Sustainability Report 2021

Creating Dreams, Building Hearts

Daiwa House Group symbol - the Endless Heart - represents the group's vision of building endless emotional connections with each and every one of its customers, as well as the solidarity of the Daiwa House Group.

As a group that co-creates value for individuals, communities and people's lifestyles, the Daiwa House Group aims to think outside the box and always to create new value in each successive generation. The Daiwa House Group will continue to pass on the ideals on which Daiwa House was founded, and work to help realize a sustainable society.

DHR will work to continuously increase unitholder value by ensuring stable revenue and steady growth of its assets under management over the medium to long term.

Characteristics of Daiwa House REIT Investment Corporation

Diversified REIT primarily investing in four core asset classes

The core assets are logistics properties, residential properties, retail properties, and hotel properties

Invests mainly in the three metropolitan areas: the Greater Tokyo area, the Greater Nagoya area, and the Greater Osaka area

Builds a diversified portfolio, consisting of assets with various risk-return profiles

Collaboration with Daiwa House Group

Leverages the value chain built on Daiwa House Group's well-rounded strengths

Receives Daiwa House Group's pipeline support such as preferential negotiation rights

Expands asset size mainly through the acquisition of properties developed by Daiwa House Group

Cuts administration and operation costs through cooperation with Daiwa House Group

Enhanced financial stability

Lengthens and diversifies debt maturities and fixes interest rates

Controls LTV (based on total assets including goodwill) within a range from 40% to 50% to maintain stable financial operation

Builds solid lender formation

Editorial Policy

Index

This report describes the overall efforts of Daiwa House REIT Investment Corporation (hereinafter referred to as "DHR") and its asset manager, Daiwa House Asset Management Co., Ltd. (hereinafter referred to as the "Asset Manager") to contribute to the realization of a sustainable society and to maximize unitholder value over the medium to long term. This report has been prepared based on information on the website as of July 2021. For the latest information thereafter, please refer to the website, which will be updated as needed.

This report contains forward-looking statements, but these statements are based on judgments made with information available at the time each material was prepared, and are not guarantees of future financial results.

Yen amounts of less than the units indicated are truncated in this report. Issue Date: July 2021 Issue Frequency: Annually

Message from the Management

DHR will work to continuously increase unitholder value by ensuring stable revenue and steady growth of its assets over the medium to long term through fully utilizing Daiwa House Group's comprehensive strengths and knowhow regarding real-estate development.

Daiwa House REIT Investment Corporation's ESG Policy

Aiming to ensure stable revenue and steady growth of assets over the medium to long term, we will strive to manage assets in a manner that embraces ESG considerations while appropriately disclosing such performance

Daiwa House REIT Investment Corporation and its asset manager Daiwa House Asset Management Co., Ltd. share the Daiwa House Group's basic approach of "Creating Dreams, Building Hearts." To attain a sustainable society, it is essential that we include environmental, social, and governance ("ESG") considerations in real estate investment management operations. We also believe that this will contribute to DHR's basic policy of ensuring stable revenue and achieving steady asset growth over the medium to long term. As such, DHR established the Sustainability Policy in April 2017, and has been applying it to its real estate investment management business.

This constitutes our first Sustainability Report, prepared for the purpose of providing an opportunity for unitholders and other stakeholders to learn more about the various ESG initiatives and approaches implemented by DHR and the Asset Manager thus far. Going forward, DHR will keep striving to further enhance its ESG initiatives with respect to its real estate investment management business, while endeavoring to appropriately disclose such performance.

Acquiring External Evaluation

We aim to acquire external evaluation and improve assessment results in order to achieve greater objectivity and reliability with respect to our ESG initiatives

DHR manages investment in a manner that embraces ESG considerations, working in conjunction with the Asset Manager. We accordingly aim to acquire external evaluation and improve assessment results in order to achieve greater objectivity and reliability with respect to our ESG initiatives.

Having been taking part in the Global Real Estate Sustainability Benchmark (GRESB) Real Estate Assessment since 2017, DHR has received the "Green Star" rating for three consecutive years, and has furthermore improved its GRESB rating, whereby a

five-star rating is assigned based on the overall score relative to rankings of global participants, to "4 Stars" in 2020 from "3 Stars" in 2019 and "2 Stars" in 2018. DHR also received an "A" rating, the highest rating given on a 5-grade scale, in the GRESB Public Disclosure evaluation scheme for two consecutive years based on its proactive information disclosure practices related to ESG initiatives.

DHR participated in the CDP Climate Change Program for the first time in 2020 and achieved an "A-" score of the highest Leadership level in recognition of having taken a leadership role in climate change initiatives and information disclosure. Moreover, under the CDP Supplier Engagement assessment, DHR was selected for the Supplier Engagement Leaderboard, making it the first listed J-REIT to be selected for inclusion.

To increase the objectivity and reliability of DHR's initiatives in reducing the environmental burden of properties it owns, DHR intends to increase medium- to long-term asset value and pursue the acquisition of third-party external certifications and evaluations.

As of March 31, 2021, 63.1% of the properties have obtained environmental certification (DBJ Green Building Certification, BELS Certification, CASBEE for Real Estate Certification; gross floor area basis), which is 9.2 percentage points higher than the certification rate as of March 31, 2020. Whereas DHR had intended to increase the environmental certification rate of its properties to 50% or more (gross floor area basis), the certification rate of its properties is already up to 63.1% as of March 31, 2021. As such, DHR has updated its target and accordingly aims to achieve a certification rate of 70% or more by the fiscal year ending March 31, 2031.

Identifying Priority Issues (Materiality)

ESG-related issues of particular importance (materiality) were identified in view of factors such as the impact of DHR's business operations and stakeholder expectations

DHR has identified ESG-related issues it deems to be of particular importance ("materiality"). Identifying materiality issues entailed pinpointing sustainability challenges involving DHR, derived from among various ESG assessments worldwide, sustainability disclosure standards, and SDGs. It also entailed checking DHR's practices of disclosing and addressing such issues, conducting interviews with management of the Asset Manager, assigning priorities, having an external consulting company conduct reviews, and finally having the Sustainability Committee engage in a process of discussion and approval in March 2021.

DHR has identified issues as having materiality with respect to ESG factors. For instance, (1) when it comes to environmental (E), this involves achieving energy efficiency (energy saving), reducing greenhouse gas emissions (renewable energy), and making buildings more resilient. (2) When it comes to social (S), this involves developing human resources (training and career development), promoting diversity, improving health, safety, and comfort of tenants, and cooperating with tenants (promoting Green Leases). (3) When it comes to governance (G), this involves ensuring compliance (appropriate transactions with interested parties), and acquiring and improving Green Building Certification and ESG assessments. The interviews with management explicitly revealed priority matters from the perspective of management, particularly in terms of developing human resources, addressing climate change, and cooperating with tenants.

Initiatives of the Asset Manager

Aiming to improve long-term investment performance by incorporating ESG issues into the investment decision-making process

The Asset Manager acquired certification under the EcoAction 21 third-party evaluation system in March 2020 for certifying and registering organizations that implement appropriate environmental initiatives, establish, operate and maintain environmental management systems, and promote environmental communications in accordance with the EcoAction 21 Guideline formulated by the Ministry of the Environment.

In addition, the Asset Manager became a signatory organization of the Principles for Responsible Investment ("PRI") in February 2021. The Asset Manager has agreed with the basic approach of the PRI, which encourages the incorporation of ESG issues into investment decisions and aims to help the beneficiaries enhance long-term investment performance and the signatories better fulfill their fiduciary duty by including these perspectives in the investment decision-making process.

28th Fiscal Period

September 2019

29th Fiscal Period

March 2020

DHR shares the Daiwa House Group's basic approach of "Creating Dreams, Building Hearts" and considers that including consideration for ESG in its real estate investment management operations contributes to DHR's basic policy of ensuring stable revenue and steady asset growth over the medium to long term. Therefore, we have set targets for sustainability and have been working on the implementation of various measures.

Acquiring "Green Star" rating for GRESB Real Estate Assessment for the first time

December 2018

Acquiring the highest rating of "S" for MUFG ESG Rating Certificate for J-REITs supported by JCR

Acquiring "Green Star" rating for GRESB Real Estate Assessment and the highest rating of "A" for GRESB Public Disclosure

Acquiring BELS Certification (2 properties)

EcoAction 21 certification and registration

1st Fiscal Period

June 2005

Promoter (Morimoto Asset Management Co., Ltd. (currently, Daiwa House Asset Management Co., Ltd.)) submitted notification of establishment of BLife Investment Corporation under Article 69 Paragraph 1 of the Act on Investment Trusts and Investment Corporations (the "Investment Trusts Act")

Commercial registration of establishment under Article 166 of the Investment Trusts Act; incorporation of BLife Investment Corporation

Application for registration as BLife Investment Corporation under Article 188 of the Investment Trusts Act

12th Fiscal Period

December 2011

Introducing the new brand "Castalia" for residential properties (rental housing)

Change of the corporate name from BLife Investment Corporation to Daiwa House Residential Investment Corporation

23rd Fiscal Period

April 2017

Acquiring DBJ Green Building Certification (3 properties)

24th Fiscal Period

Acquiring DBJ Green Building Certification (3 properties)

27th Fiscal Period

March 2019

Acquiring an "A" rating for SMBC Environmental Assessment Loan

Acquiring DBJ Green Building

Acquiring CASBEE for Real Estate Certification (1 property)

November 2019

Issuance of Green Bonds (10 years, ¥6.0 billion)

December 2019

May 2020

Issuance of Green Bonds (5 years, ¥2.4 billion)

Issuance of Green Bonds (10 years, ¥1.6 billion)

Issuance of Green Bonds (20 years, ¥1.0 billion)

30th Fiscal Period

November 2020

Acquiring "4 Stars" and "Green Star" ratings for GRESB Real

July 2005

Prime Minister registered BLife Investment Corporation under Article 187 of the Investment Trusts Act (Registration Number: Director of Kanto Local Finance Bureau No. 38)

2nd Fiscal Period

February 2006

Application for approval to be listed on the Japan real estate investment trust (J-REIT) market of Tokyo Stock Exchange

Approval to be listed on the Japan real estate investment trust (J-REIT) market of Tokyo Stock Exchange

March 2006

Listing on the Japan real estate investment trust (J-REIT) market of Tokyo Stock Exchange (Securities Code: 8984)

9th Fiscal Period

April 2010

Merger with New City Residence Investment Corporation

15th Fiscal Period

March 2013

Split of investment units (2-for-1 split)

19th Fiscal Period

March 2015

Split of investment units (2-for-1 split)

June 2015

Acquiring DBJ Green Building Certification (1 property)

22nd Fiscal Period

February 2018

Acquiring DBJ Green Building Certification (5 properties)

25th Fiscal Period

March 2018

Acquiring DBJ Green Building Certification (2 properties)

May 2018

Acquiring DBJ Green Building Certification (3 properties)

Certification (3 properties) and BELS Certification (1 property)

July 2019

Acquiring BELS Certification (3 properties)

August 2019

Acquiring DBJ Green Building Certification (4 properties)

and BELS Certification (5 properties)

Acquiring DBJ Green Building Certification (1 property)

and BELS Certification (8 properties)

February 2020

Acquiring CASBEE for Real Estate

Certification (4 properties)

671.7 683.4

Estate Assessment

Acquiring the highest rating of "A" for GRESB Public Disclosure

December 2020

Acquiring an "A-" rating for

CDP Climate Change

Program

February 2021

Becoming a PRI signatory

819.1 820.1

744.8 745.6

Sustainability Strategy

DHR's Sustainability Goals

Our investment strategy is to target a diversified portfolio, focusing on logistics, residential, retail and hotel properties as our core asset classes, as well as other asset classes such as office buildings and healthcare properties as a "diversified REIT." DHR carries out investment and management of real estate, etc. located throughout Japan, focusing on the three major metropolitan areas. Our policy is to operate in a manner that will maximize unitholder value by ensuring stable revenue and steady growth of assets through fully utilizing the comprehensive strengths and knowhow of the sponsor, the Daiwa House Group.

Challenges such as climate change risks and other social issues, the reform of work styles due to COVID-19, and the strengthening of governance to ensure trust from stakeholders and society are having a significant impact on the business

Promotion System

To promote awareness of ESG based on the Sustainability Policy, the Asset Manager is working to secure an appropriate system for promoting sustainability. To do this, it established the "Regulations Concerning the System for Promoting Sustainability" and rules regarding topics such as internal framework, collaboration with stakeholders, and information disclosure policy. In addition, a meeting of the Sustainability Committee is held at least once every three months, in principle, to examine goals and measures related to sustainability. The Asset Manager is working to achieve these goals and implement various measures. Moreover, in principle, the Head of the Sustainability Committee annually directs the Committee to assess the status of all sustainability initiatives and to review them as necessary.

activities of investment corporations and management companies. The impact of the status of ESG initiatives on corporate reputation and corporate value is increasing every year.

With the aim of realizing a sustainable society, DHR positions ESG initiatives as one of its important management issues, and will continue to focus on them going forward. Furthermore, in response to social demands and in order to strengthen the bond of trust with unitholders and achieve sound growth, DHR plans to continue striving toward establishment of a highly-effective compliance system and highly-transparent management system by ensuring thorough compliance positioned as a basic principle.

Sustainability Target

The Asset Manager considers efforts such as energy conservation and reducing greenhouse gas emissions in relation to asset management to be serious environmental issues. As such, it establishes individual policies and strives to reduce the burden it puts on the environment.

Furthermore, we have established the following reduction target (medium to long term) for energy consumption.

For individual properties, reduce energy consumption and CO2 emission intensity by 10% in the ten years from 2018 to 2027

Sustainability Committee

Committee Head: President and CEO

Operating officer:

Director in charge of Administration and Accounting Department

Members:

All Managing Directors, all General Managers, the Compliance Officer and other selected officers and employees

Frequency of meetings:

At least once every three months in principle

Function and role:

Reviewing and formulating various policies, targets and measures related to sustainability, and reporting to DHR Board of Directors as necessary

Number of Sustainability Committee meetings held

Fiscal year Fiscal year Fiscal year Fiscal year ended March ended March ended March ended March

6 6 6 5

*Targeted at properties designated by the Asset Manager's Sustainability Committee or its secretariat.

Concept of Sustainability Promotion Based on the PDCA Cycle