Fiscal Period Business Report th (Statement of Financial Performance) 17 December 1, 2013 – May 31, 2014
The Daiwa Office Investment Corporation logo symbolizes hospitality with an open door and the desire to be a bright and open investment corporation. We will continue to aim to be a highly-transparent investment corporation that is further cherished and trusted by our investors and tenants.
6-2-1 Ginza, Chuo Ward, Tokyo http://www.daiwa-of ce.co.jp/en/ I. Overview of Daiwa Office Investment Corporation
To Our Investors
We would like to express our deep gratitude to all our unitholders for your support of Daiwa Office Investment Corporation (DOI). In the 17th Fiscal Period, DOI posted operating revenues of 8,587 million yen and operating income of 3,760 million yen. Our distribution per unit for the 17th Fiscal Period is 7,621 yen, an increase by 143 yen from the 16th Fiscal Period. See page 4 for financial and management highlights
DOI conducted portfolio property replacement in the 17th Fiscal Period acquiring “Integral Tower” on May 29, 2014 for 15,220 million yen and selling “Daiwa Shibuya SS Building” on May 30, 2014 for 3,800 million yen. We will consider portfolio replacement through the sale of properties going forward by analyzing long-term profitability and costs for each property. See page 8 for details of external growth
The overall portfolio occupancy rate increased to 96.4% in the 17th Fiscal Period with the recovery of the occupancy rates of shinyon curumu, Daiwa Meieki and other properties subject to leasing improvement. Furthermore, Shinjuku Maynds Tower was awarded “A rank” in CASBEE for Market Promotion certification system. See page 12 for details of internal growth
In financial matters, improvement of debt costs, lengthening of maturities, changing interest rate from floating to fixed rate and strengthening formation of lenders, in addition to steady expansion of asset size and maintenance of high occupancy rate are recognized resulting in the new acquisition of a long-term issuer rating of AA- (stable) from Japan Credit Rating Agency, Ltd. (JCR). DOI will continue striving to further strengthen financial structure while working to reduce future refinancing risks. See page 14 for details of financial condition
DOI will continue to focus on establishing its portfolio with a particular emphasis on office buildings in favorable locations centering on Tokyo, and aim to achieve an asset size of 500 billion yen while striving to increase the competitiveness of existing properties. We wish for the continued success of our unitholders and ask for your continued support of DOI.
Nobuaki Omura Executive Director of Daiwa Office Investment Corporation Contents
I. Overview of Daiwa Office Investment Corporation II. Asset Management Report……………………………16
To Our Investors……………………………………………… 2 III. Balance Sheets… ……………………………………… 22 Characteristics and Strategies of Daiwa Office Investment Corporation ………………………… 3 IV. Statements of Income………………………………… 24 Financial and Management Highlights………………………… 4 V. Statements of Changes in Unitholders’ Equity …… … 25 Overview of Portfolio (portfolio list)…………………………… 5
Overview of Portfolio (portfolio distribution)…………………… 6 VI. Notes to Financial Statements……………………… 26
External Growth Measures…………………………………… 8 VII. Independent Auditors’ Report………………………36 Internal Growth Measures… …………………………………12 VIII. Statements of Cash Flows [Information Only]… …… 37 Financial Conditions… ………………………………………14
Description of Asset Manager…………………………………15 IX. Investor Information… …………………………………38
2 Characteristics and Strategies of Daiwa Office Investment Corporation
Characteristics of Daiwa Office Investment Corporation Office Specialized REIT Focused on the Five REIT Central Wards of Tokyo Effective application of operational knowhow specialized in office Places priority on owning office buildings in favorable locations for buildings which there is high demand
Office buildings 100.0% Major Regional Cities 2.8% Five Central Greater Tokyo Wards of Tokyo 10.5% 86.7%
Based on acquisition price
(Note) Please note that the percentages in the above graphs are as of May 31, 2014.
Growth Strategies 500.0 Activities for solid growth (billion yen) Proactive investment in 500 ・Continue acquiring Achievement of a 500 billion yen asset size selectively chosen properties competitive properties ・Leverage borrowing Keep the medium-to-long term, upper-limit 387.5 400 capacity LTV target range within 40%~50% 352.7 364.0 332.0 313.2 314.9
300 Establishment of stable revenue base ・Property management Continuation of “Bonji-Tettei” activities Thorough implementation of hands-on 200 approach Further strengthen relations with tenants
・Maintain and Capture tenant needs by reinforcing ties with 100 improve property property managers value Strategic renewals and lease-up activities ・Financial activities Reduce refinancing risk by extending borrowing periods and diversifying 0 Fiscal period Fiscal period Fiscal period Fiscal period Fiscal period As of Medium-term repayment dates ended ended ended ended ended August 1, goal May 2012 November 2012 May 2013 November 2013 May 2014 2014
Distribution per Unit Fiscal period ended May 2014 yen (actual) (17th Fiscal Period) 7,621
(Note) The forecasts on distribution are calculated based on certain assumptions and may vary due to Fiscal period ending November 2014 yen (forecast) changes in the status and other (18th Fiscal Period) 7,820 factors. Moreover, the forecasts set forth herein should not be Fiscal period ending May 2015 construed as a guarantee of yen (forecast) (19th Fiscal Period) 8,328 distribution amounts.
I. Overview of Daiwa Office Investment Corporation 3 Financial and Management Highlights
Steady increase of distributions even in a severe office market environment
■ Operating Revenues ■ Operating Income (million yen) (million yen) 10,000 4,000
3,677 3,760 7,500 8,432 8,587 3,000 3,308 3,146 7,431 7,566 7,615 3,090
5,000 2,000
2,500 1,000
0 0 13th Period 14th Period 15th Period 16th Period 17th Period 13th Period 14th Period 15th Period 16th Period 17th Period
■ Net Income ■ Asset Size (million yen) (billion yen) 3,000 350 364.0 2,959 3,016 352.7 2,589 332.0 2,369 2,000 300 313.2 314.9 2,021
1,000 250
0 200 13th Period 14th Period 15th Period 16th Period 17th Period 13th Period 14th Period 15th Period 16th Period 17th Period
■ Distribution Per Unit (yen) 10,000 6,550 7,300 7,570 Forecast from one year earlier Forecast from six months earlier Actual dividends 5,500 7,200 7,540 8,328 5,350 7,820 8,000 6,250 7,478 7,621 4,154 4,850 5,500 3,903 3,600 4,850 6,542 6,000 3,180 5,986 5,246 2,843 4,100 5,107 3,176 3,280 4,464 4,000 3,240 3,671
2,000
0 9th Period 10th Period 11th Period 12th Period 13th Period 14th Period 15th Period 16th Period 17th Period 18th Period 19th Period
17th Period 16th Period 15th Period 14th Period 13th Period (May 2014) (November 2013) (May 2013) (November 2012) (May 2012) Operating revenues (million yen) 8,587 8,432 7,615 7,566 7,431 Operating income (million yen) 3,760 3,677 3,308 3,146 3,090 Ordinary income (million yen) 3,005 2,955 2,590 2,364 2,022 Net income (million yen) 3,016 2,959 2,589 2,369 2,021 Total number of units issued (units) 395,798 395,798 395,798 395,798 395,798 Net assets per unit (yen) 509,490 509,560 508,707 508,132 507,330 Distribution per unit (yen) 7,621 7,478 6,542 5,986 5,107 Total assets (million yen) 380,723 363,653 342,572 325,665 325,315 Loan-to-value (LTV) (based on total asset value) (%) 43.0 40.6 37.5 34.4 34.2 Number of investment properties 44 44 41 38 37 Asset size (billion yen) 364.0 352.7 332.0 314.9 313.2 Total rentable area (m2) 259,381.62 244,877.17 225,651.87 208,733.38 207,277.34 Occupancy rate (%) 96.4 96.3 95.0 96.4 94.3
4 Overview of Portfolio (portfolio list) including Properties Acquired in the 18th Fiscal Period
DOI has a portfolio comprised of one A Class building and 45 B Class buildings
(As of August 1, 2014) Acquisition Appraisal Rentable Structure and Execution Ownership Type Price Value at End PML (%) Property Name Address Area (m2) No. of Floors Completion of Major of Period Share (Note 5) (Note 2) (Note 3) Repairs mm (mm yen) Land Building yen (%) (Note 4) Five Central Wards of Tokyo (Note 1) Fee simple and 1 Daiwa Ginza Ginza, Chuo-ku, Tokyo 8,175.26 SRC B3/12F July 1963 2003 14,100 3.6 15,400 leasehold Fee simple 9.17 2 Daiwa Ginza Annex Ginza, Chuo-ku, Tokyo 2,032.99 SRC B3/8F Aug. 1972 2003 3,050 0.8 3,150 Fee simple Fee simple 7.46 3 Daiwa Shibaura Shibaura, Minato-ku, Tokyo 9,619.63 SRC B1/12F Oct. 1987 8,265 2.1 7,180 Fee simple Fee simple 5.09 4 Daiwa Minami-Aoyama Minami Aoyama, Minato-ku, Tokyo 2,715.53 S SRC B2/5F Sept. 1990 4,550 1.2 4,100 Fee simple Fee simple 12.79 5 Daiwa Sarugakucho Sarugakucho, Chiyoda-ku, Tokyo 3,657.43 SRC 8F June 1985 3,190 0.8 3,160 Fee simple Fee simple 9.79 Compartmentalized 6 Daiwa A Hamamatsucho Hamamatsucho, Minato-ku, Tokyo 3,663.38 SRC B2/10F July 1993 2,865 0.7 2,860 Fee simple ownership 6.03 7 Daiwa Jingumae Jingumae, Shibuya-ku, Tokyo 2,198.61 RC B1/4F Dec. 1997 2,800 0.7 2,100 Fee simple Fee simple 12.01 8 Daiwa Shibadaimon Shibadaimon, Minato-ku, Tokyo 2,386.02 SRC RC B1/7F Nov. 1996 2,578 0.7 2,640 Fee simple Fee simple 2.99 9 Daiwa Misakicho Misakicho, Chiyoda-ku, Tokyo 2,137.53 S 8F July 1996 2,346 0.6 2,500 Fee simple Fee simple 6.68 10 Daiwa Shimbashi 510 Shimbashi, Minato-ku, Tokyo 2,676.14 SRC B1/8F Apr. 1974 2006 2,080 0.5 2,380 Fee simple Fee simple 8.13 11 Daiwa Tsukijiekimae Tsukiji, Chuo-ku, Tokyo 2,659.59 SRC 10F Jan. 1996 1,560 0.4 1,470 Fee simple Fee simple 7.67 12 Daiwa Tsukiji Tsukiji, Chuo-ku, Tokyo 1,487.82 SRC B1/7F Jan. 1990 1,240 0.3 1,440 Fee simple Fee simple 9.70 13 Daiwa Tsukiji 616 Tsukiji, Chuo-ku, Tokyo 2,931.93 SRC B1/9F Mar. 1994 2,440 0.6 2,480 Fee simple Fee simple 7.69 14 Daiwa Tsukishima Tsukishima, Chuo-ku, Tokyo 8,426.85 S 5F July 1996 7,840 2.0 8,140 Fee simple Fee simple 10.89 15 Daiwa Nihonbashi Horidomecho Nihombashi-Horidomecho, Chuo-ku, Tokyo 2,850.81 SRC B2/7F Apr. 1993 2,520 0.7 2,490 Fee simple Fee simple 7.84 16 Daiwa Azabudai Azabudai, Minato-ku, Tokyo 1,697.38 SRC B2/9F Apr. 1984 1,600 0.4 1,700 Fee simple Fee simple 9.57 17 Daiwa Nihombashi Honcho Nihombashi-Honcho, Chuo-ku, Tokyo 7,418.61 SRC B1/10F Jan. 1964 2006 7,420 1.9 7,100 Fee simple Fee simple 8.49 18 Daiwa Ginza 1-chome Ginza, Chuo-ku, Tokyo 3,758.43 SRC B2/11F Jan. 1962 2005 4,620 1.2 4,500 Fee simple Fee simple 10.16 Compartmentalized 19 Daiwa Kyobashi Hachobori, Chuo-ku, Tokyo 3,265.83 SRC B1/8F Oct. 1974 2005 3,460 0.9 3,110 Fee simple ownership (100%) 10.04 Compartmentalized 20 Daiwa Kojimachi 4-chome Kojimachi, Chiyoda-ku, Tokyo 2,690.90 SRC B2/9F Oct. 1987 2,910 0.8 2,660 Fee simple ownership (100%) 8.62 Compartmentalized 21 Daiwa Onarimon Shimbashi, Minato-ku, Tokyo 11,615.37 SRC 9F Apr. 1973 2003 13,860 3.6 13,000 Fee simple ownership (100%) 5.45 22 Shinjuku Maynds Tower (Note 6) Yoyogi, Shibuya-ku, Tokyo 45,543.98 S SRC B3/34F Sept. 1995 133,800 34.5 113,000 Co-ownership Co-ownership 6.42 23 SHIBUYA EDGE Udagawacho, Shibuya-ku, Tokyo 2,480.65 RC B1/9F Aug. 2006 5,900 1.5 4,300 Fee simple Fee simple 3.14 Fee simple and 24 Daiwa Kodenmacho Nihombashi-Odenmacho, Chuo-ku, Tokyo 2,379.31 SRC 8F Mar. 1985 2,460 0.6 1,980 leasehold Fee simple 7.71 25 Daiwa Jimbocho Kanda-Jimbocho, Chiyoda-ku, Tokyo 3,164.26 S B1/8F Mar. 1997 4,150 1.1 2,900 Fee simple Fee simple 5.58 26 Daiwa Nishi-Shimbashi Nishi-Shimbashi, Minato-ku, Tokyo 4,815.84 SRC B1/10F July 1993 5,000 1.3 4,800 Fee simple Fee simple 6.76 Compartmentalized 27 Daiwa Kudan Kudan Minami, Chiyoda-ku, Tokyo 2,882.61 SRC 9F Mar. 1987 4,000 1.0 2,960 Fee simple ownership (100%) 7.96 28 Daiwa Kayabacho Building Nihombashi-Kayabacho, Chuo-ku, Tokyo 5,899.11 S SRC B1/8F Apr. 2010 5,600 1.4 6,610 Fee simple Fee simple 5.58 29 Daiwa Jimbocho 3-chome Kanda-Jimbocho, Chiyoda-ku, Tokyo 2,889.34 S 9F Feb. 2010 3,550 0.9 3,860 Fee simple Fee simple 6.13 30 E SPACE TOWER Maruyamacho, Shibuya-ku, Tokyo 13,960.87 S SRC B1/15F Oct. 2002 24,000 6.2 28,100 Fee simple Fee simple 5.78 31 Daiwa Nihonbashi Hongokucho Nihombashi Hongokucho, Chuo-ku, Tokyo 2,143.08 S 8F May 2010 1,721 0.4 1,890 Fee simple Fee simple 6.93 Compartmentalized 32 shinyon curumu Shinjuku, Shinjuku-ku, Tokyo 6,751.31 S RC B2/11F Jan. 2012 9,650 2.5 10,400 Right of site ownership (100%) 6.50 33 Daiwa Shibuya Dougenzaka Maruyamacho, Shibuya-ku, Tokyo 4,144.90 SRC B1/11F Mar. 1988 4,500 1.2 4,750 Fee simple Fee simple 5.89 34 Daiwa Akasaka (Note 7) Akasaka, Minato-ku, Tokyo 8,794.51 SRC B2/7F Sept. 1990 9,200 2.4 10,700 Fee simple Fee simple 9.81 35 Daiwa Shibuya Miyamasuzaka Shibuya, Shibuya-ku, Tokyo 6,327.95 S B1/12F Dec. 1988 7,000 1.8 7,450 Fee simple Fee simple 6.60 36 Azabu Green Terrace Minami Azabu, Minato-ku, Tokyo 13,234.39 S RC B1/6F Sept. 2009 14,000 3.6 15,000 Fee simple Fee simple 2.74 Subtotal 213,478.15 329,825 85.1 312,260 Greater Tokyo Area (Note 1) 37 Daiwa Kinshicho Kameido, Koto-ku, Tokyo 5,347.27 S B1/5F Jan. 1992 3,653 0.9 3,570 Fee simple Fee simple 7.42 38 Daiwa Higashi-Ikebukuro Higashi-Ikebukuro, Toshima-ku, Tokyo 4,461.48 SRC S B1/9F June 1993 2,958 0.8 3,240 Fee simple Fee simple 5.56 39 Benex S-3 Shin-Yokohama, Kohoku-ku, Yokohama City, Kanagawa 7,470.18 S SRC B1/12F Feb. 1994 4,950 1.3 3,240 Fee simple Fee simple 5.66 40 Daiwa Shinagawa North Kita-Shinagawa, Shinagawa-ku, Tokyo 6,549.98 SRC B1/11F July 1991 7,710 2.0 5,890 Fee simple Fee simple 5.56 41 Daiwa Osaki 3-chome Osaki, Shinagawa-ku, Tokyo 1,786.58 S RC B1/6F Sept. 2007 1,650 0.4 2,030 Fee simple Fee simple 10.93 42 Daiwa Kamiooka Kamiooka Nishi, Konan-ku, Yokohama City, Kanagawa 2,630.30 S SRC B3/7F May 2011 2,000 0.5 2,120 Fee simple Fee simple 12.30 43 Integral Tower Kamiogi, Suginami-ku, Tokyo 17,710.63 S SRC B2/18F June 1993 15,220 3.9 15,700 Fee simple Fee simple 3.56 Subtotal 45,956.42 38,141 9.8 35,790 Major Regional Cities (Note 1) 44 Daiwa Minami-Senba Minami-Senba, Chuo-ku, Osaka City, Osaka 5,719.54 SRC B1/8F Sept. 1986 4,810 1.2 2,770 Fee simple Fee simple 11.56 45 Daiwa Meieki Meieki-Minami, Nakamura-ku, Nagoya City, Aichi 7,461.90 S 12F Dec. 2007 5,300 1.4 6,410 Fee simple Fee simple 12.11 46 Kitahama Grand Building Awaji-cho, Chuo-ku, Osaka City, Osaka 13,517.62 S SRC B1/16F Feb. 2008 9,481 2.4 10,000 Fee simple Fee simple 4.98 Subtotal 26,699.06 19,591 5.1 19,180 Total 286,133.63 387,557 100.0 367,230
(Note 1) The Five Central Wards of Tokyo are Chiyoda, Chuo, Minato, Shinjuku and Shibuya Wards (or ku). The Greater Tokyo Area is Tokyo (excluding the Five Central Wards), and Kanagawa, Chiba and Saitama Prefectures. Major Regional Cities are the Osaka area (Osaka, Kyoto and Hyogo prefectures), Nagoya area (Aichi, Mie and Gifu prefectures) and ordinance designated cities and core cities set forth in the Local Autonomy Act. (Note 2) The Rentable Area are indicated as of May 31, 2014 (end of 17th Fiscal Period). The Rentable Area of Azabu Green Terrace and Kitahama Grand Building are indicated as of April 30, 2014. (Note 3) Structure acronyms are S for steel, RC for reinforced concrete and SRC for steel-reinforced concrete. (Note 4) The values entered in the Appraisal Value at End of Period column are the appraisal values in the real estate appraisal reports with a pricing point of May 31, 2014 (end of 17th Fiscal Period). The values entered in the Appraisal Value at End of Period column of Azabu Green Terrace and Kitahama Grand Building are indicated as of May 15, 2014. (Note 5) The figures entered for PML are the figures in the Portfolio Earthquake PML Assessment Report (June 2014) prepared by Sompo Japan Nipponkoa Risk Management Inc. The figures entered for PML of Azabu Green Terrace and Kitahama Grand Building are as of May 2014. (Note 6) The entrusted real estate corresponding to trust beneficiary interests that DOI owns regarding Shinjuku Maynds Tower is a co-ownership interest equal to 6/7 of the entire property. DOI acquired 3/7 of the co-ownership interest on July 13, 2007 for 65.1 billion yen and 3/7 of the co-ownership interest on November 26, 2007 for 68.7 billion yen. The figure shown for the Rentable Area is figure equivalent to 6/7 of the total rentable area of the entire building. (Note 7) The property name was changed from “Akasaka Business Place” to “Daiwa Akasaka” as of August 1, 2014.
I. Overview of Daiwa Office Investment Corporation 5 Overview of Portfolio (portfolio distribution) including Properties Acquired in the 18th Fiscal Period
DOI concentrates its investment in the Five Central Wards of Tokyo (Chiyoda, Chuo, Minato, Shinjuku and Shibuya)
Shibuya-ku
7 Daiwa Jingumae 23 SHIBUYA EDGE 38 Daiwa Higashi-Ikebukuro
Ikebukuro Sta. Toshima-ku 38
22 Shinjuku Maynds Tower 30 E SPACE TOWER 33 Daiwa Shibuya Dougenzaka 35 Daiwa Shibuya Miyamasuzaka
Asakusa Sta.
Nakano Sta. 43 Suginami-ku Oshiage Sta.
Ogikubo Sta. Suidobashi Sta. Shinjuku-ku 9 5 Akihabara Sta. Kinshicho Sta. 25 Shinjuku-ku Kudanshita Sta. 29 27 37 Shinjuku Sta. 31 32 24 15 Otemachi Sta. 17 Ningyocho Sta. 22 Yotsuya Sta. 20 Chiyoda-ku Nihombashi Sta. 32 shinyon curumu Honancho Sta. 28 Tokyo Sta.
Akasaka- mitsuke Sta. HibiyaHibiya SSta.ta. Shibuya-ku Aoyama- 19 7 itchome Sta. Akasaka Sta. 18 Minato-ku Toranomon Sta. 2 Chuo-ku 34 1 Ginza Sta. 11 4 Shimbashi Sta. 12 Omote- 26 43 Integral Tower sando Sta. 13 Tsukishima Sta. 10 23 21 6 14 Tokyo Metro JR 35 16 Line 30 i Shibuya Sta. Ginza Line Yamanote Line h s o 33 T - Marunouchi Line Saikyo Line 3 Daiwa Shibaura 4 Daiwa Minami-Aoyama 6 Daiwa A Hamamatsucho n 8 e n Shibakoen Sta. e Hibiya Line Chuo Line D yu Tozai Line Sobu Line Tok Minato-ku Chiyoda Line JR Yokosuka Line Yurakucho Line and 36 3 Sobu Rapid Line Hanzomon Line Naka-meguro Sta. Namboku Line Fukutoshin Line Tokyu Toyoko Line 39 Toei Subway Oedo Line 8 Daiwa Shibadaimon 10 Daiwa Shimbashi 510 16 Daiwa Azabudai Asakusa Line Mita Line Meguro Sta. 44 Shinjuku Line Shinagawa Sta. Main investment area: Five Central Wards of Tokyo 40 Focused investment area: Osaki Sta. Greater Tokyo 41 Shinagawa- 46 45 42 Major Regional Cities 21 Daiwa Onarimon 26 Daiwa Nishi-Shimbashi 34 Daiwa Akasaka 36 Azabu Green Terrace ku
6 Overview of Portfolio (portfolio distribution) including Properties Acquired in the 18th Fiscal Period
DOI concentrates its investment in the Five Central Wards of Tokyo (Chiyoda, Chuo, Minato, Shinjuku and Shibuya)
(As of August 1, 2014)
Chuo-ku
2 Daiwa Ginza Annex 11 Daiwa Tsukijiekimae 12 Daiwa Tsukiji 13 Daiwa Tsukiji 616 14 Daiwa Tsukishima 15 Daiwa Nihonbashi Horidomecho
Ikebukuro Sta. Toshima-ku 38
1 Daiwa Ginza 17 Daiwa Nihombashi Honcho 18 Daiwa Ginza 1-chome 19 Daiwa Kyobashi 24 Daiwa Kodenmacho 28 Daiwa Kayabacho Building 31 Daiwa Nihonbashi Hongokucho
Asakusa Sta. Chiyoda-ku Nakano Sta. 43 Suginami-ku Oshiage Sta.
Ogikubo Sta. Suidobashi Sta. 9 5 Akihabara Sta. Kinshicho Sta. 25 Shinjuku-ku Kudanshita Sta. 29 27 37 5 Daiwa Sarugakucho 9 Daiwa Misakicho Shinjuku Sta. 31 32 24 15 Otemachi Sta. 17 Ningyocho Sta. 22 Yotsuya Sta. 20 Chiyoda-ku Honancho Sta. Nihombashi Sta. 28 Tokyo Sta.
Akasaka- mitsuke Sta. HibiyaHibiya SSta.ta. Shibuya-ku Aoyama- 19 37 Daiwa Kinshicho 20 Daiwa Kojimachi 4-chome 25 Daiwa Jimbocho 7 itchome Sta. Akasaka Sta. 18 Toranomon Sta. 2 Chuo-ku 34 1 Ginza Sta. 11 4 Shimbashi Sta. 12 Omote- 26 sando Sta. 13 Tsukishima Sta. 10 23 21 6 14 Tokyo Metro JR 35 16 Line 30 i Shibuya Sta. Ginza Line Yamanote Line h s 27 Daiwa Kudan 29 Daiwa Jimbocho 3-chome o 33 T - Marunouchi Line Saikyo Line n 8 e n Shibakoen Sta. e Hibiya Line Chuo Line D yu Tozai Line Sobu Line Tok Minato-ku Chiyoda Line JR Yokosuka Line Yurakucho Line and 36 3 Sobu Rapid Line Hanzomon Line Naka-meguro Sta. Namboku Line Fukutoshin Line Tokyu Toyoko Line 39 Toei Subway Oedo Line 46 Kitahama Grand Building 39 Benex S-3 42 Daiwa Kamiooka Asakusa Line Mita Line Meguro Sta. 44 Shinjuku Line Shinagawa Sta. Main investment area: Five Central Wards of Tokyo 40 Focused investment area: Osaki Sta. Greater Tokyo 41 Shinagawa- 46 45 42 Major Regional Cities ku 40 Daiwa Shinagawa North 41 Daiwa Osaki 3-chome 44 Daiwa Minami-Senba 45 Daiwa Meieki
I. Overview of Daiwa Office Investment Corporation 7 External Growth Measures
Proactive investment in selectively chosen competitive properties
Newly Acquired Properties
Integral Tower (acquisition on May 29, 2014) 17th Fiscal Period
• 4-minute walk from Ogikubo Station on JR Chuo, Sobu and Tokyo Metro Marunouchi lines. • Good access to major office districts such as Shinjuku, Akasaka, Ginza, Marunouchi and Otemachi. • The Ogikubo area can be expected to be used as a sales/service base for the western Tokyo area or as a back-up office base with consideration given to BCP. Acquisition price 15,220 million yen
Expected NOI yield 4.8% Seiyu
Integral Tower Address 1-2-1 Kamiogi, Suginami-ku, Tokyo LUMINE Site area 3,170.21m2 Ogikubo Sta. JR Chuo Line/Sobu Line Tokyo Metro Marunouchi Line Structure and floors S SRC B2/18F Total floor area 25,744.27m2 Appraisal price 15,700 million yen Completion June 1993 Occupancy rate 96.7% (as of May 2014)
Kitahama Grand Building (acquisition on August 1, 2014) 18th Fiscal Period
• Located about 300 meters south of or a 4 minute-walk from Kitahama Station on the Osaka Municipal Subway Sakaisuji Line. • Stands in the area which is regarded as Sakaisuji-Honmachi business zone with office buildings around the junctions of Sakaisuji & Honmachi- Dori and Chuo-Odori. • The area is next to the Kitahama area which has historically developed as the center for securities brokers and pharmaceuticals and is still home to many financial institutions and pharmaceutical companies.
WaWatanabebashitanabebashi Oebashi Station Acquisition price 9,481 million yen StaStationtion Naniwabashi Station
Osaka City Hall Expected NOI yield 5.0% Station Yodoyabashi
Higobashi Station
2-2-14 Awaji-cho, Chuo-ku, Station Kitahama Keihan Address Osaka Nakanoshima Line Osaka City, Osaka Exchange Keihan Main Line
Site area 2,078.62m2 Line Midosuji Subway
Subway Yotsubashi Line Line Sakaisuji Subway Structure and floors S SRC B1/16F Kitahama Grand Building Total floor area 18,762.97m2 Appraisal price 10,000 million yen
Sakaisuji- Completion February 2008 Honmachi Honmachi Station Subway Chuo Line Station
Chuo Occupancy rate 100.0% (as of August 2014 (acquisition date)) Ward Office
Acquisition of Properties after Sponsor Change Total acquisition price: 126,022 million yen
Acquisition timing 9th Period 10th Period 11th Period 12th Period 13th Period 14th Period Daiwa Nishi- Daiwa Kayabacho Daiwa Jimbocho Daiwa Nihonbashi Daiwa Osaki Daiwa Jimbocho Daiwa Kudan E SPACE TOWER Shimbashi Building 3-chome Hongokucho 3-chome
Property name
Area Chiyoda-ku, Tokyo Minato-ku, Tokyo Chiyoda-ku, Tokyo Chuo-ku, Tokyo Chiyoda-ku, Tokyo Shibuya-ku, Tokyo Chuo-ku, Tokyo Shinagawa-ku, Tokyo Acquisition 4,150 million yen 5,000 million yen 4,000 million yen 5,600 million yen 3,550 million yen 24,000 million yen 1,721 million yen 1,650 million yen price
Japan Shining Nova Daiwa Tokyu Land Endeavor Realty Seller ORIX JREIT Inc. Tosei Corporation MCR Six GK Core Asset 2 YK No. 5 B (SPC) Property Co, Ltd. Corporation Fund YK
Acquisition Mar. 10, 2010 Aug. 13, 2010 Sept. 2, 2010 Mar. 25, 2011 Mar. 29, 2011 Jul. 8, 2011 May 11, 2012 Sept. 18, 2012 date
8 Azabu Green Terrace (acquisition on July 4, 2014) 18th Fiscal Period
• Located in Minami-Azabu area, which is surrounded by the Moto-Azabu/Hiroo international area where a number of embassies and high-end residences for foreigners are situated and the Shirokane-takanawa area that is very popular as a residential area with a high class cultural environment. • Tokyo Metro Subway Nanboku-Line and Tokyo Municipal Subway Mita-Line are available from Shirokane-takanawa Station, the nearest station, offering convenient access to major business districts such as Meguro, Roppongi, Nagatacho and Otemachi. • Standing in an area that is relatively disaster-free, stable and secure land, it is a highly evaluated office property even in terms of its BCP qualifications. • Has also been recognized for its stylish design, receiving the Good Design Award in 2011, etc. • Initiatives for creating large-scale greenery, such as improving the environment by reducing the heat-island phenomenon and giving consideration to biodiversity taken at the property are highly evaluated, leading to the property Embassy of Lithuania Toei receiving several environmental awards including from the urban development Azabu Juban Oedo Line Station Embassy of China Embassy of section of the “Top 100 Biodiversity Focused Properties,” organized by Organization Austria
for Landscape and Urban Green Infrastructure. Tokyo MetroEmbassy of Hibiya Line Embassy of Qatar Switzerland
Azabu Juban Embassy of Station Argentina Embassy of Acquisition price 14,000 million yen Embassy of South Korea Embassy of Norway Australia Expected NOI yield 4.6% Arisugawanomiya Hiroo Station Hiroo Memorial Park Embassy of Finland Address 3-20-1 Minami Azabu, Minato-ku, Tokyo Embassy of German Embassy of Site area 3,655.20m2 Pakistan Azabu Green Terrace Structure and floors S RC B1/6F Embassy of France Total floor area 17,127.05m2 Appraisal price 15,000 million yen Toei Mita Line Completion September 2009
Shirokane- Occupancy rate 100.0% (as of July 2014 (acquisition date)) takanawa Station
15th Period 16th Period 17th Period 18th Period
Daiwa Shibuya Daiwa Shibuya Azabu Green Kitahama Grand shinyon curumu Daiwa Meieki Daiwa Kamiooka Daiwa Akasaka Integral Tower Dougenzaka Miyamasuzaka Terrace Building
Shinjuku-ku, Tokyo Nagoya-shi, Aichi Yokohama-shi, Kanagawa Shibuya-ku, Tokyo Minato-ku, Tokyo Shibuya-ku, Tokyo Suginami-ku, Tokyo Minato-ku, Tokyo Osaka-shi, Osaka 9,650 million yen 5,300 million yen 2,000 million yen 4,500 million yen 9,200 million yen 7,000 million yen 15,220 million yen 14,000 million yen 9,481 million yen Two domestic Domestic special Domestic special Hakuba E Buildings Limited Azabu Green industrial Shimizu Corporation Ogikubo Building YK GK North Beach purpose company purpose company Capital 1 TMK Liability Company Terrace GK companies Dec. 3, 2012 Feb. 1, 2013 Mar. 1, 2013 Jul. 3, 2013 Aug. 9, 2013 Sept. 27, 2013 May 29, 2014 Jul. 4, 2014 Aug. 1, 2014 Apr. 12, 2013 (Note) The sum total of acquisition prices of the total acquisition price from sponsor changes until August 1, 2014 and acquisition prices of additional acquisition of existing properties and acquisition of leasehold rights during the period is 126,442 million yen. I. Overview of Daiwa Office Investment Corporation 9 External Growth Measures
Changes in Asset Size and Trading Performance
Aim to achieve medium-term goal of asset size of 500 billion yen by utilizing acquisition capability earned through capital increase
(billion yen) 550 80.0 (%)
Acquisition capability Total Acquisition Price LTV (Total Asset) Acquisition 500 capability 500.0 70.0 Acquisition 75.1 billion yen 450 Active investment for competitive capability properties after thorough selection 32.0 billion yen 60.0 400 387.5 364.0 350 352.7 50.0 50.0 332.0 311.3 313.2 314.9 300 43.0 287.3 278.1 40.6 40.6 45.0 40.0 265.0 269.1 37.5 250 34.0 34.2 34.4 200 28.1 28.9 30.0 25.3 25.5 Acquisition property Acquisition property 150 Acquisition property • Daiwa Shibuya Dogenzaka • Azabu Green Terrace Acquisition property Acquisition property • Daiwa Osaki • Daiwa Akasaka • Kitahama 20.0 • Daiwa Nishi-Shimbashi • E SPACE TOWER 3-chome • Daiwa Shibuya Miyamasuzaka Grand Building 100 • Daiwa Kudan
Acquisition property Acquisition property 10.0 50 Acquisition property Acquisition property Acquisition property • shinyon curumu • Integral Tower • Daiwa Jimbocho • Daiwa Kayabacho • Daiwa Nihonbashi • Daiwa Meieki • Daiwa Jimbocho 3-chome Hongokucho • Daiwa Kamiooka 0 0 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th As of LTV LTV Medium- Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period August 1, 2014 = 45% = 50% term goal
Current Portfolio and Acquisition Policy
DOI will invest in competitive properties based on in-depth data analysis upon careful selection from among the vast information on properties obtained through diverse sourcing.
■ Acquisition Policy ■ Distribution Chart of Portfolio Properties * indicate properties acquired after sponsor changes, indicate properties Building age (year) acquired in 17th and 18th Fiscal Periods. Distance to station is measured by the 60 distance to the nearest station. • Invest heavily in the five central wards of Tokyo and equivalent area.
• Thoroughly select properties in view of actual demand toward location (distance to 55 station, station power, crowd attraction, surrounding environment), building specs, etc. • Target properties to improve stability and profitability of our existing portfolio. 50 • Invest in buildings less than 25 years of building age. 45
■ Sale Policy 40
35 • Consider replacement of properties if necessary by sales in light of properties’ future competitiveness, profitability, etc. 30 Daiwa Kudan Daiwa Shibuya Dogenzaka 25 Daiwa Shibuya Miyamasuzaka ■ Number of Properties Reviewed for Acquisition Daiwa Akasaka Integral Tower (cases) * Number of gross proposals. (cases) 20 500 100 Daiwa Number of properties reviewed (left axis) Nishi-Shimbashi 427 Number of properties reviewed in detail (right axis) Daiwa Jimbocho 400 80 15 335 300 300 296 60 E SPACE TOWER 268 264 10 44 221 Daiwa 200 35 40 Daiwa Osaki 3-chome 30 Jimbocho Kitahama Daiwa Meieki 25 28 Daiwa 3-chome Grand Building 5 Kamiooka Azabu Green Terrace 100 17 20 15 Daiwa Kayabacho Daiwa Nihonbashi Hongokucho shinyon curumu Building 0 0 0 11th 12th 13th 14th 15th 16th 17th 0 1 2 3 4 5 6 7 8 9 10 11 Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Fiscal Period Distance to station (minutes)
10 Summary of Capital Increase through Public Offering and its Significance
■ Summary of Capital Increase through ■ Ratio of Major Properties in DOI’s Portfolio Public Offering 4.0 2.7 2.3 Issuance type Public offering (Domestic offering) Before the public offering No. of new investment 45,202 units 44 properties, 352,786 million yen units issued (Offering 41,902 units + OA 4,110 units) 37.9 6.8 3.9 2.6 39.7 (%) After Issue price 466,537 yen the public offering 46 properties, 20.3 billion yen 387,557 million yen Total procured amount (including OA) Shinjuku Maynds Tower 34.5 (%) E SPACE TOWER 6.2 Others 35.1 Integral Tower 3.9 Daiwa Shibaura 2.1 Daiwa Ginza 3.6 Daiwa Akasaka 2.4 Azabu Green Terrace 3.6 Kitahama Grand Building 2.4 Daiwa Onarimon 3.6 shinyon curumu 2.5
(Note) The names and investment ratios of the top 10 properties on acquisition price basis after the public offering are indicated.
■ Changes in Major Indices after Capital Increase through Public Offering
Properties Acquired Upon Capital Major Indices End of 16th Period After the public offering (Note) Increase through Public Offering No. of properties 44 properties 3 properties 46 properties Asset size (Total acquisition price) 352.7 billion yen 38.7 billion yen 387.5 billion yen NOI yield (Annualized) 3.4% 4.8% 3.5% NAV per unit 459,893 yen - 469,660 yen
Average building age 21.6 years 11.5 years 21.0 years No. of tenants 442 companies 26 companies 474 companies Occupancy rate 96.3% 98.7% 96.7%
LTV 40.6% - 40.6% Acquisition capability 68.2 billion yen - 75.1 billion yen Average Debt Remaining Period 3.4 years - 4.5 years
(Note) Major indices of “After Public Offering” exclude “Daiwa Shibuya SS” (sold on May 30, 2014).
■ Portfolio Replacement ■ Changes in Acquisition Capability and LTV
(billion yen) (%) Will consider portfolio replacement through sales of properties going Acquisition capability LTV 120 44 forward by analyzing long-term profitability and costs for each property 43.0 100 42 Overview of asset sold in the 17th Fiscal Period 40.6 40.6 Daiwa Shibuya SS Building 80 40 Address Shibuya, Shibuya-ku, Tokyo 60 75.1 38 Transfer Date May 30, 2014 68.2 Book Value (Note 1) Sale Price 3,783 million yen 3,800 million yen 40 36 Appraisal Value (Note 1) 3,840 million yen Differences between Sale Price and 17 million yen (+0.4%) 20 34 Appraisal Value (Note 2) Completion July 8, 1977 0 0 (Note 1) The price is as of November 30, 2013. End of FP ended Nov. 2013 End of FP ended May 2014 After public offering (Note 2) The difference between Sale Price and Book Value differs from gain/loss on sale. (end of 16th Period) (end of 17th Period) (forecast)
I. Overview of Daiwa Office Investment Corporation 11 Internal Growth Measures
Committed to heightening tenant satisfaction and proactive leasing activities
Office Market Trends
Further improvements in vacancy rate are observed and rent levels are showing signs of recovery.
■ Office Building Rental Market of Tokyo ■ Transition of the Supply and Demand Balance in 23 Wards of Tokyo (yen/tsubo) (%) (tsubo) (%) (yen/tsubo)25,000 10.0(%) 400,000(tsubo) (%)9.0 25,000 10.0 400,000 9.0 Supply and 23,000 8.0 300,000 7.5 Supplydemand and gap 23,000 8.0 300,000 7.5 200,000 demand gap 6.0 21,000 6.0 200,000 6.0 21,000 6.0 100,000 4.5 19,000 4.0 100,000 4.5 19,000 4.0 0 3.0 17,000 2.0 0 3.0 -100,000 Predicted figures 1.5 17,000 2.0 Average rents of Vacancy rate of -100,000 Floor area of new supplies Predicted figures 1.5 15,000 Averageexisting buildingsrents of (left axis) Vacancyexisting buildings rate of (right axis) 0.0 -200,000 Floor area of new demandssupplies Vacancy rate 0.0 15,000 existing buildings (left axis) existing buildings (right axis) 0.0 2001 2002Floor 2003area of2004 new2005 demands2006 2007 2008Vacancy2009 2010 rate2011 2012 2013 2014 2015 2016 2017 2018 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -200,000 0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (Source)2001 2002 Miki Shoji2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (Source) CBRE “Mid-term Office Market Outlook 2014 Tokyo 23 Wards”
Rental Business Status
We strived to improve the occupancy rate as well as diversifying tenants in leased areas.
■ Occupancy Rate ■ Average Contract Rents and Market Rents (monthly)
(%) (yen/tsubo) 100.0(%) (yen/tsubo)25,000 120 100.0 25,000 120 97.7 97.7 96.4 96.3 96.4 95.9 95.8 22,500 90 95.4 96.4 95.0 96.3 96.4 95.2 95.0 95.9 95.8 22,500 90 95.4 95.2 75.0 75.1 95.0 95.0 95.3 94.3 94.8 75.0 75.1 92.8 94.3 94.8 95.3 20,000 60 92.8 92.4 20,000 Unit rent index 60 90.0 18,215 92.4 (Period-on-periodUnit rent index 90.0 Occupancy rate (actual) 17,500 (Period-on-periodcomparison, right axis)** 18,468 18,215 30 Occupancy rate (actual)(forecast) 17,500 Averagecomparison, contract right rents axis)*** 18,468 16,284 30 Occupancy rate (forecast) Average officecontract rents rents * 16,284 85.7 (As of disclosure in January 2014) (according to Miki Shoji for five central wards of Tokyo) 16,035 85.0 Occupancy rate (forecast) 15,000 Average office rents 0 (according to Miki Shoji for five central wards of Tokyo) 85.0End of End of End of85.7End of End of End of End of End of End of (AsEnd of disclosureof End of inEnd January of End 2014) of 15,000 End of End of End of End of End of End of End of End of End of End of End of End of16,035End of End of 0 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of EndPeriod of 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th Period Period Period Period Period Period Period Period Period Period Period Period Period * Average monthlyPeriod contractedPeriod Period rentsPeriod withPeriod tenantsPeriod at thePeriod endPeriod of eachPeriod fiscalPeriod period.Period Period Period Period ** Unit rent index is the comparison of existing properties’ rents with the existing properties’ rents in the preceding period for consecutive periods, indexed with the figure at the end of the 7th FP as 100.
(Note) ■(No. Tenant of cases) Diversification in Leased Area (%) (No. ■of cases)Changes and Reasons for Tenants Moving In/Out (No. of700 cases) (%)30 (No. of60 cases) 28.6 28.4 700 27.5 30 5060 28.6 28.4 44 27.5 4050 42 600 25.5 25.2 38 44 24.9 3040 33 31 42 600 25.5 24.4 30 38 22.8 25.2 24.9 23.4 33 31 24 25 24.4 2030 30 17 18 18 18 22.8 23.4 16 13 24 1225 500 1020 17 18 9 18 6 164 18 13 2 20 12 500 3,000m or more (left axis) 100 6 -2 9 2 2 4 1,000m2 or more, less than 3,000m (left axis) 20 3,000m or more (left axis) -100 -2 2 2 2 2 -12 -13 400 300m1,000m or ormore, more, less less than than 1,000m 3,000m (left (left axis) axis) 12 -20 -14 -15 2 2 2 -10 -20 400 Less300m than or more,300m less (left than axis) 1,000m (left axis) 10 -20 -14 -12 -15 -13 2 12 -20 -24 -25 -26 -24 LessRatio thanof tenants 300m leasing2 (left axis) 3,000m or more (%) (right axis) 10 10 40 -20 -20 34 -30 -24 -25 -24 Ratio of tenants leasing 3,000m2 or more (%) (right11 axis) 1031 40 -26 300 11 34 -40-30 300 8 9 10 1127 31 1130 -50-40 8 348 349 1032 27 194 10 -53 30 187 -50 200 248 34 34 32 174 194 10 -60 -53 159 187 -60 End of End of End of End of End of End of End of End of End of End of 200 24 145 174 8th Period 9th Period 10th Period 11th Period 12th Period 13th Period 14th Period 15th Period 16th Period 17th Period 115 127 127 133 159 End of End of End of End of End of End of End of End of End of End of 127 133 145 8th Period Number9th Period of Move10th Period Ins 11th Period 12thNumber Period of13th Move Period Outs14th Period 15thDifference Period 16th Period 17th Period 100 115 127 Number of Move Ins Number of Move Outs Difference 100 139 147 149 97 105 107 103 110 119 139 147 149 Breakdown of 17th Cost Space Better 0 107 110 119 0 Consolidation Downsizing Other Total 97 105 103 Period Reduction Expansion Location 0 End of End of End of End of End of End of End of End of End of 0 9th Period 10th Period 11th Period 12th Period 13th Period 14th Period 15th Period 16th Period 17th Period End of End of End of End of End of End of End of End of End of Moving in 2 22 3 0 8 7 42 9th Period 10th Period 11th Period 12th Period 13th Period 14th Period 15th Period 16th Period 17th Period Moving out 1 4 7 5 1 6 24 (Note) Office and retail are the target tenants (excluding residence and warehouse) (Note) Figures above exclude new moving in/out for residential and warehouse properties
12 Occupancy Rate of the Properties Subject to Leasing Improvement in the 17th Fiscal Period
■ shinyon curumu (acquisition price: 9,650 million yen) ■ Daiwa Meieki (acquisition price: 5,300 million yen) ■ Daiwa Higashi-Ikebukuro (acquisition price: 2,958 million yen)
100.0(%) 100.0(%) 100.0(%) * 85.4 92.2 78.4 81.3 98.4 100.0 100.0 100.0 67.5 96.3 55.9 69.3 50.0 51.9 50.0 50.0 100 92.2 100.0 100.0 100.0
0.0 0.0 0.0 69.3 Time of 15th 16th 17th Time of 15th 16th 17th 14th 15th 16th 17th Acquisition Period Period Period Acquisition Period Period Period Period Period Period Period 50 (Dec. 2012) (Feb. 2013)
• Highly convenient property located a 4-minute walk • Located a 6-minute walk from Nagoya Station on the • Middle-scale property located a 10-minute walk from from JR Shinjuku Station’s new south exit and directly JR and Nagoya Municipal Subway lines and a 2-minute Higashi-Ikebukuro Station on the Tokyo Metro 0
connected to the passageway of Shinjuku 3-chome 100walk from the underground doorway which leads to the 100Yurakucho Line and a 12-minute walk from JR 100 subway station. underground shopping arcade. Ikebukuro Station. • Local development can be expected with development • A large-scale redevelopment is planned in the future • The property is close to Sunshine City and it has a of station building scheduled to open in the spring of and business accumulation is growing year by year. characteristic solid exterior. 50 50 50 2016 as well as with infrastructure development. * Monthly occupancy rates are indicated for the 17th Fiscal Period.
Value-up Properties in the 18th 0Fiscal Period 0 0
■ Daiwa Minami-Senba (acquisition price: 4,810 million yen) ■ Shinjuku Maynds Tower (acquisition price: 133,800 million yen) Property subject to Strategic value-up property leasing improvement • Shinjuku Maynds Tower, completed in 1995, is approaching Obtained “A rank” in CASBEE for • Property with high its first major challenge with the physical, economic and Market Promotion certification transportation social degradation of various facilities. system in June 2014 convenience being • Upon updating what is inevitably required due to aging located within a 3 degradation, we will not seek simple replacement but minute-walk from promote strategic value-up plans that will lead to adding Shinsaibashi Station on value to the property in various aspects including measures the Osaka City Subway for energy-saving, CS improvement and BCP. Midosuji Line, Nagahori- Tsurumi Line and a 4 minute-walk from Yotsubashi Station on the Energy-saving CS Improvement BCP measures Yotsubashi Line. • Introduction of individual heat sources • Computerizing VAV control (air/temperature • Long-term earthquake • Introduction of LED lighting to common areas control) Scheduled to be completed in 2015 countermeasure construction • The property houses renowned brand shops on • Visualization of energy (introduction of BEMS • Renewal construction of underground on elevators the lower floors and stands in one of the most through the renewal of the central monitor) shopping floors • Installment of emergency commercialized areas of the Osaka office area. Scheduled to be completed in 2015 • Renewal construction of common areas on disaster kit cabinets in office floors elevators
Measures to Increase Portfolio Value
■ Strategic Renewal Works ■ BCP Measures (security reinforcement) ■ Strategic Tenant Attraction Air conditioning equipment renewal work Surveillance cameras are added to 6 properties in the portfolio Kagami Crystal
Daiwa A Hamamatsucho Daiwa Misakicho Daiwa Kyobashi (wind shelter) Daiwa Minami-Aoyama (service entrance) Daiwa Ginza
Upgrading common area at E SPACE TOWER ■ Energy–Saving Measures ■ Coexistence with Local Societies Ceiling renovation at Daiwa A Hamamatsucho Free coffee offered by UCC Holdings Co., Ltd. at the Tokyo Marathon
Before After
Before After Daiwa Onarimon
I. Overview of Daiwa Office Investment Corporation 13 Financial Conditions
Reduce refinancing risk by extending borrowing periods and diversifying repayment dates
Status of Interest-Bearing Liabilities (as of May 31, 2014)
During the 17th Fiscal Period, DOI conducted refinancing of 14.9 billion yen due to arrival of repayment dates and new debt financing of 16 billion yen for property acquisitions, in order to extend borrowing periods and diversify repayment dates. DOI will continue to focus on stable financial management and support further growth.
■ Interest-Bearing Liabilities ■ Changes in Remaining Years at the Time of (billion yen) 280 70.0(%) (year) 8.0 Procurement of Interest-Bearing Liabilities 4.0 (year) 3.8 7.0 Average year remaining at the period end (right axis) 3.5 240 Interest-bearing liabilities (left axis) 60.0 LTV (based on acquisition price) (Note) (right axis) Average remaining years at the time of 6.2 6.0 procurement during the 17th Fiscal Period (left axis) 3.0 200 50.0 Medium-to-long term, upper-limit LTV target range 5.0 2.5 160 40.0 4.0 2.0 120 30.0 3.0 1.5 80 20.0 2.0 1.0
40 10.0 1.0 0.5
0 0.0 0.0 0.0 End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of End of 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period (Note) LTV (based on acquisition price): Total interest-bearing liabilities / Total acquisition price of properties
■ Diversification of Repayment Dates ■ Balance of Borrowings by Financial Institution (million yen) Financial institution Balance (mm yen) Share 30,000 Sumitomo Mitsui Banking Corporation 33,400 20.4% Sumitomo Mitsui Trust Bank 20,350 12.4% Development Bank of Japan 18,750 11.5% Mizuho Bank 13,900 8.5% 20,000 The Bank of Tokyo-Mitsubishi UFJ 11,500 7.0% Shinsei Bank 11,000 6.7% Resona Bank 9,000 5.5% Aozora Bank 6,000 3.7% Kansai Urban Banking Corporation 5,000 3.1% 10,000 Mitsubishi UFJ Trust and Banking 5,000 3.1% Mizuho Trust and Banking 5,000 3.1% 14,900 The Bank of Fukuoka 4,000 2.4% ORIX Bank Corporation 2,500 1.5% The Gunma Bank 2,500 1.5% 0 The Shizuoka Bank 2,000 1.2% 17th 18th 19th 20th 21st 22nd 23rd 24th 25th 26th 27th 28th 29th 30th 31st 32nd 33rd 34th Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period The Musashino Bank 2,000 1.2% Tokio Marine & Nichido Fire Insurance 2,000 1.2% ■ Ratio of Long- to ■ Ratio of Fixed- to The Higashi-Nippon Bank 1,500 0.9% Short-Term Liabilities Floating-Rate Borrowings The Hiroshima Bank 1,000 0.6% The Kagawa Bank 1,000 0.6% End of 17th End of 17th The 77 Bank 1,000 0.6% 19.7% Fiscal 23.5% Fiscal The Bank of Yokohama 500 0.3% Period Period The Yamaguchi Bank 500 0.3% Taiyo Life Insurance Company 300 0.2% Nippon Life Insurance Company 300 0.2% 76.5% 80.3% Fukoku Mutual Life Insurance 200 0.1% Subordinated investment corporation bonds 3,500 2.1%
Long-term borrowings, etc. Fixed interest rates Total 163,700 100.0% Short-term borrowings, etc. Floating interest rates (Note) Balances less than a million yen have been rounded down.
■ Status of Rating DOI newly acquired a rating from Japan Credit Rating Agency, Ltd. (JCR) in February 2014 for its conservative leverage, the significant improvement in debt costs, etc.
Rating agency Target rating Rating Rating outlook Japan Credit Rating Agency, Ltd. (JCR) Long-term issuer rating AA- Stable Rating and Investment Information, Inc. (R&I) Issuer rating A+ Stable
14 Description of Asset Manager
Organization of Asset Manager (as of July 14, 2014)
■ Description ■ Directors and Auditor
Name Daiwa Real Estate Asset Management Co., Ltd. President and Representative Akira Yamanouchi Address 6-2-1 Ginza, Chuo-ku, Tokyo Director Vice President and Established October 21, 2004 Yuji Shinotsuka (Head of Corporate Planning Dept.) Representative Director Paid-in Capital 200 million yen Vice President and Employees 57 Yoshiki Nishigaki (Head of Private Fund Management Dept.) Representative Director Registration of Financial Instruments No. 355 (Kinsho), Director-General, Kanto Local Business Operator Finance Bureau Director Naoyuki Owa (Head of Administration Dept.) Building Lots and Buildings Transaction Director (non-executive) Toshihiro Matsui No. (2)-83920, Governor of Tokyo Business License Director (non-executive) Mikita Komatsu Discretionary Agent for Real Estate No. 34, Minister of Land, Infrastructure, Transport and Auditor (non-executive) Masaru Shirataki Transaction Approval Tourism Auditor (non-executive) Shinji Kiso Member of The Investment Trusts Association, Japan Association Membership Member of Japan Investment Advisers Association
Organizational Chart ■ Shareholders’ Meeting Auditors Board of Directors Compliance Committee
Investment Committee Compliance Officer President and Representative Director Internal Control Office
Acquisition Asset Management Customer Relations Administration Corporate Planning Private Fund Department Department Department Finance Department Department Department Management Department Office Investment Office Management Advisory Team Team Team Finance Team Residential Investment Residential Team Management Team Accounting Team Operational Team Healthcare Healthcare Investment Management Team Team Investment Team Investment Planning Team Construction Management Team Structure
Investment Corporation General Administrator Asset Manager ① ② Asset Custodian General Administrator related to the operation of the Sumitomo Mitsui Trust Bank, Limited administrative instruments General Meeting of Unitholders Manager of Unitholder Daiwa Real Estate Asset Registry, etc. Officers Management Co., Ltd ③ Special Account Management Executive Director: Nobuaki Omura Institution Supervisory Director: Takayuki Hiraishi Sumitomo Mitsui Trust Bank, Limited ④ Supervisory Director: Hiroshi Sakuma ⑤ General Administrator (Investment Corporation Bonds) Supporting Company Accounting Auditor Sumitomo Mitsui Banking Corporation Daiwa Securities Group Inc. KPMG AZSA LLC ① Asset management contract / General administration affairs contract related to operation ④ Sponsor support agreement of administrative instruments ⑤ Fiscal agency agreement ② General administrative affairs contract / Asset custodian contract ③ Unitholder register, etc. management contract / Special account management contract
(Note) The specified affiliated juridical person (meaning a specified affiliated juridical person as provided in Article 12, Paragraph 3 of the Cabinet Office Ordinance on Disclosure of Information, etc. on Specified Securities (Ordinance of the Ministry of Finance No. 22 of 1993; including amendments thereto)) of DOI is Daiwa Securities Group Inc. Daiwa Securities Group Inc. is the Asset Management Company’s parent company (meaning a parent company as stipulated in Article 8, Paragraph 3 of the Ordinance on Terminology, Forms and Preparation Methods of Financial Statements, etc. (Ordinance of the Ministry of Finance No. 59 of 1963; including amendments thereto)).
I. Overview of Daiwa Office Investment Corporation 15 II. Asset Management Report
1. Management Status and Other Performance Highlights Data
17th Period 16th Period 15th Period 14th Period 13th Period Fiscal Period From Dec. 1, 2013 From June 1, 2013 From Dec. 1, 2012 From June 1, 2012 From Dec. 1, 2011 ( To May 31, 2014 ) ( To Nov. 30, 2013 ) ( To May 31, 2013 ) ( To Nov. 30, 2012 ) ( To May 31, 2012 ) (1) Operating Performance (Millions of yen, except per unit data or where otherwise indicated) Operating revenues 8,588 8,432 7,615 7,566 7,431 Rental revenues 8,491 8,367 7,520 7,384 7,338 Operating expenses 4,827 4,755 4,306 4,419 4,341 Property-related expenses 3,931 3,870 3,499 3,602 3,533 Operating income 3,761 3,677 3,309 3,147 3,090 Ordinary income 3,006 2,956 2,590 2,365 2,022 Net income 3,016 2,960 2,589 2,369 2,021 (2) Properties, etc. (as of end of period) Total assets 380,723 363,654 342,573 325,666 325,316 [period-on-period percentage changes] [+4.7%] [+6.2%] [+5.2%] [+0.1%] [+0.6%] Interest-bearing liabilities 163,700 147,700 128,300 112,081 111,391 Net assets 201,655 201,683 201,345 201,118 200,800 [period-on-period percentage changes] [+0.0%] [+0.2%] [+0.1%] [+0.2%] [+0.1%] Unitholders’ capital 198,781 198,781 198,781 198,781 198,781 (3) Distributions Total distribution amount 3,016 2,960 2,589 2,369 2,021 Dividend payout 100.0% 100.0% 100.0% 100.0% 100.0% (4) Per Unit Information Total number of units issued (units) 395,798 395,798 395,798 395,798 395,798 Net assets per unit (yen) 509,490 509,561 508,707 508,132 507,331 Distribution per unit (yen) 7,621 7,478 6,542 5,986 5,107 Distribution amount from earnings per unit (yen) 7,621 7,478 6,542 5,986 5,107 Distribution amount in excess of earnings per unit (yen) – – – – – (5) Financial Indicators ROA Notes 2 0.8% 0.8% 0.8% 0.7% 0.6% [annual rate] and 3 [1.6%] [1.7%] [1.6%] [1.5%] [1.2%] ROE Notes 3 1.5% 1.5% 1.3% 1.2% 1.0% [annual rate] and 4 [3.0%] [2.9%] [2.6%] [2.4%] [2.0%] Capital ratio 53.0% 55.5% 58.8% 61.8% 61.7% [period-on-period percentage changes] [−2.5%] [−3.3%] [−3.0%] [0.0%] [−0.3%] LTV (loan to value) 43.0% 40.6% 37.5% 34.4% 34.2% Property leasing cash flows (NOI) Note 5 5,916 5,826 5,300 5,088 5,172 (6) Other Referential Information Number of investment properties 44 44 41 38 37 Number of tenants Note 6 458 442 410 376 355 Total rentable area (m2) 259,381.62 244,877.17 225,651.87 208,733.38 207,277.34 Occupancy rate Note 7 96.4% 96.3% 95.0% 96.4% 94.3% Depreciation 1,356 1,329 1,280 1,306 1,367 Capital expenditures 454 294 278 357 641
(Note 1) Operating revenues, etc. do not include consumption taxes, etc. (Note 2) ROA: Ordinary income ÷ [(Total assets at beginning of period + Total assets at end of period) ÷ 2] × 100 (Note 3) Figures for the 13th Fiscal Period are the annualized figures calculated based on 183 days of management. Figures for the 14th Fiscal Period are the annualized figures calculated based on 183 days of management. Figures for the 15th Fiscal Period are the annualized figures calculated based on 182 days of management. Figures for the 16th Fiscal Period are the annualized figures calculated based on 183 days of management. Figures for the 17th Fiscal Period are the annualized figures calculated based on 182 days of management. (Note 4) ROE: Net income ÷ [(Net assets at beginning of period + Net assets at end of period) ÷ 2] × 100 (Note 5) Property leasing cash flows (NOI): Rental revenues − Property-related expenses + Depreciation (Note 6) Number of tenants is the number of end tenants. When there is a tenant occupying multiple buildings, the concerned tenant is counted and stated for each individual building. (Note 7) Occupancy rate: Total leased area ÷ Total rentable area
16 2. Developments in Asset Management in the Fiscal Period under Review
(1) Brief History of the Investment Corporation Daiwa Office Investment Corporation (former DA Office Investment Corporation; hereinafter “DOI”) was established on July 11, 2005 in accordance with the Act on Investment Trusts and Investment Corporations (Act No. 198 of 1951; including amendments thereto) with Daiwa Real Estate Asset Management Co., Ltd. (hereinafter “DREAM”; former, K.K. daVinci Select) as the organizer. After its establishment, DOI implemented an additional issuance of investment units through a public offering (99,600 units) on October 18, 2005 and then listed on the Tokyo Stock Exchange, Inc. (“TSE”) Real Estate Investment Trust Section (securities code: 8976) the following day. Though initial assets under management were 79,573 million yen (sum total of acquisition prices), subsequent activities, such as the additional acquisition of properties and replacement of portfolio properties, resulted in the assets under management amounting to 364,076 million yen (sum total of acquisition prices) as of the last day of May 2014. DOI strives to secure stable revenues and achieve sustainable growth of investment assets based on a clear portfolio development policy of specializing in investment in office buildings, with a particular focus on investment in buildings with a total floor area of 2,000m2 or more situated in downtown Tokyo, as well as through dedicated efforts to heighten tenant satisfaction levels.
(2) Investment Environment and Management Performance (A) Investment Environment (from Dec 1, 2013 to May 31, 2014) During the 17th Fiscal Period, a recovery trend was seen in the Japanese economy owing to improvement in business sentiment and corporate performance primarily by export-related companies associated with the depreciation of the yen and rise in stock prices against the backdrop of finance focused economic policies, centering on the financial policies promoted by the Abe administration, as well as the large-scale monetary easing policy implemented by Bank of Japan, high level of public investment and other factors. While there were concerns of consumption decreasing on the rebound of the last-minute surge in demand associated with the consumption tax hike, improvement in employment and other factors are expected to lead to steady economic recovery going forward. In the office rental market in central Tokyo, vacancy rates took a turn after peaking in June 2013 and declined to 6.52% at the end of May 2014 due to the settling down in new supply. Led by the improvement in vacancy rates of large buildings, overall vacancy rates including that of small and medium-sized buildings were also on an improving trend. While the drop in vacancy rates is leading to a stronger sense that office rents are bottoming out, there was a rise in office rents of large buildings in some areas but only a slight increase in the overall market. In the office transaction market, property prices were anticipated to rise due to expectations of the economy recovering and property acquisitions by real estate companies and funds (including REITs) remained high amid the ongoing favorable equity financing environment and proactive lending attitudes of financial institutions.
(B) Management Performance To increase the long-term EPS (EPS (net income per unit) after deducting gain on sales of properties) over the medium to long term, DOI has sustained the strategy for “external growth” which aims to increase revenue through property acquisitions, and “internal growth” which aims to maximize income generated from existing properties. For external growth, DOI proactively engaged in property acquisition activities and purchased “Integral Tower” (acquisition price: 15,220 million yen) in May 2014. Meanwhile, DOI divested “Daiwa Shibuya SS Building” (sale price: 3,800 million yen) in May 2014. As a result, DOI’s assets under management at the end of the 17th Fiscal Period (as of May 31, 2014) totaled 44 properties, the sum total of acquisition prices amounted to 364,076 million yen. For internal growth, in spite of the severe office rental market, DOI tried to meet the demands of tenants to expand rental space through developing good relations with existing tenants and strengthening cooperation with leasing brokers and property managers. As a result of proactive leasing activities, the occupancy rate at the end of the 17th Fiscal Period (as of May 31, 2014) was maintained at 96.4%.
II. Asset Management Report 17 (3) Overview of Capital Procurement (A) Procurement of Funds for Acquisitions DOI implemented the following financing activities during the 17th Fiscal Period to acquire “Integral Tower.” (a) On May 29, 2014, DOI borrowed 16,000 million yen in total from Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Sumitomo Mitsui Trust Bank, Limited, Mizuho Bank, Ltd., Development Bank of Japan Inc., Mizuho Trust & Banking Co., Ltd., and The Musashino Bank, Limited to acquire the new property (“Integral Tower” delivered on May 29, 2014).
(B) Procurement of Funds for Repayment of Borrowings (Refinancing) DOI implemented the following financing activities during the 17th Fiscal Period for repayment of borrowings. (a) On March 18, 2014, DOI borrowed 4,000 million yen from Resona Bank, Ltd. for repayment of 4,000 million yen due on March 18, 2014. (b) On March 25, 2014, DOI borrowed 2,000 million yen from Sumitomo Mitsui Banking Corporation for repayment of 2,000 million yen due on March 25, 2014. (c) On March 31, 2014, DOI borrowed 8,900 million yen in total from Mizuho Bank, Ltd., The Bank of Tokyo-Mitsubishi UFJ, Ltd. and Gunma Bank, Ltd. for repayment of 8,900 million yen due on March 31, 2014.
(C) Status of Interest-Bearing Liabilities As a result of the above, the balance of interest-bearing liabilities outstanding at the end of the 17th Fiscal Period (as of May 31, 2014) stood at 163,700 million yen (short-term debt: 5,500 million yen; long-term debt: 154,700 million yen; investment corporation bonds: 3,500 million yen). The balance of long-term debt due within one year stood at 29,500 million yen. During the 17th Fiscal Period, the average remaining repayment period has been extended from 3.43 years (16th Fiscal Period) to 3.82 years (17th Fiscal Period) because DOI conducted borrowings mainly with periods of between 5 years and 8 years and as long as 8.5 years. Furthermore, borrowing costs were reduced through the reduction of credit spread interest. Meanwhile, DOI concluded interest-rate swap agreements in the 17th Fiscal Period to fix future interest payments for borrowings of 19,600 million yen in total in order to offset the risks of the possible increase of interest rates.
18 (4) Capital Expenditures During the 17th Fiscal Period The following summarizes the major construction work that constitutes capital expenditures during the 17th Fiscal Period. Capital expenditures amounted to 454 million yen, and combined with the 272 million yen in repair expenses, total of 726 million yen in construction work was implemented.
Name of Property Expenditure Purpose Period (location) (millions of yen) Shinjuku Maynds Tower Construction work for renewal of the From: Jan. 2014 98 (Shibuya-ku, Tokyo) store on B1F To: May 2014 Daiwa Misakicho From: Apr. 2014 Renewal work for air conditioning 47 (Chiyoda-ku, Tokyo) To: May 2014 Shinjuku Maynds Tower From: Jan. 2014 Renovation work for common area 28 (Shibuya-ku, Tokyo) To: Feb. 2014 From: Dec. 2013 Other Buildings 281 To: May 2014
Total 454
(5) Overview of Financial Performance and Distributions As a result of the management described above, for the 17th Fiscal Period, DOI recorded 8,587 million yen in operating revenue, 3,761 million yen in operating income, 3,006 million yen in ordinary income and 3,016 million yen in net income. Concerning distributions, to ensure that the cash dividend would be deducted from taxable income (Article 67-15 of the Special Measures Concerning Taxation (Act No. 26 of 1957; including amendments, hereinafter “Special Taxation Measures Act”)), DOI decided to distribute the entire retained earnings at the 17th Fiscal Period end, excluding fractions of the distribution amount per unit that are less than 1 yen. Accordingly, DOI declared a distribution of 7,621 yen per unit.
II. Asset Management Report 19 3. Future Management Policy and Tasks
(1) Investment Environment The Japanese economy is expected to recover gradually with the improvement of corporate performance mainly focusing on export-related companies and public investment as well as a recovery in personal spending due to the effects of various finance focused economic stimulus measures, centering on the public works projects and financial policies promoted by the Abe administration, and the large-scale monetary easing policy implemented by the Bank of Japan as well as the recovery in overseas economies centering on advanced countries. However, there still is a need to pay attention to the turmoil in overseas economies and financial markets with the emergence of geopolitical risks because they pose potential risks of disrupting the Japanese real economy and financial environment. In the office rental market, vacancy rates declined with the boost in demand from the decrease in the supply of new office buildings and improvement of the employment situation. In addition, rents are anticipated to improve as an increase in demand for office floor is expected along with the improvement of corporate performance. In the office transaction market, the appetite for acquisitions by real estate companies and funds (including REITs) is expected to be even stronger against the backdrop of the favorable financing environment and expectations for rents to rise, among other factors.
(2) Management Policy and Tasks (A) Strategy for Managing Existing Properties Under the above office leasing market conditions, tenants are also expected to be more selective with properties. Consequently, DOI will carry out operational management under the following policy in an aim to enhance the competitiveness of existing properties and thereby increase the long-term EPS over the medium to long term. (a) Maintain and raise occupancy rates For existing tenants, strive to reduce vacancy risks through improving the quality of buildings, equipment and management systems. For new tenants, strive to maintain and raise occupancy rates through the provision of more comfortable services than competitors by aggressively participating in the market. (b) Maintain and raise profitability Aim to secure stable revenue over the medium to long term through further strengthening good relationships with existing tenants, as well as proactively tapping the needs of new tenants by discerning the market environment. (c) Lower operational management costs Strive to lower operational management costs based on maintaining the high level of tenant satisfaction with office environments. To achieve this, DOI will implement efficient operational management by leveraging the economies of scale obtained from external growth and reviewing planned construction work.
(B) Investment Strategy for New Properties Based on various external growth strategies, DOI will concentrate its investment in buildings with a total floor area of 2,000m2 or more considering a balance between the financing and purchasing market situation. In principal, DOI will invest in properties around Tokyo, but will also look into investment in competitive properties in areas other than Tokyo to diversify investments. As pipelines, in addition to expanding its own information-sourcing channels, DOI will search for properties that meet its investment criteria by proactively gathering real estate transaction market information through expanding partnerships with DREAM and the Sponsor Group, and utilizing the Group’s extensive network of clients. During the 17th Fiscal Period, DOI additionally acquired “Integral Tower” which is situated in Tokyo. DOI will continue to strive to acquire properties that are in line with the investment strategy described above.
20 (C) Financial Strategy DOI will conduct disciplined financial management based on the following content. (a) In principle, control leverage by keeping the ratio of interest-bearing liabilities to total assets (LTV) (based on total asset value) within the range of 40% to 50% at maximum in consideration of the substantial LTV (ratio) and other factors. (b) In principle, diversify the payment date, targeting 30 billion yen as the maximum amount of interest- bearing liabilities that shall become due during any single Fiscal Period. (c) In principle, aim to have long-term loans be at least 70% of total loans. (d) Diversify lenders, which shall mainly be domestic financial institutions. (e) Pursuant to its fund management rules, maintain stability in its financial standing by separating necessary funds, such as the amount of distributions paid, from working funds.
(D) Schedule of Capital Expenditures The following table lists major capital expenditures in conjunction with the refurbishment or renewal work planned for the future on the properties held as of May 31, 2014. Please note that the amounts below include costs that will be recognized as expenses.
Estimated Cost (millions of yen) Name of Property Purpose Estimated Period Payment (location) Cumulative for the Total amount current paid period Construction work for renewal of Shinjuku Maynds Tower From: Oct. 2013 CVCF and renovation work for 406 254 7 (Shibuya-ku, Tokyo) To: Mar. 2015 disaster-prevention equipment
Shinjuku Maynds Tower Renovation work for central From: Oct. 2013 297 54 5 (Shibuya-ku, Tokyo) supervisory system To: Sep. 2015
Construction work for upgrading Shinjuku Maynds Tower From: Oct. 2013 of main central supervisory 110 15 2 (Shibuya-ku, Tokyo) To: Sep. 2015 system VAV and controller
Daiwa Tsukishima (Chuo- Renewal work for air From: Jul. 2014 101 – – ku, Tokyo) conditioning To: Nov. 2014
Shinjuku Maynds Tower Exchange work for power supply From: Jun. 2014 56 – – (Shibuya-ku, Tokyo) separate type storage battery To: Jul. 2014
II. Asset Management Report 21 III. Balance Sheets
As of May 31, 2014 and November 30, 2013 (Thousands of yen) As of As of May 31, 2014 November 30, 2013 Assets Current Assets: Cash and cash equivalents [Note 11] 22,537,727 16,924,972 Tenant receivables 292,388 299,238 Consumption tax refundable 135,052 – Prepaid expenses 307,951 289,695 Deferred tax assets [Note 9] 3,729 7,426 Other current assets 80,831 108,601 Total Current Assets 23,357,678 17,629,932 Investment Properties, at cost: [Notes 3 and 12] Land including trust accounts 286,292,278 279,089,504
Buildings and structures including trust accounts [Note 4] 84,489,584 79,791,214
Machinery and equipment in trust accounts 781,250 861,302
Tools, furniture and fixtures including trust accounts 117,789 102,157
Construction in progress including trust accounts 436,937 42,001
Other tangible fixed assets including trust accounts 5,909 6,017
Less: accumulated depreciation (18,616,452) (17,517,216)
Leasehold rights including trust accounts 2,713,986 2,713,986
Total Investment Properties, net 356,221,281 345,088,965
Other Assets:
Right of trademark 1,260 1,448
Lease and guarantee deposits in trust 113,684 113,684
Long-term prepaid expenses 942,444 778,748 Deferred tax assets [Note 9] 70,134 23,706 Deferred investment corporation bond issuance costs 1,718 4,585 Others 14,945 12,839 Total Other Assets 1,144,185 935,010 Total Assets 380,723,144 363,653,907
The accompanying notes are an integral part of these financial statements.
22
(Thousands of yen) As of As of May 31, 2014 November 30, 2013 Liabilities Current Liabilities: Operating accounts payable 904,316 772,417 Short-term debt [Notes 6 and 11] 5,500,000 3,000,000
Long-term debt due within one year [Notes 6 and 11] 29,500,000 33,900,000 Accounts payable – other 461,153 286,983 Income taxes payable 844 811 Accrued consumption taxes 16,051 96,309 Rent received in advance 971,477 977,470 Other current liabilities 365,069 164,119 Total Current Liabilities 37,718,910 39,198,109
Long-Term Liabilities:
Investment corporation bond [Notes 6 and 11] 3,500,000 3,500,000
Long-term debt [Notes 6 and 11] 125,200,000 107,300,000
Tenant security deposits including trust accounts [Note 11] 12,443,797 11,904,030
Derivative liabilities [Note 11] 205,310 68,576
Total Long-Term Liabilities 141,349,107 122,772,606
Total Liabilities 179,068,017 161,970,715
Net Assets [Note 5 and 10]
Unitholders’ Equity:
Unitholders’ capital 198,780,951 198,780,951
Units authorized: 2,000,000 units
Units issued and outstanding: 395,798 units Retained earnings 3,016,511 2,959,948 Total Unitholders’ Equity 201,797,462 201,740,899 Valuation and translation adjustments Deferred gains or losses on hedges (142,335) (57,707) Total Valuation and translation adjustments (142,335) (57,707) Total Net Assets 201,655,127 201,683,192 Total Liabilities and Net Assets 380,723,144 363,653,907
The accompanying notes are an integral part of these financial statements.
III. Balance Sheets 23 IV. Statements of Income
For the six months ended May 31, 2014 and November 30, 2013 (Thousands of yen) For the six months ended For the six months ended May 31, 2014 November 30, 2013 Operating Revenues and Expenses Operating Revenues: Rental revenues [Note 7] 8,491,130 8,367,068 Other revenues related to property leasing [Note 7] 92,758 65,002 Gain on sale of investment property [Note 8] 3,611 – Total Operating Revenues 8,587,499 8,432,070 Operating Expenses: Property-related expenses [Note 7] 3,931,000 3,870,374 Asset management fees 710,204 696,225 Asset custody fees 18,163 17,657 Administrative service fees 62,686 63,107 Trust fees 22,026 21,718 Directors’ compensation 5,400 5,400 Other operating expenses 77,285 80,560 Total Operating Expenses 4,826,764 4,755,041 Operating Income 3,760,735 3,677,029 Non-Operating Revenues and Expenses Non-Operating Revenues: Interest income 932 1,424 Reversal of distribution payable 630 1,101 Other non-operating revenues 4,068 2,465 Total Non-Operating Revenues 5,630 4,990 Non-Operating Expenses: Interest expense 554,143 522,251 Interest expense on investment corporation bonds 47,449 53,610 Borrowing expenses 151,045 144,285 Other non-operating expenses 7,939 5,935 Total Non-Operating Expenses 760,576 726,081 Ordinary Income 3,005,789 2,955,938 Extraordinary Income: Gain on donation of tangible fixed asset 11,485 4,884 Total Extraordinary Income 11,485 4,884
Income Before Income Taxes 3,017,274 2,960,822 Income taxes – current 930 992 Income taxes – deferred 4 (6) Total Income Taxes [Note 9] 934 986 Net Income 3,016,340 2,959,836 Retained Earnings Brought Forward 171 112 Retained Earnings at End of Period 3,016,511 2,959,948
The accompanying notes are an integral part of these financial statements.
24 IV. Statements of Income V. Statements of Changes in Unitholders' Equity
For the six months ended May 31, 2014 (Thousands of yen)
Deferred Gains Number of Unitholders’ Retained or Losses Total Units Capital Earnings on Hedges Balance as of November 30, 2013 395,798 198,780,951 2,959,948 (57,707) 201,683,192
Cash dividends declared – – (2,959,777) – (2,959,777) Net income – – 3,016,340 – 3,016,340 Net changes of items other than – – – (84,628) (84,628) unitholders’ equity Balance as of May 31, 2014 395,798 198,780,951 3,016,511 (142,335) 201,655,127
For the six months ended November 30, 2013 (Thousands of yen)
Deferred Gains Number of Unitholders’ Retained or Losses Total Units Capital Earnings on Hedges Balance as of May 31, 2013 395,798 198,780,951 2,589,422 (25,003) 201,345,370
Cash dividends declared – – (2,589,310) – (2,589,310) Net income – – 2,959,836 – 2,959,836 Net changes of items other than – – – (32,704) (32,704) unitholders’ equity Balance as of November 30, 2013 395,798 198,780,951 2,959,948 (57,707) 201,683,192
The accompanying notes are an integral part of these financial statements.
V. Statements of Changes in Unitholders' Equity 25 VI. Notes to Financial Statements
For the six months ended May 31, 2014 and November 30, 2013 Note 1 – Organization and Basis of Presentation Organization Daiwa Office Investment Corporation (former DA Office Investment Corporation: hereinafter, “DOI”) was established on July 11, 2005 as an investment corporation under the Law Concerning Investment Trusts and Investment Corporations of Japan (hereinafter, the “Investment Trust Law of Japan”) by the founder (the former daVinci Select; presently, Daiwa Real Estate Asset Management (hereinafter, “DREAM”)). DOI is an externally managed real estate fund, established as an investment corporation. DREAM, as DOI’s asset management company, is engaged in acquiring, managing, leasing, and renovating office properties. Daiwa Securities Group Inc. currently owns 100% of DREAM. On October 18, 2005, DOI had raised approximately 49,498,710 thousand yen through an initial public offering of units. Those units are listed on the J-REIT section of the Tokyo Stock Exchange. As of May 31, 2014, DOI had ownership or beneficiary interests in 44 office properties with approximately 259,382 square meters of rentable office space and had leased office space to 458 tenants engaged in a variety of businesses. The occupancy rate for the office properties was approximately 96.4%.
Basis of Presentation The accompanying financial statements have been prepared in accordance with the provisions set forth in the Investment Trust Law of Japan and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan (hereinafter, “Japanese GAAP”), which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. The accompanying financial statements have been restructured and translated into English from the financial statements of DOI prepared in accordance with Japanese GAAP. Some supplementary information included in the statutory Japanese language financial statements, but not required for fair presentation, is not presented in the accompanying financial statements. DOI does not prepare consolidated financial statements, as DOI has no subsidiaries. Note 2 – Summary of Significant Accounting Policies Investment Properties Investment properties are recorded at cost, which includes the allocated purchase price, related costs and expenses for acquisition of the office properties and the beneficiary interests of properties in trust. Property and equipment balances are depreciated using the straight-line method over the estimated useful lives. The estimated useful lives of the principal tangible fixed assets (including assets held in trust) are as follows: As of May 31, 2014 As of November 30, 2013 Buildings and structures 2-64 years 2-64 years Machinery and equipment 3-23 years 2-23 years Tools, furniture and fixtures 5-18 years 5-18 years Costs related to the renovation, construction and improvement of properties are capitalized. Expenditures for repairs and maintenance which do not add to the value of a property or prolong its useful life are expensed as incurred.
Deferred Investment Corporation Bond Issuance Costs Deferred investment corporation bond issuance costs are amortized using the straight-line method over the respective terms of the bonds.
Income Taxes Income taxes are accounted for on the basis of income for financial statement purposes. The tax effect of temporary differences between the amounts of assets and liabilities for financial statements and for income tax purposes is recognized as deferred taxes.
Real Estate Taxes Real estate taxes are imposed on properties on a calendar year basis and expensed when incurred. In terms of newly purchased properties, DOI capitalizes a portion of the real estate taxes that relate to a period from the purchase date of each property until the end of the calendar year as part of the acquisition cost of the relevant property. Capitalized real estate taxes amounted to 54,857 thousand yen for the six months ended May 31, 2014 and 71,391 thousand yen for the six months ended November 30, 2013.
26 Revenue Recognition Operating revenues consist of rental revenues including base rents and common area charges, and other operating revenues such as utility charge reimbursements, parking space rental revenues and other income. Rental revenues are generally recognized on an accrual basis over the life of each lease. Utility charge reimbursements are recognized when earned and their amounts are reasonably estimated.
Hedge Accounting DOI conducts derivative transactions in order to hedge against risks defined in its Articles of Incorporation based on its risk management policy. DOI utilizes derivative financial instruments such as interest-rate swap agreements only for the purpose of hedging its exposure to changes in interest rates. DOI deferred recognition of gains or losses resulting from changes in fair value of interest-rate swap agreements because its interest-rate agreements met the criteria for deferral hedging accounting. However, DOI applies special treatment to the interest-rate swap agreements that meet the criteria for such special treatment. Under the special treatment, interest-rate swaps are not remeasured at fair value: instead, the net amount paid or received under the interest-rate swap agreements is recognized and included in interest expense. The hedge effectiveness for interest-rate swap agreements is assessed each fiscal period except for those that meet the criteria of special treatment.
Accounting Treatment of Beneficiary Interests in Trust Assets Including Real Estate For trust beneficiary interests in real estate, all accounts of assets and liabilities within assets in trust, as well as all income generated and expenses incurred from assets in trust, are recorded in the relevant balance sheet and income statement accounts.
Consumption Taxes Consumption taxes are excluded from transaction amount. Non-deductible consumption taxes are recognized as expenses. Note 3 – Schedule of Tangible Fixed Assets of Investment Properties Investment properties as of May 31, 2014 and November 30, 2013 consisted of the following: (Thousands of yen) As of May 31, 2014 As of November 30, 2013 Acquisition Accumulated Acquisition Accumulated costs depreciation Book value costs depreciation Book value Land including trust accounts 286,292,278 – 286,292,278 279,089,504 – 279,089,504 Buildings and structures 84,489,584 (18,145,866) 66,343,718 79,791,214 (17,055,415) 62,735,799 including trust accounts Machinery and equipment 781,250 (401,380) 379,870 861,302 (399,706) 461,596 in trust accounts Tools, furniture and fixtures 117,789 (63,297) 54,492 102,157 (56,078) 46,079 including trust accounts Construction in progress 436,937 – 436,937 42,001 – 42,001 including trust accounts Other tangible fixed assets 5,909 (5,909) – 6,017 (6,017) – including trust accounts Total 372,123,747 (18,616,452) 353,507,295 359,892,195 (17,517,216) 342,374,979 Note 4 – Advanced Depreciation for Tangible Fixed Assets Acquired by Government Subsidies, Etc. Government subsidies of 32,898 thousand yen are deducted from the acquisition cost of the buildings in trust as of May 31, 2014 and November 30, 2013. Note 5 – Net Assets DOI issues only non-par value units in accordance with the Investment Trust Law of Japan and all of the issue prices of new units are designated as stated capital. DOI maintains at least 50,000 thousand yen as the minimum amount of net assets, as required by the Investment Trust Law of Japan.
VI. Notes to Financial Statements 27 Note 6 – Short-term debt, Long-Term Debt and Investment Corporation Bonds Short-term debt, Long-term debt and investment corporation bonds as of May 31, 2014 and November 30, 2013 consisted of the following: (Thousands of yen) As of As of May 31, November 30, 2014 2013 Unsecured loans due 2014 to 2022, principally from banks and insurance companies with interest rates mainly ranging from 0.4% to 1.1% 160,200,000 144,200,000 2.7% unsecured bond due 2019 3,500,000 3,500,000 Total 163,700,000 147,700,000 [Note] The interest rate presented is the spot rate as of May 31, 2014. As for long-term debts which were hedged by interest-rate swaps for the purpose of avoiding interest rate fluctuation risk, the swapped interest rates are used. The annual maturities of short-term debt, long-term debt and investment corporation bonds as of May 31, 2014 were as follows: (Thousands of yen) Due within one year 35,000,000 Due after one to two years 8,300,000 Due after two to three years 18,200,000 Due after three to four years 19,400,000 Due after four to five years 21,500,000 Due after five years 61,300,000 Note 7 – Rental Revenues and Expenses Rental revenues and expenses for the periods ended May 31, 2014 and November 30, 2013 were as follows: (Thousands of yen) For the six months ended For the six months ended May 31, 2014 November 30, 2013 A. Revenues from property leasing Rental revenues 8,491,130 8,367,068 Other revenues related to property leasing 92,758 65,002 Total revenues from property leasing 8,583,888 8,432,070 B. Property-related expenses Consignment expenses 692,132 654,832 Utilities expenses 842,933 877,332 Taxes and dues 705,981 692,431 Non-life insurance expenses 12,785 12,928 Repair expenses 272,159 251,074 Depreciation 1,355,744 1,328,913 Other property-related expenses 49,266 52,864 Total property-related expenses 3,931,000 3,870,374 C. Operating income from property leasing [A – B] 4,652,888 4,561,696 Note 8 – Gain and Loss on Sale of Investment Properties Gain and loss on sale of investment properties for the period ended May 31, 2014 were as follows. No investment properties were sold during the period ended November 30, 2013. For the six months ended May 31, 2014
Daiwa Shibuya SS Building (Thousands of yen) Proceeds from sale of investment property 3,800,000 Cost of sale of investment property 3,776,563 Other related sale expenses 19,826 Gain on sale of investment property 3,611
28 Note 9 – Income Taxes DOI is subject to income taxes in Japan. The effective tax rate on DOI’s income based on applicable Japanese tax law was estimated as 0.03% for the six months ended May 31, 2014 and 0.03% for the six months ended November 30, 2013. The following table summarizes the significant differences between the statutory tax rates and DOI’s effective tax rates for financial statement purposes. For the six months ended For the six months ended May 31, 2014 November 30, 2013 Statutory tax rate 36.59% 36.59% Deductible dividends (36.58) (36.58) Others 0.02 0.02 Effective tax rate 0.03% 0.03% DOI was established as an investment corporation under the Investment Trust Law of Japan, and as long as an investment corporation distributes to its unitholders at least 90% of earnings available for dividends for a period and other requirements prescribed in the Special Taxation Measures Law of Japan are met, the investment corporation is allowed to deduct the total amount of dividends in calculating its taxable income under Japanese tax regulations. The significant components of deferred tax assets and liabilities as of May 31, 2014 and November 30, 2013 were as follows: (Thousands of yen) As of May 31, 2014 As of November 30, 2013 Deferred tax assets: Accrued enterprise tax 15 19 Deferred losses on hedges 73,848 31,367 Total deferred tax assets 73,863 31,386 Deferred tax liabilities: Deferred gains on hedges – 254 Total deferred tax liabilities – 254 Net deferred tax assets 73,863 31,132 On March 31, 2014, the “Act to Partially Revise the Income Tax Act and Others” (Act No.10 of 2014) was promulgated. As a result, the Special Reconstruction Corporation Tax will be repealed from the fiscal period beginning April 1, 2014. In response to the revision, the effective statutory tax rate used to calculate the deferred income tax assets and liabilities concerning the temporary differences, etc. expected to be reversed in the accounting periods starting on and after June 1, 2014 has been changed to 34.16%. The effect of this change is immaterial.
Note 10 – Per Unit Information Information about net assets per unit and net income per unit as of May 31, 2014 and November 30, 2013 and for the periods then ended were as follows. The computation of net income per unit is based on the weighted average number of units outstanding during the period. The computation of net assets per unit is based on the number of units outstanding at each period end. For the six months ended For the six months ended May 31, 2014 November 30, 2013 Net assets at period end per unit 509,490 yen 509,561 yen Net income per unit 7,620.91 yen 7,478.15 yen Net income per unit is calculated by dividing the net income by the daily weighted average number of investment units issued and outstanding. The diluted net income per unit is not stated as there are no diluted investment units. (Note) The basis for calculating the net income per unit is as follows. For the six months ended For the six months ended May 31, 2014 November 30, 2013 Net income (thousands of yen) 3,016,340 2,959,836 Amount not available to ordinary unitholders (thousands of yen) – – Net income available to ordinary unitholders (thousands of yen) 3,016,340 2,959,836 Average number of units during the period (units) 395,798 395,798
VI. Notes to Financial Statements 29 Note 11 – Financial Instruments (For the six months ended May 31, 2014 and November 30, 2013) (1) Status of Financial Instruments (A) Policy for financial instruments DOI procures funds through various financing methods (such as borrowings, issuance of investment corporation bonds, issuance of investment units) for acquisition and renovation of investment properties, payments of dividends and reimbursement of bank borrowings. In financing through interest-bearing debt, to secure stable financing capacity and reduce future risk of rising interests, DOI secures long-term fixed-rate borrowings with well-diversified maturities. DOI manages surplus funds with safe and highly liquid money claims and securities (in principle, deposits). Derivative transactions are conducted only for the purpose of reducing risk of future interest rate fluctuations. (B) Types and risks of financial instruments and related risk management system Proceeds from the financing of debts and investment corporation bonds are used mainly to acquisition of investment properties and reimbursement of current debts and bonds. While these debts and bonds are exposed to liquidity risk, DOI manages the risk by maintaining the LTV ratio at low levels, diversifying maturities, keeping the ratio of long-term debt to total debt at high levels, and diversifying lenders with particular focus on domestic financial institutions. Bank borrowings with floating interest rates are exposed to the risk of future interest rate fluctuations and DOI manages that by using derivative transactions such as interest-rate swap agreements. DOI evaluates the effectiveness of hedges by comparing the accumulated cash-flow changes of hedged items and that of hedging items, and then verifies the ratio of both amounts of changes. Furthermore, DOI omits assessment of hedge effectiveness for the interest-rate swap agreements which meet the criteria of special treatment. Execution and management of derivative transactions have been carried out based on the regulations defined in the basic policy of risk management. Security deposits represent funds deposited by tenants, and DOI is exposed to the risk of refunding deposits in the event that a tenant terminates the contract. However, such risk is limited by reserving some parts of the funds. Deposits are used for investing DOI’s surplus funds. These deposits are exposed to credit risks such as bankruptcy of the depository financial institutions. DOI manages credit risk by restricting the tenor of the deposit relatively short and setting a minimum credit rating requirement for the depository financial institutions. (C) Supplementary explanation for fair value of financial instruments The fair value of financial instruments is based on their quoted market price, if applicable. When there is no quoted market price available, fair value is reasonably estimated. As certain assumptions are used for the estimation of fair value, the result of such estimation may differ if different assumptions are used. Also, the contractual amounts of derivative transactions do not represent the market risk involved in these derivative transactions. (2) Estimated Fair Value of Financial Instruments The book value, fair value and difference between the two as of May 31, 2014 and November 30, 2013 are as follows. The financial instruments whose fair value is extremely difficult to estimate are excluded from the following table. (As of May 31, 2014) (Thousands of yen) Book Value Fair Value Difference Cash and cash equivalents 22,537,727 22,537,727 – Total 22,537,727 22,537,727 – Short-term debt 5,500,000 5,500,000 – Long-term debt due within one year 29,500,000 29,506,082 6,082 Investment corporation bond 3,500,000 3,500,000 – Long-term debt 125,200,000 125,287,010 87,010 Total 163,700,000 163,793,092 93,092 Derivative transactions(*) (216,183) (216,183) – (*) The value of assets and liabilities arising from derivatives is shown at net value and with the amount in parenthesis indicating the net liability position.
30 (As of November 30, 2013) (Thousands of yen) Book Value Fair Value Difference Cash and cash equivalents 16,924,972 16,924,972 – Total 16,924,972 16,924,972 – Short-term debt 3,000,000 3,000,000 – Long-term debt due within one year 33,900,000 33,902,830 2,830 Investment corporation bond 3,500,000 3,500,000 – Long-term debt 107,300,000 107,324,155 24,155 Total 147,700,000 147,726,985 26,985 Derivative transactions(*) (88,820) (88,820) – (*) The value of assets and liabilities arising from derivatives is shown at net value and with the amount in parenthesis indicating the net liability position. Notes: 1. Methods to estimate fair value of financial instruments and derivative transactions Assets (1) Cash and cash equivalents As these instruments are settled in short period of time, their fair value and book value are nearly identical. Therefore, for these items, the book value is assumed as the fair value. Liabilities (1) Short-term debt, long-term debt due within one year and long-term debt For short-term debt and long-term debt with floating interest rates, their fair value and book value are nearly identical and there are no significant changes in DOI’s credit risk after borrowing. Therefore, for these items, their book value is assumed as their fair value. For short-term debt and long-term debt with fixed interest rates, their fair value is based on the present value of principle and interest cash flows discounted at the current interest rate estimated to be applied if similar new debt is entered into. However, the fair value of certain floating-rate long term debt that qualifies for the special treatment of interest-rate swaps is determined by discounting the sum of its principal and interest payments net of any cash flows from the interest-rate swaps. (2) Investment corporation bond due within one year and investment corporation bond The fair value of investment corporation bond is based on their quoted market price, if available. When there is no quoted market price available, their book value is assumed as their fair value, as their fair value and book value are nearly identical because of floating interest rates and no significant changes in DOI’s credit risk after issuing the bonds.
Derivative Transactions (1) Derivatives to which hedge accounting is not applied Not applicable. (2) Derivatives to which hedge accounting is applied
(As of May 31, 2014) (Thousands of yen) Method of Hedge Contract Amount Fair Accounting Type of Derivative Transactions Hedged Items (due after one year) Value(*)
Deferral hedge Interest rate swap transactions Long-term debt 70,100,000 accounting method Receive floating and pay fixed (46,100,000) (216,183)
Special treatment Interest rate swap transactions for interest rate swap Long-term debt 35,350,000 –(**) transactions Receive floating and pay fixed (32,850,000) Total 105,450,000 (78,950,000) (216,183)
VI. Notes to Financial Statements 31 (As of November 30, 2013) (Thousands of yen) Method of Hedge Contract Amount Fair Accounting Type of Derivative Transactions Hedged Items (due after one year) Value(*) Deferral hedge Interest rate swap transactions 65,400,000 accounting method Receive floating and pay fixed Long-term debt (34,500,000) (88,820) Special treatment for interest rate swap Interest rate swap transactions Long-term debt 32,350,000 –(**) transactions Receive floating and pay fixed (32,350,000) 97,750,000 Total (66,850,000) (88,820) *The fair value is provided by the financial institution. **The values of derivatives qualifying for special treatment of interest rate swap transactions are included in that of related long-term debt. This is because such swaps are handled together with hedged long-term debt.
2. Financial instruments whose fair value is extremely difficult to estimate. Tenant security deposits including trust accounts (with a book value of 12,443,797 thousand yen as of May 31, 2014 and 11,904,030 thousand yen as of November 30, 2013) that have been deposited from tenants are not marketable and the actual deposit period cannot be reliably determined, thus making it impossible to reasonably estimate their future cash flows, and therefore, it is considered to be extremely difficult to estimate their fair value. 3. Redemption schedule for money claims (As of May 31, 2014) (Thousands of yen) Due within Due after Due after Due after Due after Due after 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years 5 years Cash and cash equivalents 22,537,727 – – – – – Total 22,537,727 – – – – – (As of November 30, 2013) (Thousands of yen) Due within Due after Due after Due after Due after Due after 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years 5 years Cash and cash equivalents 16,924,972 – – – – – Total 16,924,972 – – – – – 4. Redemption schedule for short-term debt, investment corporation bond and long-term debt (As of May 31, 2014) (Thousands of yen) Due within Due after Due after Due after Due after Due after 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years 5 years Short-term debt 5,500,000 – – – – – Long-term debt due within one year 29,500,000 – – – – – Investment corporation bond – – – – – 3,500,000 Long-term debt – 8,300,000 18,200,000 19,400,000 21,500,000 57,800,000 Total 35,000,000 8,300,000 18,200,000 19,400,000 21,500,000 61,300,000
(As of November 30, 2013) (Thousands of yen) Due within Due after Due after Due after Due after Due after 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years 5 years Investment corporation bond due 3,000,000 – – – – – within one year Long-term debt due within one year 33,900,000 – – – – – Investment corporation bond – – – – – 3,500,000 Long-term debt – 16,600,000 3,700,000 28,250,000 17,350,000 41,400,000 Total 36,900,000 16,600,000 3,700,000 28,250,000 17,350,000 44,900,000
32 Note 12 – Investment and Rental Properties DOI owns office buildings (including land) for rent in Tokyo and other areas. The book value, net changes in the book value and the fair value of the investment and rental properties are as follows. (For the six months ended May 31, 2014) (Thousands of yen) Book Value Fair value as of As of Change As of May 31, 2014 November 30, 2013 during the period(*1) May 31, 2014 345,046,153 10,737,607 355,783,760 342,230,000 (For the six months ended November 30, 2013) (Thousands of yen) Book Value Fair value as of As of Change As of November 30, 2013 May 31, 2013 during the period(*2) November 30, 2013 324,976,353 20,069,800 345,046,153 328,290,000
(Note 1) The book value represents the acquisition cost less accumulated depreciation. (Note 2) Significant changes (*1) For the six months ended May 31, 2014, the major reason of increase is acquisition of “Integral Tower” (15,220,000 thousand yen). The major reasons of decrease are divestment of “Daiwa Shibuya SS Building” (3,776,563 thousand yen) and depreciation (1,355,744 thousand yen). (*2) For the six months ended November 30, 2013, the major reasons of increase are acquisitions of “Tousen Dogenzaka Daini Building” (4,500,000 thousand yen), “Akasaka Business Place” (9,200,000 thousand yen) and “Nisseki Shibuya Building” (7,000,000 thousand yen). The major reason of decrease is depreciation (1,328,913 thousand yen). (Note 3) The fair values as of May 31, 2014 and November 30, 2013 represent the sum of appraisal values estimated by external real estate appraisers. Income and loss from investment and rental properties for the six months ended May 31, 2014 and November 30, 2013 are disclosed in Note 7.
VI. Notes to Financial Statements 33 Note 13 – Transactions with Related Parties (For the six months ended May 31, 2014) Classification Parent company, interested party Asset custodian Name of company, etc. Daiwa Securities Group Inc. Sumitomo Mitsui Trust Bank, Limited Location Chiyoda-ku, Tokyo Chiyoda-ku, Tokyo Capital stock 247.3 billion yen 342 billion yen Business description Holding company Bank Percentage of voting 14.99% rights, etc. held by directly held in DOI – related party 32.57% (held in DOI) indirectly held in DOI Relationship with Provision of capital Provision of capital related party Payment of interest expense on Payment of Nature of transaction investment corporation bonds Borrowing of capital interest expense (Notes 1 and 2) (Note 3) Amount of transaction 47,449 2,000,000 85,022 (thousands of yen) Investment Other Other Account corporation current Short-term debt Long-term debt bonds liabilities current liabilities Balance at end of period 3,500,000 19,457 1,000,000 19,350,000 349 (thousands of yen)
(For the six months ended November 30, 2013) Classification Parent company, interested party Asset custodian Name of company, etc. Daiwa Securities Group Inc. Sumitomo Mitsui Trust Bank, Limited Location Chiyoda-ku, Tokyo Chiyoda-ku, Tokyo Capital stock 247.3 billion yen 342 billion yen Business description Holding company Bank Percentage of voting 14.99% rights, etc. held by directly held in DOI – related party 32.57% (held in DOI) indirectly held in DOI Relationship with Provision of capital Provision of capital related party Payment of interest expense on Repayment of Payment of interest investment corporation bonds Borrowing of Nature of transaction capital expense (Notes 1 and 2) capital (Note 3) Amount of transaction 48,102 7,000,000 5,000,000 70,725 (thousands of yen) Investment Other Account corporation current Short-term debt Long-term debt – bonds liabilities Balance at end of period 3,500,000 19,359 1,000,000 17,350,000 – (thousands of yen) Consumption taxes are not included in transaction amounts. (Note 1) Issuance conditions for the investment corporation bonds were decided by analyzing the spread of similar bonds, the difference of spread between senior bonds and subordinated bonds, and the past track record of similar bonds. (Note 2) Terms of transactions with interested parties were determined based on the assets manager’s office regulation which was established to prevent the conflict of interest. (Note 3) Terms of transaction were determined based on market trends.
34 Note14 – Significant Subsequent Events (1) Issuance of New Investment Units DOI resolved the issuance of new investment units at DOI’s Board of Directors Meetings held on June 17, 2014 and June 25, 2014. The proceeds of the publicly offered new investment units were received on July 2, 2014. Conversely, the proceeds of the new investment units issued by third party allotment were received on July 30, 2014. (A) Issuance of New Investment Units through Public Offering (Primary Offering) (a) Number of investment units offered: 41,092 units (b) Amount contributed in (issued value): 450,746 yen per unit (c) Total amount contributed in (issued value): 18,522,054,632 yen (d) Contribution date: July 2, 2014 The proceeds will be used to fund the acquisition of (e) Use of procured proceeds specified assets described in below “(2) Acquisition of Assets” and acquisition costs. (b) Issuance of New Investment Units through Third-Party Allotment (a) Number of investment units offered: 4,110 units (b) Amount contributed in (issued value): 450,746 yen per unit (c) Total amount contributed in (issued value): 1,852,566,060 yen (d) Allottee and number of investment units Daiwa Securities Co. Ltd. allotted 4,110 units (e) Contribution date: July 30, 2014 The proceeds will be used to fund the acquisition of (f) Use of procured proceeds specified assets described in below “(2) Acquisition of Assets” and acquisition costs.
(2) Acquisition of Assets (A) DOI acquired the trust beneficial interest in real estate on July 4, 2014. Overview of the Asset (a) Type of asset acquired Trust beneficial interest in real estate (b) Property name Azabu Green Terrace (c) Location 3-20-1 Minami Azabu Minato-ku, Tokyo 14,000,000 thousand yen (d) Acquisition price (excluding acquisition costs and consumption tax, etc.) (e) Date of agreement June 17, 2014 (f) Date of delivery July 4, 2014 (g) Seller Azabu Green Terrace Goudou Kaisha (B) DOI acquired the trust beneficial interest in real estate on August 1, 2014 Overview of the Asset (a) Type of asset acquired Trust beneficial interest in real estate (b) Property name Kitahama Grand Building (c) Location 2-2-14 Awajicho, Chuou-ku, Osaka
(d) Acquisition price 9,481,500 thousand yen (excluding acquisition costs and consumption tax, etc.) (e) Date of agreement June 17, 2014 (f) Date of delivery August 1, 2014 (g) Seller Goudou Kaisha North Beach
VI. Notes to Financial Statements 35 VII. Independent Auditors’ Report
36 VII. Independent Auditors’ Report VIII. Statements of Cash Flows [Information Only]
For the six months ended May 31, 2014 and November 30, 2013 (Thousands of yen)
For the six months For the six months ended ended May 31, 2014 November 30, 2013 Cash Flows from Operating Activities: Income before income taxes 3,017,274 2,960,822 Depreciation and amortization 1,357,077 1,330,094 Amortization of bond issuance costs 2,868 3,631 Interest expense 601,592 575,861 (Increase) Decrease in tenant receivables 6,850 (69,087) Increase (Decrease) in accounts payable (13,793) 230,681 Increase (Decrease) in rent received in advance (5,994) 102,540 Decrease in investment property due to sale 3,776,563 – Cash payments of interest expense (601,109) (615,391) (Increase) Decrease in consumption taxes refundable (135,052) 248,782 Other, net (36,885) (186,076) Net Cash Provided by Operating Activities 7,969,391 4,581,857 Cash Flows from Investing Activities: Payments for purchases of investment properties (15,933,578) (21,395,958) Payments for purchases of intangible assets (3,024) – Proceeds from tenant security deposits 1,371,048 1,208,132 Payments for tenant security deposits (831,280) (338,351) Net Cash Used in Investing Activities (15,396,834) (20,526,177) Cash Flows from Financing Activities: Proceeds from short-term debt 2,500,000 8,000,000 Repayment of short-term debt – (5,000,000) Proceeds from long-term debt 28,400,000 38,900,000 Repayments of long-term debt (14,900,000) (17,500,000) Redemption of investment corporation bonds – (5,000,000) Payment of dividends (2,959,802) (2,588,481) Net Cash Provided by Financing Activities 13,040,198 16,811,519 Net Change in Cash and Cash Equivalents 5,612,755 867,199 Cash and Cash Equivalents at Beginning of Period 16,924,972 16,057,773 Cash and Cash Equivalents at End of Period 22,537,727 16,924,972
The statements of cash flows are not audited by any independent auditor.
Summary of Significant Accounting Policies [Information Only]
Cash and Cash Equivalents DOI considers all highly liquid investments with original maturity of three months or less to be cash and cash equivalents.
VIII. Statements of Cash Flows [Information Only] 37 IX. Investor Information
History of Investment Unit Price
(yen) 600,000 6,000(units)
Investment unit price (left axis) Trading volume (right axis)
500,000 5,000
400,000 4,000
300,000 3,000
200,000 2,000
100,000 1,000
0 0 2012 2013 2013 June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May
Overview of Investment Units and Unitholders (as of May 31, 2014) 146×57 ■ No. of investment units by investor type ■ No. of unitholders by investor type Individuals/others Financial institutions 8,870 Foreigners 19,237 units (4.9%) Individuals/others 17th 23,461 units (5.9%) 161,137 units (40.7%) (96.5%) Fiscal Period 25 Financial institutions Total: 395,798 units (0.3%) Other domestic 149 Other domestic corporations 190,903 units (48.2%) Securities firms 1,060 units (0.3%) corporations (1.6%) 136 Foreigners (1.5%) Individuals/others Financial institutions 16 Foreigners 23,041 units (5.8%) Securities firms 16th 28,742 units (7.3%) 151,918 units (38.4%) (0.2%) Fiscal Period Total 9,196 Total: 395,798 units Other domestic corporations 190,980 units (48.3%) Securities firms 1,117 units (0.3%)
Top Ten Unitholders (as of May 31, 2014) IR Calendar
July 17, 2014 ・Announcement of financial results for Number of Percentage Name of Investor 17th Fiscal Period Units Owned Share August 4, 2014 ・Sending of Japanese version Business Report for 17th Fiscal Period 1. Daiwa Investment Management Inc. 128,905 units 32.6% (Statement of Financial Performance) 2. Japan Trustee Services Bank, Ltd. (Trust Account) 74,008 units 18.7% August 5, 2014 ・Start paying distributions for 17th Fiscal Period 3. Daiwa Securities Group Inc. 59,321 units 15.0% August 19, 2014・8th General Meeting of Unitholders The Master Trust Bank of Japan, Ltd. (Investment 4. 32,778 units 8.3% Trust Account) May Trust & Custody Services Bank, Ltd. (Securities Feb. End of 5. 28,970 units 7.3% fiscal period Investment Trust Account) 20 40 60 80 100Jan. July The Nomura0 Trust and Banking Co., Ltd. (Investment 6. 19,164 units 4.8% Trust Account) End of fiscal period Aug. 7. Nomura Bank (Luxembourg) S.A. 3,128 units 0.8% Nov.
8. The Fuji Fire and Marine Insurance Co., Ltd. 2,086 units 0.5% January 2015 ・Announcement of financial results for 18th Fiscal Period 9. State Street Bank and Trust Company 505012 964 units 0.2% February 2015 ・Sending of Japanese version Business BBH for Pyramis GR TR for Employee Bene PL Report for 18th Fiscal Period 10. 951 units 0.2% (Statement of Financial Performance) Pyramis Sel Int SM Cap Comm February 2015 ・Start paying distributions for (Note) The percentage share figures are rounded to the first decimal place. 18th Fiscal Period
38 Investor Memo
End of fiscal period May 31 and November 30 of each year
General Meeting of Unitholders Held at least once every two years
Date for finalizing Unitholders with voting rights for the General Meeting of Unitholders Date publicly announced beforehand
Reference date for finalizing payment of May 31 and November 30 of each year distributions (distributions are paid within three months of this reference date)
Listed financial instruments exchange Tokyo Stock Exchange (securities code: 8976)
Newspaper in which notice is posted Nihon Keizai Shimbun
Manager of Unitholder Registry, etc. Sumitomo Mitsui Trust Bank, Limited, 1-4-1 Marunouchi, Chiyoda-ku, Tokyo 100-8233
Transfer Agency Department of Sumitomo Mitsui Trust Bank, Limited, 2-8-4 Izumi, Suginami- Office handling administrative affairs ku, Tokyo 168-0063 Phone 0120-782-031 (toll-free in Japan)
Service counter Head Office and All branches of the Sumitomo Mitsui Trust Bank nationwide
Provision of Information via Website
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IX. Investor Information 39 Fiscal Period Business Report th (Statement of Financial Performance) 17 December 1, 2013 – May 31, 2014
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