真面目に、地道に、堅実に Serious Steady Solid
1-18-1 Shimbashi, Minato-ku, Tokyo http://www.nippon-reit.com/en/
From January 1 to June 30, 2017 Semiannual Report for the Tenth Fiscal Period
005_0601424552909.indd すべてのページ 2017/09/12 10:13:50 To Our Unitholders Financial Highlights of the 10th period (from January 1, 2017 to June 30, 2017) External growth We would like to begin by thanking our unitholders for their continued support of NIPPON Accumulated pipeline P. 6 REIT (“NRT”). strategies We closed the tenth fiscal period (ended June 30, 2017) on a successful note. AUM Pipeline
This is in good part attributable to the ongoing support from our stakeholders, including our unitholders. We offer you our heartfelt thanks. 65 properties ¥204.8 bn 15 properties ¥29.7 bn
I would like to report on our operations and financial performance for the tenth fiscal period. Recorded the highest occupancy rate and increase During the fiscal period under review, we established new bridge fund “Nicolas Capital 10” and Internal growth in rent ever, expected total NOI increase of ¥195mn P. 8 have been granted the right to first negotiation for acquisition of 5 properties (equivalent to 7.2 strategies billion yen), total amount of pipeline became 15 properties (equivalent approximately 29.7 over 5 periods by Engineering Management (EM) billion yen). Going forward, we will continue to maximize unitholders’ value through disciplined external growth while maintaining our acquisition target. Occupancy rate (total) Increase in rent Increase in NOI by EM
Furthermore, we have been focusing on the internal growth of the portfolio. As a result, we (as of the end of the 10th period) During the 10th period During the 10th period recorded the highest occupancy rate of 99.8% which exceeded the record as of the end of the previous period. Moreover, we succeeded in increasing rents for 46 tenants (equivalent to 36.1% % approx. mn (monthly) approx. mn p.a. of floor space) out of the 120 tenants that were subject to rent renewals during this fiscal period. 99.8 ¥4.85 ¥47.96 The resulting improvement in our profitability significantly exceeded targets, leading to record levels of profit. Total from the 6th period Total from the 7th period (including plan for the 11th period)
In addition, we continue to work on Engineering Management, of which aim is to improve the approx. mn (monthly) approx. mn p.a. portfolio’s earnings capability by increasing tenant satisfaction, reducing costs and creating new ¥15 ¥195 sources of profit, and we expect this will contribute to total of approximately ¥195 million per year increase in NOI over the five periods starting from the seventh fiscal period including the plans for the eleventh fiscal period. Financial Futher stabilization of financing status P.12 Strategies Accordingly, distributions per unit reached ¥8,217, which means an increase of ¥417 (5.3%) over the ¥7,800 figure that was result of the previous period or an increase of ¥212 (2.6%) over LT V Average borrowing period Revision of rating the ¥8,005 figure that was forecast at the end of the previous fiscal period. We keep, with great (as of the end of the 10th period) (as of the end of the 10th period) A- (positive) pleasure, the trend of steady growth in normalized distributions per unit that has been in place since the listing. % years (stable) We will continue to work hand in hand with asset management company Sojitz REIT Advisors 45.7 4.51 A K.K. and sponsor companies to improve portfolio quality and enhance unitholder value.
We ask for the continued support and guidance of our stakeholders. Contents Financial Section To Our Unitholders 14 Asset Management Report 53 Notes to Financial Statements 02 Financial Highlights 48 Balance Sheets 67 Independent Auditor’s Report 04 Characteristics of the NRT Portfolio 50 Statements of Income and Retained 68 List of Properties Earnings Hisao Ishikawa 06 External Growth Strategies 70 Portfolio Map 08 Internal Growth Strategies 51 Statements of Changes in Net Assets 72 Investment Units Executive Officer 12 Financial Strategies 52 Statements of Cash Flows 73 Unitholder Information NIPPON REIT Investment Corporation (Reference)
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010_0601424552909.indd 1-1 2017/10/04 13:27:32 Financial Highlights
Track Record and Forecast of DPU
DPU of the 10th period stood at ¥8,217, exceeding the forecast significantly.
(¥/unit) 8,500 8,217 1 Exceeded forecast by 2.6%,
8,000 7,800 1 Increased from previous period of 5.3% DPU of the 10th period stood at ¥8,217,exceeding the forecast as of the end 7,581 7,519 7,500 of the 9th period (¥8,005) by 2.6%,increased by 5.3% from previous period 488 300 7,109
3 5,000 5th period 6th period 7th period 8th period 9th period 10th period 11th period (Forecast) 12th period (Forecast) Dec. June Dec. June Dec. June Dec. June 3 Certain stress such as move-out ratio etc. 2014 2015 2016 2017 2018 Loaded with a stress by certain
: Normalized DPU(excluding non-recurring factors) 5th period : Real estate tax capitalized move-out ratio etc. for the : Non-recurring Factors 7th period : Real estate tax capitalized – expenses related to public offering forecast for the 12th period : Forecast 8th period : Consumption tax settlement difference
Financial Results DPU Transition (compared to the respective forecast) Growth in NAV per Unit (Note2)
Increased by 6th period 7th period 8th period 9th period 10th period 11th period 12th period (¥/unit) : Original forecast (Note1) (¥/unit) (Jun. 2015) (Dec. 2015) (Jun. 2016) (Dec. 2016) (Jun. 2017) (Dec. 2017) (Jun. 2018) 9,000 : Actual : Forecast 350,000 approx. 33% Results Results Results Results Results Forecast Forecast since 4th period 8,217 8,224 Operating 8,100 ¥4,596mn ¥6,682mn ¥6,607mn ¥6,836mn ¥6,947mn ¥7,101mn ¥6,976mn revenues 8,000 7,800 300,000 7,581 7,519 329,491 Operating 317,932 income ¥2,556mn ¥3,706mn ¥3,287mn ¥3,527mn ¥3,696mn ¥3,729mn ¥3,684mn 8,005 8,006 309,614 7,000 6,827 250,000 306,444 7,252 7,165 7,385 303,236 265,668 Ordinary 6,527 248,482 income ¥2,077mn ¥2,969mn ¥2,944mn ¥3,055mn ¥3,218mn ¥3,222mn ¥3,174mn 6,000 200,000 6th period 7th period 8th period 9th period 10th period 11th period 12th period 4th period 5th period 6th period 7th period 8th period 9th period 10th period (Forecast) (Forecast) Net income ¥2,075mn ¥2,968mn ¥2,944mn ¥3,054mn ¥3,218mn ¥3,221mn ¥3,173mn June Dec. June Dec. June Dec. June June Dec. June Dec. June Dec. June 2015 2016 2017 2018 2014 2015 2016 2017
(Note1) “Original forecast” refers to the forecasts announced as of following dates. (Note2) “NAV per unit” is calculated by following formula, with figures as of the end Distributions 6th period : Feb. 19, 2015, 7th period : Aug. 20, 2015, 8th period : Feb. 18, of respective period. The same applies hereafter. (Net Asset + Total Appraisal per unit ¥6,827 ¥7,581 ¥7,519 ¥7,800 ¥8,217 ¥8,224 ¥8,100 2016, 9th period : Aug. 16, 2016, 10th period and 11th period : Feb. 16, 2017 Value – Total Book Value) / Investment Units Issued and Outstanding
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010_0601424552909.indd 2-3 2017/10/04 13:27:32 Characteristics of the NRT Portfolio
Portfolio focused on the Tokyo economic area The highest leveled risk diversification among listed J-REITs We construct our portfolio with a focus on offices in the center of Tokyo, where rents are on a rising trend and where By maintaining the highest leveled property and tenant diversification among listed J-REITs, we have achieved a we can expect growth in rental revenue going forward. portfolio that has high risk tolerance.
High Growth Potential
We consider growth potential (the growth potential of each property and rent gap) as one of our acquisition target. As a result of making investments with an eye on future internal growth, the rent gap at the end of the fiscal period under review (the discrepancy between the market rent and our average rent) was -4.17%, which provides support for future rent increases. Focusing on Midsize office Buildings
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010_0601424552909.indd 4-5 2017/10/04 13:27:32 External Growth Strategies
AUM Target During the fiscal period under review we have been granted the right of first negotiation for 5 properties (equivalent to approximately ¥7.2 bn) through the bridge fund which we newly established, Nicolas Capital 10. As the result, total pipeline became approximately ¥29.7bn. Without veering from the investment policies to which we have held fast since IPO, we will use a disciplined external growth strategy to drive the maximization of unitholder value.
150bn 157.8 Flexible replacement depending on the market condition Implemented plan to enable timely and flexible replacement
100bn of properties (calling “Tiering”) and revise it every year
In principle, avoid o ering at NAV discount 70.4 73.8 50bn Pursue external growth through offering which contribute to maximization of Unitholders’ Value IPO End of 5th End of 6th End of 7th End of 8th End of 9th End of 10th period period period period period period (Dec. 2014) (June 2015) (Dec. 2015) (June 2016) (Dec. 2016) (June 2017) “Target NOI Yield” refers to the NOI yield based on NIPPON REIT’s cash flow projection at the time of the acquisition against acquisition price. The same applies hereafter.
Summary of Pipeline Summary of the real-estate backed properties
Godo Kaisha Nicolas Capital 10 Nicolas Nicolas Nicolas Nicolas Total Date of establishment of the fund (note): March 29, 2017 Equity investment amount: ¥50mn Capital 6 Capital 9 Capital 8 Capital 10 Total appraisal value of the real-estate backed properties : ¥7,276mn First negotiation price: ¥7,234mn (Deadline: March 29, 2019) First negotiation price ¥11,597mn ¥4,090mn ¥6,835mn ¥7,234mn ¥29,756mn Location Total floor space Completion Appraisal value First negotiation price conditions Number of properties 3 3 4 5 15 (Tentative) Residence Hiroo Merveille Senzoku Splendid Shin-osaka 5-1-10 Minami-azabu 1-10-1 Kitasenzoku Oota-ku 2-1-11, Higashinakajima
(Note) First negotiation price of Nicolas Capital 9 is calculated based on appraisal value.
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010_0601424552909.indd 6-7 2017/10/04 13:27:33 Internal Growth Strategies (1)
Occupancy Rate Trends Track record in raising NOI through Engineering Management (Note) As a result of our flexible and proactive leasing activities, as well as the enhanced tenant satisfaction and building As a result of the effective implementation of Engineering Management, we expect to attribute to approximately competitiveness stemming from our Engineering Management, the occupancy rate reached the highest ever. ¥195 million per year increase in NOI over the four periods starting from the seventh fiscal period. Total for 5 fiscal periods Annual increase in NOI of Occupancy rate results and forecast Track record and results related to Engineering Management used to approx. ¥195 mn improve earnings capability and reduce costs expected Entire portfolio Office Residential Retail 99.8% 11th Increase in revenue CAPEX 100% JS Progres Building Setting up new parking Approx. ¥4.32mn Approx. ¥72.69
Period (Dec. 2017) Planed p.a. mn FORECAST Shinjuku Increase in revenue Approx. Setting up new leasing area Approx. ¥2.4mn SOUTH, 2 others p.a. Total NOI increase ¥28.19 mn Decrease in cost Approx. (Forecast) 21 properties Energy cost reduction Approx. ¥28.19mn p.a. ¥17.93mn p.a. Decrease in cost Mejiro NT Building, 1 Building management cost CAPEX Approx. ¥3.53mn Approx. ¥15.23mn 95% other reduction p.a.
Approx.
10th Increase in revenue FORECAST Shinjuku Replacement of sublessee parking Approx. ¥3.26mn ¥47.96 mn SOUTH, 1 other operator p.a.
Period 2017) Completed (June (Already Increase in revenue La verite AKASAKA, Installment of antennas for mobile implemented) Entire portfolio 98.8% 99.8% 98.8%(Forecast) Approx. ¥2.64mn O ce 98.8% 99.9% 98.8%(Forecast) 12 others phone p.a. Residential 98.7% 99.2% 98.5%(Forecast) Decrease in cost Retail 97.5% 100.0% 100.0%(Forecast) 13 properties Energy cost reduction Approx. ¥29.67mn p.a. Total NOI increase 90% Approx. Dec. June Dec. June Dec. June Dec. Tower Court Decrease in cost 2014 2015 2015 2016 2016 2017 2017 Installment of LED light Approx. ¥6.27mn ¥47.96mn p.a. Kitashinagawa, 1 other p.a. 6th period 7th period 8th period 9th period 10th period 11th period Building management cost Decrease in cost CAPEX FORECAST Waseda Approx. ¥6.11mn FIRST, 1 other reduction Approx. ¥17.91mn p.a. Approx. Track Record of Rent Renewals ¥46.88 mn Replacement of sublessee parking Increase in revenue (Already 20 properties Approx. operator
(June 2015) (Dec. 2015) (June 2016) (Dec. 2016) (June 2017) (June 2015) (Dec. 2015) (June 2016) (Dec. 2016) (June 2017) results) (actual fiscal period fiscal period Increase in revenue Total NOI increase CAPEX Setting up new etc. Approx. ¥8.90mn Approx. ¥8.9 mn p.a. Approx. ¥8.9 mn p.a. ¥14.0 mn * Percentage of increase in rent for the respective period compared to total rent (Already implemented) before renewal for all tenants which accepted rent increase in respective period (Note) Actual results and forecast values for improvements to NOI are calculated by the asset management corporation based on the contracts, quotes and proposals, and do not constitute any kind of warranty with regard to the operations results of the Investment Corporation.
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010_0601424552909.indd 8-9 2017/10/04 13:27:33 Internal Growth Strategies (2)
Case studies of effective Engineering Management profitability enhancement We are working to improve tenant satisfaction as well as to maintain and enhance profitability and competitiveness of the portfolio. Through Tower Court Kitashinagawa the Engineering Management, we aim to further increase asset value by pursuing economic efficiencies such as reducing costs of works. Shorten downtime by improvement of specification La verite AKASAKA, and other 12 properties on the high-rent units on the upper floors Installation of antennas for mobile phone etc. at rooftop Installed antennas for mobile phone etc. at roof profitability enhancement top of 13 properties, ¥2.64mn NOI increase p.a. is expected
FORECAST Sinjuku SOUTH, Mejiro NT Building Profitability enhancement Increase in income of parking by through changing to changing leasing conditions popular layout (removal ¥3.26mn p.a. increase in income is expected by works of part of wall and revision of the leasing conditions for parking lots storage)
Pigeon Building, FORECAST Kayabacho tenant satisfaction Improvement of tenant satisfaction by renewal works at rest room Aim to enhance convenience by changing design including rearrangement of layout Changed to modern atmosphere with accent tiles
Tower Court Kitashinagawa, Kudankita 325 Building Cost reduction by installation of LED light ¥6.27mn p.a. cost reduction is expected by installation of LED light, as well as improvement of tenant satisfaction and profitability cost reduction enhancement
Tower Court Kitashinagawa, FORECAST Waseda FIRST Building management cost reduction ¥6.11mn p.a. cost reduction is expected by improvement of efficiency while keeping management quality such as introduction of automatic controller and revision of building management service specification Drastically improvement of specification by changing materials on walls and floors effectively, while saving construction cost
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010_0601424552909.indd 10-11 2017/10/04 13:27:36 Finance Strategies
In order to build a stable financial base over the medium- to long-term, the basic policy of our financial strategy is one of Historical Average remaining borrowing period, Average borrowing period and Average borrowing cost distributed fund procurement that strikes a balance between borrowing costs and financial stability. Going forward, we will continue to promote the stability of our financial base in a way that takes into account the balance 5years 2.0% with interest costs. : Average remaining borrowing period : Average borowing period 4.51years : Average borrowing cost (*) * including upfront fee and agent fee 4.09years 4years 3.76years Historical Total interest-bearing debt, Long-term debt ratio and Fixed interest rate ratio 3.49years 1.5% 3.22years 100.0% 100.0% 100.0% 100.0% 100.0% 120,000 100% 3years 2.66years 100.0% 2.57years 2.49years 100.0% 2.42years 2.42years 2.40years 1.0% 100,000 1.95years 90.3% 80% 2years 0.88% 0.90% 0.83% 0.84% 0.86% 0.89% 80,000 60% 0.5% 60,000 1years 50.2% 40% 40,000 35.1% 0years 0.0% 5th period 6th period 7th period 8th period 9th period 10th period 79,670 104,470 103,570 103,570 103,570 20% 20,000 (Dec. 2014) (June 2015) (Dec. 2015) (June 2016) (Dec. 2016) (June 2017) : Interest-bearing debt : Long-term debt ratio : Fixed interest rate ratio 0 0% (¥mn) 6th period 7th period 8th period 9th period 10th period (June 2015) (Dec. 2015) (June 2016) (Dec. 2016) (June 2017) Overview of refinancing Executed in Apr. 2017
Before refinancing After refinancing Historical and forecast LTV Bank formation ¥5,600mn 6 years Amount and ¥11,600mn 3 years ¥3,400mn 7 years 55% Term ¥2,600mn 8 years
Average rate during 9th period Fixed by interest rate swap agreement
50% Borrowing amount Interest rate 0.4758% LTV Control Range (Note) (45% - 50%) 103.5bn 0.25% 0.5600% 0.7023% 45% 45.6% 46.1% 45.9% 45.7% 45.7% 45.7% 45.8%
11 Banks Sumitomo Mitsui Trust Bank, Limited 5.7% Debt Maturity Schedule The Bank of Tokyo Mitsubishi UFJ, Ltd. 38.4% Shinsei Bank, Limited 4.8% 40% 6th 7th 8th 9th 10th 11th 12th Mizuho Bank, Ltd. 13.2% Mizuho Trust & Banking Corporation 4.8% 12 period period period period period period period Mitsubishi UFJ Trust and Banking Corporation 12.4% Development Bank of Japan Inc. 1.0% (forecast) (forecast) Sumitomo Mitsui Banking Corporation 11.2% Aozora Bank, Ltd. 0.5% 10.8 10.9 11.0 11.0 Resona Bank, Limited 7.5% The Nomura Trust and Banking Co., Ltd. 0.5% 10.2 10.0 (Note) The “LTV control range” refers to the LTV level that the Investment Corporation is scheduled to maintain going forward and that is within the range of the LTV 9.5 9.5 level under current policy (45%-55%), as described in item 18 of this document. 8 8.5
Revision of Rating 6.1
Rating has been updated to A (stable) in April 2017. 4
3.4 Japan Credit Agency, Ltd. (JCR) Long-term issuer rating 2.6
positive stable 0 A- A (¥bn) 11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21th 22th 23th 24th 25th 26th Dec. June Dec. June Dec. June Dec. June Dec. June Dec. June Dec. June Dec. June Before the revision After the revision 2017 2018 2019 2020 2021 2022 2023 2024 2025
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Asset Management Report 6th fiscal period 7th fiscal period 8th fiscal period 9th fiscal period 10th fiscal period １ Summary of Asset Management From From From From From (1) Historical Operating Results Period January 1, July 1, January 1, July 1, 2015 to 2015 to 2016 to January 1, 2016 to June 30, December 31, June 30, 2017 to 6th fiscal period 7th fiscal period 8th fiscal period 9th fiscal period 10th fiscal period December 31, 2015 2015 2016 June 30, 2017 2016 From From From From From Period January 1, July 1, January 1, July 1, (Reference Information) 2015 to 2015 to 2016 to January 1, 2016 to 54 65 65 65 65 June 30, December 31, June 30, 2017 to December 31, Number of investment properties 2015 2015 2016 June 30, 2017 2016 （㎡） 203,359.35 255,560.43 255,396.84 255,393.62 255,398.17 (Yen in 4,596 6,682 6,607 6,836 6,947 Total leasable area Operating revenues millions) 798 938 946 966 978 Number of tenants (Note 5) Of which, rental revenues and other (Yen in 4,577 6,672 6,600 6,804 6,906 revenues related to property leasing millions) 96.7 96.8 95.9 98.8 99.8 Occupancy rate at the end of the period （％） (Yen in 2,040 2,975 3,319 3,309 3,250 Operating expenses (Yen in 549 730 743 753 734 millions) Depreciation during the period (Yen in 1,690 2,343 2,631 2,606 2,530 millions) Of which, property-related expenses (Yen in 93 395 326 466 396 millions) Capital expenditures during the period (Yen in 2,556 3,706 3,287 3,527 3,696 millions) Operating income millions) Rental NOI (net operating income) (Note (Yen in 3,436 5,059 4,713 4,952 5,111 (Yen in 2,077 2,969 2,944 3,055 3,218 4) millions) Ordinary income millions) 8,633 9,442 9,414 9,726 10,091 FFO (funds from operations) per unit (Yen) (Yen in 2,075 2,968 2,944 3,054 3,218 (Note 3) (Note 4) Net income millions) (Yen in 79,670 104,470 103,570 103,570 103,570 (Yen in 174,642 226,633 225,842 226,398 226,434 Interest-bearing debt (e) millions) Total assets (a) millions) 45.6 46.1 45.9 45.7 45.7 114.7 29.8 (0.3) 0.2 0.0 Interest-bearing debt to total assets ratio （％） Period-on-period changes （％） (e) / (a) (Yen in 87,468 112,282 112,263 112,389 112,540 181 184 182 184 181 Number of operating days （Days） Net assets (b) millions) 130.0 28.4 (0.0) 0.1 0.1 (Note 1) NIPPON REIT’s fiscal periods cover every six months, from January 1 to June 30 and from July 1 to December 31 of each year. Period-on-period changes （％） (Note 2) Operating revenues, etc., do not include consumption taxes. (Yen in 85,364 109,285 109,285 109,285 109,285 (Note 3) The following denotes the calculation methods for the indicators employed by NIPPON REIT. It should be noted that calculations on an Unitholders’ equity millions) annual basis are calculated using the number of business days in each period. Number of investment units 304,060 391,760 391,760 391,760 391,760 issued and outstanding (c) (Unit) Ordinary income to total assets ratio Ordinary income/average total assets × 100 （yen） 287,667 286,609 286,562 286,883 287,268 Net assets per unit (b) / (c) Average total assets = (Total assets at beginning of period + total assets at (Yen in 2,075 2,969 2,945 3,055 3,219 end of period) ÷ 2 Total distributions (d) millions) Return on equity Net income / average net assets × 100 （yen） 6,827 7,581 7,519 7,800 8,217 Distributions per unit (d) / (c) Average net assets = (Net assets at beginning of period + net assets at end 6,827 7,581 7,519 7,800 8,217 of period) ÷ 2 Of which, earnings distributions per unit （yen） Payout ratio Distribution per investment unit (excluding cash distributions in excess Of which, distributions per unit in － － － － － （yen） of earnings per unit) ÷ net income per investment unit × 100 excess of earnings per unit 1.6 1.5 1.3 1.4 1.4 Note that NIPPON REIT issued new investment units in the sixth period and Ordinary income to total assets ratio （％） the seventh period. Hence, the following calculation is used: Total distribution (Note 3) (excluding cash distributions in excess 3.3 2.9 2.6 2.7 2.9 Annualized (Note 3) （％） of earnings per unit) ÷ net income × 100 Income from property leasing for the fiscal period under review (rental 3.3 3.0 2.6 2.7 2.9 Leasing NOI (net operating income) Return on equity (Note 3) （％） revenues – rental expenses) + depreciation + loss on retirement of non- 6.7 5.9 5.3 5.4 5.8 current assets Annualized (Note 3) （％） (Net income + depreciation + loss on retirement of non-current assets + 50.1 49.5 49.7 49.6 49.7 FFO (funds from operations) per unit Equity ratio (b) / (a) （％） deferred asset amortization – gain / loss on real estate sales) ÷ total investment units issued and outstanding 3.3 (0.5) 0.2 (0.1) 0.1 Period-on-period changes （％） (Note 4) This denotes the total number of tenants (excluding those for warehouses, billboards, and parking lots) in leasing contracts for each 100.0 100.0 100.1 100.0 100.0 building acquired at the end of the period. It should be noted that in the event a pass-through master lease contract is entered into for Payout ratio (Note 3) （％） said assets, the total number of end-tenants is used in the calculation (excluding those for warehouses, billboards, and parking lots). (Note 5) Monetary figures are truncated, while percentages are rounded.
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(2）Overview of the Fiscal Period under Review transaction yields from before. Due to consideration that office rent is approaching an upper limit by an A Brief History of NIPPON REIT increase in office building supply and macroeconomic uncertainty, more investors have come to think that NIPPON REIT was established on September 8, 2010 by Polaris Investment Advisers K.K. (now Sojitz REIT the level of transaction yields is reaching its limit. Advisors K.K. [hereafter referred to as the “Asset Management Company”]) as the founder under the Act on On the other hand, since there is no definite cause of concern that may reverse the market, and a Investment Trusts and Investment Corporations (the “Investment Trusts Act”). Registration with the Kanto satisfactory finance environment has been continuing, superior investment-grade properties for sale that are Local Finance Bureau was completed on October 26, 2010 (registration number 72, filed with the Director of expected to make transaction yields remain at the current low level. the Kanto Local Finance Bureau). ⅡManagement Performance NIPPON REIT issued new investment units through a public offering (144,200 units) on April 23, 2014 as the a. External Growth payment date and was listed on the J-REIT section of the Tokyo Stock Exchange (securities code: 3296) on During the fiscal period under review (fiscal period ended June 2017), NIPPON REIT acquired the April 24. following silent partnership equity interest as pipelines for external growth, and has been granted the right of first negotiation pertaining to the acquisition of a total of 5 real estate-backed properties, boosting the total Furthermore, NIPPON REIT issued investment units through public offerings in February and July 2015, number of 65 properties (at a total acquisition price of 204,852 million yen) and silent partnership equity with third-party allotments in March and July 2015, so that the total number of investment units issued and interest (investment amount 820 million yen, 10 real estate-backed properties) owned as of the end of the outstanding as of the end of the fiscal period under review (June 30, 2017) is 391,760 units. prior fiscal period (December 31, 2016).
B Investment Environment and Management Performance Investment amount Ⅰ Number of backed real Investment Environment Name (Yen in millions) Acquisition date estate properties The Japanese economy during the fiscal period under review (fiscal period ended June 2017) saw an (Note) increase of 0.3% (an annual increase of 1.0%) in the real GDP growth rate (second preliminary figures) for the first quarter compared to the same period of the previous year, and the gradual recovery trend is Godo Kaisha Nicolas Capital 10 28 March 29, 2017 subordinated silent partnership 5 ongoing. equity interest 22 April 10, 2017 Business investment, exports, and industrial production are picking up, private consumption is also picking
up moderately. Though consumer prices are flat, corporate profits, firms' judgment on current business (Note) The amount does not include the fees required for acquisition. conditions, and the employment situation are improving. With regard to future prospects, a gradual recovery is expected, supported by the effects of the policies, while employment and income environment are As a result, the portfolio as of the end of the fiscal period under review consisted of 55 office properties (at a improving. However, attention should be given to the uncertainty in overseas economies and the effects of total acquisition price of 179,666 million yen), eight residential properties (at a total acquisition price of fluctuations in the financial and capital markets. 19,773 million yen) and two retail properties (at a total acquisition price of 5,413 million yen), totaling 65 properties (at a total acquisition price of 204,852 million yen; not including equity interests in a silent ㎡ In the office properties leasing market, the vacancy rate in Tokyo’s five central wards (Chiyoda, Chuo, partnership) with a total leased area of 254,809.89 , a 99.8% average occupancy rate, and 4 equity interests in a silent partnership (investment amount 870 million yen, 15 real estate-backed properties). Minato, Shinjuku, and Shibuya wards), as of the end of June 2017 as announced by Miki Shoji Co., Ltd., was
3.26%, down 0.81% from the same month last year. Moreover, the average rent in the same area, as of the b. Internal Growth end of June 2017, was 18,864 yen per tsubo, up 3.77% from the same month last year. Such small-scale NIPPON REIT emphasizes management that maintains and increases the portfolio’s asset value and upward trends are ongoing. actively reaches out to new and existing tenants with business activities, while at the same time
strengthening relations with existing tenants and, implementing measures that boost the competitiveness of In terms of the residential properties leasing market, the situation remains generally stable for both the properties in light of each property’s features and tenant needs. Through such efforts, the portfolio occupancy rate and rent level, and the trend of populations concentrating in Japan’s three major occupancy rate was maintained at a high level of 99.8% as of the end of the fiscal period under review. metropolitan areas (the Tokyo, Osaka, and Nagoya economic areas), is expected to continue.
C Procurement of Funds The retail properties leasing market saw a 2.1% year-on-year increase in retail sales according to figures ⅠBorrowings and Repayments announced by the Ministry of Economy, Trade and Industry in May 2017, showing gradual recovery trends In order to use the funds for repayment of a loan due on April 24, 2017 (loan amount 11,600 million yen), a mainly in the motor vehicles-retailing sector, medicinal supplies sector, cosmetic sector, fabric sector, total borrowing of 11,600 million yen was implemented on the same day the loan was due. apparel sector, and in the retail trade (woven fabrics, apparel, accessories, and notions) sector. Sales at
large retail stores decreased by 0.6% year-on-year. As for short-term prospects, private consumption is As a result, the balance of borrowings as of June 30, 2017 was 103,570 million yen and the ratio of expected to move toward recovery, supported by the improvement in the employment and income interest-bearing debt to total assets (LTV) was 45.7%. environment.
ⅡCredit Rating Recently, properties for sale which are located on the gulf coast of Tokyo, such as the Tennozu area, NIPPON REIT’s credit rating as of June 30, 2017 is as follows. Higashi-Shinagawa area, and Minatomirai area, which used to be considered high-risk to invest in due to
their low position in the real estate lease market, have been seen frequently traded at a different level of
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(3)Changes in Total Number of Investment Units Issued and Outstanding Credit Rating Agency Rating type Rating outlook Changes in the number of investment units issued and outstanding, with the total unitholders’ equity for the Japan Credit Rating Agency, Ltd. Long-term issuer rating: A Stable most recent 5 years until the end of the current period as follows: Number of investment units Total unitholders’ equity D Overview of Business Performance and Distributions issued and outstanding (Unit) (Yen in millions) (Note 1) Date Type of issue Note Increase Increase As a result of the operations described above, business performance in the fiscal period under review Total Total generated operating revenues of 6,947 million yen, an operating income of 3,696 million yen, an ordinary (decrease) (decrease) income of 3,218million yen, and a net income of 3,218 million yen. January 17, 2014 Unit split 200 400 - 100 (Note 2)
April 23, 2014 Public offering 144,200 144,600 35,066 35,166 (Note 3) Concerning distributions, in order to be eligible for application of the special provisions for taxation on investment corporations (Article 67-15 of the Special Taxation Measure Act of Japan) and ensure a scope Issuance of new that does not exceed unappropriated retained earnings that can also minimize unitholder burdens of income investment units May 23, 2014 7,210 151,810 1,753 36,919 (Note 4) tax, etc., NIPPON REIT decided to distribute 3,219,091,920 yen, which is the amount equivalent to the through third- maximum integral multiple of the total number of investment units issued and outstanding, 391,760 units. As party allotment such, cash distributions per unit were 8,217 yen. February 10, 2015 Public offering 145,000 296,810 46,137 83,057 (Note 5)
Issuance of new investment units March 10, 2015 7,250 304,060 2,306 85,364 (Note 6) through third- party allotment July 1, 2015 Public offering 84,000 388,060 22,911 108,276 (Note 7) Issuance of new investment units July 28, 2015 3,700 391,760 1,009 109,285 (Note 8) through third- party allotment
(Note 1) Total unitholders’ equity is truncated to the nearest million yen. (Note 2) NIPPON REIT implemented a two-for-one split of investment units with an effective date of January 17, 2014. (Note 3) In order to obtain funds to acquire new properties, NIPPON REIT issued new investment units through a public offering at the offer price of 252,000 yen (issue price of 243,180 yen) per unit. (Note 4) In connection with the public offering, NIPPON REIT issued new investment units through a third-party allotment at the issue price of 243,180 yen per unit. (Note 5) In order to obtain funds to acquire new properties, NIPPON REIT issued new investment units through a public offering at the offer price of 330,037 yen (issue price of 318,189 yen) per unit (Note 6) In connection with the public offering, NIPPON REIT issued new investment units through a third-party allotment at the issue price of 318,189 yen per unit. (Note 7) In order to obtain funds to acquire new properties, NIPPON REIT issued new investment units through a public offering at the offer price of 282,918 yen (issue price of 272,761 yen) per unit. (Note 8) In connection with the public offering, NIPPON REIT issued new investment units through a third-party allotment at the issue price of 272,761 yen per unit.
(Changes in market price of investment securities) The highest and lowest (closing) prices in the J-REIT section of the Tokyo Stock Exchange, upon which NIPPON REIT’s investment securities are listed, are as follows for the periods indicated: 6th fiscal period 7th fiscal period 8th fiscal period 9th fiscal period 10th fiscal period Period From January 1, 2015 From July 1, 2015 From January 1, 2016 From July 1, 2016 From January 1, 2017 to June 30, 2015 to December 31, 2015 to June 30, 2016 to December 31, 2016 to June 30, 2017 400,000 300,000 295,500 285,000 299,400 Highest (yen) 288,900 233,800 246,000 250,500 277,600 Lowest (yen)
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(4) Distributions (5) Future Operating Policies and Issues to Be Addressed
Concerning distributions for the period under review, in order to be eligible for application of the special A Management Policy provisions for taxation on investment corporations (Article 67-15 of the Act on Special Measures Concerning With the basic policy of “Thoroughly pursuing the best interests of NIPPON REIT’s unitholders,” Taxation) and ensure a scope that does not exceed unappropriated retained earnings that can also minimize NIPPON REIT plans to engage in the following measures to maximize unitholder value through flexible unitholder burdens of income tax, etc., NIPPON REIT decided to distribute ¥3,219,091,920, which is the amount and timely investment, seek the best interests of unitholders by utilizing the features of a diversified REIT, equivalent to the maximum integral multiple of the total number of investment units issued and outstanding, or and focus on the growth potential and stability of revenues. 391,760 units. As such, cash distributions per unit were ¥8,217. B External Growth Strategy 6th fiscal period 7th fiscal period 8th fiscal period 9th fiscal period 10th fiscal period In order to diversify risk by combining assets with different revenue features while considering the future From From From From From Period January 1, July 1, January 1, July 1, trends of the Japanese economy and real estate market, as well as securing more appropriate investment 2015 to 2015 to 2016 to January 1, 2016 to June 30, December 31, June 30, 2017 to opportunities, NIPPON REIT will set office properties as its main target of investment and construct a December 31, 2015 2015 2016 June 30, 2017 2016 diversified portfolio by also investing in residential properties and retail properties. (Yen in 2,103,897 2,996,813 2,971,047 3,080,273 3,242,988 Furthermore, with the asset management company’s own property acquisition network as the base and Unappropriated retained earnings thousands) utilizing the real estate investment networks of sponsors such as Sojitz Corporation, the main sponsor, Retained earnings (Retained (Yen in 28,079 26,880 25,404 24,545 23,896 earnings brought forward) thousands) and sub-sponsor companies such as Cushman & Wakefield Asset Management K.K. (hereafter referred to 2,075,817 2,969,932 2,945,643 3,055,728 3,219,091 Cash distributions declared (Yen in as “Cushman”), and Agility Asset Advisers Inc., NIPPON REIT will increase its asset size through property thousands) acquisitions centered on negotiation transactions with third parties, and promote external growth. 6,827 7,581 7,519 7,800 8,217 Distributions per unit (Yen) Concerning property acquisitions from third parties, NIPPON REIT will consider temporary ownership and recovery functions provided through the warehousing function of Sojitz Corporation, the main Of the above, total earnings (Yen in 2,075,817 2,969,932 2,945,643 3,055,728 3,219,091 distributions thousands) sponsor, and temporary ownership functions provided by bridge funds in which sponsor companies are 6,827 7,581 7,519 7,800 8,217 involved in the formations, in order to avoid the loss of opportunities for property acquisitions and to Earnings distributions per unit (Yen) maximize growth opportunities. (Yen in － － － － － Of the above, total capital refunds thousands) C Internal Growth Strategy Capital refunds per unit (Yen) － － － － － NIPPON REIT will manage assets to maintain and increase the competitiveness of the portfolio and of Of total capital refunds, total individual properties according to their features, based on the unique networks and expertise that the (Yen in distributions from allowance for － － － － － temporary difference thousands) officers and employees of the asset management company have nurtured at sponsor companies. Moreover, by entrusting property and building management operations mainly to Sojitz General Property Distributions from allowance for (Yen) － － － － － Management Corporation, a subsidiary of main sponsor Sojitz Corporation, we will promote the temporary difference per unit maintenance of the occupancy rate and an increase in profitability through the utilization of Sojitz Of total capital refunds, total (Yen in － － － － － distributions from reduced capital thousands) General Property Management Corporation’s knowledge based on experience and cost reduction distributions Distributions from reduced capital effects via economies of scale. Furthermore, with appropriate processes as a given, Sojitz General (Yen) － － － － － distributions per unit Property Management Corporation will be used as the main consignee for renovations and planned (Note) Amounts are truncated to the relevant digit. repairs in addition to daily management operations. Along with the company’s consistent support ranging
from building diagnostics to repair designs, selection of construction companies to construction
management based on its knowledge nurtured through large-scale repair consulting and such, NIPPON REIT will aim to maintain and increase the value of assets under management through effective and conscientious repairs that consider the priority of construction work and optimization of costs, following sufficient consideration of cost-effectiveness. Regarding leasing plans for offices, a new asking rent and renewed rent for existing tenants will be set with reference to various data, etc., provided by sub-sponsor Cushman, and flexible leasing activities will be implemented by stipulating the operational policy for new potential tenants.
D Financial Strategy NIPPON REIT’s basic policy for its financial strategy is to conduct fund procurement in a diversified and well-balanced manner in order to construct a stable financial foundation over a medium to long term. Regarding interest-bearing debt, the targeted ceiling of LTV is set at 60%. NIPPON REIT’s LTV as of the end of the fiscal period under review is at 45.9% and the current policy is to maintain the LTV level between 45% and 55%. With regard to lenders, NIPPON REIT will maintain a strong bank formation centered on the syndicate group as of the end of the fiscal period under review.
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(6) Significant Subsequent Events 2 Overview of the Investment Corporation
Not applicable. (1) Status of Investment Units 6th fiscal period 7th fiscal period 8th fiscal period 9th fiscal period 10th fiscal period Note 17 – Subsequent Events Period June 30, 2015 December 31, 2015 June 30, 2016 December 31, 2016 June 30, 2017 (a) Exchange of Properties Total number of investment (Unit) 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 units authorized NIPPON REIT entered into an exchange agreement of the trust beneficiary interests in real estate Total number of investment (Unit) 304,060 391,760 391,760 391,760 391,760 with Godo Kaisha Nicolas Capital 6 on September 15, 2017 as described below and carried out the units issued and outstanding (Yen in 85,364 109,285 109,285 109,285 109,285 exchange on September 28, 2017. Total unitholders’ equity (Note) millions)
The provision on reduction entry prescribed in Article 50 of the Corporation Tax Act will apply to the Number of unitholders 21,096 24,862 25,570 24,814 22,653 land portion of the properties acquired by the exchange. The expected amount equivalent to (Note) Total unitholders’ equity is truncated to the nearest million yen. reduction limit of about ¥400 million out of gains on disposition of properties by the exchange will be deducted from the acquisition prices. (2) Matters Concerning Investment Units (1) Properties disposed by the exchange The top 10 unitholders in terms of the percentage of investment units held as of June 30, 2017, are as
follows: Disposition price Book value Property name Location (Yen in millions) (Note 1) (Yen in millions) (Note 2) Percentage of units held to the total GreenOak Okachimachi Taito Ward, Tokyo ¥ 3,650 ¥ 3,454 Number of investment number of units Name units held issued and JS Progres Building Ota Ward, Tokyo 6,350 5,413 (Unit) outstanding (%) (Note) Total ¥ 10,000 ¥ 8,867 Japan Trustee Services Bank, Ltd. (Trust Account) 71,271 18.19
32,821 8.38 Notes: The Master Trust Bank of Japan, Ltd. (Trust Account) 1. The disposition prices represent the amounts of consideration stated in the exchange agreement of the trust Trust & Custody Service Bank, Ltd.(Securities Investment Trust Account) 32,639 8.33 beneficiary interests in real estate and do not include expenses related to the exchange and consumption taxes. Sojitz Corporation 15,500 3.96 2. The book values as of June 30, 2017 are stated. 15,198 3.88 The Nomura Trust and Banking Co., Ltd. (Investment Trust Account) (2) Properties acquired by the exchange STATE STREET BANK AND TRUST COMPANY 505012 5,802 1.48
Acquisition price NOMUR ABANK (LUXEMBOURG) S.A. 3,835 0.98 Property name Location (Yen in millions) (Note 1) STATE STREET BANK AND TRUST COMPANY 505001 3,754 0.96 Homat Horizon Building Chiyoda Ward, Tokyo ¥ 6,705 JR Shikoku 3,342 0.85 Sannomiya First Building Kobe, Hyogo 1,390 BNYM SA/NV FOR BNYM FOR BNY GCM CLIENT ACCOUNTS M LSCB 2,609 0.67 Splendid Namba Osaka, Osaka 3,502 RD Total 186,771 47.67 Total ¥ 11,597 (Note) Percentage of units held to the total number of units issued and outstanding is rounded to the second decimal place and may not add up to the total. Note: The acquisition prices represent the amounts of consideration stated in the exchange agreement of the trust beneficiary interests in real estate and do not include expenses related to the exchange and consumption taxes. (3) Officers The following table provides information about our executive, supervising officers, and independent (b) Borrowing of Funds auditor during the fiscal period under review.
NIPPON REIT borrowed funds on September 28, 2017. This borrowing was used as a part of funds for acquisition of the properties by the exchange described in section (a) (2) above and its Total compensation per title during the 8th related costs. Position Name Major concurrent position fiscal period
(Yen in thousands) Amount Fix / Repayment due Repayment (Note 1) Lender (Yen in Interest rate Floating date method Director & Executive Officer, Sojitz Kyusyu millions) Corporation Lump-sum Executive Officer Hisao Ishikawa 1,800 The Bank of Tokyo- 1 month Japanese Yen Adviser for Asset Management Department, ¥ 2,600 Floating August 20, 2018 payment at Mitsubishi UFJ, Ltd. TIBOR +0.2% (Note) Sojitz Corporation maturity Yasuhiro Shimada Partner, 1,200 Atsumi & Sakai Note: Interest rate is calculated based on the 1 month Japanese Yen TIBOR published by the JBA TIBOR Supervising Officer Representative council, Administration (“JBATA”) two business days prior to the interest payment date immediately preceding the Hisashi Yahagi 1,200 respective interest payment date. However, if the calculation period is more than one moth or less than Toranomon Partners one month, the interest rate applicable to the period will be the interest rate calculated on the method Independent Auditor KPMG A ZSA LLC － 13,000 specified in the agreement. (Note 1) Total compensation for each position in the applicable business period has been truncated to the nearest thousand yen. (Note 2) Termination of the independent auditor is carried out in accordance with the Investment Trust Act. The Board of Officers of NIPPON REIT
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determines the refusal of reappointment of an independent auditor factoring in various circumstances, including the quality of the audit(s) 3 Portfolio of the Investment Corporation performed and the compensation for said audit(s). (1) Composition of Assets 9th fiscal period 10th fiscal period (4) Asset Manager, Asset Custodian, and General Administrative Agent (December 31, 2016) (June 30, 2017) Type of Property NIPPON REIT’s asset manager, asset custodian, and general administrative agent as of June 30, 2017 Area assets type Total amount held Total amount held (Yen Percentage to Percentage to are as follows: total assets (Yen in millions) total assets in millions) (Note 1) (%) (Note 2) (Note 1) (%) (Note 2) Business Name Six central wards of Tokyo 122,349 54.0 122,158 53.9 Asset Manager Sojitz REIT Advisors K.K. (Note 4) Three major metropolitan areas 60,991 26.9 60,942 26.9 Asset Custodian Mitsubishi UFJ Trust and Banking Corporation Office (Note 5) properties (excluding the six central wards General Administrative Agent (Transfer agent) Mitsubishi UFJ Trust and Banking Corporation of Tokyo)
General Administrative Agent (Administrative work for organizational operation) Mitsubishi UFJ Trust and Banking Corporation Subtotal 183,340 81.0 183,100 80.9 Real
General Administrative Agent (Accounting administration) Mitsubishi UFJ Trust and Banking Corporation estate in Three major metropolitan 16,814 7.4 16,708 7.4 trust areas (Note 5) (Note 3) (including the six central Residential wards of Tokyo) properties Certain ordinance-designated 2,233 1.0 2,214 1.0 and other cities (Note 6)
Subtotal 19,048 8.4 18,922 8.4
Retail ‐ 5,533 2.4 5,517 2.4 properties
Total 207,922 91.8 207,540 91.7
Investment securities (Note 7) 848 0.4 895 0.4
Deposits and other assets 17,626 7.8 17,997 7.9
Total assets (Note 8) 226,398 100.0 226,434 100.0 （207,922） （91.8） （207,540） （91.7） (Note 1) Total amount held represents the amount recorded on the balance sheets as of the end of the respective period (for real estate in trust, book value less depreciation) and truncated to the nearest million yen. (Note 2) Percentage to total assets represents the percentage of the amount of respective assets recorded on the balance sheets to total assets. Figures are rounded to one decimal place and may not add up to subtotals or the total. (Note 3) “Real estate in trust” excludes “Construction in progress in trust”. (Note 4) “Six central wards of Tokyo” refers to Chiyoda, Chuo, Minato, Shinjuku, Shibuya, and Shinagawa wards. (Note 5) “Three major metropolitan areas” refers to the Tokyo, Osaka, and Nagoya economic areas. “Tokyo economic area” refers to the Tokyo metropolitan area, Kanagawa Prefecture, Chiba Prefecture, and Saitama Prefecture. “Osaka economic area” refers to Osaka Prefecture, Kyoto Prefecture, and Hyogo Prefecture. “Nagoya economic area” refers to Aichi Prefecture, Gifu Prefecture, and Mie Prefecture. (Note 6) “Certain ordinance-designated and other cities” refers to Japanese cities that have been designated as ordinance-designated cities by order of the Cabinet under the Local Autonomy Law of Japan and that are located outside of the three major metropolitan areas (i.e., Sapporo, Sendai, Niigata, Shizuoka, Hamamatsu, Okayama, Hiroshima, Fukuoka, Kitakyushu, and Kumamoto) and to prefectural capitals that are located outside of the three major metropolitan areas. (Note 7) “Investment securities” represents the equity interest in silent partnerships of Godo Kaisha Nicolas Capital 6, Godo Kaisha Nicolas Capital 9, and Godo Kaisha Nicolas Capital 8 as operator, as of the end of the 9th period, and the equity interests in silent partnerships of Godo Kaisha Nicolas Capital 6, Godo Kaisha Nicolas Capital 9, Godo Kaisha Nicolas Capital 8, and Godo Kaisha Nicolas Capital 10 as operators as of the end of the 10th period. (Note 8) Figures in total assets shown in parentheses represent the portion corresponding to a substantive holding of real estate, etc., in total assets.
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(2) Principal Assets Held (3) Description of Portfolio The overview of principal assets held by NIPPON REIT as of June 30, 2017 (top 10 properties in terms of The overview of portfolio assets held by NIPPON REIT as of June 30, 2017 is as follows: book value at the end of the period) is as follows: Appraisal value Form of Total leasable Book value Property name Location 2 (Yen in millions) (Yen in million) Total leased Rate to total ownership area (m ) Book value Total leasable Occupancy (Note 1) (Note 2) (Yen in area rate revenues from Property name area 2 property leasing Primary use millions) 2 (m ) (%) (m ) (Note 2) (%) 7-16 -11 Nishi-Shinjuku, Trust beneficiary 1,945.68 2,890 2,186 (Note 1) (Note 3) (Note 4) FORECAST Nishishinjuku (Note 5) Shinjuku-ku, Tokyo estate Omiya Center Building 15,620 14,311.77 14,311.77 100.0 7.4 Office Nihombashi Playa Building 1-9 -12 Nihonbashi Hamacho, Trust beneficiary 2,490.08 2,370 2,062 Chuo-ku, Tokyo estate FORECAST Shinjuku SOUTH 14,494 13,875.04 13,875.04 100.0 8.5 Office 2-11- 6 Yotsuya, Shinjuku-ku, Trust beneficiary 1,678.15 1,810 1,395 FORECAST Yotsuya Tower Court Kitashinagawa 11,079 16,913.29 16,780.81 99.2 5.8 Residence Tokyo estate
Shibakoen Sanchome Building 7,438 7,882.60 7,882.60 100.0 3.2 Office 2-5 -12 Shinjuku, Shinjuku-ku, Trust beneficiary 4,337.15 7,530 6,343 FORECAST Shinjuku AVENUE Tokyo estate FORECAST Gotanda WEST 6,773 8,981.55 8,981.55 100.0 3.3 Office FORECAST Ichigaya 3-29 Ichigaya Honmuracho, Trust beneficiary 3,844.66 5,690 4,665
FORECAST Shinjuku AVENUE 6,343 4,337.15 4,337.15 100.0 2.9 Office Shinjuku-ku, Tokyo estate
FORECAST Sakurabashi 6,026 6,566.76 6,566.76 100.0 2.9 Office Trust beneficiary 1-3-31 Mita, Minato-ku, Tokyo 1,786.18 2,190 1,765 FORECAST Mita estate FORECAST Takadanobaba 5,790 5,614.35 5,614.35 100.0 2.5 Office 4-3-17 Shinjuku, Shinjuku-ku, Trust beneficiary 13,875.04 16,300 14,494 FORECAST Shinjuku SOUTH FORECAST Iidabashi 5,414 4,066.50 4,066.50 100.0 1.7 Office Tokyo estate
JS Progres Building 5,413 11,988.14 11,988.14 100.0 2.8 Office 4-5 - 4 Hatchobori, Chuo-ku, Trust beneficiary 6,566.76 6,190 6,026 FORECAST Sakurabashi Tokyo estate Total 84,393 94,537.15 94,404.67 99.9 41.1 1-3-3 Shinkawa, Chuo-ku, Trust beneficiary 2,984.94 3,200 2,976 (Note 1) “Book value” is truncated to the nearest million yen. GreenOak Kayabacho (Note 2) “Total leasable area” is the total area of the relevant building that NIPPON REIT considers leasable based on relevant lease Tokyo estate agreements or floor plans. The same shall apply hereafter. 1-11-5 Kudankita, Chiyoda-ku, Trust beneficiary 2,594.46 3,180 2,875 (Note 3) “Total leased area” is the aggregate leased area described in the relevant lease agreements as of June 30, 2017. For properties GreenOak Kudan subject to pass-through master leases, total leased area is the aggregate of the leased areas indicated in the relevant sublease Tokyo estate agreements with end-tenants as of June 30, 2017. Trust beneficiary (Note 4) “Occupancy rate” is calculated by dividing total leased area by total leasable area as of June 30, 2017, and rounded to the first decimal 2-26 -10 Shirokanedai, 2,621.74 2,500 2,250 GreenOak Takanawadai place. Minato-ku, Tokyo estate (Note 5) “Rate to total revenues from property leasing” is rounded to the first decimal place and may not add up to the total. Trust beneficiary 5 -23-14 Ueno, Taito-ku, Tokyo 3,497.09 3,010 3,454 GreenOak Okachimachi estate
Higashi Ikebukuro Center 4- 41-24 Higashi-Ikebukuro, Trust beneficiary 4,219.65 2,760 2,712 Building Toshima-ku, Tokyo estate 14-23 Daikanyamacho, Trust beneficiary 1,898.83 3,590 3,651 Central Daikanyama Shibuya-ku, Tokyo estate
4-1-23 Heiwajima, Ota-ku, Trust beneficiary 11,988.14 5,250 5,413 JS Progres Building Tokyo estate
5 -15 -27 Minamiazabu, Trust beneficiary 1,500.85 3,110 2,861 Hiroo Reeplex B’s Minato-ku, Tokyo estate
3-1-38 Shibakoen, Minato-ku, Trust beneficiary 7,882.60 9,630 7,438 Shibakoen Sanchome Building Tokyo estate
3-11-13 Iidabashi, Chiyoda-ku, Trust beneficiary 4,066.50 5,490 5,414 FORECAST Iidabashi Tokyo estate
3-2-5 Kudankita, Chiyoda-ku, Trust beneficiary 2,007.07 1,960 1,935 Kudankita 325 Building Tokyo estate
FORECAST Uchikanda 1-3-3 Uchikanda, Chiyoda-ku, Trust beneficiary 1,230.44 1,270 1,296 Tokyo estate
Itohpia Iwamotocho 2-chome 2-11-2 Iwamotocho, Trust beneficiary 3,447.16 3,000 2,833 Building Chiyoda-ku, Tokyo estate
Itohpia Iwamotocho 1-chome 1- 8 -15 Iwamotocho, Trust beneficiary 3,056.56 2,700 2,686 Building Chiyoda-ku, Tokyo estate
Itohpia Iwamotocho ANNEX 2-14-2 Iwamotocho, Trust beneficiary 3,064.20 2,340 2,117 Building Chiyoda-ku, Tokyo estate
4- 4 Hisamatsucho, Nihonbashi, Trust beneficiary 3,022.25 2,920 2,877 Pigeon Building (Note4) Chuo-ku, Tokyo estate
2-13-9 Ningyocho, Nihonbashi, Trust beneficiary 2,277.61 2,070 2,154 FORECAST Ningyocho Chuo-ku, Tokyo estate
3- 4-14 Ningyocho, Nihonbashi, Trust beneficiary 1,867.95 1,760 1,662 FORECAST Ningyocho PLACE Chuo-ku, Tokyo estate
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Appraisal value Appraisal value Form of Total leasable Book value Form of Total leasable Book value Property name (Yen in millions) Property name (Yen in millions) Location ownership 2 (Yen in million) Location ownership 2 (Yen in million) area (m ) (Note 1) (Note 2) area (m ) (Note 1) (Note 2)
FORECAST Shin-Tokiwabashi 3-1-2 Nihonbashi Hongokucho Trust beneficiary 1-16 -7 Nishiki, Naka-ku, Trust beneficiary 3,857.58 3,090 2,804 1,799.53 2,060 2,120 NORE Fushimi (Note 3) Chuo-ku, Tokyo estate Nagoya, Aichi estate Trust beneficiary Trust beneficiary 7-22-35 Nishi-Shinjuku, 1-3-18 Meiekiminami, 4,296.12 2,860 2,490 Nishi-Shinjuku Sanko Building Shinjuku-ku, Tokyo estate 2,479.80 2,270 2,238 NORE Meieki Nakamura-ku, Nagoya, Aichi estate
Trust beneficiary Trust beneficiary 1-14 Shin- Ogawamachi, 3-11-13 Kita-Shinagawa, 16,913.29 13,600 11,079 Iidabashi Reeplex B’s Shinjuku-ku, Tokyo estate 1,401.68 1,390 1,295 Tower Court Kitashinagawa Shinagawa-ku, Tokyo estate
FORECAST Shinagawa 1-20 -9 Kita-Shinagawa, Trust beneficiary 2- 4-10 Kita-Juichijo-Nishi, Kita- Trust beneficiary 8,567.50 1,730 1,567 2,385.47 2,300 2,398 Sky Hills N11 Shinagawa-ku, Tokyo estate ku, Sapporo, Hokkaido estate Trust beneficiary Trust beneficiary 8 -3-16 Nishi- Gotanda, 3-9 - 6 Meieki, Nakamura-ku, 2,890.78 1,490 1,273 Nishi-Gotanda 8-chome Building Shinagawa-ku, Tokyo estate 2,999.68 2,360 2,305 my atria Meieki Nagoya, Aichi estate
Trust beneficiary Trust beneficiary 1-7- 6 Higashi- Gotanda, 1-29 -26 Sakae, Naka-ku, 3,121.60 1,210 1,091 Towa Higashi-Gotanda Building Shinagawa-ku, Tokyo estate 2,939.16 2,140 2,064 my atria Sakae Nagoya, Aichi estate
Trust beneficiary Trust beneficiary 3-28 -2 Takada, Toshima-ku, 2-24- 88 Heian, Kita-ku, Nagoya, 2,250.00 866 777 FORECAST Takadanobaba Tokyo estate 5,614.35 5,580 5,790 Mac Village Heian Aichi estate
Trust beneficiary 3-28 -25 Tsutsui, Higashi-ku, Trust beneficiary 2-1-1 Mejiro, Toshima-ku, Tokyo 1,800.00 769 707 Mejiro NT Building estate 4,497.27 3,300 3,109 Seam Dwell Tsutsui Nagoya, Aichi estate
Toshin Higashi- 5 - 44-15 Higashi-Ikebukuro, Trust beneficiary 2-7-35 Watanabe-Dori, Chuo- Trust beneficiary 1,544.87 707 646 1,645.19 1,050 992 Ciel Yakuin Ikebukuro Building Toshima-ku, Tokyo estate ku, Fukuoka, Fukuoka estate
Trust beneficiary 2-5 -1 Kandatacho, Chiyoda-ku, Trust beneficiary 2- 4-14 Toyo, Koto-ku, Tokyo 2,183.93 1,930 1,778 Mitsui Woody Building estate 4,006.20 2,680 2,545 Kanda Reeplex R’s Tokyo estate
Trust beneficiary Trust beneficiary 36 -1 Shimizucho, Itabashi-ku, 7-10 -18 Nishi-Shinjuku, 1,383.31 3,470 3,453 Itabashi Honcho Building Tokyo estate 6,356.89 3,320 3,155 Otakibashi Pacifica Building Shinjuku-ku, Tokyo estate
Trust beneficiary 2-1-3 Kamotanidai, Minami-ku, Trust beneficiary 1-1-14 Taito, Taito-ku, Tokyo 6,173.41 2,190 2,064 ANTEX24 Building estate 2,267.59 1,730 1,791 Komyoike Act Sakai, Osaka estate
Trust beneficiary Total 1-38 -9 Taito, Taito-ku, Tokyo 255,398.17 224,082 207,540 Itohpia Kiyosubashidori Building estate 2,659.67 1,770 1,602 (Note 1) “Appraisal value” represents the appraisal value as set forth on the relevant appraisal reports as of June 30, 2017 and truncated to the 1-1-11 Yanagibashi, Taito-ku, Trust beneficiary East Side Building 2,096.92 1,470 1,384 nearest million yen. Tokyo estate (Note 2) “Book value” is the value recorded on the balance sheets as of June 30, 2017 (for real estate and real estate in trust, acquisition price [including acquisition-related expenses] less depreciation expenses) and truncated to the nearest million yen. 2- 6 -5 Higashi-Temma, Kita-ku, Trust beneficiary I•S Minamimorimachi Building 4,164.82 2,460 2,287 (Note 3) For the concerned property, the name “FORECAST Ichigaya” is used for the first through seventh floors as a property for office use, and Osaka, Osaka estate the name of “Eponoqu Ichigaya” is used for the eighth and ninth floors as a property for residential use. However, the entire property including the residential portion is named “FORECAST Ichigaya.” Trust beneficiary 1- 6 -2 Kita-Horie, Nishi-ku, (Note 4) NIPPON REIT executed the following name change of properties. The same applies hereinafter. Sunworld Building Osaka, Osaka estate 3,314.58 1,230 1,255 Date of Change Old Name New Name Trust beneficiary 3-14-32 Marunouchi, Naka-ku, June 1, 2017 Hisamatsucho Reeplex B’s Pigeon Building Marunouchi Sanchome Building Nagoya, Aichi estate 4,219.19 1,860 1,627 April 1, 2017 New River Building FORECAST Kayabacho Trust beneficiary 4-2-1 Kojimachi, Chiyoda-ku, MK Kojimachi Building Tokyo estate 1,748.92 1,960 1,811
Toranomon 3-22-1 Toranomon, Minato-ku, Trust beneficiary 3,049.79 4,280 4,306 Sakura Building Tokyo estate
1-5 -7 Motoakasaka, Minato-ku, Trust beneficiary 1,707.18 2,130 2,101 La Verite Akasaka Tokyo estate
1-15 -2 Uchikanda, Chiyoda-ku, Trust beneficiary 1,484.74 1,560 1,467 Kanda Ocean Building Tokyo estate
Trust beneficiary 3-1-10 Tsukiji, Chuo-ku, Tokyo 1,206.28 1,400 1,365 Shinto GINZA EAST estate
FORECAST Kayabacho 1-10 -14 Shinkawa, Chuo-ku, Trust beneficiary 3,882.61 2,970 3,125 (Note 4) Tokyo estate
FORECAST Waseda FIRST 1-1 Babashitacho, Shinjuku-ku, Trust beneficiary 4,340.66 4,900 4,811 Tokyo estate
8 -9 -5 Nishi- Gotanda, Trust beneficiary 8,981.55 6,870 6,773 FORECAST Gotanda WEST Shinagawa-ku, Tokyo estate
1-9 - 6 Sakuragicho, Omiya-ku, Trust beneficiary 14,311.77 17,500 15,620 Omiya Center Building Saitama, Saitama estate
Sumitomo Mitsui Bank 2-1-1 Fushimicho, Chuo-ku, Trust beneficiary 5,102.55 2,920 2,903 Koraibashi Building Osaka, Osaka estate
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The status of rental business related to properties held by NIPPON REIT is as follows: 9th fiscal period 10th fiscal period 9th fiscal period 10th fiscal period (From July 1, 2016 to December 31, 2016) (From January 1, 2017 to June 30, 2017) (From July 1, 2016 to December 31, 2016) (From January 1, 2017 to June 30, 2017) Revenues Revenues Rate to total Rate to total Revenues Revenues related to related to Rate to total Rate to total Number of Occupancy revenues Number of Occupancy revenues related to related to Property name property property Number of Occupancy revenues Number of Occupancy revenues tenants rate related to tenants rate related to Property name property property leasing leasing tenants rate related to tenants rate related to (as of the end (as of the end property (as of the end (as of the end property leasing leasing (during the (during the (as of the end (as of the end property (as of the end (as of the end property of period) of period) (%) leasing of period) of period) (%) leasing (during the (during the period) (Yen in period) (Yen in of period) of period) (%) leasing of period) of period) (%) leasing (Note 1) (Note 2) (%) (Note 1) (Note 2) (%) period) (Yen in period) (Yen in millions) millions) (Note 1) (Note 2) (%) (Note 1) (Note 2) (%) (Note 4) (Note 4) millions) millions) (Note 3) (Note 3) (Note 4) (Note 4) (Note 3) (Note 3) Itabashi Honcho Building 4 100.0 146 2.2 4 100.0 146 2.1 17 100.0 82 1.2 17 100.0 86 1.3 FORECAST Nishishinjuku ANTEX24 Building 7 100.0 45 0.7 7 100.0 51 0.8 2 100.0 79 1.2 2 100.0 79 1.2 Nihombashi Playa Building Itohpia Kiyosubashidori 7 86.0 64 0.9 8 100.0 57 0.8 13 100.0 52 0.8 13 100.0 54 0.8 Building FORECAST Yotsuya East Side Building 4 100.0 52 0.8 4 100.0 50 0.7 FORECAST Shinjuku 6 100.0 204 3.0 6 100.0 202 2.9
AVENUE I•S Minamimorimachi Building 16 100.0 96 1.4 16 100.0 94 1.4 21 97.5 138 2.0 22 98.9 149 2.2 FORECAST Ichigaya Not Not Not Not 5 100.0 60 0.9 5 100.0 61 0.9 Sunworld Building 1 100.0 disclosed disclosed 1 100.0 disclosed disclosed FORECAST Mita (Note 6) (Note 6) (Note 6) (Note 6) FORECAST Shinjuku 18 100.0 575 8.5 18 100.0 590 8.5 Marunouchi Sanchome 22 100.0 73 1.1 22 100.0 74 1.1 SOUTH Building
FORECAST Sakurabashi 6 100.0 203 3.0 6 100.0 202 2.9 MK Kojimachi Building 9 100.0 61 0.9 9 100.0 52 0.8 5 86.4 89 1.3 6 100.0 91 1.3 Toranomon 9 89.5 67 1.0 12 100.0 83 1.2 GreenOak Kayabacho Sakura Building
GreenOak Kudan 4 100.0 98 1.4 3 100.0 87 1.3 La Verite Akasaka 6 100.0 56 0.8 6 100.0 58 0.8
GreenOak Takanawadai 11 100.0 80 1.2 10 100.0 77 1.1 Kanda Ocean Building 24 100.0 48 0.7 24 100.0 48 0.7
GreenOak Okachimachi 5 100.0 97 1.4 5 100.0 91 1.3 Shinto GINZA EAST 6 100.0 36 0.5 6 100.0 35 0.5
Higashi Ikebukuro Center 5 100.0 110 1.6 5 100.0 110 1.6 FORECAST Kayabacho 13 90.1 65 1.0 14 100.0 84 1.2 Building
Central Daikanyama 4 100.0 86 1.3 4 100.0 86 1.2 FORECAST Waseda FIRST 6 85.2 116 1.7 8 100.0 119 1.7
JS Progres Building 9 100.0 165 2.4 9 100.0 190 2.8 FORECAST Gotanda WEST 13 100.0 228 3.4 13 100.0 227 3.3
Hiroo Reeplex B’s 8 100.0 79 1.2 8 100.0 83 1.2 Omiya Center Building 27 100.0 479 7.0 27 100.0 509 7.4 Shibakoen Sanchome 4 100.0 219 3.2 4 100.0 220 3.2 Sumitomo Mitsui Bank 23 100.0 121 1.8 23 100.0 124 1.8 Building Koraibashi Building
FORECAST Iidabashi 23 100.0 128 1.9 25 100.0 118 1.7 NORE Fushimi 7 100.0 106 1.6 7 100.0 105 1.5
Kudankita 325 Building 8 100.0 57 0.8 8 100.0 60 0.9 NORE Meieki 20 100.0 97 1.4 19 94.7 95 1.4
FORECAST Uchikanda 5 100.0 41 0.6 5 100.0 40 0.6 Tower Court Kitashinagawa 273 98.0 393 5.8 276 99.2 403 5.8
Itohpia Iwamotocho 2-chome 10 100.0 79 1.2 10 100.0 90 1.3 Sky Hills N11 1 100.0 61 0.9 1 100.0 61 0.9 Building
Itohpia Iwamotocho 1-chome 9 100.0 87 1.3 9 100.0 81 1.2 my atria Meieki 66 96.9 50 0.7 68 100.0 51 0.7 Building
Itohpia Iwamotocho ANNEX 6 100.0 71 1.1 6 100.0 73 1.1 my atria Sakae 1 100.0 38 0.6 1 100.0 38 0.6 Building
Not Not Not Not Mac Village Heian 1 100.0 27 0.4 1 100.0 27 0.4 Pigeon Building 1 100.0 disclosed disclosed 1 100.0 disclosed disclosed
(Note 5) (Note 5) (Note 5) (Note 5) Seam Dwell Tsutsui 1 100.0 24 0.4 1 100.0 24 0.4 (Tentative) FORECAST 7 100.0 60 0.9 7 100.0 60 0.9
Ningyocho Ciel Yakuin 40 95.5 24 0.4 38 90.8 24 0.4 6 100.0 55 0.8 6 100.0 54 0.8 KDX Ningyocho Building Kanda Reeplex R’s 41 100.0 53 0.8 40 97.9 54 0.8 FORECAST Shin- 10 85.3 46 0.7 11 100.0 46 0.7
Tokiwabashi Otakibashi Pacifica Building 8 100.0 93 1.4 8 100.0 92 1.3 Nishi-Shinjuku Sanko 8 100.0 69 1.0 8 100.0 69 1.0
Building Komyoike Act 24 97.0 140 2.1 25 100.0 138 2.0
Iidabashi Reeplex B’s 6 100.0 49 0.7 6 100.0 44 0.6 Total 966 98.8 6,804 100.0 978 99.8 6,906 100.0 6 100.0 48 0.7 6 100.0 64 0.9 FORECAST Shinagawa (Note 1) “Number of tenants” is the aggregate number of tenants as described in the relevant lease agreements for respective properties as of Nishi-Gotanda 8-chome 8 100.0 76 1.1 8 100.0 78 1.1 the end of respective periods, excluding warehouses, signboards, and parking lots. For properties subject to a pass-through master Building lease, the number of tenants is the total number of end-tenants, except for certain pass-through master leases under which properties Towa Higashi-Gotanda 8 100.0 76 1.1 8 100.0 73 1.1 are leased en bloc to a sublessee who pays a fixed amount of rent to the master lessee, for which we consider number of the tenants to Building be one. (Note 2) “Occupancy rate” is rounded to the first decimal place. FORECAST Takadanobaba 7 100.0 172 2.5 7 100.0 172 2.5 (Note 3) “Revenues related to property leasing” is truncated to the nearest million yen. (Note 4) “Rate to total revenues related to property leasing” is rounded to the first decimal place, and may not add up to 100%. Mejiro NT Building 5 100.0 114 1.7 5 100.0 102 1.5 (Note 5) This information is not disclosed as tenants’ consent to disclosure has not been obtained. Toshin Higashi- 4 100.0 40 0.6 4 100.0 41 0.6 (Note 6) This information is not disclosed as sublessees’ consent to disclosure has not been obtained. Ikebukuro Building 6 100.0 94 1.4 6 100.0 95 1.4 Mitsui Woody Building
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(4) Description of Investment Securities 4 Capital Expenditure for Properties Held The overview of investment securities held by NIPPON REIT as of June 30, 2017, is as follows: (1) Schedule of Capital Expenditures
Book value Fair value The following are the main capital expenditures NIPPON REIT plans to implement during the 11th fiscal (Note 1) (Note 1) (Note 2) Valuation gain period accompanying planned renovations and repairs for those properties held as of June 30, 2017. The Quantity Name Type Unit or loss (Yen Notes (Unit) Unit price Amount price Amount in millions) following scheduled construction amount includes the portion charged to expenses in accounting. (Yen in (Yen in (Yen in (Yen in thousand Scheduled construction amount millions) thousan millions) s) (Yen in millions) (Note) ds) Amount to Property name Location Purpose Schedule Amount Equity be paid in Godo Kaisha Nicolas Capital 6 equity (Note Total already interest － － 227 － 227 － the current interest in silent partnership in a silent 3) paid partnership fiscal period Equity From June Godo Kaisha Nicolas Capital 9 equity (Note Electrical equipment 2017 to interest － － 97 － 97 － 57 － － interest in silent partnership in a silent 4) repair (No.1) December partnership FORECAST Sinjuku Shinjuku 2017 Equity SOUTH Ward, Tokyo From July Godo Kaisha Nicolas Capital 8 equity interest (Note Installation of LED － － 518 － 518 － 2017 to interest in silent partnership in a silent 5) lighting, Ventilation 204 － － December partnership system renewal (No.1) Equity 2017 Godo Kaisha Nicolas Capital 10 interest (Note From July subordinated equity interest in silent 52 52 in a silent 6) FORECAST Chuo Ward, Multistory parking lot 2017 to partnership 29 － － partnershi Sakurabashi Tokyo maintenance December p 2017 Total － － 895 － 895 － From July GreenOak Chuo Ward, 2017 to Exterior wall repair 42 － － (Note 1) Amounts are truncated to the relevant digit. Kayabacho Tokyo December (Note 2) Book value is used as the fair value equivalent. (Note 3) The asset under management is trust beneficiary interests in real estate of Homat Horizon Building, Splendid Namba, and Sannomiya 2017 First Building. From July (Note 4) The asset under management is trust beneficiary interests in real estate of Yusen Higashi-Nihombashi Ekimae Building, Residence Kudankita 325 Chiyoda 2017 to Exterior wall repair 14 － － Edogawabashi, and ZEPHYROS Minami-horie. Building Ward, Tokyo December (Note 5) The asset under management is trust beneficiary interests in real estate of SC Sakaisujihonmachi Building, Alte Building Higobashi, DIA Building Meieki, and Hiroo ON Building. 2017 (Note 6) The asset under management is trust beneficiary interests in real estate of (Tentative) Residence Hiroo, Merveille Senzoku, Splendid From July Shin-osakaⅢ, Charmant Fuji Osakajominami, and Piacere Fuminosato. Itohpia Iwamotocho Chiyoda 2017 to Substation renovation 16 － － 2-chome Building Ward, Tokyo December 2017 Contract Amount and Market Value for Specific Transactions (5) From July Ventilation system Category Type Contract amount (Yen in thousands) (Note 1) Market value (Yen in 2017 to renewal at the 2nd, 5th, 33 － － December Due after 1 year thousands) (Note 2) 8th, and 9th floors 2017 Interest rate swap (71,592) From July Off-market transactions 85,500,000 Receive floating 72,800,000 Itohpia Iwamotocho Chiyoda 2017 to / Pay fix (Note 3) Substation renovation 10 － － 1-chome Building Ward, Tokyo December Total 85,500,000 72,800,000 (71,592) 2017 (Note 1) The contract amount is based on the notional principal. Also, figures are truncated to the nearest thousand yen. From July (Note 2) Market value is based on the price indicated by the financial institution managing the transaction. Also, figures are truncated to the Installation of LED 2017 to 13 － － nearest thousand yen. lighting December (Note 3) With regard to the Interest rate swap Receive floating / Pay fix transaction for which special treatment is applied in accordance with the “Accounting Standards for Financial Instruments,” such market value is not included in the balance sheet. 2017 Ventilation system From July Itohpia Iwamotocho Chiyoda renewal, Installation of 2017 to 107 － － (6) Other Assets ANNEX Building Ward, Tokyo LED lighting, Substation December Beneficiary interests in trust assets comprised mainly of real estate are presented earlier in this report renovation 2017 under “(3) Description of Portfolio.” Aside from the column for assets, as of June 30, 2017, and the assets in From July Installation of LED “(4) Description of Investment Securities,” NIPPON REIT has not included major investment assets in its Chuo Ward, 2017 to Pigeon Building lighting, Substation 29 － － portfolio. Tokyo December renovation 2017 (7) Holding of Assets by Country and Region From July NIPPON REIT does not own assets outside of Japan. Towa Higashi- Shinagawa Ventilation system 2017 to 10 － － Gotanda Building Ward Tokyo renewal at 7th floor December 2017 From July 2017 to Substation renovation 16 － － December FORECAST Toshima Ward 2017 Takadanobaba Tokyo From July 2017 to Elevator renewal 28 － － December 2017 Mejiro NT Building Toshima Ward Multistory parking lot From July 16 － －
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Tokyo maintenance 2017 to (2) Capital Expenditures During the Period December The following are the main capital expenditures NIPPON REIT implemented to carry out construction in the 2017 From May fiscal period under review for properties held as of June 30, 2017. In the fiscal period ended June 30, 2017 Exterior wall repair, Roof 2017 to (10th period), capital expenditures totaled ¥396 million. With the addition of ¥101 million posted as expense 44 － － waterproofing December Mitsui Woody Koto Ward, for renovations and repairs, total capital expenditures for construction came to ¥498 million. 2017 Building Tokyo From May Ventilation system Capital 2017 to 36 － － renewal at 4th floor Property name Location Purpose Period expenditures December 201 (Yen in millions) (Note) Ventilation system From July renewal, Installation of 2017 to Chuo 92 － － Multistory parking lot From June 2017 LED lighting, Substation December GreenOak Kayabacho Ward, 10 Osaka, Osaka renovation, 2017 maintenance to June 2017 Sunworld Building Prefecture From July Tokyo Multistory parking lot 2017 to 12 － － Higashi renewal December 2017 Higashi Ikebukuro Center Ikebukuro From February 2017 Exterior wall repair 30 From July to May 2017 Nagoya, Building Center Marunouchi Multistory parking lot 2017 to Aichi 104 － － Sanchome Building renewal December Building Prefecture 2017 Central surveillance system From December 2016 From July 16 renewal (No.3) to January 2017 2017 to Ota Ward, Elevator renewal 11 － － JS Progres Building December Tokyo Central surveillance system From December 2016 2017 15 renewal (No.4) to January 2017 From July Ventilation system 2017 to Shinagawa 24 － － Towa Higashi-Gotanda From April 2017 renewal December Ward, Elevator renewal 21 Minato 2017 to April 2017 La Verite AKASAKA Building Ward, Tokyo From July Tokyo 2017 to Substation renovation 16 － － Taito December Multistory parking lot From March 2017 2017 ANTEX24 Building Ward, 11 maintenance to March 2017 From July Tokyo Installation of LED 2017 to 11 － － Taito lighting December Itohpia Kiyosubashidori Installation rental office space From December 2016 2017 Ward, 26 From July Building at 5th floor to January 2017 Tokyo Multistory parking lot 2017 to 63 － － maintenance December Osaka, I•S Minamimorimachi From March 2017 FORECAST Shinagawa 2017 Osaka Multistory parking lot renewal 19 Gotanda WEST Ward Tokyo Equipment renewal From July Building to March 2017 (Ventilation system, 2017 to Prefecture 169 － － lighting, Central December Chiyoda surveillance system) 2017 From February 2017 Exterior wall repair From June Kanda Ocean Building Ward, 10 to April 2017 Sakai, Osaka 2017 to Komyoike Act Exterior wall repair 49 － － Tokyo Prefecture December Shinagawa 2017 Tower Court Installation of LED lighting at From May 2017 Ward, 11 (Note) The scheduled construction amount is truncated to the nearest million yen. Kitashinagawa common area to June 2017 Tokyo Sakai, From January 2017 Komyoike Act Osaka Elevator(No.2) renewal 14 to January 2017 Prefecture Other capital expenditures 207 Total 396
(Note) Capital expenditures are truncated to the nearest million yen.
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(3) Cash Reserves for Long-Term Repairs and Maintenance Plans 5 Expenses and Liabilities Based on a long-term repair and maintenance plan compiled for each property, NIPPON REIT sets aside (1) Expenses in Connection with Management of Assets the following cash reserves from cash flows during the fiscal period in order to provide the payment of funds (Yen in thousands) for major repairs and maintenance, etc. over the medium to long term. 9th fiscal period 10th fiscal period (Yen in millions) Item From July 1, 2016 From January 1, 2017 to December 30, 2016 to June 30, 2017 6th fiscal period 7th fiscal period 8th fiscal period 9th fiscal period 10th fiscal period Operating period From January 1, 2015 From July 1, 2015 From January 1, 2016 From July 1, 2016 From January 1, 2017 (a）Asset management fees (Note 1) 527,285 527,524 to June 30, 2015 to December 31, 2015 to June 30, 2016 to December 31, 2016 to June 30, 2017 12,995 Balance of reserves (b）Asset custody fees 12,841 at beginning of 174 480 553 694 687 ） 50,230 period (c Administrative service fees 49,256 Amount of reserves 400 468 466 458 456 (d）Directors’ compensation 4,200 during period 4,200 Amount of reversal of (e）Independent auditors’ fees 13,000 13,000 reserves during 93 395 326 466 396 period (f）Other operating expenses 94,725 113,783 Reserves carried 480 553 694 687 747 forward Total 702,436 720,605
(Note 1) Figures in the above table are truncated to the nearest million yen. (Note 1) In addition to the amount shown above for asset management fees, there were management fees (10th period, ¥500 thousand) for property acquisition included in the cost of acquisition of respective properties and investment securities. (Note 2) Figures in the table above are truncated to the nearest thousand yen.
(2) Debt Financing The status of borrowing per financial institution as of June 30, 2017, is as follows: Classification Balance at Balance at the the end of Average beginning of the period interest Method of Borrowing date the period Repayment due date Use Note (Yen in rate (%) (Yen in repayment Lender millions) (Note 2) millions) (Note 1) (Note 1) The Bank of Tokyo-Mitsubishi 6,500 - UFJ, Ltd. Mizuho Bank, Ltd. 2,100 - Lump- sum Unsecured Mitsubishi UFJ Trust and 0.25 April 24, 2014 1,400 - April 24, 2017 repaymen (Note 4) Unguaran Banking Corporation (Note 3) t at teed Sumitomo Mitsui Banking 800 - maturity Corporation Resona Bank, Limited 800 - Lump- 0.24 sum Unsecured The Bank of Tokyo-Mitsubishi December 19, 2014 3,700 3,700 (Note August 21, 2017 repaymen (Note 4) Unguaran UFJ, Ltd. 3） t at teed maturity Mizuho Bank, Ltd. 1,500 1,500 Curre Mitsubishi UFJ Trust and 1,500 1,500 Lump- nt Banking Corporation sum Unsecured portio Sumitomo Mitsui Banking 0.24 February 12, 2015 1,500 1,500 August 21, 2017 repaymen (Note 4) Unguaran n of Corporation (Note 3) teed long- t at Resona Bank, Limited 1,000 1,000 term maturity debt Sumitomo Mitsui Trust Bank, 1,000 1,000 Limited The Bank of Tokyo-Mitsubishi 4,600 4,600 UFJ, Ltd. Lump- Mitsubishi UFJ Trust and 900 900 sum Unsecured Banking Corporation April 24, 2014 0.80 April 24, 2018 repaymen (Note 4) Unguaran Sumitomo Mitsui Banking 750 750 t at teed Corporation maturity Resona Bank, Limited 750 750 The Bank of Tokyo-Mitsubishi 400 400 UFJ, Ltd. Lump- Sumitomo Mitsui Banking 700 700 sum Unsecured Corporation 0.44 July 2, 2015 April 24, 2018 repaymen (Note 4) Unguaran (Note 3) Resona Bank, Limited 700 700 t at teed maturity Sumitomo Mitsui Trust Bank, 700 700 Limited 計 31,300 19,700
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Lump- Resona Bank, Limited 500 500 sum Unsecured The Bank of Tokyo-Mitsubishi 0.22 January 8, 2015 5,700 5,700 August 20, 2018 repaymen (Note 4) Unguaran Sumitomo Mitsui Trust Bank, UFJ, Ltd. (Note 3) 500 500 t at teed Limited maturity Shinsei Bank, Limited 1,750 1,750 Mizuho Bank, Ltd. 500 500 Mizuho Trust & Banking Co., 1,750 1,750 Sumitomo Mitsui Banking Ltd. 600 600 The Bank of Tokyo-Mitsubishi Corporation 2,000 2,000 Lump- UFJ, Ltd. Long- Resona Bank, Limited 1,000 1,000 sum Unsecured 0.22 term February 12, 2015 August 20, 2018 repaymen (Note 4) Unguaran Mizuho Bank, Ltd. 2,000 2,000 Mitsubishi UFJ Trust and (Note 3) Lump- debt 1,000 1,000 t at teed Mitsubishi UFJ Trust and Banking Corporation 500 500 sum Unsecured maturity Banking Corporation 0.36 April 25, 2016 April 20, 2021 repaymen (Note 4) Unguaran Shinsei Bank, Limited 1,000 1,000 Sumitomo Mitsui Banking (Note 3) 2,500 2,500 t at teed Mizuho Trust & Banking Co., Corporation 1,000 1,000 Sumitomo Mitsui Trust Bank, maturity Ltd. 500 500 Lump- Limited sum Unsecured Development Bank of Japan The Bank of Tokyo-Mitsubishi 1,000 1,000 April 24, 2014 1,070 1,070 0.91 April 24, 2019 repaymen (Note 4) Unguaran Inc. UFJ, Ltd. The Bank of Tokyo-Mitsubishi t at teed 4,000 4,000 maturity UFJ, Ltd. The Bank of Tokyo-Mitsubishi 2,300 2,300 Mizuho Bank, Ltd. 2,000 2,000 UFJ, Ltd. Lump- Mitsubishi UFJ Trust and 2,000 2,000 sum Unsecured Mizuho Bank, Ltd. 1,100 1,100 Banking Corporation 0.38 August 22, 2016 August 20, 2021 repaymen (Note 4) Unguaran Mitsubishi UFJ Trust and (Note 3) 1,500 1,500 Resona Bank, Limited 1,000 1,000 t at teed Banking Corporation maturity Sumitomo Mitsui Banking 1,250 1,250 Shinsei Bank, Limited 500 500 Corporation Lump- Mizuho Trust & Banking Co., Resona Bank, Limited 500 500 sum Unsecured 500 500 0.51 Ltd. April 24, 2015 Aril 24, 2019 repaymen (Note 4) Unguaran Sumitomo Mitsui Trust Bank, (Note 3) Lump- 1,250 1,250 t at teed sum Unsecured Limited The Bank of Tokyo-Mitsubishi maturity Long- February 12, 2015 500 500 1.24 February 20, 2023 repaymen (Note 4) Unguaran UFJ, Ltd. Shinsei Bank, Limited 500 500 term t at teed Mizuho Trust & Banking Co., debt maturity 500 500 Ltd. The Bank of Tokyo-Mitsubishi - 1,700 UFJ, Ltd. Aozora Bank, Ltd. 500 500 Mizuho Bank, Ltd. - 800 Lump- The Nomura Trust and sum Unsecured 500 500 Mitsubishi UFJ Trust and 0.48 Banking Co., Ltd. April 24, 2017 - 500 April 20, 2023 repaymen (Note 4) Unguaran Banking Corporation (Note 3) The Bank of Tokyo-Mitsubishi t at teed 2,500 2,500 Sumitomo Mitsui Banking UFJ, Ltd. - 2,300 maturity Corporation Mizuho Bank, Ltd. 2,000 2,000 Resona Bank, Limited - 300 Mitsubishi UFJ Trust and 2,000 2,000 Banking Corporation The Bank of Tokyo-Mitsubishi Lump- - 1,900 Sumitomo Mitsui Banking UFJ, Ltd. 1,500 1,500 sum Unsecured Lump- Corporation 0.54 Mizuho Bank, Ltd. - 700 sum Unsecured July 2, 2015 July 22, 2019 repaymen (Note 4) Unguaran 0.56 (Note 3) April 24, 2017 April 22, 2024 repaymen (Note 4) Unguaran Resona Bank, Limited 1,000 1,000 t at teed Mitsubishi UFJ Trust and (Note 3) maturity - 500 t at teed Long- Sumitomo Mitsui Trust Bank, Banking Corporation 500 500 maturity term Limited Resona Bank, Limited - 300 debt Shinsei Bank, Limited 750 750 The Bank of Tokyo-Mitsubishi - 1,400 Mizuho Trust & Banking Co., UFJ, Ltd. 750 750 Lump- Ltd. Mizuho Bank, Ltd. - 600 sum Unsecured 0.70 The Bank of Tokyo-Mitsubishi April 24, 2017 April 21, 2025 repaymen (Note 4) Unguaran 2,500 2,500 Mitsubishi UFJ Trust and (Note 3) UFJ, Ltd. - 400 t at teed Banking Corporation Mizuho Bank, Ltd. 500 500 maturity Resona Bank, Limited - 200 Mitsubishi UFJ Trust and 1,000 1,000 Lump- Banking Corporation sum Unsecured Subtotal 72,270 83,870 Resona Bank, Limited February 12, 2015 500 500 0.85 February 20, 2020 repaymen (Note 4) Unguaran t at teed Total 103,570 103,570 Sumitomo Mitsui Trust Bank, 500 500 maturity Limited (Note 1) “Balance at the beginning of the period” and “Balance at the end of the period” are truncated to the nearest million yen. (Note 2) “Average interest rate” is the weighted average interest rate during the period, rounded to the second decimal place. Shinsei Bank, Limited 500 500 (Note 3) Interest rate swap agreement is concluded and the interest rate is substantively fixed. Therefore, the effect of interest rate swap is factored Mizuho Trust & Banking Co., into the interest rate provided. 500 500 Ltd. (Note 4) Used for acquisition of assets, repayment of loans, and related expenses deemed reasonable. Lump- sum Unsecured The Bank of Tokyo-Mitsubishi March 12, 2015 3,500 3,500 0.84 February 20, 2020 repaymen (Note 4) Unguaran UFJ, Ltd. t at teed (3) Investment Corporation Bonds maturity The Bank of Tokyo-Mitsubishi Not applicable. 2,000 2,000 UFJ, Ltd. Lump- Mizuho Bank, Ltd. 2,000 2,000 sum Unsecured 0.65 July 2,2015 July 21, 2020 repaymen (Note 4) Unguaran (4) Status of Short-Term Investment Corporation Bonds Mitsubishi UFJ Trust and (Note 3) 2,000 2,000 t at teed Banking Corporation Not applicable. maturity Sumitomo Mitsui Banking 500 500 Corporation
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(5) Status of Unit Acquisition Rights 6 Status of Purchases and Sales during the 8th fiscal Period Not applicable. (1) Status of Purchases and Sales of Real Estate, Asset-Backed Securities, Infrastructure Assets, and Infrastructure-Related Assets Acquisition Transfer Gain or Acquisition price Transfer Book value Property name Date of loss on Date of acquisition (Yen in millions) price (Yen (Yen in transfer (Yen in (Note) in millions) millions) millions) Godo Kaisha Nicolas Capital 10 Subordinated Equity interest in March 29, 2017 28 － － － － silent partnership (first acquisition) Godo Kaisha Nicolas Capital 10 Subordinated Equity interest in April 10, 2017 22 － － － － silent partnership (Second acquisition) Total 50 － － － (Note) “Acquisition price” does not include consumption taxes, local consumption taxes, and acquisition-related expenses. Figures have been truncated to the nearest million yen.
(2) Transaction of Other Assets Other assets, aside from previously mentioned real estate, asset-backed securities, infrastructure assets, and infrastructure-related assets consist mainly of bank deposits and bank deposits included in the trust asset deposits.
(3) Review on Value of Specified Assets A. Asset-Backed Securities Acqui Acquisition price Appraisal value sition or transfer price of specified or Name Transaction date Type of asset (Yen in millions) assets (Yen in transf (Note 1) (Note millions) (Note 2) er 2) Godo Kaisha Nicolas Capital 10 Equity interest Acqui Subordinated Equity interest in March 29, 2017 in silent 28 30 sition silent partnership (first acquisition) partnership Godo Kaisha Nicolas Capital 10 Equity interest Acqui Subordinated Equity interest in April 10, 2017 in silent 22 28 sition silent partnership (Second partnership acquisition) Total 50 59 (Note 1) “Acquisition price or transfer price” does not include acquisition (investment)-related expenses. (Note 2) Figures have been truncated to the nearest million yen. (Note 3) The appraisal of the price of the specified assets above was conducted by KPMG AZSA LLC at the time the asset was acquired or sold in accordance with the Japan Institute of Certified Public Accountants Industrial Audit Report No. 23, “Research for Speci
B. Others KPMG AZSA LLC is entrusted with the investigation of prices of transactions that are carried out by NIPPON REIT and deemed necessary based on Article 201 of the Investment Trust Act excluding the transactions stated above “A. Asset-Backed Securities”. Transactions that have been investigated during the applicable period from January 1, 2017, to June 30, 2017, consisted of 6 interest rate swap transactions, and an investigation report on such transactions was received from KPMG AZSA LLC. Furthermore, in carrying out the investigation, NIPPON REIT entrusted the investigation of the name of the counterparty, the agreed figures, the transaction period, and other details regarding the relevant interest rate swap transactions.
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(4) Related Party Transactions 7 Accounting A. Status of Transactions (1) Status of Assets, Liabilities, Principal, and Profit/Loss Not applicable. Please refer to “Balance Sheets,” “Statements of Income and Retained Earnings,” “Statements of Change in Net Assets,” “Notes to Financial Statements,” and “Note 13. Distribution Information.” B. Amount of Fees Paid Breakdown of transactions with related parties Total amount paid (A) (Note 1) Rate to total amount (2) Changes in Method to Calculate Depreciation Expenses Classification (Yen in thousands) paid Amount paid (B) (Yen in Not applicable. (Note 3) Payment recipient (B/A) (Note 4) thousands)(Note3)
9,037 9,037 100.0% Insurance premiums (Note 5) Sojitz Insurance Agency Corporation (3) Changes in Method to Evaluate Properties and Infrastructure Assets Sojitz General Property Management Property management fees 501,878 263,616 52.5% Corporation Not applicable. Other property-related 196,561 Sojitz General Property Management 17,387 8.8% expenses Corporation (Note 1) In accordance with the Order for Enforcement of the Investment Trusts Act and Articles 26 and 27 of the Investment Trust Association of (4) Status of Beneficiary Certificates of Investment Trust Established by NIPPON REIT Japan’s rules related to management reports for investment trusts and investment corporations, related parties are defined as the related parties of the asset management company that has entered into an asset management contract with NIPPON REIT. Not applicable. (Note 2) The table above outlines the transactions in the fiscal period under review that NIPPON REIT concluded with related parties. (Note 3) “Total amount paid” and “Amount paid” have been truncated to the nearest thousand yen. (Note 4) “Rate to total amount paid” has been rounded to the first decimal place. (Note 5) Insurance premiums include those for real estate in trust as well as for director liability insurance. (5) Disclosures as a Corporation Holding Real Estate Overseas and relating to Real Estate Held by a (Note 6) The following are fees paid to the related parties in the fiscal period under review, other than those listed above and commission fees. Corporation Holding Real Estate Overseas Note that the amount is truncated to the nearest thousand yen. Sojitz General Property Repair work (in addition to repair expenses, this also includes capital Not applicable ¥119,097 thousand Management Corporation expenditures)
(5) Status of Transactions with Asset Management Company Pertaining to Business Operated by the Asset Management Company as a Subsidiary Business
Not applicable because the asset management company does not engage in any business as a subsidiary business that is a type I financial instruments business, type II financial instruments business, real estate brokerage, or real estate specified joint enterprise.
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8 Other 9 Risk (1) Notice An investment in NIPPON REIT’s units involves significant risks. The principal risks with respect to investment There are no conclusions and changes, etc. of major contracts approved by the meeting of the Board of in NIPPON REIT are as follows Officers of NIPPON REIT during the fiscal period under review. Property and Business Risks (2) Other • Any adverse conditions in the Japanese economy could adversely affect NIPPON REIT. Unless otherwise stated, here in this report monetary amounts are truncated and percentages are rounded • NIPPON REIT may not be able to acquire properties to execute its growth and investment strategy in a off to the nearest specified unit. manner that is accretive to earnings. • The geographic concentration of NIPPON REIT’s portfolio in the six central wards of Tokyo could have a material adverse effect on its business. • The high proportion of office properties in NIPPON REIT’s portfolio could have a material adverse effect on its business. • Competition for tenants may adversely affect NIPPON REIT’s ability to retain its current tenants, find new tenants, and achieve favorable rents. • Increases in prevailing market interest rates may increase NIPPON REIT’s interest expense and may result in a decline in the market price of its units. • NIPPON REIT may suffer large losses if any of its properties incur damage from a natural or man-made disaster. • NIPPON REIT’s reliance on its sponsors could have a material adverse effect on its business. • NIPPON REIT may incur unexpected expenses, expenditures, or other losses for repair or maintenance of its properties. • NIPPON REIT may be strictly liable for any unforeseen loss, damage, or injury suffered by a third party at its properties and disputes with neighbors may expose it to unexpected liabilities. • NIPPON REIT may suffer adverse consequences if its rental revenues decline because a substantial part of its operating expenses are fixed. • Illiquidity in the real estate market may limit NIPPON REIT’s ability to grow or adjust its portfolio. • Entering into forward commitment contracts may expose NIPPON REIT to contractual penalties and market risks. • Defects relating to NIPPON REIT’s properties may adversely affect its financial condition and results of operations. • NIPPON REIT relies on experts for appraisals and engineering, environmental, seismic, and other reports, which are subject to significant uncertainties. • NIPPON REIT relies on industry and market data that is subject to significant uncertainties. • The environmental assessments of NIPPON REIT’s properties made prior to its acquisition may not have uncovered all environmental liabilities, and Japanese laws subject property owners to strict environmental liability. • NIPPON REIT may lose rental revenues in the event of lease terminations, decreased lease renewals, default by tenants on their obligation to pay rent, or rent reductions. • Any of the buildings NIPPON REIT owns may violate earthquake resistance or other building codes. • Master lease agreements expose NIPPON REIT to the risk of becoming an unsecured creditor of its master lessees in the event of their insolvency and certain other risks. • Any restrictions on NIPPON REIT’s activities under its financing arrangements could adversely affect us. • A high LTV ratio may increase NIPPON REIT’s exposure to changes in interest rates and have a material adverse effect on the results of its operations. • NIPPON REIT may suffer impairment losses relating to its properties and may also suffer adverse tax effects upon recognizing impairments. • A downgrading of NIPPON REIT’s credit ratings may negatively affect the price of its units. • NIPPON REIT’s investments in Japanese anonymous associations carry potential risks. • NIPPON REIT may hold interests in properties through investing in preferred securities of specific-purpose
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companies and such investments are subject to certain risks. • The cost of complying with regulations applicable to the properties in NIPPON REIT’s portfolio could • NIPPON REIT’s financial statements are prepared in accordance with Japanese GAAP, which differs in adversely affect the results of its operations. certain material respects from IFRS, U.S. GAAP, and generally accepted accounting principles and • NIPPON REIT owns all of the properties in its portfolio through trust beneficiary interests and may suffer financial reporting standards in other jurisdictions. losses as a trust beneficiary. • Decreases in tenant security deposits in trust may increase NIPPON REIT’s funding costs. • The Alternative Investment Fund Managers Directive (AIFMD) may negatively affect NIPPON REIT’s ability to market its units in the EEA and increase its compliance costs associated with the marketing of its Management and Governance Risks units in the EEA. • NIPPON REIT’s success depends on the performances of service providers to which it is required to • NIPPON REIT’s units may be deemed to constitute “plan assets” for ERISA purposes, which may lead to assign various key functions. the rescission of certain transactions, tax or fiduciary liability, and NIPPON REIT being held in violation of • There are potential conflicts of interest between NIPPON REIT and certain group companies of the ERISA requirements. sponsors, including the Asset Manager. • NIPPON REIT’s performance depends on the efforts of Asset Manager key personnel. • Unitholders have limited control over NIPPON REIT’s investment policies. • J-REITs and their asset managers are subject to strict supervision by the regulatory authorities. • There are important differences regarding the rights of unitholders in a J-REIT compared to those of shareholders in a corporation.
Taxation Risks • NIPPON REIT’s failure to satisfy a complex series of requirements pursuant to Japanese tax regulations would disqualify NIPPON REIT from certain taxation benefits and significantly reduce its cash distributions to its unitholders. • If the Japanese tax authorities disagree with the interpretations of the Japanese tax laws and regulations NIPPON REIT used for prior periods, NIPPON REIT may be forced to pay additional taxes for those periods. • NIPPON REIT may not be able to benefit from reductions in certain real estate taxes enjoyed by qualified J-REITs. • Changes in Japanese tax laws may significantly increase NIPPON REIT’s tax burden. • NIPPON REIT expects to be treated as a “passive foreign investment company” for U.S. federal income tax purposes. • Unitholders may be subject to U.S. Foreign Account Tax Compliance Act (FATCA) withholding tax after 2018.
Legal and Regulatory Risks • NIPPON REIT’s ownership rights for some of its properties may be declared invalid or limited. • NIPPON REIT may lose its rights for a property it owns if the purchase of the property is recharacterized as a secured financing. • NIPPON REIT’s leasehold or subleasehold rights in underlying land may be terminated, or may not be asserted against a third party in some cases. • Properties for which third parties hold leasehold interests in the land and own the buildings on such land may subject NIPPON REIT to various risks. • Some of NIPPON REIT’s properties are in the form of stratified ownership interests (kubun shoyu-ken) and its rights relating to such properties may be affected by the intentions of other owners. • Some of NIPPON REIT’s properties are in the form of property co-ownership (kyoyu) and quasi co- ownership (jun kyoyu) interests and its rights relating to such properties may be affected by the intentions of other owners. • NIPPON REIT’s properties may be subject to preferential purchase rights, rights of first refusal, or other similar rights held by third parties. • Tax increases or adverse changes in applicable laws may affect NIPPON REIT’s potential liabilities relating to its properties and operations.
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NIPPON REIT Investment Corporation NIPPON REIT Investment Corporation BALANCE SHEETS BALANCE SHEETS
As of December 31, 2016 and June 30, 2017 As of December 31, 2016 and June 30, 2017
As of As of December 31, 2016 June 30, 2017 December 31, 2016 June 30, 2017 (Yen in thousands) (Yen in thousands) Assets Liabilities Current Assets: Current Liabilities: Cash and deposits (Notes 3 and 4) ¥ 4,269,839 ¥ 11,217,610 Long-term debt due within one year (Notes 4 and 11) ¥ 21,800,000 ¥ 19,700,000 Cash and deposits in trust (Notes 3 and 4) 12,204,569 5,523,380 Accounts payable 809,189 611,972 Tenant receivables 100,762 112,358 Accrued expenses 218,573 223,658 Prepaid expenses 351,021 370,288 Accrued consumption taxes 176,742 107,251 Income taxes refundable 2,597 8,006 Deferred tax liabilities (Note 13) 3,160 495 Other current assets 12,520 5,554 Advances received 1,091,790 1,172,706 Less: allowance for doubtful accounts (0) (0) Other current liabilities 251,084 360,827 Total Current Assets 16,941,311 17,237,198 Total Current Liabilities 24,350,541 22,176,913 Investment Properties (Notes 5 and 6): Long-Term Liabilities: Land in trust 147,626,696 147,626,696 Long-term debt (Notes 4 and 11) 81,770,000 83,870,000 Buildings in trust (Note 9) 48,349,873 48,602,616 Tenant security deposits in trust (Note 4) 7,880,370 7,841,792 Structures in trust 155,644 157,997 Deferred tax liabilities (Note 13) 7,802 5,034 Machinery and equipment in trust 74,342 156,868 Total Long-Term Liabilities 89,658,172 91,716,827 Tools, furniture and fixtures in trust 50,572 64,963 Total Liabilities 114,008,714 113,893,741 － Construction in progress in trust 3,146 Less: accumulated depreciation (4,140,616) (4,874,846) Net Assets (Notes 10 and 14) Leasehold rights in trust 15,806,402 15,806,402 Unitholders’ Equity: Total Investment Properties, net 207,926,062 207,540,698 Unitholders’ capital 109,285,298 109,285,298 Other Assets: Units authorized: 4,000,000 units Investment securities (Note 4) 848,175 895,866 Units issued and outstanding: 391,760 units Lease and guarantee deposits 10,110 10,110 Retained earnings 3,080,273 3,242,988 Long-term prepaid expenses 614,313 699,633 Total Unitholders’ Equity 112,365,572 112,528,286 Others 58,074 50,535 Valuation and Translation Adjustments: Total Other Assets 1,530,672 1,656,145 Deferred gains on hedges (Note 4) 23,761 12,014 Total Assets ¥ 226,398,047 ¥ 226,434,042 Total Valuation and Translation Adjustments 23,761 12,014 Total Net Assets 112,389,333 112,540,301 The accompanying notes are an integral part of these financial statements. Total Liabilities and Net Assets ¥ 226,398,047 ¥ 226,434,042
The accompanying notes are an integral part of these financial statements.
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NIPPON REIT Investment Corporation NIPPON REIT Investment Corporation STATEMENTS OF INCOME AND RETAINED EARNINGS STATEMENTS OF CHANGES IN NET ASSETS
For the six-month periods ended December 31, 2016 and June 30, 2017 For the six-month periods ended December 31, 2016 and June 30, 2017
Valuation and Translation For the six-month periods ended December 31, 2016 June 30, 2017 Unitholders’ Equity Adjustments Total Total Deferred (Yen in thousands) Number of Unitholders’ Retained Valuation and Total Net Unitholders’ Gains on Operating Revenues: Units Capital Earnings Translation Assets Equity Hedges Rental revenues (Note 7) ¥ 6,110,177 ¥ 6,278,141 Adjustments Other revenues related to property leasing (Note 7) 693,951 628,546 (Units) (Yen in thousands) Dividend income 32,307 40,482 Balance as of June 30, 2016 391,760 ¥ 109,285,298 ¥ 2,971,047 ¥ 112,256,346 ¥ 7,395 ¥ 7,395 ¥ 112,263,742 Total Operating Revenues 6,836,436 6,947,169 Cash distributions declared － － (2,945,643) (2,945,643) － － (2,945,643) Operating Expenses: Net income － － 3,054,868 3,054,868 － － 3,054,868 Property-related expenses (Note 7) 2,606,741 2,530,372 Net changes of items other than － － － － 16,365 16,365 16,365 Asset management fees 527,285 527,524 unitholders’ equity Asset custody fees 12,995 12,841 Balance as of December 31, 2016 391,760 ¥ 109,285,298 ¥ 3,080,273 ¥ 112,365,572 ¥ 23,761 ¥ 23,761 ¥ 112,389,333 Administrative service fees 50,230 49,256 Cash distributions declared － － (3,055,728) (3,055,728) － － (3,055,728) Directors’ compensation 4,200 4,200 Net income － － 3,218,442 3,218,442 － － 3,218,442 Independent auditors’ fees 13,000 13,000 Net changes of items other than － － － － (11,746) (11,746) (11,746) Other operating expenses 94,725 113,783 unitholders’ equity Balance as of June 30, 2017 391,760 ¥ 109,285,298 ¥ 3,242,988 ¥ 112,528,286 ¥ 12,014 ¥ 12,014 ¥ 112,540,301 Total Operating Expenses 3,309,177 3,250,978 Operating Income 3,527,258 3,696,191 The accompanying notes are an integral part of these financial statements. Non-Operating Revenues: Interest income 76 77 Interest on refund － 2 Total Non-Operating Revenues 76 80 Non-Operating Expenses: Interest expense 247,058 250,354 Borrowing related expenses 224,763 227,077 Total Non-Operating Expenses 471,822 477,432 Ordinary Income 3,055,512 3,218,840 Extraordinary Income: Subsidy income (Note 8) － 44,834 Total Extraordinary Income － 44,834 Extraordinary Losses: Loss on reduction of investment properties (Note 9) － 44,593 Total Extraordinary Losses － 44,593 Income Before Income Taxes 3,055,512 3,219,081 Income taxes – current 643 638 Income taxes – deferred (0) 0 Total Income Taxes (Note 13) 643 638 Net Income 3,054,868 3,218,442 Retained Earnings at Beginning of Period 25,404 24,545 Retained Earnings at End of Period ¥ 3,080,273 ¥ 3,242,988
The accompanying notes are an integral part of these financial statements.
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NIPPON REIT Investment Corporation NIPPON REIT Investment Corporation STATEMENTS OF CASH FLOWS NOTES TO FINANCIAL STATEMENTS
For the six-month periods ended December 31, 2016 and June 30, 2017 As of and for the six-month periods ended December 31, 2016 and June 30, 2017
For the six-month periods ended December 31, 2016 June 30, 2017 Note 1 – Organization and Basis of Presentation (Yen in thousands) Cash Flows from Operating Activities: Organization Income before income taxes ¥ 3,055,512 ¥ 3,219,081 Depreciation and amortization 753,613 734,495 NIPPON REIT Investment Corporation (hereinafter referred to as “NIPPON REIT”) was established on Loss on retirement of investment properties 1,849 342 September 8, 2010 with ¥100 million in capital (200 units) as an investment corporation under the Act on Loss on reduction of investment properties － 44,593 Investment Trusts and Investment Corporations (Act No. 198 of 1951, including subsequent revisions, hereinafter Interest income (76) (77) referred to as the “Investment Trust Act”) by the founder (the former Polaris Investment Advisors K.K.; now, Interest expense 247,058 250,354 Sojitz REIT Advisors K.K.). (Increase) decrease in tenant receivables 27,093 (11,614) (Increase) decrease in prepaid expenses 5,296 (19,266) Commencing on July 1, 2014, the fiscal period has been amended from an annual period to a semi-annual Increase in long-term prepaid expenses (839) (85,320) period ending on June 30 and December 31. Prior to this amendment, the annual fiscal period was a 12-month Increase (decrease) in accrued consumption taxes 3,074 (69,490) period from July 1 to June 30. NIPPON REIT made this amendment in order to increase the frequency of Decrease in accounts payable (6,439) (22,860) distributions to its unitholders.
Increase in accrued expenses 13,872 5,642 NIPPON REIT is an externally managed real estate fund, established as an investment corporation. Sojitz REIT Increase (decrease) in advances received (4,151) 80,915 Advisors K.K., as NIPPON REIT’s asset management company, is engaged in acquiring, managing, leasing, and Interest income received 76 77 renovating office properties, residential properties and commercial properties. Sojitz Corporation, Cushman & Interest expense paid (245,369) (250,911) Wakefield Asset Management K.K. and Agility Asset Advisers Inc. currently own 67%, 18% and 15%, Income taxes paid (3,640) (6,047) respectively, of Sojitz REIT Advisors K.K. Others, net (20,327) 4,052 Net Cash Provided by Operating Activities 3,826,602 3,873,967 NIPPON REIT implemented a two-for-one split of investment units on January 17, 2014, issued new Cash Flows from Investing Activities: investment units through a public offering (144,200 units) on April 23, 2014 and then was listed on the J-REIT Payments for purchases of investment properties in trust other than leasehold (255,360) (568,669) section of the Tokyo Stock Exchange on April 24, 2014. Furthermore, NIPPON REIT issued new investment rights in trust units through a third-party allotment (7,210 units) on May 23, 2014, a public offering (145,000 units) on February Proceeds from tenant security deposits in trust 431,227 261,839 10, 2015, a third-party allotment (7,250 units) on March 10, 2015, a public offering (84,000 units) on July 1, 2015 Payments of tenant security deposits in trust (232,627) (200,895) and a third-party allotment (3,700 units) on July 28, 2015. As of June 30, 2017, the total number of investment Proceeds from withdrawal of investment securities 3,935 2,402 units outstanding was 391,760 units. Payments for purchases of investment securities (5,579) (51,887) Other payments (1,244) (1,244) As of June 30, 2017, NIPPON REIT had ownership or trust beneficiary interests in 65 properties with Net Cash Used in Investing Activities (59,648) (558,454) approximately 254,809.89 square meters of rentable space and had leased space to 978 tenants. The occupancy Cash Flows from Financing Activities: rate for the properties was approximately 99.8%. Proceeds from long-term debt 10,000,000 11,600,000 Repayments of long-term debt (10,000,000) (11,600,000) Basis of Presentation Distributions paid (2,935,264) (3,048,932) Net Cash Used in Financing Activities (2,935,264) (3,048,932) The accompanying financial statements have been prepared in accordance with the provisions set forth in the Investment Trust Act, the Financial Instruments and Exchange Act and their related accounting regulations, and in Net Change in Cash and Cash Equivalents 831,690 266,581 conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in Cash and Cash Equivalents at Beginning of Period 15,642,719 16,474,409 certain respects as to application and disclosure requirements from International Financial Reporting Standards or Cash and Cash Equivalents at End of Period (Note 3) ¥ 16,474,409 ¥ 16,740,990 accounting principles generally accepted in the United States of America.
The accompanying notes are an integral part of these financial statements. The accompanying financial statements have been reformatted and translated into English from the financial statements of NIPPON REIT prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Financial Instruments and Exchange Act. In preparing the accompanying financial statements, relevant notes have been expanded and certain reclassifications have been made from the Japanese GAAP financial statements. Certain supplementary information included in the statutory Japanese GAAP financial statements, but not required for fair presentation, is not presented in the accompanying financial statements.
As permitted by Japanese GAAP, amounts of less than one thousand yen or one million yen have been omitted. Consequently, the totals shown in the accompanying financial statements do not necessarily agree with sums of the individual amounts.
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Note 2 – Summary of Significant Accounting Policies When a property is purchased within the calendar year, the taxes for the corresponding calendar year are imposed on the seller. NIPPON REIT pays the seller the corresponding amount of taxes for the period from the (a) Cash and Cash Equivalents property acquisition date to December 31 of the calendar year and capitalizes these amounts as acquisition costs of the property, rather than expensing them. In subsequent calendar years, such taxes on investment properties are Cash and cash equivalents consist of cash, demand deposits, and short-term investments which are highly liquid, charged as operating expenses in each fiscal period. readily convertible to cash and with insignificant risk of market value fluctuation, with maturities of three months or less from the date of acquisition. No real estate taxes were capitalized for the six-month periods ended December 31, 2016 and June 30, 2017.
(b) Allowance for Doubtful Accounts (h) Consumption Taxes
Allowance for doubtful accounts is provided at the amount considered sufficient to cover probable losses on Consumption taxes are excluded from transaction amounts. Generally, consumption taxes paid are offset collection. The amount is determined by estimating an uncollectible amount based on the analysis of certain against the balance of consumption taxes withheld. As such, the excess of payments over amounts withheld is individual accounts that may not be uncollectable. included in the current assets while the excess of amounts withheld over payments is included in the current liabilities. Non-deductible consumption taxes related to the acquisition of properties are treated as the cost of the (c) Investment Properties applicable properties.
Investment properties are recorded at cost, which includes the allocated purchase price and, related costs and (i) Hedge Accounting expenses for acquisition of the trust beneficiary interests in real estate. Investment property balances are depreciated using the straight-line method over the estimated useful lives as follows: NIPPON REIT enters into derivative transactions for the purpose of hedging risks defined in the Articles of Incorporation of NIPPON REIT in accordance with its financial policy. NIPPON REIT uses interest rate swaps as Buildings in trust ...... 2-63 years hedging instruments in order to hedge the risk of interest rate fluctuations related to borrowings. The deferral Structures in trust ...... 2-45 years method is applied for hedge transactions. For interest rate swaps which qualify for hedge accounting and meet Machinery and equipment in trust ...... 10 years specific criteria, the special treatment is applied. Under the special treatment, the related differentials paid or Tools, furniture and fixtures in trust ...... 3-15 years received under such swap contracts can be recognized and included in interest expense or income of the hedged assets or liabilities, and the interest rate swaps are not required to be measured at fair value separately. NIPPON REIT evaluates hedge effectiveness by comparing the cumulative changes in cash flows of hedging instruments Costs related to the renovation, addition and improvement of properties are capitalized. Expenditures for repairs and the hedged items and assessing the ratio between the changes. However, the assessment of hedge and maintenance which do not add to the value or prolong the useful life of a property are expensed as incurred. effectiveness for interest rate swaps which meet the special criteria is omitted.
(d) Long-Term Prepaid Expenses (j) Revenue Recognition
Long-term prepaid expenses are amortized using the straight-line method. Revenues from property leasing consist of rental revenues including base rents, common area charges and parking space rental revenues, and other revenues related to property leasing such as utilities charge (e) Investment Securities reimbursements and others. Rental revenues are generally recognized when earned and considered realizable over the life of each lease. Utilities charge reimbursements are recognized when earned and their amounts can be Available-for-sale securities without market prices are stated at cost determined by the moving average method. reasonably estimated. Equity interest in a silent partnership is stated at net amount equivalent to the interest in the relevant partnership. (k) Accounting for Trust Beneficiary Interests in Real Estate (f) Income Taxes For trust beneficiary interests in real estate owned by NIPPON REIT, all accounts of assets and liabilities Deferred tax assets and liabilities are computed based on the difference between the financial statements and within the assets in trust as well as all accounts of revenue generated and expenses incurred from the assets in trust income tax bases of assets and liabilities using the statutory tax rate. are recognized in the relevant accounts of the balance sheets and, statements of income and retained earnings.
(g) Real Estate Taxes The following assets in trust are recognized and presented separately on the balance sheets.
Investment properties are subject to various taxes, such as property taxes and city planning taxes. Owners of the (i) Cash and deposits in trust properties are registered by records maintained in each jurisdiction by the local government. The taxes are (ii) Land in trust, buildings in trust, structures in trust, machinery and equipment in trust, tools, furniture and imposed on the registered record owner as of January 1 of each year, based on an assessment made by the local fixtures in trust, construction in progress in trust and leasehold rights in trust government. (iii) Tenant security deposits in trust
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Note 3 – Cash and Cash Equivalents (b) Fair Value of Financial Instruments
Reconciliation between cash and deposits and cash and deposits in trust in the balance sheets and cash and cash The book values, fair values and differences between them were as follows: equivalents in the statements of cash flows is as follows: As of December 31, 2016 As of June 30, 2017 As of (Yen in thousands) December 31, 2016 June 30, 2017 Assets Book value Fair value Difference Book value Fair value Difference (Yen in thousands) Cash and deposits ¥ 4,269,839 ¥ 4,269,839 ¥ – ¥ 11,217,610 ¥ 11,217,610 ¥ – Cash and deposits ¥ 4,269,839 ¥ 11,217,610 Cash and deposits in trust 12,204,569 12,204,569 – 5,523,380 5,523,380 – Cash and deposits in trust 12,204,569 5,523,380 Total ¥ 16,474,409 ¥ 16,474,409 ¥ – ¥ 16,740,990 ¥ 16,740,990 ¥ – Cash and cash equivalents ¥ 16,474,409 ¥ 16,740,990 Liabilities Long-term debt due within one ¥ 21,800,000 ¥ 21,800,000 ¥ – ¥ 19,700,000 ¥ 19,714,848 ¥ 14,848 year Note 4 – Financial Instruments Long-term debt 81,770,000 81,671,833 (98,166) 83,870,000 83,845,800 (24,199) Total ¥ 103,570,000 ¥ 103,471,833 ¥ (98,166) ¥ 103,570,000 ¥ 103,560,649 ¥ (9,350) (a) Qualitative Information for Financial Instruments Derivatives ¥ 34,726 ¥ 34,726 ¥ – ¥ 17,546 ¥ 17,546 ¥ –
Policy for Financial Instrument Transactions The financial instruments whose fair values are deemed extremely difficult to determine are excluded from the NIPPON REIT raises funds mainly through borrowings, issuance of investment corporation bonds and above table. investment units for acquisition of investment properties, capital expenditures, renovations or repayment of bank borrowings. In financing through interest-bearing debt, NIPPON REIT raises funds with longer term, fixed-rate Methods used to estimate the fair value of financial instruments and derivative transactions are as follows: and well-diversified maturities to secure stable and liquid financing capacity. Assets and Liabilities: NIPPON REIT enters into derivative transactions solely for the purpose of hedging interest rate fluctuation risks arising from borrowings and does not use derivative transactions for speculative purposes. (1) Cash and deposits, cash and deposits in trust and consumption taxes refundable Due to the short maturities, the book value of these assets is deemed a reasonable approximation of the fair Nature and Extent of Risks Arising from Financial Instruments value; therefore, the book value is used as the fair value equivalent.
Proceeds from borrowings are used mainly for acquisition of investment properties, capital expenditures, (2) Long-term debt due within one year and long-term debt renovations, operations or repayment of outstanding borrowings. These borrowings are exposed to liquidity risks For long-term debt with floating interest rates that reflects market interest rates within a short period of time, upon refinance. The floating-rate borrowings are exposed to potential risks of rising interest rates. the book value is deemed a reasonable approximation of the fair value and there are no significant changes in NIPPON REIT’s credit standing after borrowing; therefore, the book value is used as the fair value equivalent. Bank deposits are used for investing NIPPON REIT’s surplus funds. These bank deposits are exposed to credit However, for long-term debt with floating interest rates hedged by interest rate swaps applying the special risks such as bankruptcy of the depository financial institutions. treatment, the fair value is calculated based on the total amount of principle and interest which are processed as a single unit with the interest rate swaps discounted at the current interest rate applicable to similar borrowings. For Risk Management of Financial Instruments long-term debt with fixed interest rates, the fair value is calculated based on the total amount of principle and interest discounted at the current interest rate applicable to similar borrowings. Liquidity risk is managed by diversifying lending financial institutions and planning and executing diversified financing methods including financing through capital markets, such as issuance of investment corporation bonds Derivative Transactions: and issuance of investment units. There were no derivative transactions to which hedge accounting was not applied as of December 31, 2016 and Interest rate volatility risk is managed primarily by increasing the proportion of borrowings under long-term June 30, 2017. fixed rates. Derivative transactions may be entered into in order to hedge interest rate fluctuation risk. As of June 30, 2017, NIPPON REIT uses derivative transactions (interest rate swaps) as hedging instruments in order to Derivative transactions to which hedge accounting was applied were as follows: avoid the risk of interest rate fluctuations and to fix the amount of interest payments for borrowings with floating rates. NIPPON REIT evaluates hedge effectiveness by comparing the cumulative changes in cash flows of As of December 31, 2016 Hedge Type of Contracted amount hedging instruments and the hedged items and assessing the ratio between the changes. However, the assessment Fair value accounting derivative Due after Total (Note 2) of hedge effectiveness for interest rate swaps which meet the special criteria is omitted. method transaction Hedged item one year (Yen in thousands) Credit risk is managed by diversifying the depository financial institutions. Deferral method Interest rate swaps Long-term debt ¥ 32,600,000 ¥ 10,800,000 ¥ 34,726 Receive floating/Pay fixed Special treatment for Interest rate swaps Long-term debt Supplemental Explanation regarding Fair Value of Financial Instruments 52,900,000 52,900,000 (Note 1) interest rate swaps Receive floating/Pay fixed The fair value of financial instruments is based on their quoted market price. When there is no observable Total ¥ 85,500,000 ¥ 63,700,000 ¥ 34,726 market price available, fair value is based on a price that may be reasonably estimated. Since certain assumptions and factors are reflected in estimating the fair value, different assumptions and factors could result in a different value. 56 57
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As of June 30, 2017 The redemption schedule for monetary claims was as follows: Hedge Type of Contracted amount Fair value accounting derivative Due after Total (Note 2) Due within Due after one Due after two Due after three Due after four Due after method transaction Hedged item one year one year to two years to three years to four years to five years five years (Yen in thousands) As of December 31, 2016 Deferral method Interest rate swaps Long-term debt ¥ 21,000,000 ¥ 10,800,000 ¥ 17,546 (Yen in thousands) Receive floating/Pay fixed Special treatment for Interest rate swaps Long-term debt Cash and deposits ¥ 4,269,839 ¥ – ¥ – ¥ – ¥ – ¥ – 64,500,000 62,000,000 (Note 1) interest rate swaps Receive floating/Pay fixed Total ¥ 85,500,000 ¥ 72,800,000 ¥ 17,546 Cash and deposits in trust 12,204,569 – – – – – Total ¥ 16,474,409 ¥ – ¥ – ¥ – ¥ – ¥ – Notes: 1. Derivatives applying the special treatment of interest rate swaps are processed as a single unit with long-term debt that is designated as the hedged item. As of December 31, 2016, the fair value is included in the fair value of long-term debt in “(b) Due within Due after one Due after two Due after three Due after four Due after Fair Value of Financial Instruments” above. As of June 30, 2017, the fair value is included in the fair value of long-term debt one year to two years to three years to four years to five years five years due within one year and long-term debt in “(b) Fair Value of Financial Instruments” above. As of June 30, 2017 2. The fair value is provided by financial institutions. (Yen in thousands)
Financial instruments whose fair values are deemed extremely difficult to determine are as follows: Cash and deposits ¥ 11,217,610 ¥ – ¥ – ¥ – ¥ – ¥ – Cash and deposits in trust 5,523,380 – – – – – The fair value of tenant security deposits in trust is not disclosed because these deposits do not have a readily available market price, and it is difficult to estimate a period as to when these deposits will be returned. Although Total ¥ 16,740,990 ¥ – ¥ – ¥ – ¥ – ¥ – the tenant agreements stipulate a tenancy period, the historical analysis of actual tenancy periods do not indicate
any pattern of tenancy period due to their unique nature as early termination or renewal/re-contract of tenancy The redemption schedule for long-term debt was as follows: agreements is possible, which makes it impracticable to reasonably estimate the future cash flows. The book
values of tenant security deposits in trust are presented in the following table. Due within Due after one Due after two Due after three Due after four Due after one year to two years to three years to four years to five years five years As of As of December 31, 2016 (Yen in thousands) December 31, 2016 June 30, 2017 (Yen in thousands) Long-term debt ¥ 21,800,000 ¥ 20,300,000 ¥ 21,970,000 ¥ 20,500,000 ¥ 18,500,000 ¥ 500,000 Book value: Total ¥ 21,800,000 ¥ 20,300,000 ¥ 21,970,000 ¥ 20,500,000 ¥ 18,500,000 ¥ 500,000 Tenant security deposits in trust ¥ 7,880,370 ¥ 7,841,792
The fair value of investment securities is not disclosed because these securities do not have available market Due within Due after one Due after two Due after three Due after four Due after one year to two years to three years to four years to five years five years price, and it is difficult to estimate fair values. The book values of investment securities are presented in the As of June 30, 2017 following table. (Yen in thousands) Long-term debt ¥ 19,700,000 ¥ 21,770,000 ¥ 20,500,000 ¥ 19,500,000 ¥ 10,000,000 ¥ 12,100,000 As of Total ¥ 19,700,000 ¥ 21,770,000 ¥ 20,500,000 ¥ 19,500,000 ¥ 10,000,000 ¥ 12,100,000 December 31, 2016 June 30, 2017 (Yen in thousands) Book value: Godo Kaisha Nicolas Capital 6 Equity interest in silent partnership (Note 1) ¥ 227,767 ¥ 227,801 Godo Kaisha Nicolas Capital 9 Equity interest in silent partnership (Note 2) 99,291 97,184 Godo Kaisha Nicolas Capital 8 Equity interest in silent partnership (Note 3) 521,116 518,608 Godo Kaisha Nicolas Capital 10 subordinated Equity interest in silent partnership – 52,271 (Note 4) Total ¥ 848,175 ¥ 895,866
Notes: 1. The assets under management include trust beneficiary interests in real estate of Homat Horizon Building, Splendid Namba and Sannomiya First Building. 2. The assets under management include trust beneficiary interests in real estate of Yusen Higashi-Nihombashi Ekimae Building, Residence Edogawabashi and ZEPHYROS Minami-horie. 3. The assets under management include trust beneficiary interests in real estate of SC Sakaisujihonmachi Builing, Alte Building Higobashi, DIA Building Meieki and Hiroo ON Building. 4. The assets under management include trust beneficiary interests in real estate of (Tentative) Residence Hiroo, Merveille Senzoku, Splendid Shin-osaka III, Charmant Fuji Osakajominami and Piacere Fuminosato.
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Note 5 – Investment Properties Note 7 – Rental Revenues and Expenses
Investment properties consisted of the following: Rental revenues and expenses were as follows:
As of December 31, 2016 As of June 30, 2017 For the six-month periods ended (Yen in thousands) December 31, 2016 June 30, 2017 Acquisition Accumulated Acquisition Accumulated (Yen in thousands) Book value Book value cost depreciation cost depreciation Revenues from property leasing:
Land in trust ¥ 147,626,696 ¥ – ¥ 147,626,696 ¥ 147,626,696 ¥ – ¥ 147,626,696 Rental revenues: Base rents ¥ 4,937,931 ¥ 5,105,044 Buildings in trust 48,349,873 (4,100,611) 44,249,261 48,602,616 (4,820,866) 43,781,749 Common area charges 951,841 947,489 Structures in trust 155,644 (28,886) 126,758 157,997 (32,975) 125,021 Parking space rental revenues 220,404 225,607 Machinery and Total rental revenues 6,110,177 6,278,141 74,342 (3,527) 70,815 156,868 (8,993) 147,875 equipment in trust Other revenues related to property leasing: Tools, furniture and 50,572 (7,590) 42,982 64,963 (12,010) 52,952 fixtures in trust Utilities charge reimbursements 577,592 528,783 Construction in progress 3,146 – 3,146 – – – Others 116,358 99,762 in trust Total other revenues related to property leasing 693,951 628,546 Leasehold rights in trust 15,806,402 – 15,806,402 15,806,402 – 15,806,402 Total revenues from property leasing 6,804,128 6,906,687
Total ¥ 212,066,679 ¥ (4,140,616) ¥ 207,926,062 ¥ 212,415,544 ¥ (4,874,846) ¥ 207,540,698 Property-related expenses: Property management fees 505,020 501,878 Utility expenses 482,195 465,569 Note 6 – Fair Value of Investment Properties Insurance expenses 7,175 7,058 Repair expenses 86,342 101,572 The book value, net changes in the book value and the fair value of the investment properties including office Taxes and dues 499,639 500,143 properties, residential properties and commercial properties were as follows: Depreciation 753,613 734,495 Loss on retirement of investment properties 1,849 342 For the six-month periods ended December 31, 2016 June 30, 2017 Trust fees 22,750 22,750 Other 248,155 196,561 (Yen in thousands) Total property-related expenses 2,606,741 2,530,372 Book value: Balance at beginning of period ¥ 208,212,032 ¥ 207,922,916 Income from property leasing ¥ 4,197,387 ¥ 4,376,314 Change during period (289,116) (382,218)
Balance at end of period ¥ 207,922,916 ¥ 207,540,698 Note 8 – Subsidy Income Fair value ¥ 220,087,000 ¥ 224,082,000 Subsidy income of ¥44,834 thousand for the six-month period ended June 30, 2017 represents income received Notes: from Energy Use Rationalization Business Support Program 2016. 1. The fair value is determined based on appraisal values provided by external real estate appraisers. 2. The book value includes leasehold rights in trust, but excludes construction in progress in trust. 3. For the six-month period ended December 31, 2016, the increase was primarily due to capital expenditures and the offsetting decrease was due to depreciation. Note 9 – Loss on Reduction of Investment Properties 4. For the six-month period ended June 30, 2017, the increase was primarily due to capital expenditures and the offsetting decrease was due to depreciation. Loss on reduction of investment properties represents the amount directly deducted from acquisition costs for the investment properties due to government subsidies received. The details were as follows:
For the six-month periods ended December 31, 2016 June 30, 2017 (Yen in thousands) Building in trust ¥ – ¥ 44,593
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Note 10 – Net Assets Note 13 – Income Taxes
NIPPON REIT issues non-par value investment units in accordance with the Investment Trust Act and all of the NIPPON REIT is subject to Japanese corporate income taxes on all of its taxable income. However, NIPPON amounts issued are designated as stated capital. NIPPON REIT maintains at least ¥50,000 thousand as the REIT may deduct the amount distributed to its unitholders from its taxable income when certain requirements, minimum net assets as required by the Investment Trust Act. including a requirement to distribute in excess of 90% of distributable profit for the fiscal period, are met under the Special Taxation Measure Act of Japan. If NIPPON REIT does not satisfy all of the requirements as specified Note 11 – Long-Term Debt in the Act, the entire taxable income of NIPPON REIT will be subject to regular corporate income taxes in Japan.
Long-term debt consisted of the following: NIPPON REIT has made distribution in excess of 90% of its distributable profit for the six-month periods ended December 31, 2016 and June 30, 2017 in order to be able to deduct such amount from taxable income. As of December 31, 2016 June 30, 2017 The following table summarizes the significant difference between the statutory tax rate and NIPPON REIT’s effective tax rate. (Yen in thousands)
Long-term debt: For the six-month periods ended 0.25% unsecured loans due 2017 (Notes 2 and 3) ¥ 11,600,000 ¥ – December 31, 2016 June 30, 2017 0.24% unsecured loans due 2017 (Notes 2 and 3) 10,200,000 10,200,000 Statutory tax rate 31.74% 31.74% 0.80% unsecured loans due 2018 (Note 2) 7,000,000 7,000,000 Deductible cash distributions (31.74) (31.74) 0.44% unsecured loans due 2018 (Notes 2 and 3) 2,500,000 2,500,000 Per capita inhabitant taxes 0.02 0.02 0.22% unsecured loans due 2018 (Note 2 and 3) 10,800,000 10,800,000 Others 0.00 0.00 0.91% unsecured loan due 2019 (Note 2) 1,070,000 1,070,000 Effective tax rate 0.02% 0.02% 0.51% unsecured loans due 2019 (Notes 2 and 3) 9,900,000 9,900,000
0.54% unsecured loans due 2019 (Notes 2 and 3) 11,000,000 11,000,000 The significant components of deferred tax assets and liabilities were as follows: 0.85% unsecured loans due 2020 (Note 2) 6,000,000 6,000,000 0.84% unsecured loan due 2020 (Note 2) 3,500,000 3,500,000 As of 0.65% unsecured loans due 2020 (Notes 2 and 3) 11,000,000 11,000,000 December 31, 2016 June 30, 2017 0.36% unsecured loans due 2021 (Notes 2 and 3) 8,500,000 8,500,000 (Yen in thousands) 0.38% unsecured loans due 2021 (Notes 2 and 3) 10,000,000 10,000,000 Deferred tax assets: 1.24% unsecured loan due 2023 (Note 2) 500,000 500,000 Accrued enterprise tax ¥ 1 ¥ 1 0.48% unsecured loans due 2023 (Notes 2 and 3) – 5,600,000 Allowance for doubtful accounts 0 0 0.56% unsecured loans due 2024 (Notes 2 and 3) – 3,400,000 Total deferred tax assets 1 1 0.70% unsecured loans due 2025 (Notes 2 and 3) – 2,600,000 Deferred tax liabilities: Total long-term debt ¥ 103,570,000 ¥ 103,570,000 Deferred gains on hedges 10,964 5,532 Total deferred tax liabilities 10,964 5,532 Notes: 1. The interest rates presented are weighted average interest rates. Net deferred tax liabilities ¥ (10,962) ¥ (5,530) 2. Funds were used for acquisition of investment properties, repayment of outstanding borrowings and payment of any other associated expenses as deemed reasonable. 3. As interest rates on these loans are substantively fixed by the interest rate swaps, the interest rates after reflecting the effect of the interest rate swaps are stated.
Note 12 – Leases
The future minimum rental revenues under existing non-cancelable operating leases were as follows:
As of December 31, 2016 June 30, 2017 (Yen in thousands) Due within one year ¥ 467,772 ¥ 420,855 Due after one year 478,601 690,360 Total ¥ 946,374 ¥ 1,111,215
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Note 14 – Per Unit Information Note 16 – Segment Information
Information about earnings per unit and net assets per unit was as follows: Segment Information
For the six-month periods ended Segment information is omitted as NIPPON REIT has one segment, which is property leasing business. December 31, 2016 June 30, 2017 Related Information (Yen)
Earnings per unit: Information about Products and Services Net income per unit ¥ 7,797 ¥ 8,215 Weighted average number of units outstanding (units) 391,760 391,760 Disclosure of this information is omitted as operating revenues to external customers for a single product/service category account for more than 90% of the operating revenues on the statements of income and As of retained earnings.
December 31, 2016 June 30, 2017 Information by Geographic Areas (Yen) Net assets per unit ¥ 286,883 ¥ 287,268 (1) Operating revenues Disclosure of this information is omitted as domestic operating revenues account for more than 90% of total The computation of earnings per unit is based on the weighted average number of units outstanding during the operating revenues. period. The computation of net assets per unit is based on the number of units outstanding at each period end as stated on the balance sheets. (2) Investment properties Disclosure of this information is omitted as domestic investment properties account for more than 90% of the book value of the total investment properties. Note 15 – Distribution Information Information on Major Tenants Pursuant to the terms of the distribution policy set forth in Article 35 paragraph (1) item (2) of NIPPON REIT’s Articles of Incorporation, the amount of distributions is defined to be in excess of an amount equivalent to 90% of Disclosure of this information is omitted as there is no tenant that accounts for 10% or more of the operating NIPPON REIT’s distributable profit as defined in Article 67-15 of the Special Taxation Measure Act of Japan, but revenues recorded in the statements of income and retained earnings. not in excess of an amount of profit set forth in the Articles of Incorporation.
Cash distributions are declared by the board of directors after the end of each period. Such distributions are payable to unitholders of record at the end of each period. Information of cash distributions per unit and the board of directors meeting dates when the distributions were proposed and approved were as follows:
For the six-month periods ended December 31, 2016 June 30, 2017 (Yen) Cash distributions per unit ¥ 7,800 ¥ 8,217 Board of directors meeting dates February 16, 2017 August 17, 2017
Retained earnings brought forward after the cash distributions were as follows:
For the six-month periods ended December 31, 2016 June 30, 2017 (Yen) Unappropriated retained earnings ¥ 3,080,273,361 ¥ 3,242,988,043 Cash distributions declared 3,055,728,000 3,219,091,920 Retained earnings brought forward ¥ 24,545,361 ¥ 23,896,123
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Note 17 – Subsequent Events
(a) Exchange of Properties
NIPPON REIT entered into an exchange agreement of the trust beneficiary interests in real estate with Godo Kaisha Nicolas Capital 6 on September 15, 2017 as described below and carried out the exchange on September 28, 2017. The provision on reduction entry prescribed in Article 50 of the Corporation Tax Act will apply to the land portion of the properties acquired by the exchange. The expected amount equivalent to reduction limit of about ¥400 million out of gains on disposition of properties by the exchange will be deducted from the acquisition prices.
(1) Properties disposed by the exchange
Disposition price Book value Property name Location (Yen in millions) (Note 1) (Yen in millions) (Note 2) GreenOak Okachimachi Taito Ward, Tokyo ¥ 3,650 ¥ 3,454
JS Progres Building Ota Ward, Tokyo 6,350 5,413
Total ¥ 10,000 ¥ 8,867
Notes: 1. The disposition prices represent the amounts of consideration stated in the exchange agreement of the trust beneficiary interests in real estate and do not include expenses related to the exchange and consumption taxes. 2. The book values as of June 30, 2017 are stated.
(2) Properties acquired by the exchange
Acquisition price Property name Location (Yen in millions) (Note 1) Homat Horizon Building Chiyoda Ward, Tokyo ¥ 6,705
Sannomiya First Building Kobe, Hyogo 1,390
Splendid Namba Osaka, Osaka 3,502
Total ¥ 11,597
Note: The acquisition prices represent the amounts of consideration stated in the exchange agreement of the trust beneficiary interests in real estate and do not include expenses related to the exchange and consumption taxes.
(b) Borrowing of Funds
NIPPON REIT borrowed funds on September 28, 2017. This borrowing was used as a part of funds for acquisition of the properties by the exchange described in section (a) (2) above and its related costs.
Amount Fix / Repayment due Repayment Lender (Yen in Interest rate Floating date method millions) Lump-sum The Bank of Tokyo- 1 month Japanese Yen ¥ 2,600 Floating August 20, 2018 payment at Mitsubishi UFJ, Ltd. TIBOR +0.2% (Note) maturity
Note: Interest rate is calculated based on the 1 month Japanese Yen TIBOR published by the JBA TIBOR Administration (“JBATA”) two business days prior to the interest payment date immediately preceding the respective interest payment date. However, if the calculation period is more than one moth or less than one month, the interest rate applicable to the period will be the interest rate calculated on the method specified in the agreement.
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Appraisal Appraisal Acquisition Appraisal Investment Occupancy Acquisition Appraisal Investment Occupancy Property NOI PML Property NOI PML Area Property name Asset type Location price value ratio Rate Completion Area Property name Asset type Location price value ratio Rate Completion no. yield (%) no. yield (%) (yen in millions) (yen in millions) (%) (%) (yen in millions) (yen in millions) (%) (%) (%) (%) Shinjuku Ward, Itabashi Ward, Central A-1 FORECAST Nishishinjuku Office 2,260 2,890 1.1 5.5 100.0 February 2009 2.7 Metropolitan A-37 Itabashi Honcho Building Office 3,146 3,320 1.5 5.7 100.0 January 1993 7.8 Tokyo Tokyo Chuo Ward, Taito Ward, Central A-2 Nihombashi Playa Building Office 2,130 2,370 1.0 5.1 100.0 February 2009 3.7 Metropolitan A-38 ANTEX24 Building Office 1,691 1,730 0.8 5.2 100.0 February 1988 3.7 Tokyo Tokyo Shinjuku Ward, Taito Ward, Central A-3 FORECAST Yotsuya Office 1,430 1,810 0.7 5.3 100.0 January 2009 3.6 Metropolitan A-39 Itohpia Kiyosubashidori Building Office 1,550 1,770 0.8 5.8 100.0 March 1988 3.6 Tokyo Tokyo Shinjuku Ward, Taito Ward, Central A-4 FORECAST Shinjuku AVENUE Office 6,500 7,530 3.2 4.6 100.0 September 2008 2.1 Metropolitan A-40 East Side Building Office 1,372 1,470 0.7 5.5 100.0 May 1988 3.6 Tokyo Tokyo Shinjuku Ward, Central A-5 FORECAST Ichigaya Office 4,800 5,690 2.3 4.6 98.9 August 2009 2.9 Osaka, Tokyo Metropolitan A-41 I•S Minamimorimachi Building Office 2,258 2,460 1.1 5.5 100.0 August 1993 9.6 Osaka Minato Ward, Central A-6 FORECAST Mita Office 1,800 2,190 0.9 5.0 100.0 September 2009 2.9 Osaka, Tokyo Metropolitan A-42 Sunworld Building Office 1,200 1,230 0.6 5.4 100.0 March 1993 12.0 Osaka Shinjuku Ward, Central A-7 FORECAST Shinjuku SOUTH Office 13,990 16,300 6.8 4.6 100.0 November 1980 7.0 Nagoya, Tokyo Metropolitan A-43 Marunouchi Sanchome Building Office 1,626 1,860 0.8 6.1 100.0 July 1988 7.1 Aichi Chuo Ward, Central A-8 FORECAST Sakurabashi Office 5,760 6,190 2.8 5.0 100.0 April 1985 4.2 Chiyoda Ward, Tokyo Central A-44 MK Kojimachi Building Office 1,781 1,960 0.9 4.5 100.0 March 1997 4.3 Tokyo Chuo Ward, Central A-9 GreenOak Kayabacho Office 2,860 3,200 1.4 5.0 100.0 March 1990 2.6 Tokyo Minato Ward, Central A-45 Toranomon Sakura Building Office 4,120 4,280 2.0 3.9 100.0 July 1983 8.2 Tokyo Chiyoda Ward, Central A-10 GreenOak Kudan Office 2,780 3,180 1.4 4.8 100.0 December 1987 5.1 Tokyo Minato Ward, Central A-46 La Verite AKASAKA Office 2,000 2,130 1.0 4.3 100.0 December 1986 4.5 Minato Ward, Tokyo Central A-11 GreenOak Takanawadai Office 2,260 2,500 1.1 4.9 100.0 January 2010 3.6 Tokyo Chiyoda Ward, Central A-47 Kanda Ocean Building Office 1,440 1,560 0.7 4.7 100.0 January 1990 9.3 Taito Ward, Tokyo Metropolitan A-12 GreenOak Okachimachi Office 3,330 3,010 1.6 4.4 100.0 January 1977 7.7 Tokyo Chuo Ward, Central A-48 Shinto GINZA EAST Office 1,352 1,400 0.7 4.4 100.0 September 1990 5.3 Toshima Ward, Tokyo Metropolitan A-13 Higashi Ikebukuro Center Building Office 2,520 2,760 1.2 5.6 100.0 November 1991 4.5 Tokyo Chuo Ward, Central A-49 FORECAST Kayabacho Office 3,000 2,970 1.5 4.6 100.0 January 1990 5.2 Shibuya Ward, Tokyo Central A-14 Central Daikanyama Office 3,510 3,590 1.7 4.0 100.0 August 1991 7.1 Tokyo Shinjuku Ward, Ota Ward, Central A-50 FORECAST Waseda FIRST Office 4,775 4,900 2.3 4.6 100.0 July 1986 3.5 Metropolitan A-15 JS Progres Building Office 5,325 5,250 2.6 5.3 100.0 April 1993 6.9 Tokyo Tokyo Shinagawa Minato Ward, Central A-51 FORECAST Gotanda WEST Office Ward, 6,520 6,870 3.2 4.5 100.0 September 1989 2.3 Central A-16 Hiroo Reeplex B’s Office 2,827 3,110 1.4 4.7 100.0 May 1987 4.4 Tokyo Tokyo Minato Ward, Omiya, Central A-17 Shibakoen Sanchome Building Office 7,396 9,630 3.6 5.0 100.0 June 1981 11.3 Metropolitan A-52 Omiya Center Building Office 15,585 17,500 7.6 5.2 100.0 March 1993 2.0 Tokyo Saitama Chiyoda Ward, Sumitomo Mitsui Bank Koraibashi Osaka, Central A-18 FORECAST Iidabashi Office 5,230 5,490 2.6 4.3 100.0 November 1978 7.1 Metropolitan A-53 Office 2,850 2,920 1.4 5.0 100.0 March 1994 7.6 Tokyo Building Osaka Chiyoda Ward, Nagoya, Central A-19 Kudankita 325 Building Office 1,850 1,960 0.9 4.5 100.0 August 1987 4.5 Metropolitan A-54 NORE Fushimi Office 2,840 3,090 1.4 5.1 100.0 November 2006 4.5 Tokyo Aichi Chiyoda Ward, Nagoya, Central A-20 FORECAST Uchikanda Office 1,240 1,270 0.6 4.7 100.0 December 1976 9.9 Metropolitan A-55 NORE Meieki Office 2,520 2,860 1.2 5.5 94.7 January 2007 4.2 Tokyo Aichi Chiyoda Ward, Shinagawa Central A-21 Itohpia Iwamotocho 2-chome Building Office 2,810 3,000 1.4 4.9 100.0 February 1991 4.1 Tokyo Central B-1 Tower Court Kitashinagawa Residential Ward, 11,880 13,600 5.8 5.1 99.2 February 2009 2.6 Tokyo Chiyoda Ward, Central A-22 Itohpia Iwamotocho 1-chome Building Office 2,640 2,700 1.3 4.7 100.0 January 1991 9.0 Sapporo, Tokyo ODC, etc. B-2 Sky Hills N11 Residential 1,570 1,730 0.8 6.6 100.0 March 2001 1.3 Hokkaido Chiyoda Ward, Central A-23 Itohpia Iwamotocho ANNEX Building Office 2,100 2,340 1.0 5.1 100.0 November 1991 4.1 Nagoya, Tokyo Metropolitan B-3 my atria Meieki Residential 1,280 1,490 0.6 5.7 100.0 March 2006 4.4 Aichi Chuo Ward, Central A-24 Pigeon Building Office 2,837 2,920 1.4 4.8 100.0 August 1989 5.6 Nagoya, Tokyo Metropolitan B-4 my atria Sakae Residential 1,110 1,210 0.5 5.7 100.0 March 2007 4.1 Aichi Chuo Ward, Central A-25 FORECAST Ningyocho Office 2,070 2,070 1.0 4.7 100.0 November 1990 11.1 Tokyo Nagoya, Metropolitan B-5 Mac Village Heian Residential 785 866 0.4 6.0 100.0 September 2006 3.2 Aichi Chuo Ward, Central A-26 FORECAST Ningyocho PLACE Office 1,650 1,760 0.8 4.9 100.0 February 1984 7.1 Tokyo Nagoya, Metropolitan B-6 Seam Dwell Tsutsui Residential 695 769 0.3 5.8 100.0 February 2007 5.0 Chuo Ward, Aichi Central A-27 FORECAST Shin-Tokiwabashi Office 2,030 2,060 1.0 4.6 100.0 August 1991 4.1 Tokyo Fukuoka, ODC, etc. B-7 Ciel Yakuin Residential 640 707 0.3 5.5 90.8 March 2005 5.4 Shinjuku Ward, Fukuoka Central A-28 Nishi-shinjuku Sanko Building Office 2,207 2,270 1.1 4.9 100.0 September 1987 12.7 Tokyo Chiyoda Ward, Central B-8 Kanda Reeplex R’s Residential 1,813 1,930 0.9 4.7 97.9 January 2006 4.4 Shinjuku Ward, Tokyo Central A-29 Iidabashi Reeplex B’s Office 1,249 1,390 0.6 4.6 100.0 June 1992 4.4 Tokyo Shinjuku Ward, Central C-1 Otakibashi Pacifica Building Retail 3,350 3,470 1.6 4.2 100.0 October 2008 4.6 Shinagawa Tokyo Central A-30 FORECAST Shinagawa Office Ward, 2,300 2,300 1.1 4.5 100.0 February 1989 11.6 Sakai, Tokyo Metropolitan C-2 Komyoike Act Retail 2,063 2,190 1.0 6.3 100.0 April 1988 12.7 Shinagawa Osaka Central A-31 Nishi-Gotanda 8-chome Building Office Ward, 2,210 2,360 1.1 4.8 100.0 December 1993 3.9 Tokyo Total: 65 properties 204,852 224,082 100.0 4.9 99.8 ― 4.0 Shinagawa Central A-32 Towa Higashi-Gotanda Building Office Ward, 2,033 2,140 1.0 5.1 100.0 September 1985 5.1 Tokyo (Note 1) The investment ratio is the acquisition value of each acquired asset, divided by the total acquisition value of assets acquired. The ratio is rounded off to the first decimal place. Toshima Ward, Metropolitan A-33 FORECAST Takadanobaba Office 5,550 5,580 2.7 4.8 100.0 January 1986 12.4 (Note 2) Occupancy rates are as of the end of June 2017. Tokyo (Note 3) The PML value for the overall portfolio is based on the May 2015 65-property seismic risk survey portfolio analysis report prepared by Tokio Marine & Nichido Risk Consulting Co., Ltd. Toshima Ward, Metropolitan A-34 Mejiro NT Building Office 3,094 3,300 1.5 5.3 100.0 July 1990 6.6 Tokyo Toshima Ward, Metropolitan A-35 Toshin Higashi-Ikebukuro Building Office 979 1,050 0.5 5.6 100.0 November 1989 3.6 Tokyo Koto Ward, Metropolitan A-36 Mitsui Woody Building Office 2,475 2,680 1.2 5.7 100.0 March 1990 11.9 Tokyo
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012_0601424552909.indd 68-69 2017/10/04 13:39:22 Portfolio Map
● Office Properties A-37 ita dachi ● Residential Properties Taito Itabashi ● Retail Properties Nerima rakawa A-50 Bunkyo Ikebukuro A-13 Toshima A-35 Bunkyo Taito umida A-29 Ueno Nakano A-39 Iidabashi Akihabara A-33 A-34 A-1 A-18 A-12 A-38 hin uku A-40 A-10 A-21 hin uku A-28 Shinjuku B-8 A-23 C-1 Shinjuku A-19 hiyoda A-7 A-47 A-22 Tokyo oto A-2 A-5 Ichigaya A-24 hibuya A-4 A-20 huo A-36 B-2 A-3 A-25 A-27 Shibuya hiyoda A-26 Minato A-44 Tokyo A-9 etagaya A-46 A-49 Meguro A-8 Shinagawa hibuya huo A-48 hinagawa
A-45
A-17 Shibuya Ota A-15 Minato A-16 A-6 A-14 oto A-41 A-52
A-42 Meguro A-11 B-7 C-2 A-53
A-32 Shinagawa ita Gotanda B-5 Nagoya
A-31 A-30 Nishi Ozone
A-51 B-1 Higashi hinagawa A-43 B-6 B-3 Fushimi Sakae Chikusa Nagoya A-54 Nakamura hikusa B-4 A-55 Naka Tsurumai Nakagawa howa
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012_0601424552909.indd 70-71 2017/10/04 13:39:22 Investment Units Unitholder Information
Historical Unit Price Investor Memo The following shows trends for trading prices (closing prices) and volume for NIPPON REIT, which is traded on the Tokyo Stock Exchange, for the period from April 24, 2014 to June 30, 2017 (the final trading day of the tenth fiscal period). Book-closing dates for fiscal periods June 30 and December 31 of each year The General Meeting of Unitholders Held more than once every two years Unit price (yen) Market capitalization (¥100mn) 450,000 1,400 Unitholder record date for exercising
■ ■ (Note 1) Date stipulated in Article 16 of the Articles of Incorporation ■ : Market capitalization : Unit price : TSE REIT Index voting rights (Note 1) The TSE REIT Index is indexed using the base value that was obtained on the date of the NIPPON REIT IPO, with an issue price of ¥252,000. 1,200 Registration deadline for cash June 30 and December 31 of each year (Cash distributions are paid within a three-month 400,000 distribution payments period from the registration deadline.)
1,000 Listed on the following stock exchange Real Estate Investment Trust Section, Tokyo Stock Exchange (TSE) (Stock code: 3296) Notification published in the following Nihon Keizai Shimbun 350,000 newspaper 800 Transfer agent Mitsubishi UFJ Trust and Banking Corporation 1-4-5 Marunouchi, Chiyoda-ku, Tokyo, Japan
600 Corporate Agency Division Mitsubishi UFJ Trust and Banking Corporation. 1-1, Nikkocho, 300,000 Fuchu-shi, Tokyo Contact: Phone: 0120-232-711(toll-free) (Postal mail and phone inquiries) 400 Mail to: Shin-Tokyo Post Office P.O.B. No.29, 1378081 Corporate Agency Division Mitsubishi UFJ Trust and Banking Corporation 250,000 200
▼ Procedures for Notification of Address or Other Changes Investors should inform their securities company of any changes to pertinent personal information, including address, name, and official seal for carrying out banking transactions. 200,000 0 Apr. 2014 July 2014 Oct. 2014 Jan. 2015 Apr. 2015 July 2015 Oct. 2015 Jan. 2016 Apr. 2016 July 2016 Oct. 2016 Jan. 2017 Jun. 2017
▼ Cash Distributions Unitholders can receive cash distributions by bringing their cash distribution receipt to the nearest Japan Post Bank or post office (banking agent). To receive the cash distributions after the receipt period, designate the method for receipt on the back of the cash distribution receipt and mail it to the Stock Transfer Agency Services, Mitsubishi UFJ Trust and Banking Corporation or go to the head office or a branch office. (Please refer to the investor memo above for contact information.) Unitholders In addition, for future cash distributions, unitholders should contact their securities company to specify a bank account for cash distribution deposits, or for desired procedures, including filing to opt for separate taxation at the source. Note that NIPPON REIT is not obliged to pay any cash distributions unclaimed for a period of three years after the first day of payment. Breakdown of Investment Unitholdings and Number of Unitholders by Investor Unitholders should make arrangements to receive their cash distributions as soon as possible.
▼ Statement of Cash Distribution 《By Number of Unit》 《By Number of Unitholder》 The statement of cash distribution we send for cash distribution payments also serves as Notice of Dividend Payment, in accordance with provisions under the Special Taxation Measure Act of Japan. This document can be an attachment to tax forms when filing income taxes. Foreign Corporations 139(0.61%) Note that the statement of cash distribution is enclosed and sent along with the cash distribution receipt, which unitholders exchange for Foreign Corporations Individuals Domestic Corporations Individuals dividends. Unitholders who file income taxes should carefully store this document away to prevent loss. However, unitholders who opt for allocation in proportion to the number of investment units should contact their securities company for details. 47,799 126,806 426 21,996 (12.20%) (32.37%) (1.88%) (97.10%) Financial Institutions Domestic Corporations 92 http://www.nippon-reit.com/ 10th scal period 10th scal period Web site of NIPPON REIT has renewed 35,081 (0.41%) (8.95%) (as of June 30, 2017) (as of June 30, 2017) No. of unitholders Web site of NIPPON REIT has renewed in June 2017. Please utilize web site of which usability has further improved. 391,760units 22,653 Financial Institutions 182,074 (46.48%)
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