Sankei Real Estate Inc.TSE: 2972

Notice Concerning Revisions to Operating Forecasts and Distribution Forecasts

Aug 24, 2020 at 6:01 AM UTC · Issued by Sankei Real Estate Inc.

August 24, 2020

For Immediate Release

Real Estate Investment Trust Securities Issuer

1-7-2 Otemachi, Chiyoda-ku, Tokyo

SANKEI REAL ESTATE Inc.

Representative: Yuichi Ota, Executive Director

(TSE code: 2972)

Asset Management Company

Sankei Building Asset Management Co., Ltd.

Representative:	Yuichi Ota
	President and Chief Executive Officer
Contact:	Atsushi Mukai
	Director and Chief Finance & IR Officer
	TEL: +81-3-5542-1316

Notice Concerning Revisions to Operating Forecasts and Distribution Forecasts

for the Fiscal Period Ending August 31, 2020 and Fiscal Period Ending February 28, 2021

SANKEI REAL ESTATE Inc. ("SANKEI REAL ESTATE") hereby announces the following revisions to the operating forecasts and distribution forecasts for the fiscal period ending August 31, 2020 (from March 1, 2020 to August 31, 2020) and fiscal period ending February 28, 2021 (from September 1, 2020 to February 28, 2021) announced in "(REIT) Financial Report for the Fiscal Period Ended February 2020" dated April 16, 2020.

1. Details of revisions to operating forecasts and distribution forecasts

Fiscal period ending August 31, 2020 (3rd fiscal period) (from March 1, 2020 to August 31, 2020)

						Distribution
		Operating	Operating	Ordinary		Distribution	Distributions
		profit	Net profit	per unit	per unit	in excess of
		revenue	profit	(yen)
		(million	(million yen)	(yen)	earnings
		(million yen)	(million yen)	(including
		yen)		distributions in	(excluding	per unit
					distributions in
						excess of earnings)	(yen)
						excess of earnings)
Previous forecasts	1,999	923	830	829	2,324	2,324	‐
announced (A)

Revised forecasts	1,991	940	847	846	2,373	2,373	‐
(B)

Change (B-A)		(8)	17	17	17	49	49	‐

Change rate		-0.4%	1.8%	2.0%	2.1%	2.1%	2.1%	‐

(Reference)	Fiscal period ending August 31, 2020

Forecast number of investment units issued and outstanding at end of period: 356,800 units; Forecast earnings per unit: 2,373 yen

(2) Fiscal period ending February 28, 2021 (4th fiscal period) (from September 1, 2020 to February 28, 2021)

					Distribution
	Operating	Operating	Ordinary		Distribution	Distributions
	Net profit	per unit	per unit	in excess of
	revenue	profit	profit	(yen)
	(million yen)	(yen)	earnings
	(million yen)	(million yen)	(million yen)	(including
		distributions in	(excluding	per unit
					distributions in
					excess of earnings)	(yen)
					excess of earnings)
Previous forecasts	2,045	945	862	861	2,415	2,415	‐
announced (A)

Revised forecasts	2,052	973	890	889	2,492	2,492	‐
(B)

Change (B-A)	7	28	28	28	77	77	‐

Change rate	0.3%	3.0%	3.2%	3.3%	3.2%	3.2%	‐

(Reference)	Fiscal period ending February 28, 2021
	Forecast number of investment units issued and outstanding at end of period: 356,800 units; Forecast earnings per unit:
	2,491 yen
(Note 1)	The operating forecasts and distribution forecasts for the fiscal period ending August 31, 2020, and fiscal period ending
	February 28, 2021, are made using information available at the time of this release, based on the assumptions stated in
	the Attachment "Assumptions Underlying the Operating Forecasts and Distribution Forecasts for the Fiscal Period Ending
	August 31, 2020 and Fiscal Period Ending February 28, 2021" . Actual operating revenue, operating profit, ordinary profit,
	net profit, distribution per unit (excluding distributions in excess of earnings) and distributions in excess of earnings per
	unit may differ as a result of variance from assumptions due to various factors, such as future additional acquisition or sale
	of real estate, trends in the real estate market, interest rate fluctuation and other changes in circumstances surrounding
	SANKEI REAL ESTATE. In addition, the forecasts are not a guarantee of the amount of distributions.
(Note 2)	The above forecasts may be revised in the event that a discrepancy above a certain level from the forecasts above is
	expected.
(Note 3)	Figures are rounded down to the nearest specified unit, and change rate is rounded to one decimal place.

2. Reason for revisions to operating forecasts and distribution forecasts and announcement of such

In its operating forecasts for the fiscal period ending August 31, 2020 and fiscal period ending February 28, 2021 announced in "(REIT) Financial Report for the Fiscal Period Ended February 2020" dated April 16, 2020, as for the impact of the novel coronavirus infection, SANKEI REAL ESTATE believes that tenant demand for office locations remains strong and the immediate impact for the demand is unlikely to be significant, because its portfolio assets are mainly office buildings in major cities such as Tokyo and Osaka. On the other hand, SANKEI REAL ESTATE has received requests from some tenants for rent reductions and deferral of rent payments, etc. due to the novel coronavirus infection, then SANKEI REAL ESTATE anticipated a certain risk of a decline in revenue (effect for stores, rental conference rooms, and utilities revenues).

After that, as a result of repeated discussions with some tenants regarding rent reductions and deferral of rent payments, etc. in the fiscal period ending August 2020, although some tenants were given deferral of rent payments, it was assumed that the rent would not be reduced due to the assumption that it would be collected, the decline in revenue from rental conference rooms due to low occupancy was within the expected range, although the decrease in utilities revenues due to telework such as working from home at tenants expanded more than expected, the utilities expenses also decreased significantly, furthermore, due to factors such as postponement of repair work, the operating forecasts for the fiscal period ending August 2020 is expected to exceed the initial forecasts.

For the fiscal period ending February 28, 2021, although the impact of the novel coronavirus infection is expected to continue, operating forecasts are expected to exceed the initial forecast due to the contribution of an increase in rents for portfolio assets and the decrease in depreciation due to the postponement of additional capital expenditure. With respect to the impact of the novel coronavirus infection, SANKEI REAL ESTATE expects a certain reduction in rents, particularly for stores, the decline in revenue from rental conference rooms due to low occupancy, and decrease in utilities revenues and expenses. SANKEI REAL ESTATE will monitor the performance, etc. of tenants who have requested rent reductions and those who have been granted deferral of rent payments, and will continue to hold discussions and take necessary actions.

Due to the above, SANKEI REAL ESTATE made the revisions for operating forecasts and distribution forecasts for the fiscal period ending August 31, 2020 and for the fiscal period ending February 28, 2021.

With regard to the two hotels owned by SANKEI REAL ESTATE as sub assets, SANKEI REAL ESTATE will continue to monitor their management status, but has secured income from the tenants through fixed rent based on the fixed-term building lease agreement.

Furthermore, the above-mentioned forecast figures are current figures calculated on the basis of the assumptions given in the attachment "Assumptions Underlying the Operating Forecasts and Distribution Forecasts for the Fiscal Period Ending August 31, 2020, and Fiscal Period Ending February 28, 2021", and may be subject to change if the impact on tenants' business performance, etc. worsens or is prolonged due to the further spread of the novel coronavirus infection or the declaration of a state of emergency by the government again, etc., and if there is any other discrepancy with the assumptions.

*SANKEI REAL ESTATE Inc. website: https://www.s-reit.co.jp/en/

[Attachment]

Assumptions Underlying the Operating Forecasts and Distribution Forecasts

for the Fiscal Period Ending August 31, 2020, and Fiscal Period Ending February 28, 2021

Item					Assumptions

	・ Fiscal period ending August 31, 2020 (3rd fiscal period) (from March 1, 2020 to August
Accounting		31, 2020) (184 days)
period	・ Fiscal period ending February 28, 2021 (4th fiscal period) (from September 1, 2020 to
		February 28, 2021) (181 days)
	・ The assumption is that the real estate and real estate trust beneficiary rights (total of
		11 properties) held by SANKEI REAL ESTATE as of the date of this document
Assets under		(hereinafter, the "current portfolio assets") will continue to be held and that there will
	be no acquisition of new properties through to the end of the fiscal period ending
management
	February 2021.

	・ In actual practice, change may arise due to acquisition of new properties, disposition
		of portfolio properties, etc.
	・ Leasing business revenue of the current portfolio assets is calculated by taking into
		account various factors, such as lease agreements that have been concluded and are
		valid as of today, tenant trends and market trends.
	・ Note that the calculations take into account increase in leasing business revenue due
Operating		to the end of the rent-free period for some tenants, among other factors.
・ The assumption is that there will be no delinquent or unpaid rent by tenants.
revenue
・ The assumption is that the impact of the spread of the novel coronavirus infection will

		continue until the end of February 2021, and the calculations take into account decline
		in revenue from retail stores due to tenant demand for rent reductions, the decline in
		revenue from rental conference rooms due to low occupancy, and the decline in
		utilities revenues due to telework of the tenants.
	・ Of operating expenses, the main components are as follows:
						(Unit: million yen)
					Fiscal period	Fiscal period
					ending Aug. 2020	ending Feb. 2021
		Expenses related to		800	826
		leasing business [Total]

			Management fee		191	185
			Utilities expenses		114	116
			Repair expenses		39	66
			Property taxes		216	216
			Depreciation		220	222
		Other than expenses
		related to leasing		250	252
Operating		business [Total]
		Asset management
expenses				182	179
		fee

Of expenses related to leasing business, which are the main operating expenses, the expenses other than depreciation are calculated on the basis of historical data and by taking into consideration the factors causing fluctuation in each of the expenses.
Depreciation is calculated using the straight-line method.
In general, fixed asset tax, city planning tax, etc. to be incurred in connection with transactions of real estate are calculated on a pro rata basis and reimbursed to the new owner by the current owner at the time of property acquisition. The amount reimbursed is included in the cost of acquisition and thus not recorded as expenses in the fiscal period of the property acquisition when the reimbursement is made at the time of transaction. Fixed asset tax, city planning tax, etc. for fiscal 2020 are recorded as expenses starting from the fiscal period ending August 31, 2020.
Repair expenses for buildings are estimated based on medium- to long-term repair plans formulated by Sankei Building Asset Management Co., Ltd. However, repair

	expenses possibly increasing in amount or additionally arising from unforeseeable
	factors may result in repair expenses differing materially from the forecast amount.

Non-operating	・ As interest expenses and other borrowing-related expenses, 93 million yen for the
fiscal period ending August 31, 2020, and 82 million yen for the fiscal period ending
expenses
February 28, 2021.

	・ The assumption is that total interest-bearing liabilities will be 33,500 million yen at the
	end of the fiscal period ending August 31, 2020, and 33,500 million yen at the end of
	the fiscal period ending February 28, 2021.
Interest-bearing	・ The assumption is that there will be no change in the balance of borrowings other than
the above through to the end of the fiscal period ending February 28, 2021.
liabilities
・ LTV ratio is expected to be 44.5% at the end of the fiscal period ending August 31,

	2020, and 44.5% at the end of the fiscal period ending February 28, 2021. LTV ratio is
	calculated using the following formula and rounded to one decimal place.
	・ LTV ratio = Total interest-bearing liabilities ÷ Total assets × 100
	・ The assumption is that the total number of investment units issued and outstanding as
	of today is 356,800 units and that there will be no change in the number of investment
Number of	units due to issuance of new investment units, etc. through to the end of the fiscal
investment units	period ending February 2021.
issued and	・ Distribution per unit (excluding distribution in excess of earnings) is calculated based
outstanding	on the forecast total number of investment units issued and outstanding at the end of
	the fiscal period ending August 2020 and fiscal period ending February 2021 of
	356,800 units.
Distribution per	・ Distribution per unit (excluding distributions in excess of earnings) is calculated based
on the assumption that distribution of earnings will be in accordance with the policy
unit
on distribution of cash provided in SANKEI REAL ESTATE's articles of incorporation.
(excluding
・ Distribution per unit (excluding distributions in excess of earnings) may vary due to
distributions in
various factors, such as fluctuation in leasing business revenue accompanying change
excess of
in assets under management, change in tenants or other event, or incurrence of
earnings)
unexpected repairs.

Distributions in
excess of earnings	・ No cash distribution in excess of earnings is planned to be made at this point in time.
per unit
	・ The assumption is that the negative impact of the spread of the novel coronavirus
	infection will not spread further.
	・ The assumption is that there will be no amendment of laws and regulations, tax
Other	systems, accounting standards, listing regulations provided by Tokyo Stock Exchange,
Inc., rules provided by The Investment Trusts Association, Japan or other similar factors

	that will impact the forecast figures above.
	・ The assumption is that there will be no unforeseen material change in general
	economic trends and real estate market conditions.