Fiscal Period Business Report th (Statement of Financial Performance) 15 December 1, 2012 - May 31, 2013 The Daiwa Office Investment Corporation logo symbolizes hospitality with an open door and the desire to be a bright and open investment corporation. We will continue to aim to be a highly-transparent investment corporation that is further cherished and trusted by our investors and tenants. 6-2-1 Ginza, Chuo Ward, Tokyo http://www.daiwa-ofce.co.jp/en/ I. Overview of Daiwa Office Investment Corporation To Our Investors We would like to express our deep gratitude to all our unitholders for your support of Daiwa Office Investment Corporation (DOI). In the 15th Fiscal Period, DOI posted operating revenues of 7,615 million yen and operating income of 3,308 million yen. Our distribution per unit for the 15th Fiscal Period is 6,542 yen, an increase by 556 yen from the 14th Fiscal Period. See page 4 for financial and management highlights As for new property acquisitions in the 15th Fiscal Period, DOI acquired shinyon curumu (9,650 million yen), Honshu Meieki Building (5,300 million yen), Kamiooka Eye Mark Building (2,000 million yen) and Sunline Building No. 7 (230 million yen) additional acquisition of compartmentalized ownership for a total of 17,180 million yen. Furthermore, in the 16th Fiscal Period DOI acquired two properties, Tosen Dogenzaka Daini Building (4,500 million yen) and Akasaka Business Place (9,200 million yen), for a total of 13,700 million yen. See page 8 for details of external growth The occupancy rate as of the end of the 15th Fiscal Period was 95% as the acquisition of low-occupancy rate properties (shinyon curumu and Honshu Meieki Building) brought down the overall occupancy rate. However, all properties are relatively new and close to train stations and have strong ability to attract customers in addition to being located in areas where growth can be expected through large-scale developments and such, and DOI will work to improve the performance of these properties, thereby leading to improvement of the entire portfolio. See page 12 for details of internal growth In financial matters, DOI will aim to reduce future refinancing risk by extending borrowing periods and diversifying repayment dates while also reducing financial costs. See page 14 for details of financial condition DOI will continue to focus on establishing its portfolio with a particular emphasis on office buildings in favorable locations centering on Tokyo, and aim to achieve an asset size of 350 billion yen while striving to increase the competitiveness of existing properties. We wish for the continued success of our unitholders and ask for your continued support of DOI. Nobuaki Omura Executive Director of Daiwa Office Investment Corporation Contents I. Overview of Daiwa Office Investment Corporation II. Asset Management Report………………………… 16 To Our Investors……………………………………………… 2 III. Balance Sheets… …………………………………… 22 Characteristics and Strategies of Daiwa Office Investment Corporation ………………………… 3 IV. Statements of Income……………………………… 24 Financial and Management Highlights………………………… 4 V. Statements of Changes in Unitholders’ Equity …… 25 Overview of Portfolio (portfolio list)…………………………… 5 Overview of Portfolio (portfolio distribution)…………………… 6 VI. Notes to Financial Statements…………………… 26 External Growth Measures…………………………………… 8 VII. Independent Auditors’ Report…………………… 36 Internal Growth Measures… ……………………………… 12 VIII. Statements of Cash Flows [Information Only]…… 37 Financial Conditions… …………………………………… 14 Description of Asset Manager……………………………… 15 IX. Investor Information… ……………………………… 38 2 Characteristics and Strategies of Daiwa Office Investment Corporation 3 Characteristics of Daiwa Office Investment Corporation Office Specialized REIT focused on the Five Portfolio comprised of REIT Central Wards of Tokyo A Class and B Class buildings Effective application of operational Places priority on owning office buildings Operates Shinjuku Maynds Tower at the knowhow specialized in office buildings in favorable locations for which there is core and blue-chip medium-sized office high demand buildings Office buildings 100.0% Major Regional Cities 3.0% Five Central A Class buildings (Shinjuku Maynds Tower) Greater Tokyo Wards of Tokyo 6.9% 90.1% 40.3% B Class buildings Based on acquisition price 59.7% Based on acquisition price (Note) Please note that the percentages in the above graphs are as of May 31, 2013. Growth Strategies Activities for solid growth (billion yen) Proactive investment in 350.0 350 ・Continue acquiring Achievement of a 350 billion yen asset size selectively chosen properties competitive properties 332.0 ・Leverage borrowing Keep the medium-to-long term, upper-limit 313.2 314.9 capacity LTV target range within 40%~50% 311.3 300 287.3 Establishment of stable revenue base ・Property management Continuation of “Bonji-Tettei” activities Improve occupancy rate and increase rent revenue 250 Further strengthen relations with tenants ・Maintain and Capture tenant needs by reinforcing ties with improve property property managers value Strategic renewals and lease-up activities ・Financial activities Reduce refinancing risk by extending borrowing periods and diversifying 200 Fiscal period Fiscal period Fiscal period Fiscal period Fiscal period Acquisition repayment dates ended ended ended ended ended target May 2011 November 2011 May 2012 November 2012 May 2013 Distribution per Unit 15th Fiscal Period yen (actual) (fiscal period ended May 2013) 6,542 (Note) The forecasts on distribution are 3500 calculated based on certain assumptions and may vary due to 16th Fiscal Period yen (forecast) changes in the status and other (fiscal period ending November 2013) 7,200 factors. Moreover, the forecasts set forth herein should not be construed as a guarantee of 17th Fiscal Period yen (forecast) 7,3003000 distribution amounts. (fiscal period ending May 2014) I. Overview of Daiwa Office Investment Corporation 3 2500 2000 Financial and Management Highlights Steady increase of distributions even in a severe office market environment ■ Operating Revenues ■ Operating Income (million yen) (million yen) 10,000 4,000 7,500 3,000 3,317 3,308 3,146 7,605 7,431 7,566 7,615 3,090 6,758 2,823 5,000 2,000 2,500 1,000 0 0 11th Period 12th Period 13th Period 14th Period 15th Period 11th Period 12th Period 13th Period 14th Period 15th Period ■ Net Income ■ Distribution Per Unit (million yen) (yen) 3,000 7,000 6,542 2,589 5,986 2,000 2,369 5,000 2,021 5,107 1,766 4,464 1,453 1,000 3,000 3,671 0 1,000 11th Period 12th Period 13th Period 14th Period 15th Period 11th Period 12th Period 13th Period 14th Period 15th Period ■ Asset Size ■ Period End Occupancy Rate (billion yen) (%) 350 100 96.4 95.4 94.3 95.0 332.0 92.4 300 311.3 313.2 314.9 90 287.3 250 80 200 70 11th Period 12th Period 13th Period 14th Period 15th Period 11th Period 12th Period 13th Period 14th Period 15th Period 15th Period 14th Period 13th Period 12th Period 11th Period (May 2013) (November 2012) (May 2012) (November 2011) (May 2011) Operating revenues (million yen) 7,615 7,566 7,431 7,606 6,759 Operating income (million yen) 3,308 3,147 3,090 3,317 2,824 Ordinary income (million yen) 2,590 2,365 2,022 1,767 1,587 Net income (million yen) 2,589 2,369 2,021 1,767 1,453 10000 Total number of units issued (units) 395,798 395,798 395,798 4000 395,798 395,798 Net assets per unit (yen) 508,707 508,132 507,331 506,693 505,900 Distribution per unit (yen) 6,542 5,986 5,107 4,464 3,671 Total assets (million yen) 342,572 325,665 325,315 323,217 298,626 Loan-to-value (LTV) 37.5 34.4 34.2 34.0 28.9 (based on total asset value) (%) Number of investment properties 41 38 37 36 35 Asset size (billion yen) 332.0 314.9 313.2 311.3 287.3 Total rentable area (m2) 225,651.87 208,733.38 207,277.34 205,318.62 191,346.43 Occupancy rate (%) 95.0 96.4 94.3 92.4 95.4 4 Overview of Portfolio (portfolio list) DOI has a portfolio comprised of one A Class building and 40 B Class buildings (as of May 31, 2013) Acquisition Appraisal Rentable Structure and Execution Value at End Ownership Type Price PML (%) Property Name Address Area (m2) No. of Floors Completion of Major of Period Share (Note 5) (Note 2) (Note 3) Repairs mm (mm yen) Land Building yen (%) (Note 4) Five Central Wards of Tokyo (Note 1) Fee simple and 1 Daiwa Ginza Ginza, Chuo-ku, Tokyo 8,267.13 SRC B3/12F July 1963 2003 14,100 4.2 14,700 leasehold Fee simple 9.17 2 Daiwa Ginza Annex Ginza, Chuo-ku, Tokyo 2,032.99 SRC B3/8F Aug. 1972 2003 3,050 0.9 3,100 Fee simple Fee simple 7.46 3 Daiwa Shibaura Shibaura, Minato-ku, Tokyo 9,626.38 SRC B1/12F Oct. 1987 8,265 2.5 7,470 Fee simple Fee simple 5.09 4 Daiwa Minami-Aoyama Minami Aoyama, Minato-ku, Tokyo 2,715.54 S SRC B2/5F Sept. 1990 4,550 1.4 4,010 Fee simple Fee simple 12.79 5 Daiwa Sarugakucho Sarugakucho, Chiyoda-ku, Tokyo 3,657.43 SRC 8F June 1985 3,190 1.0 3,090 Fee simple Fee simple 9.79 Compartmentalized 6 Daiwa A Hamamatsucho Hamamatsucho, Minato-ku, Tokyo 3,663.38 SRC B2/10F July 1993 2,865 0.9 2,830 Fee simple ownership 6.03 7 Daiwa Jingumae Jingumae, Shibuya-ku, Tokyo 2,198.61 RC B1/4F Dec. 1997 2,800 0.8 2,050 Fee simple Fee simple 12.01 8 Daiwa Shibadaimon Shibadaimon, Minato-ku, Tokyo 2,386.02 SRC RC B1/7F Nov.