko Terahara	Attorney of Tokyo Omotesando Law & Accounting LPC	1,800
   Independent Auditor (Note 3)	PricewaterhouseCoopers Japan LLC	-	18,600

   Notes 1. As of January 31, 2025, Nobuaki Seki does not hold any investment unit of the AEON REIT Investment Corporation. Each of the Supervisory Directors does not hold any investment unit of the Investment Corporation.

   In addition, the Supervisory Directors may be directors of other corporations not listed in the table above, but there are no special relationships between each of the Supervisory Directors and the Investment Corporation.

   1. For the Executive Director and Supervisory Directors, the amount paid during the current fiscal year, and for the Independent Auditor, the amount payable as compensation or fee for the audit during the current fiscal year.

   2. The amount of fee or compensation to the Independent Auditor and to firms belonging to the same network as the Independent Auditor for audit services and non-audit services of the investment corporation for the 24th fiscal period is 18.6 million yen and 3 million yen. The amount of fee or compensation for audit services and non-audit services of the JAMBATAN MANSEIBASHI (M) Sdn. Bhd. for the 24th fiscal period is 1 million yen and 0 million yen. The applied exchange rate on the closing date (January 31, 2025) is RM 1 = ¥35.10 (rounded down to the second decimal place). As there is no official foreign exchange rate for the RM, the reference exchange rate of Mizuho Bank, Ltd. is adopted for conversion to the yen.

5. Remuneration Policy for the Asset Manager's Directors, Corporate Auditors and Employees

1. Remuneration for Asset Manager Directors

   1. The Board of Directors approves remuneration for directors within the limits for total remuneration for directors authorized by the General Meeting of Shareholders.

   2. Remuneration for individual directors is determined through comprehensive assessment that includes corporate performance, individual evaluation and other circumstances.

   3. Remuneration for directors is structured as follows (except for outside directors, who receive only base remuneration and do not receive any performance-based remuneration or prepaid retirement allowances):

      1. Base remuneration: Determined individually within standard amounts based on position and rank.

      2. Performance-based remuneration: Determined within a range of 0 percent to 200 percent of the standard amount according to corporate performance during the relevant fiscal period and individual assessment (e.g., performance for which the director is responsible, degree to which targets were achieved, relative difficulty of responsibilities, and importance of responsibilities). One hundred percent of the standard amount is paid upon achievement of targets set at the beginning of the fiscal period.

      3. Prepaid retirement allowance: Determined based on the following formula that applies a coefficient based on position and rank to base remuneration.

   Prepaid retirement allowance (monthly payment) = Base remuneration x coefficient ÷ 12 (rounded to

   the nearest thousand yen)

2. Remuneration for Asset Manager Corporate Auditors

   1. Remuneration for corporate auditors is determined by resolution of the General Meeting of Shareholders.

   2. Corporate auditors may express opinions, if any, regarding matters including remuneration for corporate auditors as needed to the Board of Directors and the General Meeting of Shareholders.

3. Remuneration for Asset Manager Employees

1. Employees of the Asset Manager receive remuneration according to their relative contribution to and expectations for the achievement of management targets.

2. Remuneration, methods of calculation and payment, timing of payment, and increases in remuneration are determined according to compensation rules.

3. Monthly remuneration is composed of job-based pay, merit pay and adjustments. Employees may receive increases or reductions after twelve months of their current job-based and merit pay based on personnel evaluations during the year. Such increases or decreases will be set based on a pay table determined for each job category.

4. Bonuses are calculated based on sales and performance, and are determined after deliberation by the Board of Directors. Bonuses take into account issues including qualifications (pay grades), personnel evaluations, performance, and attendance.

Remuneration for Asset Manager Directors and Corporate Auditors

March 1, 2024 to February 28, 2025

Notes: 1. Remuneration for directors is as per the Companies Act of Japan, Article 361, Paragraph 1, Item 1.

2. Annual remuneration is limited to ¥500 million for directors and ¥100 million for corporate auditors, as per the Extraordinary General Meeting of Shareholders held on August 28, 2012.

Remuneration for Asset Manager Employees

March 1, 2024 to February 28, 2025

All employees

Note: Please refer to "3. Remuneration for Asset Manager Employees (4)" on how variable remuneration is determined.

The Asset Manager also introduced a unit ownership plan for directors and employees in May 2014. The plan will keep directors and employees focused on AEON REIT's unit price and improving perfor-

mance, with the objective of maximizing unitholder value by giving directors and employees an economic incentive to serve unitholder interests by increasing unit price.

There are potential conflicts of interest between AEON REIT and the Asset Manager with respect to remuneration for the Asset Manager's directors, corporate auditors and employees. We believe that the above remuneration policy mitigates such potential conflicts. In addition, the Asset Manager has adopted an internal set of rules that apply to all related-party transactions, such as transactions between AEON REIT and the Asset Manager. These rules require strict compliance by the Asset Manager with laws and regulations regarding related-party transactions. They also contain specific procedures to be followed in the event of a transaction that involves a related party, in order to implement arm's length terms.

Investment Policy / Distribution Policy

1. Investment Policies

   1. Basic Philosophy of AEON REIT

      AEON REIT Investment Corporation ("AEON REIT") intends to invest primarily in real property-related assets that consist of, or are backed by, properties that are or can be used as retail and related properties (Note 1) (including when multiple properties are developed or utilized in an integrated manner).

      Note 1: The term "retail properties" refers to retail, logistics, and related properties.

      We intend to invest primarily in retail and related properties that are an integral part of the communities in which they are located. We believe that these properties and facilities in which we plan to invest form the backbone of local communities and their retail business infrastructure. We also aim to ensure stable income in the medium-to-long term and achieve steady portfolio growth by investing in retail and related properties that contribute to betterment of individual lives and local communities.

      Our sponsor, AEON CO., LTD. ("AEON" or "Spon-sor"), is the parent company of the Asset Manager. AEON is a corporate group structured as a holding company called the AEON Group.(Note 2)

      Note 2: The AEON Group consists of a pure holding company, AEON CO., LTD., consolidated subsidiaries and equity-method affiliates.

      The AEON Group aims to enable peaceful, prosperous living to grow in cooperation with the people living in the communities it serves through retail business infrastructure that forms the backbone of local communities. With a basic philosophy that helping the AEON Group grow will help AEON REIT grow, AEON REIT invests primarily in retail and related properties operated by the AEON Group.

   2. Portfolio Composition Policy

      AEON REIT bases portfolio composition on the following policies.

      1. Investment Area

         Based on our Articles of Incorporation provisions and the management guidelines of our Asset Manager, we invest primarily in Japan and overseas (Note 3) as well.

         Note 3: The guidelines of AEON REIT's Asset Manager stipulate that AEON REIT shall invest in Japan and overseas, and that overseas investments will primarily focus on the target areas of Malaysia, other ASEAN countries, and China, along with other countries with growing populations where economic development is expected over the medium-to-long term (Article of Incorporation 28, Paragraph 3).

         1. Investments in Japan

            We invest primarily in retail and related properties operated by the AEON Group in Japan.

            We do so because of our focus on the strong earnings base and stable growth potential of various retail and related properties that the AEON Group has already constructed. The AEON Group developed its retail business based on its corporate philosophy of "pursuing peace, respecting humanity, and contributing to local communities." In addition, the AEON Group regards the retail business as a local industry that is rooted in and grows with the community because the retail business is able to create sites and neighborhoods.

            In accordance with the basic philosophy above, in principle AEON REIT will acquire assets in Japan with a policy of selectively investing in retail and related properties operated by the AEON Group in established commercial areas that are closely related to the community and that help maximize our unitholder value. In addition, AEON REIT will invest throughout Japan to construct a geographically diversified portfolio that is not concentrated in any one area.

         2. Investments overseas

         As presented in A. Investments in Japan above, AEON REIT primarily invests in Japan. We are also selectively considering investment in AEON Group retail properties overseas because we anticipate that the retail and related properties the AEON Group develops in countries and regions that are expected to develop economically over the medium-to-long term will generate stable cash flow.

         With this in mind, our target investment areas are Malaysia and other ASEAN countries,(Note 4) China,

         and other countries with growing populations where economic development is expected over the medium-to-long term. We will determine the retail properties to be acquired upon careful consideration of factors including population dynamics, economic growth, country risks, laws, tax regulations, political systems and cultural compatibility in the relevant country or area.

         Note 4: Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar and Cambodia constitute the ASEAN region.

      2. Investment Targets and Ratios

         AEON REIT will invest in the following types of retail and other properties. Real estate in Japan will account for 85 percent or more of our portfolio, and overseas real estate will account for 15 percent or less. Moreover, investments in large-scale retail properties will constitute 80 percent or more of our portfolio. However, we will review these ratios as our portfolio expands.

         1. Retail properties in Japan

            1. Target Investments

               We will primarily invest in retail properties operated by the AEON Group in Japan. We believe that retail property size is positively correlated with customer traffic and a large floor space allows flexibility when dividing the retail area into sections. We therefore plan to invest mainly in large-scale retail properties that have few or no nearby competitors and a comparative advantage in various locations.

               Furthermore, the AEON Group is a retail industry leader in establishing an advanced supply chain utilizing its own logistics facilities to support the

               operation of retail properties and the rest of its retail business. We will also invest in logistics facilities that are closely related to the AEON Group's retail business.

            2. Investment Percentage

               Of the property types shown below, we categorize SRSCs, RSCs and CSCs as large-scale retail properties, which will account for 80 percent or more of our portfolio based on acquisition price. Logistics facilities will account for not more than 10 percent of our portfolio based on acquisition price.

         2. Overseas retail properties: the first J-REIT to invest in properties outside Japan

            1. Target Investments

               In principle, AEON REIT will minimize the risks of investing in areas outside Japan by investing in retail and other properties that we will lease entirely to the AEON Group under a master lease agreement that ensures the AEON Group can and will manage and operate it.

               In addition, we will carefully assess potential investments by reviewing the risks specific to overseas properties, including (1) country risk, (2) operational risk, and (3) currency risk, by considering the compatibility of laws, accounting and tax systems in Japan and overseas while also considering factors including political and economic trends.

            2. Investment Percentage

      The overseas retail and other properties in which we invest shall account for not more than 15 percent of our portfolio on an acquisition price basis.

      Type	Investment Percentage (Note)
      	Domestic Real Estate	Overseas Real Estate
      	85% or more	15% or less
      Large-scale retail properties	Super regional shopping centers (SRSC)	80% or more
      	Regional shopping centers (RSC)
      	Community shopping centers (CSC)
      Other retail properties	Neighborhood shopping centers (NSC)	20% or less
      	Supermarkets (SM)
      Logistics facilities	10% or less

      Note: Investment percentage is calculated on an acquisition price basis. Acquisition and disposition of real estate and related assets may result in short-term variance with the above ratios. The same shall apply hereafter.

   3. Investment Guidelines

      AEON REIT will acquire properties in Japan and overseas according to the following investment guidelines.

      1. Location

         AEON REIT will invest throughout Japan to construct a geographically diversified portfolio that is not concentrated in any one area.

         Overseas, we will invest in the ASEAN region, China and other countries and regions with growing populations where economic development is expected over the medium-to-long term.

      2. Investment Amount

         In principle, investment amount per property shall be ¥500 million or more (acquisition price excluding consumption or other taxes). In principle, investment amount per property overseas shall be ¥500 million or more when converted into yen at the time of acquisition.

      3. Acquisition Price

         Investment decisions shall involve comprehensive deliberations that are based on our valuation of properties and take appraisal values into consideration.

         In the case of a related-party transaction, the property must be acquired at or lower than the appraisal value (excluding taxes, brokerage fees, acquisition costs, costs for creating trusts, reserved funds in trust accounts, income from trusts, periodic settlements such as fixed asset taxes, and other miscellaneous expenses).

         This also applies to acquisitions of overseas assets.

      4. Seismic Review

         In principle, we shall invest in properties that have been constructed, reinforced or otherwise modified to meet applicable new earthquake resistance building codes (which are based on the Building Standards Act; 1950, Law No. 201; as amended in 1981) or have been deemed to have seismic capacity equivalent thereto. In the case of investments overseas, we will determine the properties to be acquired based on a comprehensive judgment

         taking into account the practical operations in the relevant country or area, in addition to compliance with standards under applicable laws and regulations.

      5. Earthquake Probable Maximum Loss (PML)

         In principle, we shall invest so that overall PML (Note 5) of our portfolio in Japan does not exceed 10 percent. We shall consider taking out earthquake insurance if we acquire a property with a PML that exceeds 15 percent. For overseas assets, we will comply with the earthquake resistance standards under applicable national or regional laws, and shall make investment decisions based on comprehensive deliberations that take into account the ability to obtain PML values in the region, the availability of earthquake insurance, and local practices.

         Note 5: PML indicates the level of damage that may result from an earthquake of the assumed maximum size (major earthquake that occurs once every 475 years = major earthquake with a 10% probability of occurring within 50 years, or a probability of 0.211 percent) for the assumed scheduled use period (50 years = the useful life of a general building) expressed as a ratio of the replacement cost to the estimated expenses required to restore the damaged property to its pre-earthquake condition. However, the estimated loss only includes damage the earthquake causes directly to the building itself (structure, finishing, architectural equipment), and does not include damage to equipment, furniture and fixtures; losses caused by water or fire after the earthquake; compensation for victims; or collateral damage such as loss of sales caused by disruption of sales activities. The same applies hereafter. We will make investment decisions using alternative standards in the absence of PML regulations and standards in countries or regions overseas.

      6. Insurance Coverage Policy

         We will take out necessary fire and casualty insurance for portfolio assets to cover the risks of damage to properties from fire or accident and demands for compensatory damages from third parties.

         As presented in 5. Earthquake Probable Maximum Loss (PML) above, we will comprehensively consider earthquake insurance if PML for a specific property exceeds 15 percent, taking into account the impact on the property and the portfolio as a whole in the event of an earthquake as well as the feasibility of obtaining earthquake coverage.

         However, even if the PML does not exceed 15 percent, we may take out earthquake insurance for the property after comprehensively taking into account the cost effectiveness including insurance

         premiums and deductibles.(Note 6)

         Note 6: As of October 25, 2016, the asset management company revised its asset management guidelines to determine its policy for taking out insurances when the individual PML value does not exceed 15 percent.

      7. Environmental and Geological Conditions In principle, we shall invest in properties for which the treatment and storage of asbestos and other hazardous substances within the buildings or the

         appearance and condition of soil within the premises meets the requirements under the Air Pollution Control Act and the Soil Contamination Counter-measures Act of Japan and other environmental laws and ordinances or for which relevant counter-measures have otherwise been taken. However, we may acquire properties when we can expect prompt corrective action after acquisition. For overseas assets, we will make investment decisions based on comprehensive deliberation that takes into account practical operations in the relevant country or area, in addition to compliance with environmental, geological and other standards under applicable laws and regulations.

      8. Tenants

         In principle, we shall confirm the social credibility of potential tenants and their economic viability by evaluating and analyzing data such as rent rates, lease terms, tenant businesses, and competitiveness. This applies to assets both in Japan and overseas.

      9. Property Rights

         In principle, we shall confirm ownership, leasing, surface and other property rights. For shared or leased properties, we shall comprehensively consider property characteristics to confirm that owners of such property rights have no issues (e.g., creditworthiness and reputation) and that the property has few or no restrictions on or risks to operations, management or assignment. For overseas assets, we will make investment decisions based on comprehensive deliberation that takes into account practical operations in the relevant country or area, after investigating the property-related rights in the relevant country or area.

      10. Investment in Properties with Stable Operations

      In principle, AEON REIT will ensure stable cash flow by investing largely in real estate that generates stable cash flow, and will not invest in real estate such as non-operating properties that are not generating cash flow because they are under development.

      However, we may selectively decide to invest in properties that have experienced a short-term decline in occupancy rate in instances such as when we anticipate a swift increase in future occupancy rate and when we expect to collaborate with the AEON Group as a tenant opening stores and in leasing. We will do so after careful deliberation. The same applies to overseas assets.

   4. Due Diligence Guidelines

      Prior to investment in a property, the Asset Manager will conduct economic, physical and legal due diligence, generally covering the following topics. The Asset Manager will consider the appropriateness of the property by determining and evaluating issues such as factors that may inhibit the maintenance and improvement of asset value. To this end, the Asset Manager will consult engineering reports, market reports and earthquake risk-assessments prepared by third parties with research capacity and expertise, and conduct on-site investigation and hearings with scheduled assignees and others.

      For investments in overseas properties, the Asset Manager will conduct due diligence (Note 7) using the same guidelines that are applicable to investments in Japan, taking into account the legal system and any special circumstances in the relevant country or area.

      Note 7: Due diligence for overseas real estate shall include the items in the table below and also review of connections with roads and the supply of public services (e.g., water, gas, and sewage disposal services).

      Economic, Physical and Legal Due Diligence of Properties

      Economic due diligence	Tenant evaluation
      	Market analysis
      	Revenues
      	Expenses
      Physical due diligence	Location
      	Building, facility and specifications analysis
      	Building review

      • Tenant (and sublessees when needed; applicable to the following) creditworthiness (including business, operations, history, financial results and financial condition)

      • Status of tenant rent payments, existence of any disputes between the tenant and the current owner, or any possibility thereof

      • Purpose of the lease, structure of the lease agreement, terms and conditions of the lease agreement and whether it permits assignment

      • Past occupancy rates and rent

      • The percentage of each building that each existing tenant occupies and tenant distribution

      • Commercial area (population, number of households, commercial index)

      • Review of market rental rates and occupancy rates of similar properties in the surrounding area

      • Status of potential competing properties in the surrounding area

      • Plans for the development of new properties in the surrounding area

      • Tenant demand trends

      • Potential for attracting new tenants

      • Potential for property disposition (sale)

      • For overseas properties: review economic trends, political trends, business practices, and other issues

      • Current lease structure and stability of rent

      • Variance between current and market rent and outlook

      • Potential for tenant relocation and ease of finding replacement tenants

      • Outlook for issues such as gaining or losing tenants and rent decreases

      • Medium- and long-term leasing policies of the property manager and the master lessee

      • Potential for changes in taxes and public charges (e.g., expiration of tax abatement period, increase in valuation due to factors including redevelopment progress)

      • Structure of outsourced property management agreements, level of management provided by the property manager, appropriateness of management fees

      • Structure of outsourced building management agreements, level of management provided by the building manager, appropriateness of management fees

      • Cost of utilities and utility reimbursements from tenants

      • Estimated responsibility for and appropriateness of repair and renewal expenses based on historical and planned repairs and current state of disrepair

      • Status of reserve fund for repairs and the appropriateness of the amount of such fund (stratified ownership of a building, etc.)

      • Circumstances of streets and access to main highways

      • Convenience of railways and other public transport

      • Status of surrounding land; history of floods, fires and other disasters

      • Location and proximity of convenient facilities and public facilities in the surrounding area

      • Name recognition, reputation and size of the relevant area

      • Stability and growth potential of the commercial area; competitive situation; status of development of surrounding areas; potential for conversion of purpose (in the case of retail properties)

      • Design, main structure, building age, architect and construction company, confirmation and inspection organization, etc.

      • Internal and external condition of the property

      • Leasable area, ceiling height, air-conditioning, floor weight capacity, security systems, electric power capacity, lighting intensity, layout compatible with plotting lease, disaster prevention equipment, water supply and drainage facilities, elevating machines, parking lot and other common facilities

      • Document review including design documents, building certification documents, inspection documents

      • On-site inspection of outdoor facilities, rooftop, exterior finish, facilities, etc.

      • Review and verification of long-term repair plan set out in the engineering report

      • Status of compliance with applicable laws and regulations including the Building Standards Act and the City Planning Act of Japan (Law No. 100 of 1968, as amended)

      • Seismic capacity (seismic capacity that meets new earthquake resistance building codes or equivalent)

      • Verification of earthquake PML

      Physical due diligence	Building management
      	Environmental due diligence
      Legal due diligence	Legal restrictions and compliance
      	Boundary survey
      	Tenant analysis
      	Property rights related investigation

      • Terms and conditions of the outsourced building management agreements (including structure and specification standards); status of management of buildings; interviews with the building management company and others

      • Existence and content of detailed building management rules; quality and creditworthiness of the management companies

      • History and status of use and storage of asbestos, PCBs and other hazardous substances

      • Issues including geological conditions, land use history, and soil contamination

      • Whether properties are in compliance with applicable laws and regulations

      • Existence of building, application or use restrictions due to building codes, regulations, agreements, or other applicable legal restrictions

      • Property boundaries; existence and status of encroachments

      • Determination of actual measured area

      • Existence of boundary disputes

      • Review of lease agreements, sublease agreements, use agreements, etc.

      • Existence of disputes with tenants

      • Confirmation of property rights related to land and buildings, including ownership rights, surface rights, lease rights, co-ownership rights, stratified ownership rights and stratified co-ownership rights; review of various agreements and other documentation incidental to such property rights

      • Existence of disputes with owners of adjacent property rights

      • Conditions of trust agreements

   5. Standards for Outsourcing to Third Parties and Assessments by Third Parties

      Based on our management guidelines, we have adopted standards for outsourcing and assessments to maintain the quality of outsourced services and order placement, for the fair selection of service providers and suppliers, and for renewing service provider contracts in Japan. As a general rule, however, we shall not outsource asset management services, which have been entrusted to the Asset Manager. For overseas properties, we comply with statutory standards in the relevant country or region, and we base our decision whether and to what extent to outsource a service on a comprehensive consideration of practices in each region.

      1. Outsourcing Standards for Each Type of Outsourced Service

         Services are outsourced to service providers that satisfy specific standards to maintain designated quality levels for service implementation and service experience and performance according to the particular requirements of the outsourced services.

         Specifically, for outsourced property management services we generally review the service provider's

         (1) scale; (2) ability to perform the services; (3) compliance with laws and regulations; and (4) cost.

         For property management service providers outside of Japan, we do not take (1) scale into consideration. For real estate appraisal services, due diligence, and engineering reports, we review the service provider's (1) scale; (2) ability to perform the services; (3) compliance with laws and regulations; and (4) any history of misconduct on the part of the service provider. For providers of real estate appraisal services, due diligence, and engineering reports outside of Japan, we do not take (1) scale into consideration.

      2. Outsourcing Conditions

      When AEON REIT and the Asset Manager outsource services, the service providers are responsible for establishing the appropriate mechanisms to provide services and report to us, to maintain confidentiality, and to cooperate with ongoing monitoring efforts. However, contracted items are negotiable. The responsibilities and duties of the service providers are specified in service outsourcing agreements.

   6. Forward Commitment Policies (Note 8)

      We may enter into contracts to acquire properties under which the settlement of the contract occurs one or more months following the execution of the contract. Before making a decision to enter into any

      such contract, we will carefully consider the following:

      • contract termination penalties contained in the contract, the impact of any such contracts on our overall portfolio profits and our level of cash distributions (including the delisting standard of the Tokyo Stock Exchange)

      • the time period between the execution and settlement of the contract, potential market risks caused by changes during this period in financial and real estate market conditions, and method for funding settlement.

        Note 8: The purchase agreements for the overseas properties we intend to acquire are forward commitment contracts. We determine the advisability of executing these agreements after individually considering the risks associated with executing them.

   7. Operation and Property Management Policies We follow the policies and standards set forth below in operating and managing assets acquired in Japan. The standards for operating and managing assets acquired overseas will be based on, and generally be the same as, the standards used in Japan.

1. Basic Policy

   Our goal is to achieve stable earnings over the medium-to-long term, maintain and improve the value of our portfolio, and enhance tenant satisfaction. We will therefore maintain and increase rental revenue and occupancy rate, conduct appropriate management and repair, and optimize management costs and raise efficiency based on the approaches below.

2. Adoption of Asset Management Plan

   The Asset Manager will establish an asset management plan for the management and operation of our operating properties in accordance with the Asset Manager's internal rules, such as its asset management guidelines, and will manage and operate such properties in accordance with such plan. The asset management plan will provide concrete management and operation plans for our operating properties. It will consist of (1) income and expense plans for each of our portfolio properties; (2) an income and expense plan for the company as a whole that is based on those for each property; and (3) other plans. The asset management

   plan will be reviewed for adoption by the Investment Committee following approval by the Compliance Officer.

   The asset management plan will also be reviewed for adoption by the Compliance Committee after approval by the Investment Committee if deemed necessary by the Compliance Officer.

   In principle, formulating the asset management plan above will involve the review of detailed information for each of our operating properties in cooperation with the support companies and the property manager.

   In principle, the asset management plan will be reviewed every fiscal period and amended as appropriate, and may be amended from time to time, as necessary.

3. Leasing Policy

   When we acquire retail and related properties operated by the AEON Group, our basic policy will be to enter into a master lease agreement for the entire property with an AEON Group company as the lessee at the time of acquisition. The policy will be the same for assets acquired overseas.

   We will utilize property managers to the maximum extent possible, share information with the master lessee, survey and identify market trends, and investigate appropriate leasing terms for individual properties.

   When entering into lease agreements with the master lessees, the Asset Manager will confirm the creditworthiness of the master lessees, check for relationships with anti-social forces including end tenants, and make comprehensive determinations concerning the possibility of lease renewals.

4. Policies Concerning Selection of Property Managers and Monitoring

We will select property managers that we believe can contribute to raising our overall profitability. We will take into consideration the property manager's real estate operation and management experience and capabilities, performance with the target property, feasibility of carrying out operations in accordance with the operating plan, cost levels, continuity of operations, and other relevant factors.

To carry out the above policy on an even higher