Semi-Annual Report 5th Fiscal Period (from November 1, 2016 to April 30, 2017)

Performance highlights

Message to Our Unitholders

Distribution per unit

Since its listing on the Tokyo Stock Exchange Real Estate Investment Trust Section (the J-REIT market) in
December 2014, Sekisui House Reit, Inc. (“SHR”) has steadily accumulated a track record, and has settled
its accounts for the 5th fiscal period (namely, the fiscal period ended April 2017). I, on behalf of SHR, would
like to extend my heartfelt thanks to unitholders as this could not have been managed without your support.

2,663 yen

Distribution per unit
5th Fiscal Period Ended April 2017

I hereby report on the management status and financial results for the 5th fiscal period of SHR.

Business results and distribution
4th FP (Actual)(ended Oct. 2016)

5th FP (Actual)(ended Apr. 2017)

6th FP (Forecast)(ending Oct. 2017)

7th FP (Forecast)(ending Apr. 2018)

Operating revenue(million yen)

4,059

Operating income(million yen)

2,664

2,704

2,979

2,994

Ordinary income(million yen)

2,321

2,381

2,617

2,617

Net income(million yen)

2,320

2,380

2,616

2,616

Distribution per unit
(yen)

2,596

2,663

2,700

2,700

4,144

Operating revenue/Net income
Operating revenue(million yen)

Net income

5,000

4,652

Distribution per unit
(yen)

3,000

4,652

4,581
4,000

4,581

4,144

4,059

2,500

2,596

2,663

2,700

2,700

2,000

2,380

2,616

2,616

Since its listing, SHR has been aiming for expansion of its asset size by continuous external growth throughutilizing the sponsor pipeline. As part of such efforts, SHR conducted its third public offering in May 2017(at the beginning of its 6th fiscal period) since its listing and acquired properties (comprising additional
portions of two properties parts of which are already owned by SHR) for 21.2 billion yen with the funds
raised and other sources of funds. Through this, SHR’s asset size has grown to 200.7 billion yen, a growthof approximately 1.8 times over the two years and six months since its listing, while asset types within its
portfolio have been expanded to include a hotel asset for the first time.
In terms of operations, SHR has secured high occupancy rates and stable earnings as the occupancy rate ofits entire portfolio as of the end of the 5th fiscal period has increased to 100.0% from 99.9% as of the endof the 4th fiscal period with HK Yodoyabashi Garden Avenue being the only property in its portfolio having
a vacancy.
By focusing on prime properties - commercial properties thatfeature strategic locations or high quality - as its core investment
targets and taking full advantage of the sponsor support fromSekisui House, Ltd. (“Sekisui House”), which has an establishedtrack record of developing commercial properties, SHR will continue to seek to secure stable earnings and steady growth of its
investment assets and thereby aim to maximize unitholder value.
I ask for the continued support and encouragement of unitholders.

3,000

2,320

The management performance for the 5th fiscal period resulted in operating revenue of 4,144 million yen(an increase of 2.1% over that of the previous fiscal period), operating income of 2,704 million yen (an increase of 1.5% over that of the previous fiscal period), ordinary income of 2,381 million yen (an increase of
2.6% over that of the previous fiscal period), and net income of 2,380 million yen (an increase of 2.6% overthat of the previous fiscal period).

1,500

2,000
1,000
1,000

Junichi Inoue

500

0

0
4th FP(ended Oct. 2016)

5th FP(ended Apr. 2017)

6th FP(ending Oct. 2017)

7th FP(ending Apr. 2018)

4th FP(ended Oct. 2016)

5th FP(ended Apr. 2017)

6th FP(ending Oct. 2017)

7th FP(ending Apr. 2018)

ActualActualForecast

Forecast

ActualActualForecast

Forecast

Executive Director of Sekisui House Reit, Inc.
President & Representative Director of
Sekisui House Investment Advisors, Ltd.

1

I Overview of SHR

TopicsOverview of portfolio

Achievement of 200 billion yen in asset size within approximately two
years and six months since listing
2nd follow-on PO
3rd follow-on PO
SHR has conducted a public offering for the third consecutive year, and has additionally acquired two properties for21.2 billion yen with the funds procured and other source offunds. Through this, SHR’s asset size has reached 200.7 billion yen (comprising six properties) within approximately two
years and six months since its listing, enabling for steady
expansion of its asset size as well as growth in distribution
per unit and improvement in NAV per unit. Of the two properties acquired, one was SHR’s first hotel asset, allowing for
expansion of the type of assets within its portfolio.

(3 properties)
JPY 26.6 billion(2 properties)
JPY 21.2 billion

additional acquisition

hotel portion

Hommachi GC
additional acquisition

GC Shinagawa
Gotenyama(the 2nd portion acquired)

HK Yodoyabashi GA

the 1st and 2nd
portion acquired
the 3rd portion NEW
acquired
Sub-total

Acquisition Investment Appraisal
Occupancy Building
PML
Leasable area
price
ratio
value
rate
age Location value
2)(m(billion yen) (%) (billion yen)(Note1)(%)(Note2) (years)
(%)
55.6

27.7

64.5

29,235.95

4.0

2.0

4.29

2,000.39

59.6

29.7

68.79

31,236.34

Gotenyama SH Building

51.5

25.7

56.9

Hommachi Minami Garden City

23.1

11.5

office building
portion38.6

hotel portion

Garden City
Shinagawa
Gotenyama

100.0

6.3

19,999.97

100.0

6.4

27.9

16,699.46

100.0

19.2

44.6

17,006.94

17.2

8.6

17.6

18,092.98

J-4

Hommachi
Garden City

55.8

27.8

62.2

35,099.92

J-5

HK Yodoyabashi Garden Avenue

4.4

2.2

5.38

4,554.52

100.0

Hirokoji Garden Avenue

6.35

3.2

6.94

4,442.75

100.0

Total/Average

200.75100.0

228.11

112,032.96

100.0

NEW

Sub-total

J-6

100.0

Shinagawa-ku,
Tokyo

Shinagawa-ku,
Tokyo
Osaka-shi,
6.3
Osaka
7.1

Osaka-shi,
Osaka

Osaka-shi,
Osaka
Nagoya-shi,
6.2
Aichi
1.9

6.4

0.5

1.9
4.5

4.2

7.5
2.7
2.1

(Note1) Figures are appraisal values stated in the appraisal reports as of the end of the 5th FP for the assets held as of the end of the 5th FP (excluding Hommachi Garden City (office building portion)) and as of March 31, 2017 for the assets acquired in the 6th FP and Hommachi
Garden City (office building portion).
With regard to Hommachi Garden City (office building portion) and Hommachi Garden City (hotel portion), the limited market value that
includes the increased value from holding the building in its entirety, as stated in the appraisal report, is indicated.
(Note2) Occupancy rate stated above is as of May 31, 2017.

21.2

billion yen

Hommachi GC

Property name(the 3rd portion acquired)

Hirokoji GA

GC Shinagawa
Gotenyama

J-2
J-3

GC Shinagawa
Gotenyama

1st follow-on PO(1 property)
JPY 38.6 billion

PropertyNo.

J-1

Development of asset size
IPO
(3 properties)
JPY 114.3 billion

Outline of portfolio (as of June 14, 2017)(office building portion)(the 1st portion acquired)

Portfolio map
Osaka Area:Hommachi-Yodoyabashi Area

26.6

Greater Tokyo:Shinagawa Gotenyama Area

billion yen
Gotenyama SH
Building

200.7

billion yen

179.5

billion yen

J-5billion yen

38.6

HommachiMinami GC

J-2

152.9

billion yen

J-1

114.3

Acquisition Price
100.0 billion yen

Nagoya Area:Nagoya Meieki Area

billion yen

J-4

End of 1st FP
End of 2nd FP
End of 3rd FP
End of 4th FP
End of 5th FP(as of Apr. 30, 2015) (as of Oct. 31, 2015) (as of Apr. 30, 2016) (as of Oct. 31, 2016) (as of Apr. 30, 2017)

3rd follow-on PO After 3rd follow-on PO(as of June 14, 2017)(Note) “Garden City” and “Garden Avenue” are abbreviated as “GC” and “GA”, respectively.

End of 1st FP
End of 2nd FP
End of 3rd FP
End of 4th FP
End of 5th FP(as of Apr. 30, 2015) (as of Oct. 31, 2015) (as of Apr. 30, 2016) (as of Oct. 31, 2016) (as of Apr. 30, 2017)

Distribution per unit (yen)
Net Asset Value per unit (yen)
2

1,603

2,458

2,477

2,596

2,663

115,610

125,531133,030

138,885

142,888

J-3
J-6

3

I Overview of SHR

Top Interview“Achievement of JPY 200 billion in asset
size and aiming for further expansion”
SHR achieved an asset size of 200 billion yen in approximately two years and six months from the date of its
listing due to its conduct of a public offering for the third consecutive year. We asked Junichi Inoue, President &Representative Director of Sekisui House Investment Advisors, Ltd., about the third public offering, assets acquired
using the funds procured, and future growth strategies after reaching 200 billion yen in asset size.
Junichi Inoue
Executive Director of Sekisui House Reit, Inc.
President & Representative Director of
Sekisui House Investment Advisors, Ltd.

Please tell us about the public offering
conducted for the third consecutive year.
SHR was listed in December 2014 with an asset
size of 114.3 billion yen and strived to diversify its
portfolio and improve the liquidity of its investment
units through the expansion of its asset size.
In May 2017, SHR acquired assets totaling 21.2 billion
yen, comprising the hotel portion of Hommachi Garden
City (17.2 billion yen) and the third portion acquired of
Garden City Shinagawa Gotenyama (4.0 billion yen),with funds procured through the third public offering
conducted for the third consecutive year and othersources of funds. As a result, SHR achieved an asset
size of 200 billion yen in approximately two years andsix months from its listing.
In addition, SHR has achieved stable growth in its
distribution and improvement in its NAV per unit bycontinuously conducting public offering. SHR believes
that the third public offering will lead to further
improvements to unitholder value.

Please tell us why SHR acquired the hotel
asset.
”The St. Regis Osaka”, the tenant of Hommachi
Garden City (hotel portion), which was acquired
this time around, is the only hotel in Japan under
4“The St. Regis”, one of the most luxurious brands, ofMarriott International, one of the largest hotel chainsaround the world.
We believe that the brand has strong competitivenessas a hotel and has been already recognized as a topclass hotel in the Osaka area, where the number ofovernight guests is increasing against the backdropof favorable inbound tourism demand.
Furthermore, a fixed-rent type master leaseagreement has been concluded with the sponsor,
Sekisui House, for the property. Given this is a type ofagreement where Sekisui House pays rent of a fixedamount, stable revenue is secured.
In addition, performance-based rent is partiallyadopted for the property, so an increase in rent canbe expected in accordance with the performance ofthe hotel.
With this first acquisition of a hotel asset by SHR,
the asset types in the portfolio now comprises officebuildings (91.4%) and hotels (8.6%), resulting in the
expansion of the asset types, and we believe that
SHR has achieved investments in “prime properties”
in line with our portfolio development policy frombefore.

Please tell us about the future growthstrategy.
As for our future growth strategy, we will utilize thestrength of SHR by striving to manage our portfolio
based on the policy of emphasizing stability in various
aspects, including finance, and aim for an asset sizeof 300 billion yen by continuously capitalizing on
the sponsor pipeline. We will continue the policy ofmaking selective investments for property acquisitions
from third parties other than the sponsor.
We will work on expanding the asset size of SHR
while maintaining the quality of the portfolio
through selective investments in prime properties byemphasizing the quality of the properties, and thus
aim to diversify the portfolio and improve liquidityof investment units which we recognize as an issue
facing SHR.

SHR seems to be making significant strides
in its environmental considerations as well.
Most of the properties owned by SHR boast highenvironmental performance. In April 2017, Hirokoji
Garden Avenue newly obtained the rating of “4Stars” under the DBJ Green Building Certification
program, a standard to measure the building’s
environmental performance.

As five of the six properties in SHR’s portfolio havebeen graded highly, with the highest grade of“5 Stars” being given to Garden City Shinagawa
Gotenyama, and the next highest grade of “4 Stars”
being given to four other properties (Note), SHR has
achieved superior status in terms of obtaining the
DBJ Green Building Certification. SHR believes thatthe high environmental performance of its properties
represents one of SHR’s advantages when acquiringproperties developed by Sekisui House.
(Note) The certification in respect of “Hommachi Garden City” wasobtained for the office building portion, and not to the hotel
portion.

Do you have any message to theunitholders?
We will work to diversify the portfolio and improve
the liquidity of our investment units by taking
advantage of sponsor support of various kinds
from Sekisui House, continuing the management ofour portfolio with a focus on stability, and seeking
to expand our assets size while taking note of
distribution levels.
We will continuously strive to maximize unitholder
value and ask for the continued support andencouragement of unitholders.
5Feature

The St. Regis Osaka“The St. Regis Osaka,” which occupies Hommachi Garden City (hotel portion) acquired with funds procured through the third public offering and other sources offunds, is located at the center of Osaka City as one of the most luxurious brands ofMarriott International. The hotel provides an incomparable experience with exclusive, highest-quality hospitality, such as an artistic space, creative restaurants tostimulate your palate, and butler service to attend to any request from guests.

Blissful stay that satisfies the senses
Space lavishly created - that is “The St. Regis Osaka.” Eachof our guest rooms feature a residential atmosphere thatprovides superior relaxation. A Japanese garden on thelobby floor provides an impressive contrast of lush greeneryand dry garden, while the interior design of the hotel is aunique blend of Western and Japanese styles. Exceptional
experiences that appeal to your five senses await you hereat The St. Regis Osaka.

Japanese garden where thesky blends with greenery

Reception

St. Regis Garden

In a Japanese garden 50m above the ground,“St. Regis Champagne and Beer Garden Terrace”
is being held from late April to the end of September. Seat yourself in the open terrace and becharmed by the changing scenery of Osaka fromdusk to late into the night while sipping champagne and enjoying a variety of chef’s specialties.

Convenience of being located along the street of Midosuji,a base for sightseeing and business, and directly connected to “Hommachi” Station
Located right above Hommachi subway station, “The St. Regis Osaka”
is an approximate 11-minute subway ride from the Shinkansen (bullet
train) stop of “Shin-Osaka Station,”providing excellent access even to
Kyoto, Nara and Kobe, let alonesightseeing spots within Osaka City.

Executive Suite

About St. Regis Butler Service
St. Regis Butler Service has been a treasured hallmark of the St. Regis experience for over one hundred years. From a perfectly pressed suit readyfor an important meeting, to a favorite book at hand for an evening read,to a thoughtful, last minute gift for a loved one, no request is too small or
unattainable no matter what hour of the day.

6

The St. Regis Bar

Entrance

About St. Regis

The St. Regis Osaka

St. Regis is one of the most luxurious brands owned by Marriott International, one of the largest hotel chains in the world. There are a totalof 58 “The St. Regis” hotels in 24 countries around the world centeringin North America, Asia and Europe (including 17 hotels scheduled to beopened: figures as of the end of March 2017.) “The St. Regis Osaka” isthe only hotel under the brand in Japan.

AddressTEL
URL
Neareststation

3-6-12 Honmachi, Chuo-ku, Osaka,
Osaka, 541-0053, Japan(81)(6) 6258 3333
http://www.stregisosaka.co.jp/en
A short walk from Exit 7 at Hommachi Station on the Midosuji
Subway Line7

I Overview of SHR

Characteristics of SHR

Strategies of SHR

SHR is a J-REIT that has Sekisui House as its sponsor and invests in commercial prop-

SHR seeks to provide high-quality social capital and to maximize the unitholder

erties centering on office buildings

value through the 3 strategies

Asset Size

Status of Portfolio
Occupancy rate

Number ofowned properties
Aggregateacquisition pricePortfolio Quality
Average buildingage
PML value
Asset type Officebuilding
ratio(acquisition
price basis)

Hotel

6properties
200.7billion yen
6.4years
2.1%
91.4%
8.6%

Financial Base (as of June 15,2017)
LTV(total asset basis)Long-term debt
ratio
Fixed interest rate
debt ratio

40.8%
91.6%
70.2%

(as of May 31,2017)

Total appraisal
value(note)
Unrealized gain(note)

100.0%
228.1billion yen
29.4billion yen

1

55.3%

Osaka area

41.5%

Nagoya area

3.2%

All acquisitions are of recently built and high quality commercial properties developed by Sekisui House
Reducing earthquake-related risks by owning properties with high quake-resistantperformance such as having a seismically isolated mechanism, etc.

2

GrowthStrategy

Taking full advantage of versatile support by Sekisui
House

Utilization of the pipeline support agreement for property acquisition to realize
external growthCredit Rating

JCR

Investment in commercial properties focused on “strategic
locations” and “high quality”

The 6 properties owned are in strategic locations of central Tokyo, Osaka and Nagoya

Location Ratio (acquisition price basis)
Greater Tokyo

Investment
Strategy

Selecting a leasing agreement type from among a fixed-rent/pass-through typemaster lease, a direct lease, etc., in accordance with property characteristics
Entrusting Sekisui House with real estate management/operation and utilizing information network, etc. on tenant attraction

AA–(stable)(as of June 14, 2017)(Note) Total appraisal value is the sum of the appraisal values stated in the appraisal reports as of the end of the 5th FP for the assets held as of theend of the 5th FP (excluding Hommachi Garden City (office building portion)) and as of March 31, 2017 for the assets acquired in the 6th FP
and Hommachi Garden City (office building portion).
With regard to Hommachi Garden City (office building portion) and Hommachi Garden City (hotel portion), the limited market value that
includes the increased value from holding the building in its entirety, as stated in the appraisal report, is indicated.

Owned properties

3

Financial
Strategy

Stable and sound financial operations

Managing LTV (total assets basis)(ratio of interest-bearing liabilities to total
assets) at a conservative level between 40% and 50%
Promoting extension of the term of debts, diversification of dates for repayment and fixation of interest rates in order to reduce risks of fluctuation in interest
rates and refinancing risk
Obtained AA- rating (Rating Outlook: Stable) for the long-term issuer ratingfrom Japan Credit Rating Agency, Ltd. (JCR)

8

Garden City
Shinagawa
Gotenyama

Gotenyama SH
Building

HommachiMinami Garden
City

Hommachi
Garden CityHK Yodoyabashi
Hirokoji
Garden Avenue Garden Avenue

9

I Overview of SHR

Growth strategies that take full advantage of the versatile support by Sekisui House
External growth strategies: Pipeline Support by Sekisui House
Grant of preferential negotiation rights with regard to the sale of domestic real estate, etc. owned ordeveloped by Sekisui House
Provision of information on domestic real estate, etc. owned or developed by third parties
Provision of warehousing functions
Support for redevelopment of owned properties

Investment policy· Promoting continuous external growth primarily through property acquisitions from the sponsor· Investigating property acquisitions from third parties other than the sponsor, from the perspective of selective investment.
· Continuing to focus on office buildings as the main driver of external growth, while investigating the acquisition of hotels and retail properties from the perspective of expanding the scope of the portfolio· Shifting to an external growth strategy focused on domestic real estate for the time being
Track record of acquisition by utilizing the pipeline support
All 6 properties SHR has acquired since its listing are properties developed by Sekisui House.

Examples of urban redevelopment projects by Sekisui HouseInternal growth strategies: Sponsor Support by Sekisui House
Provision of property management services for owned properties
Provision of know-how and services related to operation management of highly value-added realestate possessed by Sekisui House
Upon acquiring properties in respect of which a certain period has passed since the date of construction, coordination in terms of strategies such as renovation or repairment with value enhancement,
etc. after acquisition of such properties
Investigation and discussion regarding such matters as execution of master lease agreements in formats responding to the property characteristics

Status of portfolio by types of lease agreements (leased floor area basis) (Note)
Fixed-Rent Type Master Lease

Direct Lease

Pass-ThroughType
Master Lease

74.1%

17.9%

8.0%

ensure stability

CASBEE OSAKA OF THE YEAR
2013

Governor of Osaka Award at the 14th
Osaka Machinami Award in 1994
Umeda Sky Building(Shin Umeda City) (Osaka)Completion in Mar.1993

Akasaka Garden City
(Tokyo)Completion in Jan.2006

Grand Front Osaka (Osaka)Completion in Apr.2013

SHR’s characteristics in terms of portfolio
Otemon Tower∙JX building(Tokyo)Completion in Nov.2015(Source) Sekisui House,Ltd.

Status of preferential negotiation rights held by SHR
Property Name
Garden City Shinagawa Gotenyama
Hommachi Minami Garden City

Location

Asset Type

Ratio of unacquired floor area(Note)

Shinagawa-ku, Tokyo

Office building

19.0%

Osaka-shi, Osaka

Office building

43.6%(Note) “Ratio of unacquired floor area” refers to the ratio of the floor area that SHR does not own but in respect of which it holds preferential acquisition negotiation rights in the relevant building, as against the total floor area in the relevant building that is exclusively owned, rounded
to the nearest first decimal place. Specifically, such floor area refers to the floor area which is exclusively owned and over which SHR holds
preferential acquisition negotiation rights in the Garden City Shinagawa Gotenyama and Hommachi Minami Garden City properties.

Promote external growth focused on domestic real estate, passing on
investments in overseas real estate for the time being
Since its listing, SHR has worked to expand its asset size through acquisition of domestic real estate, while
investigating investments in overseas real estate, with preferential negotiation rights granted by Sekisui
House for two of its overseas properties. Having investigated such acquisition, SHR concluded that the time
is not right to invest in overseas real estate, and a prudent stance can be adopted with respect to such investments that will operate to SHR’s benefit. Accordingly, SHR waived the preferential negotiation rights to
Sekisui House in November 2016.
Going forward, SHR will work to expand its asset size centering on domestic real estate, while keeping a
prudent stance toward investments in overseas real estate for the time being.
10

expectupside74.1% of the portfolio (ratio of lease types) (Note) adopts fixed-rent type master lease by
Characteristic Sekisui House. Rent revenue is stable over the long term, as SHR can receive predetermined1
rents from Sekisui House regardless of how the market conditions and the occupancy
status are.
Gotenyama SH Building adopts direct lease in which the property is directly leased to theCharacteristic
end-tenant. A 20-year lease agreement has been concluded with the tenant, and thus the2rent revenue is stable over the long-term.

HK Yodoyabashi Garden Avenue and Hirokoji Garden Avenue adopt pass-through typemaster lease by Sekisui House. Since SHR can receive rent which is the same amount as theCharacteristic
rent under the lease agreement concluded between Sekisui House and end-tenants, SHR
3
can benefit from rent revenue upside when the occupancy rate rises or the rent is revised
upward.
(Note) Ratio of the leased floor for each lease type under the relevant lease agreements, in respect of the properties, that are valid as of June 14,2017 (or, if a master lease agreement is concluded for the property, the master lease agreement), to the total sum of leased floor areas
indicated in such lease agreements, rounded to the nearest first decimal place. “Ratio of lease types” refers to such ratio of the leased floorarea for each lease type.

11

I Overview of SHR

Stable and sound financial operations

Introduction of portfolio
Greater Tokyo

Debt financeEnd of 4th FP(as of Oct. 31, 2016)

End of 5th FP(as of Apr. 30, 2017)

After 3rd follow-on PO(as of June 15, 2017)

77.3

77.3

84.4

LTV (total asset basis)(%)

40.8

40.8

40.8

Fixed interest rate debt ratio(%)

76.6

76.6

70.2

Long-term debt ratio(%)

100.0

100.0

91.6

0.75

0.75

0.70

4.7

4.2

3.8

Total interest-bearing liabilities(billion yen)

Average financing interest rate
(Note 1)(%)
Average remaining term ofinterest-bearing liabilities (Note 2) (years)

J-1

Additionally
Acquired in
Garden City Shinagawa Gotenyama Office building the 6th FP

Environmentally friendly maison-like office building that blends in with the townscape of abundant greenery and a long and distinguished history

Interest-bearing liabilities (excluding short-term loans) (Note 3)

Location(indication of residential address)

6-7-29 Kitashinagawa, Shinagawa-ku, Tokyo

Balance(billion yen)
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
18.11

Percentage
(%)
23.4

Acquisition Price

59.6 billion yen

Structure, Floors

RC, 9F/B1F

Sumitomo Mitsui Banking Corporation

16.16

20.9

Mizuho Bank, Ltd.

9.60

12.4

Total Floor Area

62,975.42m2

Sumitomo Mitsui Trust Bank, Limited

8.98

11.6

Leasable Area

31,236.34m2

Resona Bank, Limited

5.70

7.4

Mitsubishi UFJ Trust and Banking Corporation

4.74

6.1

Development Bank of Japan Inc.

4.02

5.2

The Norinchukin Bank

4.02

5.2

Mizuho Trust & Banking Co., Ltd.

3.97

5.1

Investment Corporation Bonds

2.00

2.6

2.6%
5.1%
5.2%
5.2%
6.1%

23.4%

Total interest-bearing

7.4%

liabilities

77.3
billion yen

20.9%

11.6%

J-2

Gotenyama SH Building

Office building

Office building located upland with high business continuity incorporating a seismically isolated device
12.4%

Diversification of repayment date (Note 3)(billion yen)

Floating interest rate borrowing

20

Fixed interest rate borrowing
Investment Corporation Bonds

15

Location(indication of residential address)

6-5-17 Kitashinagawa, Shinagawa-ku, Tokyo

Acquisition Price

51.5 billion yen

Structure, Floors

S/SRC, 7F/B1F

Total Floor Area

19,812.85m2

Leasable Area

19,999.97m2

10
5

14.0

14.0

4.05

17.0
10.0

7.0

7.1
0
2017

2018

2019

2020

2021

3.0

3.1

2022

2023

2.0
3.15

2024

2025

2026

(Note 1) “Average financing interest rate” indicates a weighted average (annual) interest rate using the balance of interest-bearing liabilities.
In respect of the interest rates of interest-bearing liabilities for which an interest rate swap was conducted, interest rates taking
into account the effect of the interest rate swap are used.
(Note 2) “Average remaining term of interest-bearing liabilities” indicates the average remaining term from respective date to maturity
dates, weighted by the balance of the respective interest-bearing liabilities.
12 (Note 3) The information is as of June 15, 2017.

13

I Overview of SHR

Introduction of portfolio
Osaka area

J-3

Osaka area

Hommachi Minami Garden City

Office building

Office building located along the Midosuji street, which is the main street in Osaka City, and is capable ofbeing a landmark in the vicinity

J-4

HK Yodoyabashi Garden Avenue

Office building

Comfortable and safe office building with strength of iron and tenderness of natural stone

Location(indication of residential address)

3-6-1 Kitakyuhojimachi, Chuo-ku, Osaka-shi,
Osaka

Location(indication of residential address)

4-3-9 Fushimimachi, Chuo-ku, Osaka-shi,
Osaka

Acquisition Price

23.1 billion yen

Acquisition Price

4.4 billion yen

Structure, Floors

S/SRC, 25F/B2F

Structure, Floors

S/SRC/RC, 13F/B2F

Total Floor Area

46,010.88m2

Total Floor Area

16,953.28m2

Leasable Area

16,699.46m2

Leasable Area

4,554.52m2

Hommachi Garden City

Office building

Hotel

Additionally
Acquired in
the 6th FP

Complex facility capable of becoming a landmark as it stands on Midosuji street and its height exceeds
the conventional height control due to application of special urban renaissance district rules

14

J-5

Nagoya area

J-6

Hirokoji Garden Avenue

Office building

Office building located in the Nagoya Meieki area, a core area in Nagoya, with an elegant exterior using
natural materials

Location(indication of residential address)

3-6-4 Hommachi, Chuo-ku, Osaka-shi, Osaka

Location(indication of residential address)

4-24-16, Meieki, Nakamura-ku, Nagoya-shi,
Aichi

Acquisition Price

55.8 billion yen

Acquisition Price

6.35 billion yen

Structure, Floors

S/SRC, 27F/B2F

Structure, Floors

S/SRC, 12F/B1F

Total Floor Area

49,163.16m2

Total Floor Area

7,017.98m2

Leasable Area

35,099.92m2

Leasable Area

4,442.75m2

15

Outline of asset management operation
1.

Developments in Asset Management in the Fiscal Period under Review(1) Brief History of the Investment Corporation
Sekisui House Reit, Inc. (“SHR”), that has as its sponsor Sekisui House, Ltd. (“Sekisui House”), one of theleading homebuilders in Japan with an established development and management track record also in theproperty development business, was established on September 8, 2014 and listed on the Tokyo Stock Exchange

Real Estate Investment Trust Section on December 3, 2014 (securities code: 3309).
SHR’s policy is to conduct asset management that seeks to secure stable earnings over the medium to long termand steady growth of its investment assets, mainly by investing in commercial properties (Note 1), in particularcommercial properties which are situated in strategic locations or are of a high quality (referred to by SHR as
prime properties) positioned as its core investment targets.
Based on the policy described above, SHR acquired three properties (with an aggregate acquisition price (Note2) of 114,300 million yen) on December 3, 2014, the day it was listed, and thereafter began managing them.
After acquiring a property (with an acquisition price of 38,600 million yen) on May 19, 2015, SHR acquired three
additional properties (with an aggregate acquisition price of 26,650 million yen; one of which is an additional
portion of a property part of which is already owned by SHR) on May 24, 2016. As of April 30, 2017 (the end of

the fiscal period under review), SHR owns six properties (with an aggregate acquisition price of 179,550 million
yen) as its investment assets.
(Note 1) “Commercial properties” refer to real estate mainly used for business purposes other than for residence, such as officebuildings, retail properties and hotels. Residential properties include student dormitories, company housing and serviced
housing for the elderly. The same shall apply hereinafter.
(Note 2) “Acquisition price” is the sale and purchase price stated in the sale and purchase agreement for each of the assets acquired(excluding consumption tax and local consumption tax, as well as commission and various other expenses; rounded down to
the nearest million yen). The same shall apply hereinafter.

(2) Management Environment and Management Performance
Management Environment

During the fiscal period under review, the Japanese economy has continued on a trend of moderate recovery,reflecting factors such as a moderate upward trend in capital expenditure amid improving corporate earnings

and the underlying firmness of private consumption backed by steady improvements in employment rates andincome levels.

In the real estate transaction market, although competition for property is beginning to be overheated, investors
continue to show a strong appetite for property acquisition against the backdrop of sustained low vacancy rates,(3) Overview of Fund Procurementa. Fund Procurement
SHR has adopted as its basic policy the conduct of stable and sound financial operations in order to secure stableearnings over the medium to long term and enhance unitholder value. During the fiscal period under review,
there has been no fund procurement in line with new acquisition of assets; and as of the end of the fiscal period
under review, unitholders’ capital is 100,040 million yen, the total number of investment units issued andoutstanding is 894,000 units and the total interest-bearing liabilities (that is, the total amount of loan,
investment corporation bonds issued and short-term investment corporation bonds issued; the same shall apply

hereinafter) is 77,300 million yen (comprising long-term loans of 75,300 million yen (of which, long-term loans of
14,000 million yen would be maturing within one year) and investment corporation bonds of 2,000 million yen).
As of the end of the fiscal period under review, the ratio of total interest-bearing liabilities to total assets (“LTV(total assets basis)”) is 40.8%.
b. Credit Rating

The following table sets forth the rating status of SHR as of the end of the fiscal period under review.
Credit Rating Agency

Rating TypeJapan Credit Rating Agency, Ltd.
(JCR)

Long-term issuer rating: AA−
Rating outlook: Stable

Japan Credit Rating Agency, Ltd.
(JCR)

Bond rating: AA−(4) Overview of Business Performance and Distributions
Results in the fiscal period under review are operating revenue of 4,144 million yen (an increase of 2.1% overthat of the previous fiscal period), operating income of 2,704 million yen (an increase of 1.5% over that of theprevious fiscal period) and ordinary income of 2,381 million yen (an increase of 2.6% over that of the previous
fiscal period), resulting in net income of 2,380 million yen (an increase of 2.6% over that of the previous fiscal
period). In addition, concerning distributions, the decision has been made to distribute the entire amount of

unappropriated retained earnings (excluding the portion in respect of which distribution per investment unit isless than 1 yen), with the intention of having the maximum amount of distribution of earnings included indeductible expenses based on the application of special tax treatment for investment corporations (Article 67-15
of the Act on Special Measures Concerning Taxation (Act No. 26 of 1957, as amended)). As a result, thedistribution per investment unit is 2,663 yen (an increase of 2.6% over that of the previous fiscal period).

a favorable financing environment and the like.
As for the office leasing market, although it is necessary to be vigilant for the development of mass supply in theTokyo area going forward, the vacancy rate is currently experiencing a moderate decline due partly to improving
corporate earnings and employment rates. Furthermore, the vacancy rates in major cities across Japan havealso continued to reflect a declining trend in general.
With regard to the environment surrounding retail properties, according to the Outlook for Economic Activity

and Prices (April 2017) released by the Bank of Japan, the sales of department stores have been picking up after
bottoming out, and although the sales of supermarkets across Japan remain flat, the sales of convenience storesare on a steady increase. In line with this, private consumption has remained solid against the backdrop of
steady improvements in employment rates and income levels. In light of these movements, demand for new
store openings has remained firm and rent levels have remained steady across the country. However, thedifference between demand and rent levels by area has become more noticeable.
Management Performance

The assets held by SHR as of the end of the fiscal period under review are six properties with an aggregateacquisition price of 179,550 million yen and total leasable area of 91,939.59m2. In addition, of the six properties,

master lease agreements with Sekisui House as lessee have been executed for five properties and a long-termlease agreement with one tenant as lessee has been executed for one property, resulting in occupancy rate as ofthe end of the fiscal period under review of 100.0%.

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2.

Status of Capital Increase, etc.

The following table sets forth the increase(/decrease) in unitholders’ capital and the total number of investment
units issued and outstanding since the establishment of SHR through to the end of the fiscal period underreview.

Date

Event

Unitholders’ capital(million yen)
Increase(Decrease)

September 8, 2014

Total number ofinvestment units
issued and outstanding(units)Private placement forincorporation

200

Balance

Increase(Decrease)

200

2,000

Note

Balance
2,000(Note 1)

December 2, 2014

Public offering

63,69063,890600,000

602,000(Note 2)

December 24, 2014

Third-party allotment

3,184

67,07430,000632,000(Note 3)

May 19, 2015

Public offering

19,67386,748154,200

786,200(Note 4)

June 12, 2015

Third-party allotment

995

87,7437,800

794,000(Note 5)

May 24, 2016

Public offering

11,70699,45095,200889,200(Note 6)

June 21, 2016

Third-party allotment

590

100,040

4,800

894,000(Note 7)(Note 1) New investment units were issued at an offer price of 100,000 yen per unit upon the establishment of SHR on September 8,
2014.
(Note 2) New investment units were issued at an offer price of 110,000 yen (with the issue price being 106,150 yen) per unit through apublic offering to procure funds for the acquisition of new properties.
(Note 3) New investment units were issued at an issue price of 106,150 yen per unit by way of third-party allotment and proceeds
thereof were intended to use to make part repayment of loans. Out of proceeds from the issuance of new investment units, aportion was allocated for partial repayment of loans and the remaining was allocated to fund part of the acquisition cost of anew property.
(Note 4) New investment units were issued at an offer price of 131,917 yen (with the issue price being 127,587 yen) per unit through apublic offering to procure funds for the acquisition of a new property.
(Note 5) New investment units were issued at an issue price of 127,587 yen per unit by way of third-party allotment and proceeds
thereof were intended to use to make part-repayment of loans or as part of future acquisition funds for specified assets.
(Note 6) New investment units were issued at an offer price of 127,140 yen (with the issue price being 122,967 yen) per unit through apublic offering to procure funds for the acquisition of new properties.
(Note 7) New investment units were issued at an issue price of 122,967 yen per unit by way of third-party allotment and proceeds
thereof were intended to use to make future part-repayment of loans or as part of future acquisition funds for specified assets.

3.

Performance of Distribution, etc.

Distribution per unit for the fiscal period under review (that is, the 5th fiscal period) is 2,663 yen. The policy is
to distribute almost the entire amount of unappropriated retained earnings with the intention of applying thespecial treatment of corporation tax under which the amount equivalent to distribution of earnings is deductible
from the taxable income of investment corporations as deductible expenses (Article 67-15 of the Act on Special

Measures Concerning Taxation).
1st fiscal period 2nd fiscal period 3rd fiscal period 4th fiscal period 5th fiscal period
From:
From:
From:
From:
From:
Sep. 8, 2014
May 1, 2015
Nov. 1, 2015
May 1, 2016
Nov. 1, 2016
Fiscal period
To:
To:
To:
To:
To:
Apr. 30, 2015
Oct. 31, 2015
Apr. 30, 2016
Oct. 31, 2016
Apr. 30, 2017
Total amount of unappropriated1,013,381

1,951,805

1,967,034

2,321,003

2,381,018

Amount of accumulated earnings(thousand yen)

285

153

296

179

296

Total amount of cash distribution(thousand yen)

1,013,096

1,951,652

1,966,738

2,320,824

2,380,722[1,603][2,458][2,477][2,596][2,663]

1,013,096

1,951,652

1,966,738

2,320,824

2,380,722[1,603][2,458][2,477][2,596][2,663]

－

－

－

－

－

[－]

[－]

[－]

[－]

[－]

－

－

－

－

－

[－]

[－]

[－]

[－]

[－]

－

－

－

－

－

[－]

[－]

[－]

[－]

[－]

retained earnings (thousand yen)[Distribution per unit] (yen)Total amount of distribution of

earnings out of the total amountof cash distribution(thousand yen)[Distribution of earnings per unit](yen)

Total amount of refund ofinvestment in capital out of thetotal amount of cash distribution(thousand yen)[Amount of refund of investment
in capital per unit] (yen)Total distribution amount fromreserve for temporary difference
adjustments out of total amountof refund of investment in capital(thousand yen)[Distribution amount fromreserve for temporary difference[Changes in Market Price of Investment Securities]
The following table sets forth the fiscal period high and low (closing price) on the Tokyo Stock Exchange Realadjustments per unit out of
amount of refund of investment

5th fiscal period
1st fiscal period
2nd fiscal period
3rd fiscal period
4th fiscal period
Fiscal period From: Sep. 8, 2014 From: May 1, 2015 From: Nov. 1, 2015 From: May 1, 2016 From: Nov. 1, 2016
To: Apr. 30, 2017
To: Apr. 30, 2015
To: Oct. 31, 2015
To: Apr. 30, 2016
To: Oct. 31, 2016

Total distribution amount from
distribution reducing unitholders’Estate Investment Trust Section on which SHR investment securities are listed.

High (yen)148,600

142,500

133,500

157,900

153,900

Low (yen)

131,700

111,400

116,700

125,800

138,000(Note)SHR investment securities were listed on the Tokyo Stock Exchange Real Estate Investment Trust Section on December 3,
2014.

in capital per unit] (yen)capital for tax purpose out of total
amount of refund of investment
in capital(thousand yen)[Distribution amount from
distribution reducing unitholders’capital for tax purpose out of
amount of refund of investment
in capital per unit]
(yen)

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4.

Future Management Policy(1) Future Trends Outlook
Looking ahead, the Japanese economy is expected to recover moderately, supported by the effects of various(3) Financial Strategy

SHR has adopted as its policy the conduct of stable and sound financial operations in order to secure stableearnings over the medium to long term and enhance unitholder value. Specifically, the policy is to form strong

economic policies, under circumstances where employment rates and income levels continue rising, according to
the Monthly Economic Report (May 2017) released by the Cabinet Office.

and stable business relationships with leading domestic financial institutions, centering on megabanks,bolstered by the creditworthiness of the sponsor Sekisui House, and also to reduce refinancing risks and risks of

On the other hand, we believe that, due to the high level of continuing uncertainties in overseas political andeconomic conditions, such as the policies of the new U.S. administration and their resulting impact on emerging

fluctuations in interest rates by exploring the extension of borrowing periods and working to diversify dates for
repayment, etc., while pursuing the optimum balance between fixed-rate and floating-rate debts.

nations, the outcomes of national elections in major European countries and the U.K.’s Brexit negotiations,fluctuations in financial and capital markets in response to these situations remain a concern.

In addition, SHR’s LTV policy (on a total assets basis) is to manage LTV at the conservative level of between
40% and 50% with attention being paid to the maintenance of funding capacity. SHR’s LTV, which was at 40.8%

In the office leasing market, although the impact of possible future mass supply in the Tokyo area requires close
attention, firm demand, backed by sustained strong corporate earnings, is expected to continue.

at the end of the previous fiscal period, remains unchanged at 40.8% at the end of the current fiscal period.
SHR’s LTV level as of the end of the current fiscal period is expected to remain unchanged even after the

As to the real estate market, although investors’ appetite for acquiring property remains generally strong, highquality properties are in short supply; accordingly, property prices are likely to remain high for the time being.

issuance of new investment units conducted in May 2017 and the like. SHR will work to diversify its sources for
direct and indirect financing, such as by issuing investment corporation bonds and the like in consideration of
the market environment, SHR’s financial standing, and other factors, as a whole, while striving to continue
stable and sound financial operations.

(2) Future Management Policy and Challenges to Address
In the next and subsequent fiscal periods, SHR will continue to focus on prime properties, commercial properties
situated in strategic locations or that are of a high quality, as its core commercial property investment targets.
By implementing growth strategies that take full advantage of the real estate development and operation

capabilities and other strengths of Sekisui House, which has established an extensive track record of developing
and operating commercial properties, SHR will, through the support of its sponsor, seek to secure stableearnings over the medium to long term and steady growth of its investment assets and thereby aim to maximize
unitholder value. Meanwhile at Sekisui House Investment Advisors, Ltd. (the “Asset Management Company”),
investment opportunities will also be explored through its own initiatives in efforts to advance portfolio
diversification.

SHR’s policy is to set as its core investment areas the Three major metropolitan areas with Three large cities,
namely the Tokyo 23 Wards, Osaka City and Nagoya City, all of which SHR has knowledge in the course ofdevelopments made by Sekisui House (Note).
SHR has executed a pipeline support agreement with Sekisui House. This agreement provides for utilization of

the urban redevelopment business track record and know-how of Sekisui House, allowing SHR to seek fromSekisui House property acquisition support for external growth (pipeline support). Specifically, such support will(a) grant to SHR preferential negotiation rights with regard to the sale of domestic real estate, etc. owned ordeveloped by Sekisui House, (b) provide SHR with information on real estate, etc. owned or developed in Japanby third parties, (c) provide SHR with warehousing functions, and (d) provide SHR with support for theredevelopment of owned properties. In addition, SHR can seek from Sekisui House (a) property management

services for owned assets, and (b) in relation to management of owned assets for internal growth, (i) technologies
and know-how that contribute to the improvement of tenant satisfaction or other factors, including energyefficiency and eco-friendliness, that contribute to the enhancement of property value, (ii) personnel support,
including provision of know-how required for the operation of SHR, and (iii) support in areas such as negotiationof master lease agreements.
By implementing growth strategies that take full advantage of the versatile support from Sekisui House forexternal growth and internal growth as described above, SHR will seek to secure stable earnings and steady
growth of its investment assets and thereby aim to maximize unitholder value.
(Note)The “Three large cities” refer to the Tokyo 23 wards, Osaka City and Nagoya City. In addition, the “Three major metropolitan
areas” refer to “Greater Tokyo,” the “Osaka area” and the “Nagoya area,” where “Greater Tokyo” refers to Tokyo, Kanagawa
Prefecture, Chiba Prefecture and Saitama Prefecture, the “Osaka area” refers to Osaka Prefecture, Kyoto Prefecture, Hyogo
Prefecture and Nara Prefecture and the “Nagoya area” refers to Aichi Prefecture. The same shall apply hereinafter.

5.

Significant Subsequent Events
Issuance of new investment units

SHR passed the following resolution concerning issuance of new investment units at a meeting of the board of
directors held on May 9, 2017. Payments for new investment units issued through a public offering and newinvestment units issued by way of third-party allotment were completed on May 24 and June 12, 2017,
respectively. As a result, unitholders’ capital is 110,189,294,000 yen and the number of investment units issued
and outstanding is 969,000 units.

i) Issuance of new investment units through public offering (primary offering)Number of investment units to be issued:
71,400 units
Offer price:
Total amount of offer price:

139,912 yen per unit
9,989,716,800 yen

Payment date:
Date of commencement of distribution calculation:

May 24, 2017
May 1, 2017

Amount to be paid in (issue price):
Total amount to be paid in (issue price):

135,320 yen per unit
9,661,848,000 yenii) Issuance of new investment units by way of third-party allotment
Number of investment units to be issued:
Amount to be paid in (issue price):

Total amount to be paid in (issue price):
Payment date:

Date of commencement of distribution calculation:
Allottee:

3,600 units
135,320 yen per unit

487,152,000 yen
June 12, 2017

May 1, 2017
Nomura Securities Co., Ltd.

iii) Use of proceeds

Proceeds from the issuance of new investment units through the public offering described above were used tofund part of the acquisition costs of Garden City Shinagawa Gotenyama (the third portion acquired) andHommachi Garden City (hotel portion) on May 24, 2017, and proceeds from the issuance of new investment
units by way of the third-party allotment described above were used for partial repayment of short-termloans accompanying the acquisition of such specified assets.

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(Reference Information)(b) Borrowing of funds

SHR borrowed the following funds on May 24, 2017 to finance its acquisition of the assets stated in “(a)Acquisition of assets” above, as well as related expenses.

(a) Acquisition of assets

The following two properties were acquired on May 24, 2017.
Property name

Garden City Shinagawa Gotenyama (the third portion acquired)

LenderLoan amount(million yen)Interest rate
(Note 1) (Note 2)(Note 3) (Note 4)

Drawdown
date

Repayment
date(Note 5)

Repayment
method(Note 6)

Remarks

Short term

The Bank of TokyoMitsubishi UFJ, Ltd.
and Sumitomo Mitsui
Banking Corporation

7,600

Base rate (JBA
1-month JPY
TIBOR) + 0.18%

May 24, 2017

May 23, 2018

Lump-sumpayment atmaturity

Unsecured
Unguaranteed(Note)

Type of asset

Trust beneficiary interests with real estate as assets in trust

Category

Office building

Acquisition price4,000 million yen

Acquisition date

May 24, 2017

SellerSekisui House, Ltd.

Location (indication of residential address)

6-7-29 Kitashinagawa, Shinagawa-ku, Tokyo

Type of ownership

Category

Land: Right of site (co-ownership interest)
Building: Sectional ownership right(Note) In respect of Garden City Shinagawa Gotenyama, SHR acquired the sectional ownership right to all the exclusively-owned
portions of the 4th, 7th and 8th floors and part of the exclusively-owned portions of the 2nd, 3rd and 6th floors of the building,
together with the accompanying right of site (ratio of right of site: 2,103,349/3,857,806 (approximately 54.5%)) on December 3,
2014. SHR also acquired the sectional ownership right to part of the exclusively-owned portions of the 2nd, 3rd, 5th and 6th
floors of the building, together with the accompanying right of site (ratio of right of site: 820,252/3,857,806 (approximately
21.3%)) on May 24, 2016. Furthermore, SHR acquired the sectional ownership right to part of the exclusively-owned portionsof the 2nd floor and all of the exclusively-owned portions of the 9th floor of Garden City Shinagawa Gotenyama, together withthe accompanying right of site (ratio of right of site: 200,039/3,857,806 (approximately 5.2%)) (hereinafter referred to as"Garden City Shinagawa Gotenyama (the third portion acquired)"), pursuant to its issuance of new investment units throughthe public offering described above.

(Note 1) Borrowing expenses, etc. payable to the lender are not included.
(Note 2) The base rate applicable to the calculation period for the interest payable on an interest payment date shall be one-month
Japanese Yen TIBOR (Tokyo Interbank Offered Rate), published by JBA TIBOR Administration, two business days prior to
the interest payment date immediately preceding the respective interest payment date. The base rate is subject to review on
every interest payment date. However, in cases where there is no rate corresponding to the interest calculation period, thebase rate shall be the base rate corresponding to the concerned period calculated based on the method provided in the contract.
(Note 3) The first interest payment date shall be June 15, 2017, and subsequent interest payment dates shall be the last day of every
month and the principal repayment date. However, if the concerned date is not a business day, then it shall be the next
business day, and if that next business day falls into the next calendar month, then it shall be the business day immediately
preceding the concerned date.
(Note 4) The first interest calculation period shall be from May 24, 2017 to June 15, 2017. The base rate corresponding to theconcerned period is 0.03000%.
(Note 5) If the concerned date is not a business day, then the repayment date shall be the next business day, and if that next business
day falls into the next calendar month, then it shall be the business day immediately preceding the concerned date.
(Note 6) During the period from the drawdown date to the repayment date, SHR may make early repayment of loans, in whole or inpart, if SHR gives prior written notice and if other certain terms and conditions are met.

(c) Issuance of investment corporation bonds
Property name

Hommachi Garden City (hotel portion) (Note)

Type of asset

Trust beneficiary interests with real estate as assets in trust

Category

Hotel

Acquisition price

17,200 million yen

Acquisition date

May 24, 2017

SellerSekisui House, Ltd.

Location (indication of residential address)

3-6-4 Hommachi, Chuo-ku, Osaka-shi, Osaka

Type of ownership

Land: Right of site (co-ownership interest)
Building: Sectional ownership right(Note) In respect of Hommachi Garden City, SHR acquired the sectional ownership right to all of the exclusively-owned portions used
as office building and retail property of the building, together with the accompanying right of site, on May 19, 2015. The ratioof the exclusively-owned area is approximately 52.7% of the exclusively-owned area of the entire building. The ratio of right ofsite is 68,645/100,000 for the office portion and 1,104/100,000 for the retail property portion (i.e., totaling 69,749/100,000 or
approximately 69.7%). Hommachi Garden City includes co-ownership interest in the common areas (such as areas containing
parking lots, the management office and the like) pursuant to the bylaws in respect of the building, but it has noaccompanying ratio of right of site.
SHR additionally acquired the sectional ownership right to all of the exclusively-owned portions of Hommachi Garden City
that are used as a hotel, as well as the accompanying right of site (hereinafter referred to as “Hommachi Garden City (hotel
portion)”), pursuant to its issuance of new investment units through the aforementioned public offering. The ratio of the
exclusively-owned area is approximately 47.3% of the exclusively-owned area of the entire building. The ratio of right of site is30,251/100,000 (approximately 30.3%).

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Based on a comprehensive resolution regarding issuance of investment corporation bonds, adopted at a
meeting of the board of directors held on February 27, 2017, SHR decided to issue investment corporation

bonds on July 7, 2017 (as described below), and payment for such corporate bonds was completed on July 13,
2017.

Name of the bonds:
Total value of bonds issued:
Interest rate:
Payment date:
Collateral and guarantee:
Redemption method anddate:
Credit rating:
Fiscal agent, issuing agent
and paying agent:
Use of proceeds:

Sekisui House Reit, Inc. Second Series Unsecured Investment Corporation Bonds(ranked pari passu with specified investment corporation bonds)(hereinafter referred to as the “Second Series Bonds”)
3 billion yen
0.240% per annum
July 13, 2017
No secured mortgage or guarantee is applicable, and no assets have been
specifically reserved as security for the Second Series Bonds.
The Second Series Bonds will be redeemed in their entirety on July 13, 2022.
The Second Series Bonds may be repurchased and cancelled at any time after thepayment date unless otherwise specified by Japan Securities Depository Center,
Incorporated or applicable laws and regulations.
AA- (Japan Credit Rating Agency, Ltd.)The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Proceeds were used for partial repayment of short-term loans accompanying theacquisition of specified assets.

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Outline of the Investment Corporation
1.

Status of Capital
Fiscal period

Total number of investment units

3.

As of end of 1st As of end of 2nd As of end of 3rd As of end of 4th As of end of 5th
fiscal period
fiscal period
fiscal period
fiscal period
fiscal period(Apr. 30, 2015) (Oct. 31, 2015) (Apr. 30, 2016) (Oct. 31, 2016) (Apr. 30, 2017)
10,000,000

10,000,000

10,000,000

10,000,000

10,000,000

Total number of investment units
issued and outstanding (units)

632,000

794,000

794,000

894,000

894,000

Unitholders’ capital (million yen)

67,07487,74387,743100,040

100,040

Number of unitholders (persons)

16,00518,08916,545

13,74912,449authorized (units)

Matters Concerning Directors, etc.

(1) The following table sets forth information on the executive director, supervisory directors and independent
auditor of SHR in the fiscal period under review.
Position
Executive
Director

Supervisory
Director

Name

Junichi Inoue

Shigeru Nomura

Tatsushi Omiya
2.

Matters Concerning Investment Units
Of the unitholders as of the end of the fiscal period under review, the following are the top ten unitholders interms of investment unitholding ratio.

Number of units
owned(units)Percentage of
owned units tototal units issued
and outstanding(%)

Japan Trustee Services Bank, Ltd. (Trust Account)

269,687

30.17

Trust & Custody Services Bank, Ltd. (Securities Investment Trust
Account)

82,226

9.20

The Master Trust Bank of Japan, Ltd. (Trust Account)

79,478

8.89

Sekisui House, Ltd.

65,200

7.29

The Nomura Trust and Banking Co., Ltd. (Investment Trust Account)

34,456

3.85

Name

STATE STREET BANK - WEST PENSION FUND CLIENTS - EXEMPT

13,848

1.55

STATE STREET BANK AND TRUST COMPANY 505012

11,368

1.27

The Hokuriku Bank, Ltd.

10,098

1.13

The Hyakujushi Bank, Ltd.

9,300

1.04

STICHTING PENSIOENFONDS METAAL EN TECHNIEK

8,117

0.91

583,77865.30

505233

Total(Note)

Percentage of owned units to total units issued and outstanding is rounded to the nearest second decimal place.

Independent
AuditorKey concurrently held position, etc.
President & Representative Director,

Director, Shigeru Nomura Certified Public

Accountant OfficeOutside Director, Eiken Chemical Co., Ltd.

1,800

Auditor, QB Net Holdings Co., Ltd.
Partner, City Law Offices

Ernst & Young
ShinNihon LLC

1,800
9,000
(Note 2)－

(Note 1) None of the executive director or supervisory directors owns SHR investment units in his own name or in the name of anotherperson. In addition, supervisory directors may be officers of other corporations other than those stated above, but none of suchcorporations, including those stated above, has vested interest in SHR.
(Note 2) The total compensation amounts stated above are approximate amounts and include compensation for auditing English
financial statements.

(2) Policy for determining whether to dismiss or refuse the Reappointment of Independent Auditor

Dismissal of the independent auditor is subject to consideration at a meeting of the board of directors of SHR inaccordance with the provisions of the Act on Investment Trusts and Investment Corporations (Act No. 198 of1951, as amended) (the “Investment Trusts Act”). Refusal of reappointment of the independent auditor is also
subject to consideration at a meeting of the board of directors of SHR by taking into account the quality of audits,amount of audit fee and various other circumstances in a comprehensive manner.
(3)

Matters concerning entities that have been ordered to suspend operations within the past two years
On December 22, 2015, SHR’s Independent Auditor received an order from the Financial Services Agency tosuspend operations relating to the conclusion of new contracts for three months (from January 1, 2016 to March
31, 2016).

4.

Asset Management Company, Asset Custodian and Administrative AgentsThe following table sets forth information on the asset management company, asset custodian andadministrative agents of SHR as of the end of the fiscal period under review.
Entrustment category

Name

Asset Management Company

Sekisui House Investment Advisors, Ltd.

Asset Custodian

Mitsubishi UFJ Trust and Banking Corporation

Administrative Agent (Transfer Agent)Mizuho Trust & Banking Co., Ltd.

Operation of Administrative Instruments)

Administrative Agent (Administrative Agent for
Investment Corporation Bonds)

22－

Sekisui House Investment Advisors, Ltd.

Administrative Agent (Administrative Agent for24

Total amount of compensationfor each position during period(thousand yen)

Mitsubishi UFJ Trust and Banking Corporation
The Bank of Tokyo-Mitsubishi UFJ, Ltd.

23

25

Condition of investment assets
1.

(Note 3) “Leased area” refers to the sum total of the leased area indicated in the respective lease agreements for each of the properties
that are valid as of the end of the fiscal period under review (or, if a pass-through type master lease agreement that is valid
as of the end of each fiscal period has been concluded for the property, the lease agreements with the respective end tenants
concluded as of the end of the fiscal period under review).
(Note 4) “Occupancy rate” refers to the ratio of leased area to leasable area of each property as of the end of the fiscal period underreview, rounded to the nearest first decimal place. The figure indicated in the total column is the occupancy rate of the entire
portfolio, which is the ratio of total leased area of each property to total leasable area of each property, rounded to the nearest
first decimal place.
(Note 5) Figures under the heading “As a percentage of total property-related operating revenue” indicate the ratio of property-related
operating revenue of each property to total property-related operating revenue, rounded to the nearest first decimal place. As
such, the sum total of the figures in respect of each property may not match the figure indicated in the column for the total.
The same shall apply hereinafter.

Composition of Assets of the Investment Corporation
The following table sets forth the composition of assets of SHR as of the end of the fiscal period under review.

Type ofasset

Geographical area,etc.

As of end of 4th fiscal period(Oct. 31, 2016)

As of end of 5th fiscal period(Apr. 30, 2017)

Total amountheld(million yen)

As a percentage
of total assets(%)

Total amountheld(million yen)

As a percentage
of total assets(%)

177,986

94.0

177,418

93.6

Other areas

－

－

－

－

Total of real estate in trust

177,986

94.0

177,418

93.6(Note 1)

Real estatein trust

Three major

metropolitan areas(Note 2)

(Note 1)

(Note 2)

Deposits and other assets

11,271

6.0

12,209

6.4

Total amount of assets

189,257

100.0

189,627100.0

3.

Details of Assets (Real Estate, etc.) in the Portfolio

The following table sets forth an overview of the assets held by SHR as of the end of the fiscal period underreview.
Name ofreal estate, etc.

Location

Type of ownership

Occupancy
rate(%)(Note 4)

As a percentage of
total property-related
operating revenue(%) (Note 5)

Main use

HK Yodoyabashi
Garden Avenue

4-3-9 Fushimimachi,
Chuo-ku, Osaka-shi, Osaka

29,235.95

100.0

29.8

Officebuilding

Hirokoji
Garden Avenue

4-24-16, Meieki, Nakamuraku, Nagoya-shi, Aichi

Real estate trust
beneficiaryinterests
Real estate trust
beneficiaryinterests
Real estate trust
beneficiaryinterests
Real estate trust
beneficiaryinterests
Real estate trust
beneficiaryinterests
Real estate trust
beneficiaryinterests－

19,999.97

100.0

26.3

Officebuilding－

19,999.97

22,591

16,699.46

16,699.46

100.0

14.2

Officebuilding

Hommachi Garden
City38,08317,006.94

17,006.94

100.0

21.8

Officebuilding

HK Yodoyabashi
Garden Avenue

4,413

4,554.52

4,554.52

100.0

3.5

Officebuilding

Hirokoji
Garden Avenue

6,349

4,442.75

4,442.75

100.0

4.5

Officebuilding

Total

177,418

91,939.59

91,939.59

100.0

100.0

－

(Note 1) “Total amount held” is the carrying amount (or, for real estate in trust, the depreciated book value) as of the end of the fiscal
period under review, rounded down to the nearest million yen.
(Note 2) Figures under the heading “As a percentage of total assets” have been rounded to the nearest first decimal place.
(Note 3) SHR does not own any overseas real estate, etc. as of the end of the fiscal period under review.

2.

Major Portfolio Assets
The following table sets forth an overview of the portfolio assets of SHR as of the end of the fiscal period underreview.

Book value(millionyen)(Note 1)

Leasablearea(m2)(Note 2)

Leasedarea(m2)(Note 3)

Garden City
Shinagawa Gotenyama

55,11629,235.95

Gotenyama SH
Building

50,862

Hommachi Minami
Garden City

Name ofreal estate, etc.

Garden City
Shinagawa Gotenyama

6-7-29 Kitashinagawa,

Gotenyama
SH Building

6-5-17 Kitashinagawa,Shinagawa-ku, Tokyo

Hommachi Minami
Garden City

3-6-1 Kitakyuhojimachi,
Chuo-ku, Osaka-shi, Osaka

Hommachi
Garden City

3-6-4 Hommachi, Chuo-ku,
Osaka-shi, Osaka

Total

Shinagawa-ku, Tokyo

Book value
at end of period(million yen)
(Note 1)

Estimated value
at end of period(million yen)
(Note 2)

55,11664,50050,862

56,90022,591

27,90038,08343,500

4,413

5,380

6,349

6,940

177,418

205,120(Note 1) “Book value at end of period” refers to the book value after depreciation of each property as of the end of the fiscal period
under review, rounded down to the nearest million yen. As such, the sum total of the figures in respect of each property may
not match the figure indicated in the column for the total.
(Note 2) “Estimated value at end of period” refers to the value stated in each real estate appraisal report (based on real estateappraisal reports prepared by Daiwa Real Estate Appraisal Co., Ltd., The Tanizawa Sōgō Appraisal Co., Ltd., Rich Appraisal
Institute Co., Ltd. and Japan Real Estate Institute with the end of the fiscal period under review as the date of valuation),rounded down to the nearest million yen.

(Note 1) “Book value” refers to the depreciated book value of each property as of the end of the fiscal period under review, rounded
down to the nearest million yen. As such, the sum total of the “book value” of each property may not match the figure
indicated in the column for the total.
(Note 2) “Leasable area” refers to the floor area available for leasing based on the lease agreement or building drawing, etc. for each
property that is valid as of the end of the fiscal period under review, rounded down to the second decimal place.

26

24

25

27

The following table sets forth the status of leasing of real estate, etc. held by SHR.
4th fiscal period
5th fiscal period
From: May 1, 2016
From: Nov. 1, 2016
To: Oct. 31, 2016
To: Apr. 30, 2017
PropertyPropertyAs a
As a
relatedrelatedpercentage Number Occupancy
percentage
Number Occupancy
operatingoperatingofrateof totalof totalofrate
revenuerevenuetenants[at end of
propertypropertytenants[at end of[during[during
Name of[at endfiscalrelatedrelated[at endfiscalfiscalfiscalreal estate, etc.
of fiscal
period]operatingoperatingof fiscal
period]period]period]period](%)
revenuerevenueperiod](%)(million(million(Note 1)
(Note 2)(%)(%)
(Note 1)
(Note 2)yen)
yen)(Note 3)(Note 3)
Garden City
Shinagawa
1
100.0
1,190
29.3
1
100.0
1,233
29.8
Gotenyama
Gotenyama SH
1
100.0
1,088
26.8
1
100.0
1,089
26.3
Building
HommachiMinami
1
100.0
586
14.5
1
100.0
586
14.2
Garden City
Hommachi
1
100.0
904
22.3
1
100.0
903
21.8
Garden CityHK
Yodoyabashi
GardenAvenueHirokoji
GardenAvenue
Total

1 (6)

98.6

130

3.2

1 (7)

100.0

145

7.

Table of Status of Contract Amount, etc. and Fair Value of Specified Transactions
The following table sets forth the status of contract amount, etc. and fair value of specified transactions at SHR
as of the end of the fiscal period under review.

Contract amount, etc.

CategoryType(thousand yen) (Note 1)
Amountdue after 1 year
Transaction other thanmarket transaction

Fair value(thousand yen)
(Note 2)

Interest rate swap transaction(Under which floating interest
rates are receivable and fixed

50,350,000

50,350,000－

interest rates are payable)(Note 1) The contract amount, etc. of interest rate swap transactions is based on notional principal amounts.
(Note 2) The fair value is omitted because the transaction meets the criteria for special accounting under the Accounting Standards for
Financial Instruments.

8.

Status of Other Assets
Trust beneficiary interests with real estate as the main assets in trust are stated in “3. Details of Assets (Real

Estate, etc.) in the Portfolio” above. As of the end of the fiscal period under review, there are no specified assets
other than real estate, etc., asset-backed securities, etc. and infrastructure assets, etc. in the portfolio.

3.5
9.

1 (9)

100.0

158

3.9

1 (9)

100.0

185

4.5

2 (15)

99.9

4,059

100.0

2 (16)

100.0

4,144

100.0

Status of Holding of Assets by Country and Region
As of the end of the fiscal period under review, there are no portfolio real estate, etc. in any other country or
region besides Japan.

(Note 1) “Number of tenants” refers to the sum total of the number of tenants under, and indicated in, the respective lease agreements
for each property that are valid as of the end of each fiscal period (or, if a master lease agreement that is valid as of the end ofeach fiscal period has been concluded for the property, the number of lessees under the master lease agreement). If a passthrough type master lease agreement that is valid as of the end of each fiscal period has been concluded for the property, thenumber of end tenants for the property is indicated in parenthesis.
In the “Total” column, a tenant that leases spaces in multiple properties is counted as one. The sum total of the number of end
tenants for properties where pass-through type master lease agreements that are valid as of the end of each fiscal period
have been concluded is indicated in parenthesis.
(Note 2) “Occupancy rate” refers to the ratio of leased area to leasable area of each property as of the end of each fiscal period, rounded
to the nearest first decimal place. The total column indicates the occupancy rate of the entire portfolio, which indicates theratio of total leased area of each property to total leasable area of each property, rounded to the nearest first decimal place.
(Note 3) “Property-related operating revenue [during fiscal period]” refers to the sum total of property-related operating revenue ineach fiscal period in respect of each property, rounded down to the nearest million yen. As such, the sum of “Property-related
operating revenue [during fiscal period]” in respect of each property may not match the figure indicated in the column for the
total.

4.

Details of Renewable Energy Power Generation Facility, etc.
Not applicable.

5.

Details of Right to Operate Public Facility, etc.
Not applicable.

6.

Details of Investment Securities
Not applicable.

28

26

27

29

Capital expenditures for property
1.

2.

set forth in the following table. Total capital expenditures during the fiscal period under review was 80 million
yen and, together with 25 million yen of repair expenses charged to expenses in the fiscal period under review,

Schedule of Capital Expenditures
The main capital expenditure amounts accompanying renovation work, etc. currently planned for assets held bywork amounting to 106 million yen was implemented.

SHR, is as follows. However, a portion of such amounts may ultimately be classified as expenses in the course of
the accounting process.
Name of real estate,etc. (location)

Scheduled amount (million yen)
(Note)
PurposeScheduled period

TotalamountGarden City
Shinagawa Gotenyama(Kitashinagawa,Shinagawa-ku, Tokyo)
Hommachi Garden

City (Chuo-ku, Osakashi, Osaka)
Garden City
Shinagawa Gotenyama(Kitashinagawa,Shinagawa-ku, Tokyo)
Hommachi Minami

Garden City (Chuo-ku,
Osaka-shi, Osaka)
Garden City
Shinagawa Gotenyama(Kitashinagawa,Shinagawa-ku, Tokyo)(Note)

28

the fiscal period
under review

Amountalreadypaid

Upgrading of integrated

From: January 2018
To: March 2018

7

－

－

Upgrading of integrated

From: September 2017
To: September 2017

6

－

－

Installation of emergency
power generators

From: December 2017
To: March 2018

Upgrading of integrated

From: January 2018

watt meters

heat meters

watt meters

Replacement of UPS for
central device forlighting control system

To: January 2018

From: June 2017
To: September 2017

Name of real estate, etc.
(location)
Hommachi Garden City
(Chuo-ku, Osaka-shi,
Osaka)HK Yodoyabashi Garden
Avenue(Chuo-ku, Osaka-shi,
Osaka)

Hommachi Garden City

5

－

－

(Chuo-ku, Osaka-shi,
Osaka)

Hommachi Minami
Garden City (Chuo-ku,
Osaka-shi, Osaka)

Garden City Shinagawa
Gotenyama
3

－

－

2

－

－

(Kitashinagawa,Shinagawa-ku, Tokyo)

Purpose

PeriodInstallation of integrated energysaving controlling equipment for

From: September 2016

Renovation of facilities, etc. in a

From: January 2017

Upgrading of integrated heat

From: March 2017

Upgrading of integrated watt

From: January 2017

Upgrading of integrated watt

From: October 2016absorption water cooling andheating devices

retail section on the 1st floor

metersmetersmetersPayment amount(million yen)

To: December 2016

To: March 2017

To: March 2017

To: February 2017

To: January 2017

21

21

11

7

7

Other capital expenditures

11

Total

80

”Scheduled amount” refers to the amount arrived at by multiplying (i) the full amount required for the work by (ii) the ratio of
SHR’s ownership in the real estate trust beneficiary interest.

30

Payment for

Capital Expenditures During Period
An overview of capital expenditures conducted by SHR for its assets during the fiscal period under review is as3.

Cash Reserves for Long-Term Repair Plans
No cash was reserved for long-term repair plans as of the end of the fiscal period under review.

29

31

Condition of expenses

Condition of investment transactions

Details of Expenses Pertaining to Management, etc.

Item
Asset management fee(Unit: thousand yen)
4th fiscal period
From: May 1, 2016
To: Oct. 31, 2016

332,503

Asset custody fee

3,159

3,520

Administrative service fees

11,217

11,820

Directors’ compensations

3,600

3,600

Other expenses

46,02635,864373,337

387,308

Total

Status, etc. of Sale and Purchase of Real Estate, etc., Asset-Backed Securities, etc., Infrastructure Assets, etc.
and Infrastructure-Related Assets
Not applicable.

5th fiscal period
From: Nov. 1, 2016
To: Apr. 30, 2017309,334(Note)

1.

2.

Status, etc. in respect of Sale and Purchase of Other Assets

Not applicable.
Main assets other than the abovementioned real estate, etc., asset-backed securities, etc., infrastructure assets,etc. and infrastructure-related assets are essentially bank deposits or bank deposits within assets in trust.

3.

Investigation into Value, etc. of Specified Assets(1) Real Estate, etc. (Appraisal)
Not applicable.

In respect of asset management fees, in addition to the amounts shown above, there are management fees for property
acquisition (amounting to 39,975 thousand yen in respect of the 4th fiscal period and not applicable in the 5th fiscal period)
included in the book value of real estate, etc.

(2) Others

Not applicable.

4.

Status of Transactions with Interested Persons, etc. (Note 1)(1) Status of Transactions
Not applicable.

(2) Amount of Commission Fee, etc. (Note 2)

Category

Management fee(Note 3)

Total amount ofcommission fee, etc.
(A)(thousand yen)
24,996

Breakdown of transactions with interested persons, etc.
Payee

Sekisui House, Ltd.

Amount paid(B)(thousand yen)

As apercentage of
total amount(B /A)(%)

24,996100.0(Note 1) “Interested persons, etc.” refers to interested persons, etc. of the asset management company with which SHR has executed an
asset management agreement as provided in Article 123 of the Order for Enforcement of the Act on Investment Trusts andInvestment Corporations (Order for Enforcement No. 480 of 2000, as amended) and Article 26, Item 27 of the Rules on
Investment Reports, etc. of Investment Trusts and Investment Corporations of The Investment Trusts Association, Japan.
(Note 2) There are no payments for repair work, etc. for orders placed to interested persons, etc. during the fiscal period under review
besides the commission fee, etc. indicated above.
(Note 3) “Management fee” has been rounded down to the nearest thousand yen.

5.

Status, etc. of Transactions with the Asset Management Company Pertaining to Business Operations ofConcurrent Business Engaged in by the Asset Management Company
There are no applicable transactions because as of the end of the fiscal period under review, the AssetManagement Company does not concurrently engage in any type I financial instruments or type II financial
instruments business (as defined in the Financial Instruments and Exchange Act), building lots and buildings
transaction business, or specified joint real estate ventures.

32

30

31

33

Other information
1.

Financial Section (Audited)

Notice(1) General Meeting of Unitholders
No general meetings of unitholders were held during the fiscal period under review.
(2) Meeting of the Board of Directors of the Investment Corporation

In the fiscal period under review, of the matters, etc. provided in Items 2, 3, 5, 6 and 8 of Article 109, Paragraph
2 of the Investment Trusts Act, there were no matters that were approved at a meeting of the board of directorsof SHR or other information that are deemed important.

2.

Handling of fractions of monetary amounts and percentage figures
Amounts have been rounded down and ratios have been rounded to the nearest specified unit unless otherwise
indicated in this document.

Contents
Financial Statements

34

32

Balance Sheet

36

Statement of Income and Retained Earnings

38

Statement of Changes in Net Assets

39

Statement of Cash Distributions

40

Statement of Cash Flows

41

Notes to Financial Statements

42

Supplementary Schedules

54

Independent Auditor’s Report58

35

(Thousands of yen)

1. Financial Statements

4th Fiscal Period(1) Balance Sheet(Thousands of yen)

4th Fiscal Period

AssetsCurrent assets
Cash and deposits
Cash and deposits in trust
Operating accounts receivable
Prepaid expenses
Deferred tax assets
Consumption taxes receivable
Other
Total current assets
Non-current assets
Property, plant and equipment
Buildings in trust
Accumulated depreciation
Buildings in trust, net
Structures in trust
Accumulated depreciation
Structures in trust, net
Machinery and equipment in trust
Accumulated depreciation
Machinery and equipment in trust, net
Tools, furniture and fixtures in trust
Accumulated depreciation
Tools, furniture and fixtures in trust, net
Land in trust
Construction in progress in trust
Total property, plant and equipment
Intangible assets
Other
Total intangible assets
Investments and other assets
Lease and guarantee deposits
Long-term prepaid expenses
Total investments and other assets
Total non-current assets
Deferred assets
Investment corporation bond issuance costs
Investment unit issuance costs
Total deferred assets
Total assets

－

36

1 －

5th Fiscal Period(As of October 31, 2016)(As of April 30, 2017)

2,537,620
7,805,438
24,252
88,117
10461,715464
10,917,618

4,115,187
7,662,531
16,70984,52316－
11,35011,890,319

53,265,090(2,038,527)
51,226,562
672,428(34,346)
638,082
411
(3)
407
996
(181)
815
126,120,644－
177,986,512

53,345,801(2,678,821)
50,666,979
672,428(43,390)629,038
411
(23)
387
1,259
(297)
961
126,120,644
9,699
177,427,710

4,617
4,617

3,882
3,882

20,181
275,627
295,808
178,286,938

20,181
239,863
260,044
177,691,637

18,38835,03253,420189,257,97817,45328,02645,479189,627,436

Liabilities
Current liabilities
Operating accounts payable
Current portion of long-term loans payable
Accounts payable – otherAccrued expenses
Income taxes payable
Accrued consumption taxes
Total current liabilities
Non-current liabilities
Investment corporation bondLong-term loans payable
Tenant leasehold and security deposits in trust
Total non-current liabilities
Total liabilities
Net assets
Unitholders’ equity
Unitholders’ capital
Surplus
Unappropriated retained earnings
Total surplus
Total unitholders’ equity
Total net assets (Note 4)
Total liabilities and net assets

5th Fiscal Period(As of October 31, 2016)(As of April 30, 2017)

143,397－
347,741
73,014815－
564,968

130,929
14,000,000
376,804
79,170938
284,571
14,872,413

2,000,000
75,300,000
9,031,712
86,331,712
86,896,680

2,000,000
61,300,000
9,033,710
72,333,710
87,206,123

100,040,294

100,040,294

2,321,003
2,321,003
102,361,297
102,361,297
189,257,978

2,381,018
2,381,018
102,421,312
102,421,312
189,627,436

The accompanying notes are an integral part of these financial statements.

－

2 －

37

(2) Statement of Income and Retained Earnings(Thousands of yen)

4th Fiscal Period

Operating revenue
Rent revenue – real estate (Note 5)
Other lease business revenue (Note 5)
Total operating revenue
Operating expenses
Expenses related to rent business (Note 5)
Asset management fee
Asset custody fee
Administrative service fees
Directors’ compensations
Other operating expenses
Total operating expenses
Operating income
Non-operating income
Interest income
Interest on refund
Subsidy income
Total non-operating income
Non-operating expenses
Interest expenses
Interest expenses on investment corporation bond
Borrowing related expenses
Amortization of investment unit issuance costs
Amortization of investment corporation bond issuance costs
Other
Total non-operating expenses
Ordinary income
Income before income taxes
Income taxes – current
Income taxes – deferred
Total income taxes
Net income
Retained earnings brought forward
Unappropriated retained earnings

5th Fiscal Period(From May1, 2016 to(From November 1, 2016 to

October 31, 2016 )April 30, 2017 )

4,032,189
27,097
4,059,286

4,121,417
22,9704,144,387

1,021,071
309,334
3,159
11,2173,600
46,026
1,394,409
2,664,877

1,053,022
332,503
3,520
11,8203,600
35,864
1,440,331
2,704,056

58
－
－
58

50
1,521
10,935
12,507283,943995
48,898
7,006
311
2,241
343,397
2,321,537
2,321,537824
6
831
2,320,706
296
2,321,003

283,125
3,383
39,818
7,006
934
515
334,784
2,381,779
2,381,779
945
(5)
940
2,380,839
179
2,381,018(3) Statement of Changes in Net Assets
4th Fiscal Period (From May 1, 2016 to October 31, 2016)(Thousands of yen)

Unitholders’ equity
Unitholders’capitalBalance at beginning of period

Total
surplusTotal
unitholders’equityTotal
net assets

1,967,034

1,967,034

89,710,628

89,710,628

12,296,700

12,296,700(1,966,738)(1,966,738)(1,966,738)(1,966,738)

Surplus
Unappropriatedretained earnings

87,743,594

Changes of items during period
Issuance of new investment units

12,296,700

Distribution from surplus
Net income
Total changes of items during period
Balance at end of period (Note 6)

2,320,706

2,320,706

2,320,706

2,320,706

12,296,700

353,968

353,968

12,650,668

12,650,668

100,040,294

2,321,003

2,321,003 102,361,297 102,361,297

5th Fiscal Period (From November 1, 2016 to April 30, 2017)(Thousands of yen)

Unitholders’ equity
Unitholders’capitalBalance at beginning of period

Surplus
Unappropriatedretained earnings

100,040,294

Total
surplusTotal
unitholders’equityTotal
net assets

2,321,003

2,321,003 102,361,297 102,361,297

Distribution from surplus(2,320,824)(2,320,824)(2,320,824)(2,320,824)

Net income

2,380,839

2,380,839

2,380,839

2,380,839－

60,01560,01560,01560,015100,040,294

2,381,018

Changes of items during period

Total changes of items during period
Balance at end of period (Note 6)

2,381,018 102,421,312 102,421,312

The accompanying notes are an integral part of these financial statements.

The accompanying notes are an integral part of these financial statements.

－

38

3 －

－

4 －

39

(4) Statement of Cash Distributions(5) Statement of Cash FlowsItem

4th Fiscal Period

5th Fiscal Period(From May 1, 2016 to(From November 1, 2016 to

October 31, 2016 )Ⅰ. Unappropriated retained earnings

2,321,003,281yen

Ⅱ. Cash distributions

2,320,824,000yen[2,596yen][Cash distributions per unit]

Ⅲ. Retained earnings carried forward
Method of calculating amount of distribution

179,281yen

April 30, 2017 )

2,381,018,583yen

2,380,722,000yen[2,663yen]
296,583yen

The basic policy is to distributein excess of an amountThe basic policy is to distributein excess of an amountfor distribution of SHR
provided in Article 67-15,

for distribution of SHR
provided in Article 67-15,

equivalent to 90% of theamount of earnings available

Paragraph 1 of the Act on
Special Measures Concerning

Taxation as set forth in Article
46, Paragraph 1, Item 2 of the
Articles of Incorporation of
SHR.
Based on such policy, SHR
decided to pay out a

distribution of earnings of
2,320,824,000 yen, which is thelargest integral multiple of thetotal number of investment
units issued and outstanding(894,000 units) in an amountnot in excess of unappropriatedretained earnings for theperiod.
SHR will not distribute cash inexcess of earnings as set forthin Article 46, Paragraph 2 of

the Articles of Incorporation ofSHR.

4th Fiscal Period

equivalent to 90% of theamount of earnings available

Paragraph 1 of the Act on
Special Measures Concerning

Taxation as set forth in Article
46, Paragraph 1, Item 2 of the
Articles of Incorporation of
SHR.
Based on such policy, SHR
decided to pay out a

distribution of earnings of
2,380,722,000 yen, which is thelargest integral multiple of thetotal number of investment
units issued and outstanding(894,000 units) in an amountnot in excess of unappropriatedretained earnings for theperiod.
SHR will not distribute cash inexcess of earnings as set forthin Article 46, Paragraph 2 of

the Articles of Incorporation of
SHR.

Cash flows from operating activities
Income before income taxes
Depreciation and amortization
Amortization of investment corporation bond issuance costs
Amortization of investment unit issuance costs
Interest income
Interest expenses
Decrease (increase) in operating accounts receivable
Decrease (increase) in consumption taxes receivable
Decrease (increase) in prepaid expenses
Decrease (increase) in long-term prepaid expenses
Increase (decrease) in operating accounts payable
Increase (decrease) in accounts payable – other
Increase (decrease) in accrued consumption taxes
Other, net
SubtotalInterest income received
Interest expenses paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities
Purchase of property, plant and equipment in trust
Proceeds from tenant leasehold and security deposits in trust
Repayments of tenant leasehold and security deposits in trust
Repayments for lease and guarantee deposits
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from short-term loans payable
Repayments of short-term loans payable
Proceeds from long-term loans payable
Proceeds from issuance of investment corporation bondProceeds from issuance of investment units
Dividends paid
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period (Note 7)(From May 1, 2016
to October 31, 2016)(Thousands of yen)

5th Fiscal Period(From November 1, 2016
to April 30, 2017)

2,321,537
648,726
311
7,006
(58)
284,939(24,252)(461,715)(5,273)(7,666)
74,61526,823(223,779)
5,869
2,647,084
58(281,834)(783)
2,364,523

2,381,779
650,209
934
7,006
(50)
286,5097,543
461,715
3,593
35,763(31,608)
26,524
284,571(10,886)
4,103,606
50(280,352)(823)
3,822,480(26,807,722)
1,228,125－(10,181)(25,589,778)(68,745)
2,177
(180)
－
(66,747)

9,200,000(9,200,000)
7,200,000
1,981,300
12,254,660(1,965,296)
19,470,663(3,754,590)
14,097,649
10,343,058

－
－
－
－
－
(2,321,072)(2,321,072)
1,434,660
10,343,058
11,777,719

The accompanying notes are an integral part of these financial statements.

－

40

5 －

－

6 －

41

(6) Notes to Financial Statements
1. Organization
Sekisui House Reit, Inc. (“SHR”) is a Japanese real estate investment corporation established in September 2014
under the Act on Investment Trusts and Investment Corporations of Japan (the “Investment Trust Act”).
On December 3, 2014, SHR commenced its investment operations when it was listed on the Real Estate Investment
Trust Securities Market of the Tokyo Stock Exchange, and it acquired three properties (total acquisition cost of¥114.3 billion) on the same day.
SHR is externally managed by a licensed asset management company, Sekisui House Investment Advisors, Ltd.
2. Basis of Presentation
SHR maintains its accounting records and prepares its financial statements in accordance with accounting
principles generally accepted in Japan (“Japanese GAAP”), including provisions set forth in the Financial
Instruments and Exchange Act, the Investment Trust Act, the Companies Act and the related regulations, which are
different in certain respects as to the application and disclosure requirements of International Financial ReportingStandards.
The accompanying financial statements are basically a translation of the financial statements of SHR, which wereprepared in accordance with Japanese GAAP and were presented in its Securities Report filed with the Kanto Local
Finance Bureau. In preparing the accompanying financial statements, certain reclassifications and modifications
have been made to the financial statements issued domestically in order to present them in a format which is morefamiliar to readers outside Japan. In addition, the notes to the financial statements include certain information
which might not be required under Japanese GAAP but is presented herein as additional information.
SHR’s fiscal period is a six-month period, which ends at the end of April and October of each year.
SHR does not prepare consolidated financial statements as it has no subsidiaries.
Unless otherwise specified, amounts have been rounded down to the nearest thousand yen in the accompanying
financial statements and the notes thereto. As a result, the amounts shown in the financial statements and notes
thereto do not necessarily agree with the sum of the individual account balances.
3. Summary of Significant Accounting Policies
1. Method of depreciation
and amortization of noncurrent assets

2. Accounting fordeferred assets

3. Standards forrevenue and expense
recognition(1)Property, plant and equipment (including assets in trust)
Depreciation is calculated using the straight-line method.
The useful lives of principal property, plant and equipment are as follows:
Buildings
8-65 years
Structures
37-40 years
Machinery and equipment
10 years
Tools, furniture and fixtures
2-6 years(2)Intangible assets
Intangible assets are amortized utilizing the straight-line method.
(3)Long-term prepaid expenses
Long-term prepaid expenses are amortized utilizing the straight-line method.
(1) Investment corporation bond issuance costs
Investment corporation bond issuance costs are amortized utilizing thestraight-line method over the redemption periods.
(2) Investment unit issuance costs
Investment unit issuance costs are amortized utilizing the straight-line
method (over 3 years).
Accounting for property taxes
In accounting for property tax, city planning tax, depreciable asset tax, etc. onreal estate, etc., of the tax amount assessed and determined, the amountcorresponding to the applicable calculation period is expensed as expenses
related to rent business.
Reimbursement of property tax, paid to the seller upon the acquisition of realestate or trust beneficiary interests of real estate as assets in trust, is notrecognized as expenses related to rent business in the corresponding fiscal
period but included in the acquisition cost of the property.
Property taxes capitalized as a part of the acquisition cost amounted to 71,558
thousand yen for the 4th fiscal period, and there were no property taxes
capitalized for the 5th fiscal period.

－

42

7 －

4. Method of hedge
accounting

5.

6.

(1)Method of hedge accounting
Deferral hedge accounting is applied. However, the special accounting
treatment is applied to interest rate swaps that meet the criteria for the
special accounting treatment.
(2)Hedging instruments and hedged items
Hedging instruments: Interest rate swap transactions
Hedged items:
Interest on loans(3)Hedging policy
SHR conducts derivative transactions for the purpose of hedging the risks set
forth in its Articles of Incorporation based on its basic risk management policy.
(4)Method for assessing the effectiveness of hedging
Interest rate swaps meet the criteria for the special accounting treatment andan assessment of the effectiveness is thus omitted.
The funds (cash and cash equivalents) in the statement of cash flows consist of cash
Scope of funds in theon hand and cash in trust; deposits that can be withdrawn at any time and deposits
statement of cash flows
in trust; and short-term investments with a maturity of three months or less fromthe date of acquisition, which are readily convertible to cash and bear only an
insignificant risk of price fluctuation.
Other significant matters (1)Accounting for trust beneficiary interests of real estate, etc. as assets in trust
serving as basis forConcerning trust beneficiary interests of real estate, etc. as assets in trust, allpreparation of
accounts of assets and liabilities within assets in trust as well as all accounts
financial statementsof revenue and expenses from the assets in trust are recognized in the relevant
account items on the balance sheet and the statement of income and retained
earnings.
The following material items of the assets in trust recognized in the relevant
account items are separately listed on the balance sheet.
1) Cash and deposits in trust2) Buildings in trust; Structures in trust; Machinery and equipment in trust;Tools, furniture and fixtures in trust; Land in trust; Construction inprogress in trust3) Tenant leasehold and security deposits in trust(2)Accounting for consumption tax, etc.
Consumption tax and local consumption tax are excluded from the correspondingtransaction amounts.

－

8 －

43

4. Notes to Balance Sheet

7. Notes to Statement of Cash Flows*1. Reconciliation of cash and cash equivalents at end of period to the corresponding balance sheet items*1. Minimum net assets designated in Article 67-4 of the Investment Trust Act(Thousands of yen)(Thousands of yen)
4th Fiscal Period(From May 1, 2016
to October 31, 2016)

5th Fiscal Period(From November 1, 2016
to April 30, 2017)

Cash and deposits

2,537,620

4,115,187

Cash and deposits in trust

7,805,438

7,662,531

Cash and cash equivalents

10,343,058

11,777,719

4th Fiscal Period(As of October 31, 2016)

5th Fiscal Period(As of April 30, 2017)

Due within 1 year

8,162,252

8,178,120

Due after 1 year

42,398,483

38,316,796

50,560,736

46,494,917

5th Fiscal Period

4th Fiscal Period(As of October 31, 2016)(As of April 30, 2017)

50,00050,0005. Notes to Statement of Income and Retained Earnings*1. Breakdown of property-related operating revenue and expenses(Thousands of yen)

4th Fiscal Period(From May 1, 2016

to October 31, 2016)

A. Property-related operating revenue
Rent revenue – real estate

5th Fiscal Period(From November 1, 2016
to April 30, 2017)

8. Lease Transactions

Operating lease transactions as lessor
Future minimum lease payments(Thousands of yen)

Rental income
Other

4,021,627
10,561Other lease business revenue
Utilities revenue
Other

21,811
5,285

Total property-related operating revenue

4,032,189

27,097

4,109,999
11,41817,447
5,522

4,059,286

B. Property-related operating expenses
Expenses related to rent business

21,686
24,404

24,77924,996

Property and other taxes
Insurance expenses

277,169
6,145

296,203
6,151

2,177
16,189Repair expenses
Depreciation

20,898647,991

Other expenses related to rent business

4,409

22,9704,144,387

Subcontract expenses
Property management fees
Trust fees
Utilities expenses

4,121,417

9. Financial Instruments
1. Status of financial instruments(1) Policy for financial instruments

2,265
18,253

1,021,071

25,632649,474
5,266

Making it a policy to conduct stable and sound financial operations that would contribute to steady growthof its investment assets as well as efficient management and stability of management, SHR shall procure
funds through borrowings or the issuance of investment corporation bonds for the purposes of utilizing
such funds for the acquisition of assets, payments of repair expenses or distributions, operations of SHR,

1,053,022

Total property-related operating expenses

1,021,071

1,053,022

C. Property-related operating income [A − B]

3,038,214

3,091,364

6. Notes to Statement of Changes in Net Assets*1. Total number of authorized investment units and total number of investment units issued
4th Fiscal Period(From May 1, 2016 to
October 31, 2016)

Total number of authorized investment units
Total number of investment units issued

Total

5th Fiscal Period(From November 1, 2016 toApril 30, 2017)

10,000,000 units

10,000,000 units

894,000 units

894,000 units

repayment of obligations or other.
For derivative transactions, the policy is that derivative transactions shall be limited to those for the

purpose of hedging the risk of fluctuations in interest rates on liabilities and foreign currency risk in thecase of overseas real estate investments, and that no speculative transactions shall be conducted.

(2) Description of financial instruments and associated risks, and risk management structure
The funds procured through borrowings shall be used mainly for the acquisition of investment assets andfor repayment of loans.
The availability and terms and conditions of borrowings and the issuance of investment corporation bonds

may be affected by SHR’s financial creditworthiness, the interest rate situation and other factors, andthere is thus no guarantee that funds can be procured at SHR’s desired timing and terms and conditions.
Furthermore, loans with floating interest rates are susceptible to subsequent market trends.
SHR manages and limits the liquidity risk and the risk of fluctuations in interest rates associated withsuch fund procurement by diversifying fund procurement sources and means and by maintaining the ratio
of interest-bearing liabilities to total assets and the ratio of floating-rate loans to total loans at appropriate
levels. Furthermore, for certain loans with floating interest rates, derivative transactions (interest rate
swap transactions) are used as a hedging instrument for hedging the risk of fluctuations in interest rates

based on rules that set forth the basic policy for handling derivative transactions and risk management.
(3) Supplementary explanation of matters concerning fair value of financial instruments

The fair value of financial instruments, aside from values based on market price, includes values based onreasonable calculations when there is no market price. As the calculations involve variable factors, there
may be cases where the corresponding values will vary when different assumptions are adopted. In
addition, the contract amounts of derivative transactions in “2. Matters concerning fair value of financial
instruments” do not represent the market risk involved in the derivative transactions.

－

44

9 －

－

10 －

45

(Note 2) Financial instruments for which fair value is recognized to be extremely difficult to determine
Tenant leasehold and security deposits in trust are not subject to valuation of fair value because a reasonable estimation of
cash flows is recognized to be extremely difficult because there is no market price and the difficulty of calculating the actual
deposit period from when lessees move in to when they move out.

2. Matters concerning fair value of financial instruments

The following is the carrying amount and fair value of financial instruments as of October 31, 2016 andApril 30, 2017, and the difference between them.
The following table does not include those for which fair value is recognized to be extremely difficult todetermine (please refer to (Note 2)).

(Thousands of yen)

4th Fiscal Period (As of October 31, 2016)
Book value
recorded on thebalance sheet(Thousands of yen)

Fair value

Difference－(2) Cash and deposits in trust

7,805,438

7,805,438－

10,343,058

10,343,058－

Cash and deposits(4) Investment corporation bond

2,000,000

1,994,000(6,000)(5) Long-term loans payable

75,300,000

77,317,266

2,017,266

77,300,000

79,311,266

2,011,266－－－(1) Cash and deposits

4,115,187(2) Cash and deposits in trust
Total assets(3) Current portion of long-term loans payable(Thousands of yen)

Fair value

Difference

4,115,187－

7,662,531

7,662,531－

11,777,719

11,777,719－

14,000,000

14,000,000－(4) Investment corporation bond

2,000,000

1,980,000(20,000)(5) Long-term loans payable

61,300,000

62,904,555

1,604,555

77,300,000

78,884,555

1,584,555－－－

Total liabilities(6) Derivative transactions(Note 1) Method of calculating the fair value of financial instruments(1) Cash and deposits and (2) Cash and deposits in trust
As these are settled within a short period of time, the fair value is approximately the same as the book value and is thusstated at that book value.
(4) Investment corporation bond
The fair value of investment corporation bond is based on the quoted market price.
(3) Current portion of long-term loans payable (5) Long-term loans payable
As the current portion of long-term loans payable and long-term loans payable with floating interest rates reflect interest ratechanges within a short period of time, the fair value is approximately the same as the book value and is thus stated at thatbook value (provided, however, that for long-term loans payable with floating interest rates that qualify for the special
accounting treatment of interest rate swaps (please refer to “11. Derivative Transactions”), the fair value is based on themethod of calculation in which the sum total amount of principal and interest accounted for with the interest rate swap is
discounted by the rate assumed in the event of a similar new drawdown). In addition, for those with fixed interest rates, thefair value is based on the method of calculation in which the sum total amount of principal and interest is discounted by therate assumed in the event of a similar new drawdown corresponding to the remaining period.
(6) Derivative transactions
Please refer to “11. Derivative Transactions”.

－

46

11 －

9,033,710(Thousands of yen)
Due after
5 years

Due in1 year or less

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years

2,537,620

－

－

－

－

－

Cash and deposits in trust

7,805,438

－

－

－

－

－

Total

10,343,058

－

－

－

－

－

Due in1 year or less

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years

Cash and deposits

4,115,187

－

－

－

－

－

Cash and deposits in trust

7,662,531

－

－

－

－

－

Total

11,777,719

－

－

－

－

－

3 to 4 years

4 to 5 years

5th Fiscal Period (As of April 30, 2017)

5th Fiscal Period (As of April 30, 2017)
Book value
recorded on thebalance sheet(As of April 30, 2017)

9,031,712

4th Fiscal Period (As of October 31, 2016)

2,537,620(6) Derivative transactions

5th Fiscal Period(Note 3) Redemption schedule of monetary claims after the closing date

2,537,620

Total liabilities(As of October 31, 2016)

Tenant leasehold and security deposits in trust(1) Cash and deposits
Total assets

4th Fiscal Period

Item(Thousands of yen)
Due after
5 years(Note 4) Repayment schedule of investment corporation bond and loans after the closing date

4th Fiscal Period (As of October 31, 2016)

Investment corporationbond

Due in1 year or less

2 to 3 years

－

－

－

－

－

2,000,000－

14,000,000－

14,000,000

11,050,000

36,250,000

Due in1 year or less

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years

14,000,000

－

－

－

－

－

－

－

－

－

－

2,000,000－－

14,000,000

11,050,000

17,000,000

19,250,000

Long-term loans payable
5th Fiscal Period (As of April 30, 2017)

Current portion of longterm loans payable
Investment corporationbondLong-term loans payable(Thousands of yen)
Due after
5 years

1 to 2 years(Thousands of yen)
Due after
5 years

10. Securities
4th Fiscal Period (From May 1, 2016 to October 31, 2016)
Not applicable.
5th Fiscal Period (From November 1, 2016 to April 30, 2017)
Not applicable.

－

12 －

47

11. Derivative Transactions
1. Derivatives to which hedge accounting is not applied
4th Fiscal Period (As of October 31, 2016)
Not applicable.

13. Income Taxes
1. Breakdown of deferred tax assets and deferred tax liabilities by major cause(Thousands of yen)

4th Fiscal Period

5th Fiscal Period (As of April 30, 2017)
Not applicable.

Interest rate swap
transaction
Floating interest ratereceivable and fixedinterest rate payable

10

16

10

16

10

16

Accrued business taxes not deductible fromTotal deferred tax assets

Net deferred tax assets

2. Breakdown of major items that caused significant differences between the statutory tax rate and the

4th Fiscal Period (As of October 31, 2016)

Specialaccounting
treatment forinterest rate
swaps

(As of April 30, 2017)

taxable income

The following is the contract amount or the amount equivalent to the principal provided in the contract asof the closing date for each method of hedge accounting.

Type ofderivative transactions(As of October 31, 2016)

Deferred tax assets

2. Derivatives to which hedge accounting is applied

Method ofhedge
accounting

5th Fiscal Period(Thousands of yen)Contract amountMain
hedgeditem

Of which,over
1 yearFair value

Calculation
method offair value

50,350,000

50,350,000*－

5th Fiscal Period (As of April 30, 2017)(Thousands of yen)Mainhedgeditem

Specialaccounting
treatment forinterest rate
swaps

Interest rate swap
transaction
Floating interest ratereceivable and fixedinterest rate payable

Long-term
loans
payable5th Fiscal Period(As of October 31, 2016)(As of April 30, 2017)

31.74

31.74

(31.73)(31.73)

0.03

0.03

0.04

0.04

Statutory tax rate
Deductible cash distribution
Other* As derivative transactions qualifying for the special accounting treatment for interest rate swaps are accounted for with the hedged
long-term loans payable, the fair value is included in the fair value of the underlying long-term loans payable (please refer to “ 9.
Financial Instruments; 2. Matters concerning fair value of financial instruments (Note 1)”).

Type ofderivative transactions(%)

4th Fiscal Period[Adjustments]

Long-term
loans
payableMethod ofhedge
accounting

effective income tax rate after application of tax-effect accounting

Contract amount

50,350,000

Of which,over
1 yearFair value

Calculation
method offair value

50,350,000*－* As derivative transactions qualifying for the special accounting treatment for interest rate swaps are accounted for with the hedged
long-term loans payable, the fair value is included in the fair value of the underlying long-term loans payable (please refer to “ 9.
Financial Instruments; 2. Matters concerning fair value of financial instruments (Note 1)”).

12. Retirement Benefits
4th Fiscal Period (From May 1, 2016 to October 31, 2016)
Not applicable.
5th Fiscal Period (From November 1, 2016 to April 30, 2017)
Not applicable.

Effective income tax rate
after application of tax-effect accounting
14. Profit or Loss of Affiliates Accounted for Under the Equity Method
4th Fiscal Period (From May 1, 2016 to October 31, 2016)
Not applicable.
5th Fiscal Period (From November 1, 2016 to April 30, 2017)
Not applicable.
15. Transactions with Related Parties
1. Parent company and major corporate unitholders.
4th Fiscal Period (From May 1, 2016 to October 31, 2016)
Not applicable.
5th Fiscal Period (From November 1, 2016 to April 30, 2017)
Not applicable.
2. Subsidiaries and affiliates.
4th Fiscal Period (From May 1, 2016 to October 31, 2016)
Not applicable.
5th Fiscal Period (From November 1, 2016 to April 30, 2017)
Not applicable.
3. Sister companies.
4th Fiscal Period (From May 1, 2016 to October 31, 2016)
Not applicable.
5th Fiscal Period (From November 1, 2016 to April 30, 2017)
Not applicable.

－

48

13 －

－

14 －

49

4. Directors and major individual unitholders.
4th Fiscal Period (From May 1, 2016 to October 31, 2016)
Type

Directoror close
relative

Name

Description ofbusiness or
occupation

JunichiInoue

Executive Directorof SHR and
Representative
Director of Sekisui
House Investment
Advisors, Ltd.

17. Investment and Rental Properties

Percentage ofvoting rights
held by (in) SHR

Description oftransaction－

Payment of asset
management fee
to Sekisui House
Investment
Advisors, Ltd.
(Note 1)

Transaction
amount(Thousands ofyen)

349,309(Note 2)

Account
item

Accounts
payable– other

Balanceat end of period(Thousands ofyen)

Description ofbusiness or
occupation

Directoror close
relative

JunichiInoue

Executive Directorof SHR and
Representative
Director of Sekisui
House Investment
Advisors, Ltd.

Percentage ofvoting rights
held by (in) SHR

Description oftransaction－

Payment of asset
management fee
to Sekisui House
Investment
Advisors, Ltd.
(Note 1)

Transaction
amount(Thousands ofyen)

332,503

Account
item

Accounts
payable– other

5th Fiscal Period (From November 1, 2016 to April 30, 2017)
Not applicable.

to October 31, 2016)

5th Fiscal Period(From November 1, 2016
to April 30, 2017)

Carrying amount

Balanceat end of period(Thousands ofyen)

359,103(Note 1) A transaction conducted by Junichi Inoue as a representative of a third party (Sekisui House Investment Advisors, Ltd.) andthe fee amount is based on terms and conditions set forth in the Articles of Incorporation of SHR.
(Note 2) Consumption taxes are not included in the transaction amount but are included in the balance at end of period.

16. Asset Retirement Obligations
4th Fiscal Period (From May 1, 2016 to October 31, 2016)
Not applicable.

(Thousands of yen)

4th Fiscal Period(From May 1, 2016

5th Fiscal Period (From November 1, 2016 to April 30, 2017)
Name

investment and rental properties.

334,080(Note 1) A transaction conducted by Junichi Inoue as a representative of a third party (Sekisui House Investment Advisors, Ltd.) andthe fee amount is based on terms and conditions set forth in the Articles of Incorporation of SHR.
(Note 2) The amount includes 39,975 thousand yen of asset management fees pertaining to real estate acquisitions included in thebook value of property, plant and equipment.
(Note 3) Consumption taxes are not included in the transaction amount but are included in the balance at end of period.

Type

SHR owns rental office buildings, etc. in Tokyo and other areas for the purpose of earning revenue from leasing.
The following is the carrying amount, amount of increase (decrease) during the period and fair value of these

Balance at beginning of period

151,817,116

177,986,512

Amount of increase (decrease) during period

26,169,395(568,501)

Balance at end of period

177,986,512

177,418,011

202,110,000

205,120,000

Fair value at end of period(Note 1) Carrying amount is the book value less accumulated depreciation.
(Note 2) Net increase during the 4th fiscal period is mainly attributable to the acquisition of new properties (26,810,379 thousandyen), offset by depreciation (647,991 thousand yen).
Net decrease during the 5th fiscal period is mainly attributable to depreciation (649,474 thousand yen).
(Note 3) Fair value at the end of the period is the appraisal value by outside real estate appraisers.

The property-related operating income in the 4th and 5th fiscal periods for investment and rental properties ispresented in “5. Notes to Statement of Income and Retained Earnings”.
18. Segment Information
1. Segment information

Segment information is omitted because SHR operates a single segment, which is the real estate leasing
business.

2. Related information
4th Fiscal Period (From May 1, 2016 to October 31, 2016)(1) Information about products and services

Information about products and services is omitted because net sales to external customers for a single
products and services category are in excess of 90% of operating revenue on the statement of income andretained earnings.
(2) Information about geographic areas
1) Operating revenue

Information about net sales is omitted because net sales to external customers in Japan are in excessof 90% of operating revenue on the statement of income and retained earnings.
2) Property, plant and equipment

Information about property, plant and equipment is omitted because the property, plant andequipment located in Japan is in excess of 90% of property, plant and equipment on the balance sheet.

(3) Information about major customers(Thousands of yen)

Name of customer

50

15 －

Name of related segment

Sekisui House, Ltd.

2,681,511

Real estate leasing businessNot disclosed (Note)

1,088,998

Real estate leasing business(Note)－

Operating revenue

The customer is a general business company in Japan, but the name is not disclosed because consent has not beenobtained from the customer. The customer is not a group company of Sekisui House, Ltd.

－

16 －

51

5th Fiscal Period (From November 1, 2016 to April 30, 2017)(1) Information about products and services
Information about products and services is omitted because net sales to external customers for a single

products and services category are in excess of 90% of operating revenue on the statement of income andretained earnings.

(2) Information about geographic areas
1) Operating revenue

Information about net sales is omitted because net sales to external customers in Japan are in excessof 90% of operating revenue on the statement of income and retained earnings.
2) Property, plant and equipment
Information about property, plant and equipment is omitted because the property, plant andequipment located in Japan is in excess of 90% of property, plant and equipment on the balance sheet.
(3) Information about major customers(Thousands of yen)

Name of customer

Operating revenue

Name of related segment

Sekisui House, Ltd.

2,724,312

Real estate leasing businessNot disclosed (Note)

1,088,998

Real estate leasing business(Note)

The customer is a general business company in Japan, but the name is not disclosed because consent has not beenobtained from the customer. The customer is not a group company of Sekisui House, Ltd.

19. Per Unit Information
4th Fiscal Period(From May 1, 2016
to October 31, 2016)

5th Fiscal Period(From November 1, 2016
to April 30, 2017)

Net assets per unit

114,498 yen

114,565yen

Net income per unit

2,634 yen

2,663 yen

(Note 1) Net income per unit is calculated by dividing net income by the daily weighted average number of investment units.
In addition, diluted net income per unit is not stated because there are no dilutive investment units.
(Note 2) The following is the basis for calculating net income per unit.

4th Fiscal Period(From May 1, 2016
to October 31, 2016)

2,380,839－－

Net income attributable to common investment units (Thousands ofyen)

2,320,706

2,380,839

880,769

894,000

－

52

17 －

of July 28, 2017, unitholders’ capital is 110,189,294,000 yen and the total number of investment units issued
and outstanding is 969,000 units.
<Issuance of new investment units through public offering (primary offering)>
Number of new investment units to be issued
Issue priceTotal amount of issue priceAmount to be paid in (issue amount): 71,400 units: 139,912 yen per unit

: 9,989,716,800 yen: 135,320 yen per unit

Total amount to be paid in (total issue amount) : 9,661,848,000 yen
Payment date
: May 24, 2017
Initial date of calculating distribution: May 1, 2017

<Issuance of new investment units by way of third-party allotment>
Number of new investment units to be issued: 3,600 units
Amount to be paid in (issued amount): 135,320 yen per unit
Total amount to be paid in (issued amount)
Payment date
Initial date of calculating distribution
Allottee: 487,152,000 yen: June 12, 2017

: May 1, 2017
: Nomura Securities Co., Ltd.

Funds procured from the above issuance of new investment units through the public offering were used topartly fund the acquisition of Garden City Shinagawa Gotenyama (the third portion acquired) and Hommachi
Garden City (hotel portion) on May 24, 2017.
Funds procured from the issuance of new investment units by way of the third-party allotment were used forpart of repayment of borrowings for the acquisition funds of those specified assets.

5th Fiscal Period

2,320,706

Average number of investment units during period (Units)

investment units with payment dates of May 24, 2017 for new investment units issued through a public
offering and on June 12, 2017 for new investment units issued by way of a third-party allotment. As a result, as(From November 1, 2016
to April 30, 2017)

Amount not attributable to common unitholders (Thousands of yen)

Net income (Thousands of yen)

20. Significant Subsequent Events
SHR resolved, at its meeting of the board of directors held on May 9, 2017, the following issuance of new

－

18 －

53

Real estate trust beneficiary interests are included above in “3. Schedule of property, plant and equipment(7) Supplementary Schedules
5th Fiscal Period (From November 1, 2016 to April 30, 2017)
1. Schedule of securities

and intangible assets”.

5. Schedule of investment corporation bond

(1) Shares

Not applicable.

Name(2) Securities other than shares
Not applicable.

First Series
September 8,
Unsecured Investment
2016
Corporation Bond

2. Contract amount and fair value of derivative transactions
Contract amount (Note 1)

Type

Transaction other thanmarket transaction

Interest rate swap transaction
Floating interest rate receivableand fixed interest rate payable

50,350,000

50,350,000

－

Total

50,350,000

50,350,000－

Investment Corporation Bond

Buildings
in trust
Structuresin trust

Amount ofdecreaseduringperiod53,265,090

80,710－672,428－－

Balanceat end ofperiodCategoryoraccumulated
amortization

For theperiodNet balanceat end ofperiodNotes

53,345,801

2,678,821

640,293

50,666,979－

672,428

43,3909,043

629,038－

Machineryandequipment in
Property,plant andequipment

411

－

411

－

23

20

387

－

trust
Tools,
furniture andfixtures in

996

262

1,259

－

297

116

961

－

trust
Land in trust

126,120,644－－

126,120,644－－

126,120,644－

Constructionin progress

－

9,699

－

90,672

－

9,699

－

180,150,244

2,722,533

－

9,699

－

177,427,710－

in trust
Subtotal
Intangible Other
assetsSubtotal
Total

180,059,571
7,350

－

3,467

735

3,882

－

－

－

7,350

3,467

735

3,882

－

180,066,921

90,672－

180,157,594

2,726,001

650,209

177,431,593

－

－

19 －

－

2,000

Redemption Use of
dateproceeds

0.340

September 8,(Note 1) Unsecured
2026

Security(Millions of yen)

1 to 2 years

2 to 3 years－－－

1,500,000

1,100,000－－

1,100,000

The Norinchukin Bank

1,500,000－－

1,500,000

Mizuho Bank, Ltd.

2,100,000－－

2,100,000

1,300,000－－

1,300,000 0.28000

1,200,000－－

1,200,000

2,100,000－－

2,100,000

Resona Bank, Limited
The Bank of TokyoMitsubishi UFJ, Ltd.
Development Bank ofJapan Inc.
The Norinchukin Bank
Mizuho Bank, Ltd.
Mizuho Trust & Banking
Co., Ltd.
Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust
Bank, Limited
Mitsubishi UFJ Trust andBanking Corporation－(Thousands of yen)

1,500,000

Mizuho Trust & Banking
Co., Ltd.
Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust
Bank, Limited
Mitsubishi UFJ Trust andBanking Corporation

4 to 5 years－

Averageinterest
Repayment Repayment Use ofrate
Security
due date
method proceeds(%)(Note 1)

Amount ofdecreaseduringperiodLender3 to 4 years－

Amount ofincreaseduringperiodResona Bank, Limited

7,350

4. Schedule of other specified assets

54

7,350

－

649,474

2,000

Balanceat beginningof period

The Bank of TokyoMitsubishi UFJ, Ltd.
Development Bank ofJapan Inc.

(Thousands of yen)
Accumulated depreciation

Long-term loans payable

Type of assets

Balanceat beginningof period

Amount ofincreaseduringperiod2,000－

6. Schedule of loans payable(Note 2) The fair value is omitted because the transaction meets the criteria for the special accounting treatment under the

3. Schedule of property, plant and equipment and intangible assets－

Due in1 year or less

(Note 1) The contract amount of interest rate swap transactions is based on the notional principal.
Accounting Standards for Financial Instruments.

2,000

Couponrate(%)(Note 1) The proceeds are used as funds for repayment of loans payable.
(Note 2) This investment corporation bond is equipped with pari passu clause among specified investment corporation bond.
(Note 3) The following is the maturity schedule of investment corporation bond within five years of the balance sheet date.

Fair value(Note 2)

Of which,over 1 year

Balance at
Amount ofBalance
beginning ofdecrease during
at end of period
periodperiod(Millions of yen)
(Millions of yen) (Millions of yen)

Total

(Thousands of yen)

Category

Issue date

Balanceat end ofperiod1,300,000－－

1,300,000

1,900,000－－

1,900,000

3,300,000－－

3,300,000

800,000－－

800,000

800,000－－

800,000

1,800,000－－

1,800,000

600,000－－

3,000,000－－

3,000,000

1,800,000－－

1,800,000

1,000,000－－

1,000,000

900,000－－

900,000－

600,000 0.65830

Nov. 30,
2017(Note 2)

Purchase UnLump-sum of assets secured
payment
andUnat maturity related guaranexpenses teedNov. 30,
2019

20 －

55

The Bank of TokyoMitsubishi UFJ, Ltd.
Development Bank ofJapan Inc.
The Norinchukin Bank
Mizuho Bank, Ltd.
Mizuho Trust & Banking
Co., Ltd.
Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust
Bank, Limited
Mitsubishi UFJ Trust andBanking Corporation
Resona Bank, Limited
The Bank of TokyoMitsubishi UFJ, Ltd.
Development Bank ofJapan Inc.

Long-term loans payable

Mizuho Bank, Ltd.
Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust
Bank, Limited
Mitsubishi UFJ Trust andBanking Corporation
The Bank of TokyoMitsubishi UFJ, Ltd.

Amount ofdecreaseduringperiod4,200,000－－

4,200,000

The Bank of TokyoMitsubishi UFJ, Ltd.

800,000－－

800,000

Mizuho Bank, Ltd.

700,000－－

700,000

2,400,000－－

2,400,000

900,000－－

3,700,000－－

3,700,000

2,000,000－－

2,000,000

900,000－－

900,000

1,400,000－－

1,400,000

4,200,000－－

4,200,000

300,000－－

300,000

700,000－－

700,000

3,700,000－－

3,700,000

700,000－－

700,000

400,000－－

400,000－

1,650,000
650,000－－

650,000

Mizuho Bank, Ltd.

950,000－－

950,000

The Bank of TokyoMitsubishi UFJ, Ltd.
Development Bank ofJapan Inc.
Mizuho Bank, Ltd.
Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust
Bank, Limited
Resona Bank, Limited(Note 1)900,000 0.94060

The Norinchukin Bank

Resona Bank, Limited

Nov. 30,
2021

Purchaseof assets
andrelatedexpenses

1.47450

Nov. 30,2024

500,000

－

－

－

－

500,000

850,000－－

850,000

200,000－－

200,000

550,000－－

550,000

1,650,000 0.62760－－

700,000 0.88470

650,000－－

650,000 0.88500

350,000－－

350,000

650,000－－

650,000

350,000－－

350,000

300,000－－

300,000

LenderAverageinterest
Repayment Repayment Use ofrate
Security
due date
method proceeds(%)

Balanceatbeginningof period

Amount ofincreaseduringperiodAmount ofdecreaseduringperiod750,000－－

750,000 1.00850

Mizuho Trust & Banking
Co., Ltd.
Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust
Bank, Limited
Mitsubishi UFJ Trust andBanking Corporation

Balanceat end ofperiod(Note 1)400,000－－

400,000

300,000－－

300,000

700,000－－

700,000

350,000－－

350,000
500,000

500,000－－

Resona Bank, Limited

100,000－－

The Bank of TokyoMitsubishi UFJ, Ltd.

1,810,000－－

Mizuho Bank, Ltd.

900,000－－

900,000

440,000－－

440,000

1,560,000－－

1,560,000

830,000－－

830,000

Resona Bank, Limited

550,000－－

550,000

Development Bank ofJapan Inc.

370,000－－

370,000

The Norinchukin Bank

370,000－－

370,000

Mizuho Trust & Banking
Co., Ltd.

370,000－－

370,000

Total

75,300,000－－

75,300,000

Mitsubishi UFJ Trust andBanking Corporation
Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust
Bank, Limited

1.01850

Nov. 30,2023

100,000
1,810,000 0.60500
Sep. 8,2026

0.67000

0.25500

Nov. 30,
2020

－

－

Lump-sumpayment
at maturity－

UnRepayme
securednt ofUnloansguaranpayable
teed

－

－

(Note 1) Average interest rate is the weighted average interest rate during the period. Interest rates are rounded to six decimal
places. The interest rates for loans hedged by interest rate swap transactions used to hedge the risk of interest rate
fluctuations are the interest rates reflecting the effect of the interest rate swaps.
(Note 2) These loans are recorded in current liabilities on the balance sheet as current portion of long-term loans payable as of theend of the 5th fiscal period.
(Note 3) The following is the maturity schedule of long-term loans within five years of the balance sheet date.

Nov. 30,
2020

Repayment ofloans
payable700,000

21 －Unsecured
Unguaranteed

Lump-sumpayment
at maturity

1,650,000 0.61760

1,650,000－

56

Balanceat end ofperiodCategory

Amount ofincreaseduringperiod－Mizuho Trust & Banking
Co., Ltd.
Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust
Bank, Limited
Mitsubishi UFJ Trust andBanking Corporation

Averageinterest
Repayment Repayment Use ofrate
Security
due date
method proceeds(%)

Balanceatbeginningof period

Long-term loans payable

Category

LenderDue in1 year or lessLong-term loans payable(Thousands of yen)
1 to 2 years

14,000,000

2 to 3 years－

14,000,000

3 to 4 years
11,050,000

4 to 5 years
17,000,000

Nov. 30,2022
0.89470

－

22 －

57

Memo

58

59