NOMURA REAL ESTATE OFFICE FUND, INC. Sixth Fiscal Period Sem i-Annual Report Sixth Fiscal Period Semi-Annual Report May 1, 2006 October 31, 2006 http://www.nre-of.co.jp/english/ Profile Corporate Data Nomura Real Estate Office Fund, Inc. (referred to as “Nomura Office Fund” or the “Company” hereafter) was listed on the Tokyo Stock Exchange on December 4, 2003 as a real estate investment corporation formed to own and invest in office Corporate Name Transfer Agent properties, subject to the Law Concerning Investment Trusts and Investment Corporations of Japan. The Company’s basic Nomura Real Estate Office Fund, Inc. Mitsubishi UFJ Trust and Banking Corporation investment policy is to assure stable rent revenues and steady portfolio growth over the medium- to long-term. 1-4-5 Marunouchi Chiyoda-ku, Tokyo 100-8212, Japan Nomura Real Estate Asset Management Co., Ltd. (referred to as “NREAM” hereafter), a wholly owned subsidiary of Corporate Office Nomura Real Estate Holdings, Inc. is in charge of asset management on behalf of Nomura Office Fund in accordance with 8-5-1 Nishi Shinjuku Shinjuku-ku, Tokyo Business Office of the Transfer Agent the basic investment policy as described above. Through coordination with Nomura Real Estate Holdings, Inc. and other 160-0023, Japan Corporate Agency Department group companies, NREAM aims to achieve these goals and more. http://www.nre-of.co.jp/english/ Mitsubishi UFJ Trust and Banking Corporation 7-10-11 Higashisuna Koto-ku, Tokyo 137-8081, Japan Date of Incorporation Tel: +81-3-5683-5111 August 7, 2003 Independent Auditors Strength of Nomura Office Fund Stock Listing Ernst & Young ShinNihon Tokyo Stock Exchange (Securities Code: 8959) Hibiya Kokusai Bldg. 2-2-3 Uchisaiwai-cho Chiyoda-ku, Tokyo 100-0011, Japan J-REIT with large-capitalization specialized in office buildings Unit Price (¥) Market Capitalization (¥ mln) Fiscal Period 1,000,000 600,000 Portfolio of 30 properties at a total acquisition price of Six months ending on April 30 and October 31 Investor Relations ¥259.1 billion (as of October 31, 2006) 900,000 500,000 For further information, please contact the Asset Management Market capitalization of ¥263.5 billion (as of October 31, 2006) Capital Company: Constituent of MSCI Standard Index 800,000 400,000 ¥156,767,193,535 (as of October 31, 2006) Nomura Real Estate Asset Management Co., Ltd. 8-5-1 Nishi Shinjuku Shinjuku-ku, Tokyo 160-0023, Japan 700,000 300,000 Number of Units Issued Tel: +81-3-3365-0507 Track record of stable management 265,903 (as of October 31, 2006) 600,000 200,000 Six consecutive fiscal periods of growth in revenues and earnings Number of Unitholders Steady growth in DPS 500,000 100,000 15,205 (as of October 31, 2006) 400,000 0 Dec. 4 Apr. 30 Oct. 29 Apr. 28 Oct. 31 Apr. 28 Oct. 31 Collaboration with Nomura Real Estate Group 2003 2004 2004 2005 2005 2006 2006 NREAM, in charge of the Company’s asset management, belongs to Nomura Real Estate Group Operating Revenues (Lth) Net Income (Lth) Cash Distribution per Unit (Rth) (¥) Supported by the group companies through provision of sales (¥ mln) 15,638 15,905 12,000 16,000 information and management expertise 15,150 14,520 10,739 Disclaimer 14,114 9,810 10,000 14,000 Rated A by three domestic and foreign rating agencies 8,641 8,000 12,000 7,106 6,656 This semiannual report includes translations of certain Japanese documents originally filed under the Securities and 10,273 Long-term rating: A Standard & Poor’s Ratings Services 6,000 10,000 Exchange Law of Japan. This report was prepared in English solely for the convenience of and reference by readers Short-term rating: A-1 4,531 outside Japan and should not be considered as a disclosure statement. The original Japanese documents always govern 4,229 Moody’s Investors Service, Inc. Issuer rating: A2 4,000 3,484 3,596 8,000 the meaning and interpretation. Rating and Investment Information, Inc. Issuer rating: A+ 2,606 2,681 2,000 1,526 6,000 In general, accounting principles and practices used by real estate investment corporations in Japan (“J-REITs”) in Holding to conservative financial strategies preparing its financial statements conform with accounting principles generally accepted in Japan (“Japanese GAAP”). Promoting long-term fixed-rate arrangements for interest-bearing debt 0 4,000 However, they may differ from generally accepted accounting principles applied in certain other countries. Potential 1st 2nd 3rd 4th 5th 6th Period Period Period Period Period Period investors should consult their own professional advisors for an understanding of the differences between Japanese GAAP and generally accepted accounting principles in the United States (“U.S. GAAP”) or other jurisdictions and how those differences might affect the financial information contained herein. Contents Estimates for Nomura Office Fund’s future operating results contained in this semiannual report are forward-looking statements and are based on information currently available to Nomura Office Fund and its asset management company and are subject to risks and uncertainties. Consequently, these projections should not be relied upon as the sole basis for To Our Investors ....................................................................................1 Property Details ...................................................................................10 evaluating Nomura Office Fund. Actual results may differ substantially from the projections depending on a number of Financial Highlights ...............................................................................2 Performance Report ............................................................................17 Portfolio Highlights ...............................................................................3 Financial Section..................................................................................35 factors. Management Summary of the Sixth Fiscal Period .............................4 Business Structure...............................................................................47 Financial Status of the Sixth Fiscal Period .........................................7 Profile of the Asset Management Company......................................48 Summary of Portfolio Properties .........................................................8 Corporate Data......................................................................Back Cover Portfolio Map .........................................................................................9 Printed in Japan To Our Investors Dear Investors, We are delighted to be able to present to you the financial results for the sixth fiscal period (ending October 31, 2006) and report on our activities during the period herein. We booked operating revenues for this period of ¥10,739 million, current profits of ¥4,230 million, and net income of ¥4,229 million. Cash distribution per unit was ¥15,905. Some of the major developments during the sixth period included new investments in two properties, located Sapporo City and Chiyoda-ku, Tokyo respectively. As a result of these investments, the number of properties in the portfolio now totals 30 with a total value of ¥259.1 billion on an acquisition cost basis, promoting further diversification of the portfolio in terms of both properties and geographical location. Turning your eyes to property leasing operation, successful property management contributed to continuously mark a stable and high occupancy rate of 98.2% for this period. Please also note that various refurbishment and renovation works have been conducted to keep up and further enhance the competitiveness of the properties, with a view to increase rent revenues over the mid- to long-term. On the financial aspects, we have made a public offering of investment units for the third time since listing. This has contributed to lowering the interest-bearing debt ratio, helping to build a more stable financial base, and securing the potentiality of future growth on the back of expanded asset base. In compliance with our policy to seek mid- to long-term optimization, we will continue adhering to the conservative investment policies in future. Lastly, we would like to thank you again for your patronage in the past periods, and would like to ask for your continued support for the years to come. Isamu Okada Executive Director Nomura Real Estate Office Fund, Inc. 1 Financial Highlights FINANCIAL SUMMARY 6th Period 5th Period 4th Period 3rd Period 2nd Period from May 1, 2006 from Nov. 1, 2005 from May 1, 2005 from Nov. 1, 2004 from May 1, 2004 to Oct. 31, 2006 to Apr. 30, 2006 to Oct. 31, 2005 to Apr. 30, 2005 to Oct. 31, 2004 Operating Revenues ¥ mln 10,739 9,810 8,641 7,106 6,656 Net Operating Income (NOI) (Note 1) ¥ mln 7,591 6,952 6,125 4,970 4,451 Income before Income Taxes ¥ mln 4,230 3,597 3,485 2,682 2,607 Net Income ¥ mln 4,229 3,596 3,484 2,681 2,606 Total Assets ¥ mln 288,060 268,559 239,067 208,003 173,545 Unitholders’ Capital ¥ mln 156,767 124,610 124,610 92,168 92,168 Number of Units Issued unit 265,903 229,970 229,970 184,650 184,650 Net Assets per Unit ¥ 605,499 557,492 557,004 513,672 513,266 Total Cash Distribution ¥ mln 4,229 3,596 3,484 2,681 2,606 Cash Distribution per Unit ¥ 15,905 15,638 15,150 14,520 14,114 Funds from Operation (FFO) per Unit (Note 2) ¥ 21,585 21,889 20,559 20,142 19,255 Note 1: NOI (Net Operating Income) = Real Estate Rental Revenues – Real Estate Rental Expenses + Depreciation Note 2: FFO per Unit = (Net Income + Depreciation + Amortization of Investment Corporation Bonds Issuance Costs) / Number of Units Issued CHANGES IN KEY FIGURES Operating Revenues (¥ mln) Total Assets (¥ mln) Cash Distribution per Unit (¥) 15,905 12,000 300,000 288,060 16,000 15,638 10,739 268,559 15,150 9,810 239,067 14,520 10,000 250,000 14,114 8,641 208,003 14,000 200,000 8,000 173,545 7,106 6,656 150,000 12,000 6,000 100,000 10,000 4,000 50,000 2,000 0 8,000 2nd 3rd 4th 5th 6th 2nd 3rd 4th 5th 6th 2nd 3rd 4th 5th 6th Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period CHANGES IN UNIT PRICE AND MARKET CAPITALIZATION Unit Price (¥) Market Capitalization (¥ mln) 1,000,000 600,000 900,000 500,000 Market capitalization (as of Oct.