COMFORIA RESIDENTIAL REIT, INC ~Investor Presentation~ 7th Fiscal Period (ended Jan 2014) As of March 2014 Table of Contents 1. Executive Summary 6. Appendix Executive Summary - 4 - P&L: 7th Period -25- 2. 7th Fiscal Period Results Balance Sheet: 7th Period -26- Financial Results for the 7th Fiscal Period - 6 - 8th ~ 9th Period Performance Forecast -27- Stable Occupancy Rate - 7 - CRR Characteristics -28- Fluctuations in Rent Rate - 8 - “COMFORIA” Series -29- External Growth (7th FP acquisitions) - 9 - Portfolio Policy -30- Internal Growth -10- “COMFORIA” Series Representative Properties -31- Financial Management -11- Portfolio Map (as at Feb’14 end) -32- 3. Offering Highlights Portfolio List -33- Offering Summary -13- Appraisal Value -36- New Acquisitions from Public Offering -14- Occupancy and Rent Rates -39- Offering Results -15- Overview of Portfolio -40- th 4. Future Strategy Status of Interest-bearing Debt (as at 7 FP end) -42- Unitholders (as at 7th FP end) -43- External Growth Targets -17- Historical Unit Price -44- Growth Strategy -18- # of Households and Housing Starts (rental) External Growth through Proprietary Sources -19- in Tokyo 23 Wards -45- Sponsor Pipeline -20- Governance -46- Financial Strategy -21- Overview of CRR -47- 5. Performance Forecast Overview of Asset Management Company -48- Performance Forecast -23- 2 1. Executive Summary 3 Executive Summary 7th Fiscal Period Exceeded previous period results and projections through stable management and strategic acquisitions External growth Acquired 2 properties through bank loans Internal growth Kept occupancy rates at above 95% Financial strategy Lengthened debt maturity and fixed interest rates 7th FP projected DPU: ¥16,200 7th FP actual DPU: ¥16,813 (+ ¥613) Offerings and acquisitions Achieved initial post-IPO target of over ¥100Bn asset size from public offering in Feb’14 Asset size ¥111.9Bn (total 77 properties) after acquiring 22 properties (¥37.3Bn) Ratio of assets in Tokyo 23 Wards Increased to 94.6% Appraisal LTV Lowered LTV to 49.0% Future approach Build up a portfolio capable of paying out stable distributions over the medium term Portfolio target Aim to achieve ¥200Bn asset size comprised of primarily assets in the Tokyo 23 Wards within the next 5 ~ 6 years Promptly reach ¥130Bn asset size target as the stepping stone for achieving the ¥200Bn target Action plan Make selective investments in other major cities while focusing on purchasing assets in the Tokyo 23 Wards Strengthen financial platform by continuing to extend debt maturity and fixed interest payables. Allocate dividends exceeding projected levels in the short term mainly attributed to positive results expected from external growth 8th FP projected DPU: ¥16,000 8th FP forecast revision: ¥16,600 (+ ¥600) 4 2. 7th Fiscal Period Results 5 Financial Results for the 7th Fiscal Period Surpassed initial profit projections through earnings growth and cost reduction measures Comparable projection (7th FP Sep’13) vs. actual Profit/loss from Revenue from leasing business Operating income Ordinary income leasing business Operating expenses Current net income Revenue from Other revenue from Leasing business Interest payable, (non-leasing leasing business leasing business expenses etc. business) Projection (Sep'13) ¥2,575Mn ¥72Mn ¥966Mn ¥285Mn ¥302Mn ¥1,091Mn Actual ¥2,581Mn ¥92Mn ¥963Mn ¥282Mn ¥294Mn ¥1,132Mn Differential + ¥6Mn + ¥19Mn △ ¥3Mn △ ¥3Mn △ ¥7Mn + ¥41Mn Basis for change Acquisitions↑ Renewal fees, etc.↑ Leasing fees↓ Mgmt. fees↓ Borrowing costs↓― Property mgmt. REIT mgmt. Increased revenue due to new Leasing expenses acquisitions during the interim. Number Borrowing costs were lower than initial were lower than of contract renewals exceeded initial estimates initial estimates expectations. + ¥167 + ¥48 + ¥388 Actual DPU: ¥16,813 Projected DPU (Sep’13): ¥16,200 6 Stable Occupancy Rate ~Actualized stable income characteristic of residential assets~ Occupancy rates surpassed previous FP results on a monthly and yearly basis. Recent occupancy levels exceeded 95% 5th FP 6th FP 7th FP 100.0% Total Portfolio Total Portfolio (same month year ago) 95.0% 90.0% 85.0% Central Tokyo Sub-central Tokyo 100.0% Tokyo Metropolitan Other Major Cities 95.0% 90.0% 85.0% 5th FP end Feb'13 Mar'13 Apr'13 May'13 Jun'13 Jul'13 Aug'13 Sep'13 Oct'13 Nov'13 Dec'13 Jan'14 Total Portfolio 96.1% 95.3% 96.1% 95.2% 94.8% 95.5% 95.9% 95.4% 95.6% 95.8% 95.8% 95.9% 96.2% Central Tokyo 95.0% 94.7% 94.6% 93.2% 93.6% 94.5% 95.2% 94.1% 93.8% 94.6% 95.2% 95.4% 95.7% Sub-central Tokyo 96.7% 95.6% 97.1% 96.6% 95.6% 96.3% 96.5% 96.4% 97.1% 96.8% 96.6% 96.3% 96.3% Tokyo Metropolitan Area 96.9% 94.9% 95.9% 93.1% 94.3% 94.5% 94.4% 93.3% 93.6% 92.9% 91.1% 94.3% 95.1% Other Major Cities - - - - - - - - 93.2% 96.1% 96.2% 97.0% 98.1% 3rd FP end Feb'12 Mar'12 Apr'12 May'12 Jun'12 Jul'12 Aug'12 Sep'12 Oct'12 Nov'12 Dec'12 Jan'13 Total Portfolio 95.5% 94.3% 94.5% 92.1% 91.7% 92.7% 93.1% 93.8% 94.0% 94.3% 94.3% 94.8% 96.1% (same month year ago) 7 Fluctuations in Rent Rate Portfolio rent rate seems to be bottoming out as the number of leases with higher contract rent have risen Historical rent rates (7th FP) Rent fluctuation from tenant change and renewals (5th ~ 7th FP) (yen) 14,000 Portfolio (53 assets) at beginning of period Total Portfolio (incl. 2 interim acquisitions) Change of tenants (# of contracts basis) # of rate 100% MoM* △0.05% + 0.05% △0.09% △0.10% + 0.01% increase # of rate # of rate 18.5% increase increase 13,000 80% No change 27.0% 28.7% 14.6% No change No change 60% 13.8% 15.7% Acquired COMFORIA Acquired COMFORIA SHIN-OSAKA # of rate SUMIDA-TACHIBANA 40% # of rate 12,000 decrease # of rate decrease 67.0% decrease 20% 59.3% 55.5% 0% 11,000 5th Period 6th Period 7th Period Lease renewals (# of contracts basis) 100% 10,000 80% 6th FP Rent (month/tsubo) Aug’13 Sep’13 Oct’13 Nov’13 Dec’13 Jan’14 end Total Portfolio 60% (incl. 2 interim 12,985 12,977 12,720 12,718 12,706 12,655 12,656 No change No change No change acquisitions) 98.4% 98.5% 99.2% Portfolio (53 assets) at 40% 12,985 12,977 12,970 12,976 12,964 12,951 12,952 beginning of period # of rate # of rate # of rate *Note: MoM or “month-over-month” is an asset comparison of the total portfolio after acquisitions against the portfolio at the 20% beginning of the period. decrease decrease decrease 1.6% 1.5% 0.8% Rent rates continue to plateau albeit a mere 0.3% YoY decrease in 0% all properties except for 2 properties acquired in the 7th FP. 5th Period 6th Period 7th Period 8 External Growth (7th FP acquisitions) Building up the portfolio while placing consideration on portfolio yield Drive continual external growth utilizing acquisition leads created by the asset management company COMFORIA SHIN-OSAKA (acquired Sep 4, 2013) COMFORIA SUMIDA-TACHIBANA (acquired Dec 27, 2013) 地図データ@2014 Google. ZENRIN 地図データ@2014 Google. ZENRIN 1-21-24 Higashinakajima, Location Location 5-18-5 Tachibana, Sumida-ku, Tokyo Higashiyodogawa-ku, Osaka-shi, Osaka 3 minute walking distance from Shin-Osaka 6 minute walking distance from Omurai Nearest train station station on the JR Tokaido Honsen & Sanyo Nearest train station station on the Tobu Kameido Line Shinkansen Acquisition price ¥2,400,000,000 Acquisition price ¥938,000,000 Appraisal value ¥2,480,000,000 Appraisal value ¥977,000,000 Appraisal NOI ¥138,476,000 Appraisal NOI ¥52,937,000 Appraisal NOI Yield 5.8% Appraisal NOI Yield 5.6% Rentable units 133 units Rentable units 56 units Occupancy (Jan’14 end) 98.1% Occupancy (Jan’14 end) 90.0% Acquisition date Sep 4, 2013 Acquisition date Dec 27, 2013 9 Internal Growth Actively pursue incidental revenue from non-core operations while enacting cost-cutting measures to augment internal growth Continued efforts to boost occupancy rate by aligning market demand with lease up activities Mobile antenna installation for additional income LED installation geared to reduce operating costs Commenced dialogue with each mobile carrier to install Installed LED light fixtures in the common area of 8 properties antennas at CRR properties as a measure to capture during the 6th FP and another 6 properties during the 7th FP as additional revenue. part of an effort to reduce electricity costs. Supplemented income by roughly ¥5Mn per year by installing antennas at 3 properties during the 7th FP. 【COMFORIA HARAJUKU】 【COMFORIA MACHIYA】 【COMFORIA TOYOSU】 【COMFORIA SHIMOKITAZAWA】 Changed “use class” of properties to maximize lease-up Converted office space to nursery schools in areas with high demand for such facilities as a joint effort with the asset manager and property manager. Completed lease-up upon changing “use class” of respective property Scheduled to launch certified nursery school in Apr’14 10 Financial Management Diversification of debt maturity (7th FP end) Extended debt maturity and diversified repayment dates (million yen) New drawdowns during 7th FP 25,000 Refinanced loans and debt portions with extended maturity Existing loans 20,000 Maturity extension (¥12,495Mn, 3 year extension) Refinancing 15,000 (A. ¥4,650Mn, 4.5 yrs) 12,495 (B. ¥1,350Mn, 6 yrs) 9,925 10,000 6,000 6,300 4,650 5,000 2,000 1,000 1,350 0 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22nd 23rd Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Outstanding debt balance by lender (7th FP end) Tokyo Tomin Bank Loan amount Financial institution Ratio 1,500 Mitsubishi UFJ Trust and Banking (million) Sumitomo Mitsui Mitsubishi UFJ Trust and Banking ¥9,060 20.7% Banking Corporation Mitsubishi UFJ Trust Sumitomo Mitsui Trust Bank 4,485 and Banking 9,060 Sumitomo Mitsui Trust Bank ¥7,495 17.1% Development Bank of Japan Development Bank of Japan ¥7,060 16.1% The Bank of Tokyo- Mitsubishi UFJ Mizuho Bank ¥7,060 16.1% 7,060 Mizuho Bank Sumitomo Mitsui Trust The Bank of Tokyo-Mitsubishi UFJ ¥7,060 16.1% Bank The Bank of Tokyo-Mitsubishi UFJ 7,495 Sumitomo Mitsui Banking Corporation ¥4,485 10.3% Mizuho Bank Sumitomo Mitsui Banking Corporation Tokyo Tomin Bank ¥1,500 3.4% 7,060 Development Bank of Japan Tokyo Tomin Bank Total ¥43,720 7,060 11 3.