Frontier Real Estate Investment : Financial Reporting Material

SEMI-ANNUAL REPORT

Steadily Growing Dividends While Strengthening the Earnings Structure

Frontier Real Estate Investment Corporation ("FRI") is a REIT specializing in retail facilities and was listed on the Real Estate Investment Trust Market (the J-REIT market) of the Tokyo Stock Exchange in August 2004. Mitsui Fudosan has served as the sponsor of FRI since March 2008, when it replaced the previous sponsor, Japan Tobacco. FRI invests in diverse retail facilities in cities throughout Japan. Since FRI's listing, we have steadily built a solid management track record, aiming to secure stable earnings over the medium to long term.

Contents

2

Highlights

22

Financial Section

4

6

8

To Our Stakeholders / Topics Asset Size and Distributions Portfolio

23 38 58

Management's Discussion and Analysis

Audited Financial Statements

Independent Auditor's Report

10

12

Sustainability Initiatives Corporate Governance

61 62

FRI and the Asset Management Company Investor Information

15

FRI's Investment Policy / Distribution Policy

Disclaimer

All content presented in this semi-annual report is provided solely for informational purposes with regard to Frontier Real Estate Investment Corporation (FRI) and is not intended to serve as an inducement or solicitation to trade in any product offered by FRI. Investment units issued by FRI are subject to price fluctuations due to various factors, including: (1) volatile conditions in the J-REIT market, interest rates and the real estate market; (2) fluctuations in rental revenues from properties; and (3) the occurrence of unexpected losses due to natural disasters. Accordingly, investment in FRI entails the risk of incurring a loss. Investment decisions are made at the investors' discretion and are their responsibility as well as at their own risk. FRI disclaims any responsibility or liability for the consequences of investing in FRI.

Forward-Looking Statements

Except for historical information, matters discussed in this report are forward-looking statements and are based on management's estimates, assumptions, and projections. Forward-looking statements, such as business forecasts, should not be construed as commitments to or guarantees of future performance. They are based on judgments made using information obtained at the time of publication, and thus contain risks and uncertainties.

Please be advised that forward-looking statements provided herein may be subject to change without prior notice. Furthermore, FRI assumes no obligation to update any forward-looking statements in this semi-annual report as a result of new information or future events.

FRI Semi-Annual Report 39th period

39th Period (July 1 to December 31, 2023) Financial Highlights

The distribution per unit for the 39th fiscal period was ¥10,549. During the 39th fiscal period, we acquired two properties developed by the sponsor, Mitsui Fudosan, thereby expanding the size of our asset holdings while promoting initiatives aimed at reinforcing our portfolio of existing properties. To ensure financial soundness, we maintained prudent financial operations through careful LTV control and continued to receive high ratings.

We forecast distributions per unit of ¥10,850 and ¥10,930, respectively, for the 40th and 41st fiscal periods.*

Financial Results for the 39th Fiscal Period," dated February 15, 2024, has been revised.

**Distribution per unit for the fiscal period ending June 30, 2024 is calculated based on the assumption that we distribute an amount equivalent to net income for the period less ¥440 million (difference between reserve for reduction entry and the reversal of reserve for reduction entry).

***

Distribution per unit for the fiscal period ending December 31, 2024 is calculated based on the assumption that we distribute an amount equivalent to net income for the period less ¥530 million (difference between reserve for reduction entry and the reversal of reserve for reduction entry).

To Our Stakeholders / Topics

To our stakeholders

The Investment Corporation's basic policy for property management is to secure stable revenue over the medium to long term. During the 39th fiscal period, we completed the acquisition of an 18.5% quasi co-ownership stake in LaLaport IZUMI- the third LaLaport facility included in the Investment Corporation's portfolio-as well as Shin-Kawasaki Square. The latter is a neighborhood shopping center situated in the vicinity of a large-scale condominium complex that is presently under construction on a site located alongside a train station. Both properties were developed by Mitsui Fudosan, our sponsor.

Furthermore, in February 2024 (during the 40th fiscal period), we entered into new fixed-term building lease contracts with tenants of You Me Town Hiroshima, a large-scale shopping center, after securing their consent regarding the cancellation of the existing contracts four years ahead of the initial termination date. The new contracts for this flagship property involve upward revisions in rent.

In addition, we have decided to allow Shinsaibashi Square, an urban retail facility, to be refashioned into a high-rise retail complex to ensure that this property is able to fully leverage the distinctive strengths arising from its favorable location within the Shinsaibashi area. Specifically, we will transfer ownership for the existing building portion of this property to

Topics: Strengthening the portfolio

Other Topics in the 40th Period

You Me Town Hiroshima

Concluded a new fixed term building lease contract with an increased rent amount

Key points of the initiative

Overview of property

• • Reached agreement to terminate existing agreement four years ahead of schedule and to increase rent from March 2024

• • Added new terms stipulating that rent revisions would be deliberated every five years in order to deal with inflation

• • Increased rent by 44.7 million yen/year (impact on distributions per unit: approx. 41 yen/fiscal period)

Mitsui Fudosan in March 2024 so that we may shift our ownership status to a land interest ownership with a fixed-term land lease contract. Moreover, the initiative described above is expected to yield substantially higher NOI from Shinsaibashi Square in 2028 and later, with the volume of distribution per unit expected to expand by approximately ¥1,000 compared with distribution per unit for the 39th fiscal period due to higher rent to be available in the future. Thus, the rebuilding of this property is likely to significantly contribute to the stable payment of ever higher distribution per unit going forward.

The Investment Corporation and the Asset Management Company are working in unison to strengthen initiatives for sustainability. For example, in 2023 we maintained our "4 Stars" rating under the GRESB Assessment, an annual benchmark of the environmental,

Leverage the development and leasing strengths of the Mitsui Fudosan Group to achieve internal growth that surpasses recent increases in interest rates

Key points of the initiative

Overall schedule (planned)

• • Increase building height through rebuilding

  Transfer building but continuing to hold the land interest

  Improve annual NOI significantly, from 320 million yen (NOI yield: 3.8%) to 1,430 million yen (estimated NOI yield: approx. 17.2%)*

• • Switch to land ownership

  Avoid risks associated with real estate development and secure long-term cash flow

• • Maintain level of post-depreciation income during building teardown and rebuilding stages

  Use ground rent and internal reserves during new building construction to cover impact of downtime

* The post-rent increase NOI (annual NOI) is not guaranteed and actual NOI may differ from the estimate.

Overview of the building transfer

¥217 million

¥172 million (as of Dec. 31, 2023)

¥44 million

Mar. 29, 2024

Mitsui Fudosan Co., Ltd.

Overview of the land lease agreement

Fixed-term business-use land lease contract

1,002.66m2

Mitsui Fudosan Co., Ltd.

Approx. 25 years

(Mar. 29, 2024, to Nov. 30, 2048)Undisclosed4

• 1. The amount noted here excludes real property taxes, city planning taxes, consumption taxes, etc.

• 2. Figures are rounded down to the nearest million yen.

• 3. A reference figure calculated based on difference between the planned transfer price and the book value as of December 31, 2023. This may differ from actual gains or losses on the transfer of the Property.

• 4. Undisclosed as these items include information for which the lessee bears secrecy obligations to its business partners as well as a figure that could be used to calculate said information.

2 Shinsaibashisuji, Chuo-ku, Osaka City, Osaka

Sep. 2014 1,002.66m2

1,632.75m2

* Values are total values for North and South buildings.

Asset Size and Distributions

8th

9th

10th

11th

12th

13th

14th

15th

16th

17th

18th

19th 20th

21st

(June '08)

(Dec. '08)

(June '09)

(Dec. '09)

(June '10)

(Dec. '10)

(June '11)

(Dec. '11)

(June '12)

(Dec. '12)

(June '13)

(Dec. '13) (June '14)

(Dec. '14)

Properties

No. of properties

AEON STYLE Shinagawa Seaside: ¥20.1 billion

AEON MALL Ibaraki : ¥18.1 billionSummit Store Takinogawa Momiji-Bashi: ¥3.1 billion

BRANCH Hakata Papillon Garden: ¥7.9 billion

Home Center Kohnan Hiroshima Minami-Machi (land interest): ¥1.9 billion

Kamiikedai Tokyu Store: ¥1.4 billion

Frespo Tosu (land interest): ¥3.1 billion

Belltown Tambaguchi Eki-Mae Store: ¥2.1 billion

You Me Town Hiroshima: ¥23.2 billion

AEON MALL NAGOYADOME-Mae: ¥24.8 billion

17

30

29

Sponsors

* **FRI implemented a two-for-one split of its investment units effective January 1, 2014. Distributions before the split have been divided by two.

Asset sizes (presented after each property name) reflect acquisition prices. The acquisition price of AEON MALL Ibaraki includes that for a portion of the property's land (area of 118.86 m2 and book value of ¥15 million) sold to Ibaraki City for ¥19 million on October 12, 2010. The acquisition price of Desigual Harajuku includes that for a portion of the property's land (area of 26.86 m2 and book value of ¥259 million) sold to the Tokyo Metropolitan Government for ¥333 million on July 30, 2012. The acquisition price of Home Center Kohnan Hiroshima Minami-Machi (land interest) includes that for the property's former building (acquisition price of ¥208 million) demolished as announced on December 2, 2016. Furthermore, all asset size figures are truncated after the first decimal place.

22nd 23rd

24th

(June '15) (Dec. '15)

25th

(June '16)

26th

27th

28th

(Dec. '16)

29th

(June '17) (Dec. '17)

30th

(June '18)

31st

(Dec. '18)

32nd

(June '19)

33rd

(Dec. '19)

34th

(June '20)

35th

(Dec. '20)

37th

(June '21)

38th

(Dec. '21)

39th 40th*** 41st***

(June '22)

(Dec. '22)

(June '23)

(Dec. '23) ʢJune '24) (Dec. '24)

32

Shinsaibashi Square: ¥8.6 billion

Mitsui Shopping Park LaLaport SHIN-MISATO (16% co-ownership): ¥4.7 billion

Costco Wholesale Warehouse Shin-Misato (land interest):

32

¥3.8 billion

32

32

32 33

39

38

40

Mitsui Shopping Park LaLaport SHIN-MISATO (34% co-ownership): ¥10.3 billion

Ginza 5-chome GLOBE: ¥5.6 billion

Takeshita-dori Square: ¥6.1 billion

*** Forecasts of distribution are as of March 15, 2024.

**** FRI has formed an agreement with the trustee and the lessee of Mitsui Shopping Park LaLaport SHIN-MISATO and Mitsui Shopping Park LaLaport SHIN-MISATO Annex to manage the two properties as one. Accordingly, from the 31st period, these properties are counted as one.

Portfolio

We strive to build a high-quality portfolio that is balanced and diversified in terms of area, property type, and tenants.

Large-scaleSC

A large-scale shopping center (SC) that houses multiple specialty storesA large-scale shopping center (SC) in which multiple outlet stores are concentrated

A medium-scale shopping center (SC) where the main tenants are a supermarket and specialty shops

A medium-scale shopping center (SC) where the main tenant is a retail outlet that sells mainly food products or other medium-scale shopping center

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Frontier Real Estate Investment Corporation published this content on 28 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 March 2024 04:49:03 UTC.