Introduction

I would like to express our sincere gratitude for your continued and loyal patronage. SHR has completed the financial results for the 18th fiscal period ended October 2023. We appreciate the support from our unitholders, and hereby would like to report on the financial results and management status.

Financial Results for 18th Fiscal Period Ended October 2023

Management performance resulted in operating revenue of 16,485 million yen, operating income of 8,343 million yen, ordinary income of 7,411 million yen and net income of 7,408 million yen, with a distribution per unit of 1,976 yen which reflects net income per unit of 1,690 yen. The overall portfolio’s total assets as of the end of the fiscal period under review was 269.8 billion yen for residentials, 261.6 billion yen for office buildings, and 17.2 billion yen for hotels with a total of 548.7 billion yen. The occupancy rate as of the end of the fiscal period under review was 97.3% for residentials, 94.4% for office buildings, and 100.0% for hotels with an occupancy rate of 96.7% for the total portfolio.

Management Status for 18th Fiscal Period Ended October 2023

As for asset replacements in the fiscal period under review, SHR disposed of the residential, Sha Maison Stage Kanazawa Nishiizumi, and 10% of the quasi co-ownership of the office building, Gotenyama SH Building, while acquiring the residential, Esty Maison Noborito.

In terms of management status of the portfolio, operations for residentials remained favorable due to the continued improvement of the employment environment mainly in Tokyo, maintaining a high occupancy rate of 97.2% during the period, and rent at the time of new contracts improved for all room types. SHR believes that regarding the population inflow in central Tokyo, which declined during COVID-19, will continue to increase due to the return to the city and the separation of households, thus it is expected that the housing market remains strong in the year to come. In terms of office buildings, the rent level at the time of new contracts and renewed contracts has declined mainly in Tokyo due to trends of office downsizing with the diversification of work styles such as the establishment of remote works. As for Garden City Shinagawa Gotenyama which is considered one of our biggest challenges, a large tenant is scheduled to depart in July 2024, and as it is expected that continued ownership will negatively affect long-term EPU over the medium to long term, SHR intends for a property disposition. As for hotels, the lease contract is a fixed-rent master lease agreement, thus the revenue remains stable.

In light of these management environments, in the announcement of financial results for the fiscal period under review, SHR announced that in order to take advantage of the market superiority as a REIT sponsored by Sekisui House, one of Japan’s leading house manufacturers, the policy will be changed to construct a portfolio centered on residential properties. Over the medium term, the target investment ratio will change to approximately 65% for residentials, approximately 30% for office buildings, and approximately 5% for hotels, retail and other properties.

In terms of ESG initiatives, in recognition of past efforts, SHR has been newly selected as a constituent of the “Dow Jones Sustainability Asia/Pacific Index”, an ESG investment index.

Forecasts for the management performance for the fiscal period ending April 30, 2024 (19th fiscal period) is operating revenue of 17,321 million yen, operating income of 8,851 million yen, ordinary income of 7,875 million yen and net income of 7,873 million yen, with a distribution per unit of 1,835 yen which reflects net income per unit of 1,797 yen.

Conclusion

SHR will continue to strive to maximize unitholder value by providing high-quality real estate, which will become a social capital for a new era under SHR’s vision “Managing assets to better provide for people, society and the future”.
I sincerely ask for the continued support and encouragement of our unitholders.