Message
to OurUnitholders
Performance in the Second Fiscal Period
First, we would like to thank you, our unitholders, for your support of Japan Excellent, Inc. (JEI)
and Japan Excellent Asset Management (JEAM).
JEI has enjoyed the robust support of our investors and related parties since listing on thereal estate investment trust market of the Tokyo Stock Exchange on June 27, 2006. This has
contributed to our steady business management and successful closing of accounts for thesecond fiscal period. The following is the management summary and accounts for the second
fiscal period (January 1 – June 30, 2007).
JEI posted revenues of 5,505 million yen, income before income taxes of 2,240 million yen, net
income of 2,239 million yen, and consequently distributed 16,614 yen per unit this fiscal period.
We also expanded our portfolio this fiscal period with the acquisition of four properties: Akasaka
Garden City, JEI Nishi-Honmachi Building, Ebina Prime Tower, and Sendai Kowa Building tosecure large buildings located in Tokyo’s city center and to execute regional diversification. These
acquisitions have polished our portfolio both in quality and balance, while at the same time havefurther enriched it. These acquisitions also demonstrated the continued active support of ourthree core sponsors with our first property to be acquired from Sekisui House Co., Ltd. for the
first time and continued acquisitions from Kowa Real Estate Co., Ltd. and
The Dai-ichi Mutual Life Insurance Company. JEI further implemented
measures to generate internal growth by increasing rental income andreducing costs, and, as a result, contributing to the increase in earnings.
On the other hand, these acquisitions financially brought the loan-to-value(LTV) of JEI to near 50%. Thus, the board of directors ratified a follow-on
public offering of 19,000 units to prepare for further property acquisitions,issuing these units after the closing of the second fiscal period (followon offering on July 12, 2007). Moreover, the raising of capital to purchase
the above four properties proceeded smoothly thanks to the cooperationof sponsor company, Mizuho Corporate Bank, and other financial
institutions.
JEI was proactive this period in garnering a rating from Rating andInvestment Information, Inc., conducted overseas IR, and hired an outside
consultant to further define and to reinforce our internal management
system and compliance structure.

Future Management of JEI and Our Portfolio
JEI follows a basic asset management policy of striving to manage aregional, property-size, and tenant-balanced portfolio, centering on officebuildings in major metropolitan areas by pursuing a balance between
steady profits and expansion, while maintaining the REIT characteristic ofsteady growth over the medium to long term.

1

Japan Excellent
Provides Excellence
through Sponsor Support anda Solid Investment Policy

Geographically, our greatest emphasis is on the so-called Six Central
Wards of Tokyo – Minato, Chuo, Chiyoda, Shinjuku, Shibuya, andShinagawa – which comprised 53% of our portfolio (acquisition base)at initial listing and 54% following our four most recent acquisitions –signifying a continued allocation of more than 50% of the portfolio.
JEI will continue to procure new properties through a core strategy ofcollaboration with sponsor companies, with the objectives of steadily
achieving external growth and maintaining our asset expansion policyin the medium to long term, within the intense property acquisition
environment that exists today. In addition to our three core sponsors
being proactive in real estate development, they are firm believers in theneed for balance sheet control, and as such, their supplying of properties
to JEI can be expected in the future. Naturally, JEI insists on maintaining
legal and regulatory compliance in any transactions with interested
parties, and has set up a decision-making process that prevents any
mispricing and unadvisable acquisitions from sponsors and other counterparties.

Following its initial establishment in February 2006, Japan Excellent, Inc. (JEI; Securities Code 8987)
listed on the Real Estate Investment Trust Market of the Tokyo Stock Exchange on June 27, 2006,
with a portfolio significantly weighted to office buildings and a clear two-pronged strategy.

1

JEI is committed to effectively applying the strengths of its respected core sponsors: Kowa
Real Estate Co., Ltd., The Dai-ichi Mutual Life Insurance Co., Ltd., and Sekisui House, Co.,
Ltd. In addition to the application of the extensive real estate expertise of these companies, JEI
has pipeline support arrangements with Kowa Real Estate Co., Ltd., Sekisui House, Ltd., andMizuho Trust & Banking Co., Ltd.

JEI will, of course, continue to proactively take steps to acquire properties
from third parties by utilizing the networks of our sponsor companies. In
fact, JEI’s portfolio of eighteen properties as of the end of the second
fiscal period shows that fifteen properties were acquired from sponsors,
two properties from third parties using sponsor networks, and one
property from another counter party.

The acquisition of three of the four excellent properties this fiscal period sums up the power ofthis support.

2

JEI is committed to securing steady earnings, investing in office buildings centeringon major metropolitan areas that include the Tokyo metropolitan area and government
ordinance designated cities.

As for management of portfolio properties, JEI emphasizes the improvement of tenantsatisfaction, and therefore we believe it is our mission to manage properties so that the buildings
are judged to be worthy of their rent levels, supporting us as we endeavor to increase rental
income and reduce costs. This includes upgrading facilities and other steps as well.
As JEI grows its portfolio, it emphasizes a financial balance between short-term and long-term
debt, and seeks to efficiently and flexibly raise capital while diversifying lenders and spreadingout repayment periods. We also plan to simultaneously pursue the fixing of interest rates onborrowings due to a need to prepare for potential hikes in interest rates in the future.
Meanwhile, JEI is now in the process of implementing measures with support of an outside
consultant regarding risk management and compliance to ensure that appropriate responses toenvironmental changes are made by JEI and JEAM. This is being done to ensure our timely andsuitable response to changes in the environment surrounding REITs, such as the environment for
acquiring properties and regarding finance, but also so that we abide with the Financial
Instruments and Exchange Law scheduled to be implemented from September 2007. In thismanner, JEI will continue to provide our investors with maximum value for their investment.

Specifically, JEI will achieve this through a strategy of balance in regions, properties, and tenants.

An External Growth Strategy Built Around Sponsors and Support
JEI is supported by a core group of sponsors and supporters that position it advantageously in thesourcing and managing of assets. The know-how and networks of these sponsors are applied toempower successful external growth through the detailed investment policy. The business of JEI’ssponsors is not only limited to real estate but also extends to the financial sector, providing the REIT
with the support necessary to secure properties as well as the power to finance them.
◆ Sendai Kowa Building (Acquisition)◆ Akasaka Garden City (Acquisition)

Japan Excellent, Inc.

Real Estate Sector
Closely related with
Mizuho Corporate Bank, Ltd

Liabilities
AssetsEquityKowa Real Estate Co., Ltd

Junichi Tamura

Sekisui House, Ltd

2nd largest insurer in Japan

Morgan Stanley Properties Japan K.K.

The Dai-ichi MutualLife Insurance Company

Executive Director, Japan Excellent, Inc.
President, Japan Excellent Asset Management Co., Ltd.

2

Sohgo Housing Co., Ltd◆ JEI Nishi-Honmachi Building (Brokerage)

One of the 3 major financialgroups in Japan
Mizuho Corporate Bank, Ltd

Leading Japanese home-builder

The Dai-ichi Building Co., Ltd

Finance Sector

One of the 3 major financialgroups in Japan
Mizuho Trust and Banking Co., Ltd

Financing for 4 property
acquisitions
Core sponsor
Pipeline Support◆
Cooperation from sponsor
companies concerning
acquiring follow-on property

Ebina Prime Tower (Acquisition) ◆Note: The new name of Morgan Stanley Properties Japan K.K. is Morgan Stanley Capital K.K. as of December 1, 2007

3

The three core sponsors are also holders of proven development, investment, andmanagement experience regarding office buildings. Their resumes are outlined below.

Kowa Real Estate Co., Ltd.
◆ Founded in 1952, Kowa Real Estate is a premierdeveloper of office and condominium properties with morethan 1,064 employees and close to 90 billion yen in annual
sales as of the end of April 2007
◆ Kowa Real Estate maintains a very close relationshipwith Mizuho Corporate Bank, Ltd.
◆ Kowa Real Estate has been involved in some ofTokyo’s representative office building projects over the
past few years such as SHINAGAWA INTERCIT Y andAKASAKA INTERCITYThe Dai-ichi Mutual Life
Insurance Company

A Portfolio of Stability and Expansion
JEI is committed to configuring a portfolio that optimally combines large- and medium-sized
offices according to a geographic allocation in order to provide investors with stable growth andmaximized user value. JEI has established a usage-based investment policy that has 90% ormore of the portfolio’s leasable area being invested in office buildings, with the remaining 10%
or less being invested in commercial, residential, and other properties.

Usage Allocation (Note 1)

Ratio in Portfolio (Note 2)

Office building

90% or more

Others (commercial facilities, residential
properties, etc.)

10% or less

Note 1. Type of usage is defined as when more than 50% of the total floor space available for rent
revenue of the asset fall under such type of usage
2. Ratio is determined using the acquisition price of assets

Geographic Breakdown of Targeted Investment Areas
and Share of Portfolio
Targeted Investment Areas◆ Founded in 1902, Dai-ichi is the second largest

insurer in Japan with total assets of 33,600 billion
yen as of the end of March 2007
◆ Dai-ichi has a robust history in leasing realestate and proactively manages its properties toensure the provision of high-quality office space◆ The representative office developments ofthe firm are Harumi Triton Square and Omori
Bellport, which are de facto benchmarks in theirrespective districts

Core Areas
Area I:

Share of Portfolio (Note 1)
80% or more

Six central wards of Tokyo – Chiyoda, Chuo,
Minato, Shinjuku, Shinagawa, and Shibuya wards

50% or more of core
areas

Central Osaka City (Umeda, Dojima,
Nakanoshima, Yodoyabashi, and Honmachi
districts, etc.)

Area II:

Central Nagoya City (Meieki, Fushimi, and Sakae
districts, etc.)

50% or less of core
area

Central Fukuoka City (Tenjin and Hakata Terminal
Peripheral districts, etc.)

Sekisui House, Ltd.
◆ Sekisui House is a leading housing developer that also

boasts a strong office and multi-use portfolio including
Rokko Island City and Akasaka Garden City
◆ In the year ending January 2007, Sekisui House enjoyed
net sales of 1,600 billion yen, operating income of 112
billion yen, and net income of 63 billion yen◆ Founded in 1960, Sekisui House built 56,578 housing
units during 2007 and has 16,664 employees as of April
1, 2007 – including 1,925 first-class registered and 2,232
second-class registered architects

4

Area III:Tokyo and surrounding area (Kanagawa, Saitama,
and Chiba Prefectures) excluding Area I

50% or less of corearea

Area IV:

Osaka, Nagoya, and Fukuoka Cities excluding Area
II and government ordinance designated cities, etc.

20% or less

Note 1. Area II includes Central Osaka City generally referred to as the area within a ten-minute walkof Osaka Station (JR), Umeda Station (Hankyu Railway, Hanshin Railway, and Osaka City
Subway), Yodoyabashi Station (Osaka City Subway) and Honmachi Station (Osaka City
Subway); Central Nagoya City is within a ten-minute walk from Nagoya Station (JR, Nagoya
City Subway, and Meitetsu Line), Fushimi Station (Nagoya City Subway), and Sakae Station(Nagoya City Subway and Meitetsu Line); and Central Fukuoka City is within a ten-minute walkfrom Hakata Station (JR and Fukuoka City Subway), Tenjin Station (Fukuoka City Subway),
and Nishitetsu Fukuoka Station (Nishitetsu Line).

5Portfolio Overview

Portfolio Map● III-4

PropertyNo.

Name

Total Floor
Area (m2)(Note 1)

Location

Acquisition Appraisal InvestPML
Price
Value
ment
Completion(mm yen) (mm yen) Ratio (%) (%)(Note 2)
(Note 3)(Note 4)(Note 5) (Note 6)

I-7 Akasaka Garden City

Akasaka, Minato Ward, Tokyo

46,776.76

Jan 2006

23,30023,30016.7

8.6

I-1 Omori Bellport D

Minami-Oi, Shinagawa Ward, Tokyo

155,778.75

Sep 1996

22,55323,23016.2

8.0

I-2 Shiba 2-Chome Building

Shiba, Minato Ward, Tokyo

19,518.15

Mar 1994

9,450

11,700

6.8

8.2

Hamamatsucho,
Minato Ward, Tokyo

8,327.53

Dec 1991

8,350

8,910

6.0

8.2

Minami-Azabu, Minato Ward, Tokyo

10,110.96

Mar 1979

5,040

5,251

3.6

13.2

Shuwa Daiichi

I-3 Hamamatsucho Building
I-4

No. 32 Kowa Building

I-5 No. 36 Kowa Building

Sanbancho, Chiyoda Ward, Tokyo

8,266.55

Sep 1982

4,000

4,189

2.9

13.2

No. 28 Kowa Building

Nishi-Gotanda, Shinagawa Ward, Tokyo

6,282.23

Feb 1975

2,859

3,050

2.1

13.5

Nishi Ward, Osaka City, Osaka

15,800.31

Feb 1988

6,674

6,770

4.8

11.5

I-6
II-2

JEI Nishi-Honmachi Building(former Nishi-Honmachi Mitsui Building)Higashi Ward, Nagoya City, Aichi
Prefecture

80,809.95

Jul 1993

4,300

5,230

3.1

11.9

III-1

Musashikosugi Tower Place

Nakahara Ward, Kawasaki City,
Kanagawa Prefecture

53,711.13

Jul 1995

13,89016,700

10.0

11.5

III-2

Kowa Kawasaki
Higashiguchi Building

Kawasaki Ward, Kawasaki City,
Kanagawa Prefecture

31,009.62

Apr 1988

10,976

11,060

7.9

6.7

III-8

Ebina Prime Tower

Chuo, Ebina City, Kanagawa Prefecture

52,733.59

May 1995

6,470

6,550

4.7

12.2

III-3

Hongo TS Building

Hongo, Bunkyo Ward, Tokyo

5,877.11

Feb 1991

5,400

5,470

3.9

14.2

III-4

Shuwa Iidabashi Building

Koraku, Bunkyo Ward, Tokyo

5,083.77

Oct 1988

4,023

4,190

2.9

12.9

III-5

Kawasaki Nisshincho Building

Kawasaki Ward, Kawasaki City,
Kanagawa Prefecture

22,141.60

Apr 1992

3,905

4,830

2.8

14.7

III-7

Ryogoku Dai-ichi Life Building

Ryogoku, Sumida Ward, Tokyo

5,820.56

Aug 1996

2,550

2,572

1.8

14.3

III-6

No. 44 Kowa Building

Higashiyama, Meguro Ward, Tokyo

3,359.55

Jul 1984

1,150

1,350

0.8

13.4

Sendai Kowa Building

Aoba Ward, Sendai City,
Miyagi Prefecture

18,564.45

Aug 1979

4,238

4,303

3.0

9.2

139,127 148,655

100.0

6.5

IV-1

Total

549,972.57

As of the end of June 30, 2007, the properties held by JEI are all office properties
Note 1. Figures for “Total Floor Area” are the respective totals for theentire building, including buildings in which JEI has acquired
sectional ownership or co-ownership.
2. Dates of “Completion” are the dates of new construction
indicated in the registry.
3. Figures for “Acquisition Price” are sales prices recorded insales agreements (excluding taxes) and have been rounded
to the nearest million yen.
4. Figures for “Appraisal Value” are the values entered in the real estate appraisals prepared by theJapan Real Estate Institute, Chuo Real Estate Appraisal Co., Ltd., and HIRO & REAS network, Inc.,
based on the Articles of Incorporation of JEI and the rules of the Investment Trusts Association. The
appraised value of real estate is only an indication of the opinion of those that conducted the valuation
for the value of the subject real estate by a real estate appraiser who conducted the appraisal inaccordance with the Law concerning Real Estate Appraisals (Law No. 152 in 1963 and ensuingrevisions), real estate appraisal standards, etc.
5. “Investment Ratio” figures show the ratio of the acquisition
price for each acquired property in proportion to the totalacquisition price for all acquired properties in the portfolio
and have been rounded to the first decimal place.
6. “PML” figures are based on the PML in the structural
condition study report including the PML calculation report.
The figures are no more than a representation of opinions
indicated in the report and JEI does not guarantee theaccuracy.

6

Area II

Area IIIArea IV

Total
75,552acquisition mm
yen
price
No. of7
properties

10,974mm yen48,364mm yen4,238
mm yen2

8

1

4,023 mm yen● III-3

5,400 mm yen● III-7

2,550 mm yen● I-5

4,000 mm yen

I-7 ●

● I-2

23,300 mm yen

Tokyo’s
six central wards
Note 1)9,450 mm yen

I-4 ●

● I-3

5,040 mm yen

8,350 mm yen

Chiba
Prefecture

III-6 ●

1,150 mm yen

NHK Nagoya
Housou-Center Building

II-1

Area I

Tokyo

I-6 ●

2,859 mm yen

I-1 ●22,553 mm yen

Kanagawa Prefecture● III-1

13,890 mm yen● III-8

6,470 mm yen

Ebina City,
Kanagawa
Prefecture● III-2

10,976 mm yen● III-5

3,905 mm yen

The map shows the successful concentration ofproperties in the six central wards of Tokyo combinedwith our regional diversification. The figures are a
representation of the acquisition prices of individual
properties or combination of properties in that area.
Note The figures indicated in mm yen have been rounded to
the nearest million yen.

Sendai City
● IV-14,238 mm yen

Osaka City
● II-2

6,674 mm yen● I-1~I-7

75,552 mm yen

III-1~III-8
Nagoya City ●48,364 mm yen● II-14,300 mm yen

7External Growth

External
Growth:Resolutely Attaining
Growth that Adheres
to Investment Policy

The external growth strategy of JEI is focused on
close collaboration with the sponsors of the asset
management company and its effective application ofstaff proprietary networks.
The asset management team has established two
specific goals for the second fiscal period:
1. Maintaining profitability while securing properties
in metropolitan areas that will act as the core of theportfolio, and 2. Regional diversification. Achieving
its carefully mapped external growth strategy withthe acquisition of four large properties in the four
investment areas designated by the J-REIT.

AREA

III-8 Ebina Prime Tower◆ A strategic acquisition realizing a more enhanced
presence in Area III of the investment strategy◆ A self-contained “city” enjoying close proximity to
Ebina Station◆ A multi-use redevelopment with office, hotel,
auditorium, and fitness center functions◆ Ebina Station provides trackage to the Odakyu
Odawara Line, Sagami Railway Line, and JR
Sagami Line

Okura
Frontier
HotelSportsClub
Renaissance

Plaza

Prime
Tower

4-15-1 Akasaka, Minato Ward, Tokyo
6,888.97m2
Site area: (co-ownership of 308,671.7536/1,000,000)
46,776.76m2
Total floor space:(co-ownership of 6,432/10,000)
Floors:19 (2 basement floors)
PML:
8.6%
Constructed:
January 31, 2006
Acquisition price:
23,300 mm yen
Annual NOI:
994 mm yen
NOI return:
4.3%
Asset form:
Trust beneficiary interest in real estate
Acquisition date:
March 28, 2007

Annex

Address:

Minato Ward Tidbit: This ward stretches

AREA

I-7

2-9-50 Chuo Ward, Ebina City,
Kanagawa Prefecture
Site area: 12,008.62m2 (JEI co-ownership portion 70/100)
52,733.59m2
Total floor space: (JEI co-ownership portion 70/100)
Main tower: 25 (1 basement
Floors:floor); fitness center: 3
PML:
12.2%
Constructed:
May 31, 1995
Acquisition price:
6,470 mm yen
Annual NOI:
494 mm yen
NOI return:
7.6%
Asset form:
Trust beneficiary interest in real estate
Acquisition date:
March 29, 2007
Address:

Akasaka Garden City

◆ Located in the central area of Akasaka, withexcellent access to three subway stations:Akasaka-Mitsuke, Akasaka, and Aoyama-Itchome◆ Extremely close proximity to embassies, leading
corporate offices, and central governmental institutions◆ A new landmark property enriching the quality andsize of the JEI portfolio◆ Boasts an excellent environment bordering theImperial Garden◆ A cutting-edge building with a ceiling height of
2,800mm and windows on three sides further
increasing the sense of openness

8

to East Shinagawa and Odaiba along the water front
and is in the midst of a massive developmental
transformation. It is one of the most international
areas in Japan and is also known for a daytime
population that far exceeds its nighttime population.
The ward has a population of 176,781 (as of January 1,2006), and a foreigner population of 19,920 as of thesame date - a substantial share of the total population.
It has 38,424 offices and a day time working
population of 778,174 people (as of March 27, 2007).
This ward also features the benchmark Roppongi
Hills and Tokyo Midtown developments along withits many embassies and government oﬃces.

Ebina Tidbit:

This city is an integral part of
the Tokyo metropolitan area. Boasting excellent
access to both Tokyo and Yokohama by train andexpressway. The city has a population of 125,821
people (as of October 1, 2007), and has leading
factories and an industrial park of the Tokyo
metropolitan area.

9External Growth

External Growth

Sendai Tidbit: T h i scentral economic andgovernmental city within
the Tohoku region is a
dynamic city with morethan 1 million people,
a gateway to Northern
Japan, and home to leading
medical and national
universities.
The city boasts a vibrantsports and entertainment
scene with professional
baseball and soccer teams,
and a rich cultural history
being home to one of themost famous summer
festivals of Japan.

AREA

II-2

JEI Nishi-Honmachi Building◆ This property enjoys excellent access being
a 2-minute walk to Honmachi Station on the
Yotsubashi Line◆ Proof of a strong proprietary property sourcing
network extending beyond its sponsors
2-4-1 Ichibancho, Aoba Ward,
Sendai City, Miyagi Prefecture
Site area:
2,715.39m2 (co-ownership 85.244/100)
Total floor space: 18,564.45m2 (co-ownership 88.094/100)
Floors:15 (2 basement floors)
PML:
9.2%
Constructed:
August 20, 1979
Acquisition price:
4,238 mm yen
Annual NOI:
342 mm yen
NOI return:
8.1%
Asset form:
Trust beneficiary interest in real estate
Acquisition date:
April 24, 2007

◆ An expansive feeling achieved with more than
1,000m2 floor plates on each floor◆ Partitionable floors and air-conditioning controls
allow for each floor to be lent to up to ten different
tenants

Address:
AREA

IV-1 Sendai Kowa Building◆ An excellent building location in central Sendai
amidst commercial and governmental facilities◆ A key example of the portfolio’s geographicaldiversification strategy◆ Proof positive of the strong property pipeline
through the asset manager’s sponsors◆ An 8-minute walk from Sendai Station, a key
Shinkansen and terminal station

10

Address:
1-3-15 Awaza, Nishi Ward, Osaka City
Site area:
1,970.44m2
Total floor space:
15,800.31m2
Floors:11 (1 basement floor)
PML:
11.5%
Constructed:
February 19, 1988
Acquisition price:
6,674 mm yen
Annual NOI:
455 mm yen
NOI return:
6.8%
Asset form:
Trust beneficiary interest in real estate
Acquisition date:
March 28, 2007

Osaka Tidbit: Osaka City, (located in the
2nd largest economically developed area in Japan,
the Kansai Area) nucleus to the identically named
prefecture, is home to 2,643,805 people (as of
October 1, 2007) and has 11,903 people per km2.
The city has historically been known for its savvy
merchants. The city has 59,581 companies as of
October 1, 2006 and is home to the globally leading
corporate groups of Panasonic, Sumitomo, andSharp.

11

AREA

AREA

I-2

I-3

Shuwa Daiichi
Hamamatsucho
Building

Shiba 2-Chome
Building◆ A 2-minute walk from
Shiba-Koen Station,
a 7-minute ride to the
Marunouchi CBD◆ This property lies
adjacent to Shiba Koen,
one of the oldest parks in
Japan

AREA

I-1

◆ This property boasts excellent access to two key
Shinkansen stations - Shinagawa and Tokyo◆ This property is one of the core buildings in thelandmark Bellport development of The Dai-ichi
Mutual Life Insurance Company

Portfolio
Profile:II-1

Address: 2-2-12 Hamamatsucho, Minato Ward, Tokyo
Site area: 1,102.48m2 (of which, 387.85m2 is leasehold land)
Total floor space:
8,327.53m2
Floors:8 (1 basement floor)
PML:
8.2%
Constructed:
December 16, 1991
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
5.0%

Address:
2-6-1 Shiba, Minato Ward, Tokyo
Site area:
3,355.00m2
Total floor space:
19,518.15m2
Floors:12 (2 basement floors); residential: 14
PML:
8.2%
Constructed:
March 17, 1994
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
6.3%

AREA

Address: 6-26-3 Minami-Oi, Shinagawa Ward, Tokyo
Site area:
22,294.51m2
Total floor space:155,778.75m2
Floors:17 (3 basement floors)
PML:
8.0%
Constructed:
September 24, 1996
Asset form: Trust beneficiary interests in real estate
Share of total rental income:
18.9%

A Presentation of
the Portfolio fromthe 1st Fiscal Period

AREA

Omori Bellport D◆ A 4-minute walkfrom Hamamatsucho
Station, a 20-minuteride to the Tokyo
International Airport◆ This property is in close
proximity to the vibrant emerging community of Shiodome

AREA

I-4

I-5

No. 36 Kowa
Building

No. 32 Kowa
Building◆ Located 1/4 mile fromthe Imperial Palaceand lies amidst
universities andembassies◆ This property is
6 minutes by subway
from Marunouchi CBD◆ A 3-minute walkfrom Hiroo Station◆ This property issurrounded byembassies andprestigious private
schools

Address:
5-19, Sanbancho Chiyoda Ward, Tokyo
Site area:
1,988.49m2
Total floor space:
8,266.55m2
Floors:7 (1 basement floor)
PML:
13.2%
Constructed:
September 30, 1982
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:(Note 1)

Address:
5-2-32 Minami-Azabu, Minato Ward, Tokyo
Site area:
2,592.39m2
Total floor space:
10,110.96m2
Floors:9 (1 basement floor)
PML:
13.2%
Constructed:
March 19, 1979
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
4.3%

NHK Nagoya
Housou-Center Building

Note 1. There are no disclosures for these properties due to the end tenants’ rejection of granting the right todisclose for the corresponding figures.

◆ This property is located in the most vibrantcommercial area in Nagoya◆ A 4-minute walk to Nagoya Station
1-13-3 Higashisakura, Higashi Ward,
Nagoya City, Aichi Prefecture
Site area:
7,927.36m2
Total floor space:
80,809.95m2
Floors:22 (4 basement floors)
PML:
11.9%
Constructed:
July 3, 1991
Asset form:
Real estate
Share of total rental income:
6.3%
Address:

Portfolio at End ofFirst Fiscal Period

Assets Acquired in
Second Fiscal Period (Note 1)

Portfolio at End of
Second Fiscal Period

Portfolio: 14 properties
Acquired amount: 98,446 mm yen

Portfolio: 4 properties
Acquired amount: 40,682 mm yen

Portfolio: 18 properties
Acquired amount: 139,127 mm yen

Investment
Area
Area I
Area II
Area IIIArea IV

10.4%
42.6%

3.0%
15.9%

34.8%
54.3%

57.3%

53.1%
16.4%
4.4%

7.9%

Note 1. The percentage breakdowns for the Investment Area, Property Size, and Age are all based on the acquisition price.

12

13

Portfolio Profile
AREA

I-6

◆ This property isimmediately in front ofMusashi-Kosugi Station
which has trackages for
3 railway lines and easy
access to Yokohama,
Kawasaki, and Tokyo◆ A 3-minute walk from
Gotanda Station on
the Yamanote Line

1-403 Kosugimachi, Nakahara Ward,
Kawasaki City, Kanagawa Prefecture

Address:

Address: 2-20-1 Nishi Gotanda, Shinagawa Ward, Tokyo
Site area:
925.13m2
Total floor space:
6,282.23m2
Floors:10 (1 basement floor)
PML:
13.5%
Constructed:
February 21, 1975
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
2.8%

Site area:
8,329.62m2
Total floor space:
53,711.13m2
Floors:23 (2 basement floors)
PML:
11.5%
Constructed:
July 15, 1995
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
14.3%

AREA

◆ This property enjoys
phenomenal accessto both Shinjuku andMarunouchi CBD◆ Located in the Iidabashi
district, which is fast
evolving into a very
competitive district of
central Tokyo◆ This property is close
to Kawasaki Station,
20 minutes from Tokyo
Station◆ This property is a part of
the quickly transforming
commercial area of
Kawasaki

1-53 Nisshincho, Kawasaki Ward,
Kawasaki City, Kanagawa Prefecture

AREA

III-7

Ryogoku
Dai-ichi Life
Building◆ An 8-minute walk fromNakameguro Station,
located on the popular
Yamate-Dori Ave.
◆ Close to an enormous
development projectthat is expected togreatly raise the intrinsic
value of the area

Address:
2-38-16 Hongo, Bunkyo Ward, Tokyo
Site area:
984.89m2
Total floor space:
5,877.11m2
Floors:8 (1 basement floor)
PML:
14.2%
Constructed:
February 6, 1991
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
3.2%

Site area:
1,652.89m2
Total floor space:
31,009.62m2
Floors:21 (3 basement floors)
PML:
6.7%
Constructed:
April 30, 1988
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:(Note 1)Site area:
3,673.94m2
Total floor space:
22,141.60m2
Floors:15 (2 basement floors)
PML:
14.7%
Constructed:
April 24, 1992
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
3.8%

III-6

◆This property lies inclose proximity to
Hongo-sanchome
Station, a 7-minuteride from Tokyo
Station

7-1 Nisshincho, Kawasaki Ward,
Kawasaki City, Kanagawa Prefecture

Address:

Address:
2-3-19 Koraku, Bunkyo Ward, Tokyo
Site area:
904.38m2
Total floor space:
5,083.77m2
Floors:8 (1 basement floor)
PML:
12.9%
Constructed:
October 31, 1988
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:(P.13, Note 1)

No. 44
Kowa Building

Hongo
TS Building◆ A 2-minute walk from
Kawasaki Station◆ This property is locatedin a rapidly metamorphosing district of the Tokyo
metropolitan area

◆ This property is
located in front of
Ryogoku Station◆ This property is in the
Ryogoku area, home to
the renowned Kokugikan
sumo stadium

Address:
1-2-7 Higashiyama, Meguro Ward, Tokyo
Site area:
699.87m2
Total floor space:
3,359.55m2
Floors:
9
PML:
13.4%
Constructed:
July 31, 1984
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
1.6%

Address:
3-25-5 Ryogoku, Sumida Ward, Tokyo
Site area:
968.33m2
Total floor space:
5,820.56m2
Floors:11 (2 basement floors)
PML:
14.3%
Constructed:
August 8, 1996
Asset form:
Trust beneficiary interests in real estate
Share of total rental income:
2.1%

Portfolio at End ofFirst Fiscal Period

Assets Acquired in
Second Fiscal Period

Portfolio at End of
Second Fiscal Period

Portfolio at End ofFirst Fiscal Period

Assets Acquired in
Second Fiscal Period

Portfolio at End of
Second Fiscal Period

Portfolio: 14 properties

Portfolio: 4 properties

Portfolio: 18 properties

Portfolio: 14 properties

Portfolio: 4 properties

Portfolio: 18 properties

Property size
Large building

KawasakiNisshin-cho Building

AREA

III-3

Kowa Kawasaki
Higashiguchi
Building

III-5

Shuwa
Iidabashi Building

AREA

III-2

AREA

III-4

Musashikosugi
Tower Place

No. 28 Kowa
Building

Address:

AREA

III-1

AREA

Age
43.5%

56.5%

100%

2.1%
10.4%

10.4%

16.7%

Less than 10 years

30.8%
69.2%

Medium-sizedbuilding

Note 1. The investment corporation defines “large buildings” in the 23 wards of Tokyo as buildings with a total floor area of 10,000 tsubo
or more, and medium-size buildings as buildings with a total floor space of more than 1,000 tsubo but less than 10,000 tsubo.
Large buildings outside of Tokyo’s 23 wards are defined as those with a total floor area of 4,000
tsubo or more, and mediumsized buildings as those with 1,000 tsubo or more but less than 4,000 tsubo (1tsubo=3.3m2 ).

14

2.9%

10.4%

10 years or more - lessthan 20 years
20 years or more - lessthan 30 years
More than 30 years.

32.3%
86.7%

Average age of properties: 15.3 years
As of December 31, 2006

57.3%

70.8%

Average age: 13.8 years
As of June 30, 2007

Note 2. The percentage breakdowns for the Investment Area, Property Size, and Age are all based on the acquisition price.

15

Internal Growth

Financial Strategy

Achieved Internal Growth

Financial Policy

Japan Excellent, Inc. (JEI) has achieved internal growth through three vital strategies – cost reduction,
value enhancement, and rental negotiations such as a continuous occupancy rate of 98% or higher,
and an increase in rent income at an annual percentage rate of 2.2% (this ratio excludes the increase
factors resulting from property acquisitions during this period).

Japan Excellent, Inc. (JEI) is committed to drafting and executing financial strategies based on fine-tuned
and flexible operations, by effectively applying the know-how of asset management staff experienced infinance, and utilizing the research of Mizuho Research Institute, Ltd. In line with its mission as a J-REIT,
JEI will prudently manage the loan-to-value ratio at a conservative level and consider the implementationof equity finance at the appropriate timing, and with an eye on the balance of finance to enable flexible
achievement of external growth.

A

The asset manager has employed negotiation and bidding to reduce management fees at Omori
Bellport D, NHK Nagoya Housou-Center Building, and other properties for a forecast total
reduction of 40 mm yen per annum.

BCD

JEI has also installed water conservation facilities at many portfolio buildings, which is anticipated
to reduce costs by 8 mm yen annually.
JEI is actively working to increase the value of properties and transforming these steps to obtainhigher rental income.

JEI has raised rents through contracting with parking lot operators to operate unused parking
areas, which is expected to raise annual income growth by 10 mm yen per year, and by
requesting new tenants to assent to increased rents and negotiating for higher rents when rental
agreements expire.

Example of track record:
Shuwa Daiichi Hamamatsucho Building

1●

Improved
security

Computerized security
system

2 Improved
convenience●●

Automated entrances
Mailbox renovations

3

Restroomfacilities

Financial Standing
as of June 30, 2007
Borrowings
At the end of the second fiscal period, JEI has borrowings of 77.6 billion yen from nine financial institutions
including its sponsor, Mizuho Corporate Bank, Ltd., and continues to strive to diversify lenders.

Balance at End ofFirst Fiscal Period(mm yen)

Share

Balance at End
of Second Fiscal
Period (mm yen)

Share

Mizuho Corporate Bank,
Ltd.

9,000

23.4%

29,70038.3%

Mitsubishi UFJ Trust andBanking Corporation

7,500

19.5%

17,90023.1%

Sumitomo Mitsui Banking
Corporation

2,000

5.2%

10,000

12.9%

The Norinchukin Bank

5,000

13.0%

5,000

6.4%

Aozora Bank, Ltd.

5,000

13.0%

5,000

6.4%

The Dai-ichi Mutual Life
Insurance Company

3,000

7.8%

3,000

3.9%

Mizuho Trust & Banking
Co., Ltd.

3,000

7.8%

3,000

3.9%

The Chuo Mitsui Trust andBanking Company, Limited

3,000

7.8%

3,000

3.9%

Resona Bank, Ltd.

1,000

2.6%

1,000

1.3%

38,500100.0%

77,600100.0%

Total“Shower” toilets and handdryers● Water conserving auto●

Sponsors are indicated with aflushingof 1st4 Upgrade
ﬂoor entrance●●

Doorway to entrance hall
Added first floor restroom

16

17

The Asset Management
Company
Spreading out of repayment periods for borrowings

wings
rm borro
Shor t-tewings
rm borro
te
g
n
o
L

JEI is also taking steps to reduce refinancing risks by decentralizing therepayment periods of borrowings.
(bn yen)

50

Company Outline
Corporate Name
Headquarters

1-9-20 Akasaka, Minato-ku, Tokyo

Established

April 14, 2005

Capital

450 mm yen
Kowa Real Estate Co., Ltd.
The Dai-ichi Mutual Life Insurance Company
Sekisui House, Ltd.
The Dai-ichi Building Co., Ltd.
Sohgo Housing Co., Ltd.
Morgan Stanley Properties Japan K.K.
Mizuho Corporate Bank, Ltd.
Mizuho Trust & Banking Co., Ltd.

40
Shareholders

30
20
10
0

(FP)

4

3

2

5

6

7

8

9

10

OthersStatus of LTV
JEI continues to observe its LTV policy at a ceiling of 60% and desired scope of 35%-50%. As of the endof the second fiscal period, JEI had an LTV of 49.7%, up from 33.7% at the end of the first fiscal period in
December 2006.

Japan Excellent Asset Management Co., Ltd.

40.0%
20.0%
15.0%
5.0%
5.0%
5.0%
5.0%
5.0%

President

Junichi Tamura

Director of Planning & Management

Nobuyuki Tanabe

Director of Real Estate Investment

Ryuichi Yamamoto

Director (Non-executive)

Takashi Uchida

Auditor (Non-executive)

Masatoshi Tamaru

Compliance Officer

Michiro Ezaki

Asset management for Investment Corporation● Invest. Co. Asset Mgt. License:
Prime Minister No. 61● Discretionary License:
Minister of MLIT No. 44● Real Estate Agency License:
Governor of Tokyo (1) No. 84511

Business
Operations

Note 1. The new name of Morgan Stanley Properties Japan K.K. is Morgan Stanley Capital K.K. as of December 1, 2007

Ratings
Although JEI has not employed the issuance of bonds in the procurement of capital to date, it has taken
an essential step toward bond issuance by obtaining ratings from the following rating agencies.

Organizational Chart of Asset Manager
Shareholders’ Meeting

Rating Agency

Description (Outlook)

Moody’s Investors Service

Issuer rating A2 (stable)

R&I

Issuer rating: AA- (stable)

AuditorBoard of Directors
Compliance Committee

Investment Committee

Compliance Officer

Breakdown of Unitholders
2nd Fiscal Period

Individuals

Executive Director
Planning and Management Division

4,058 (3.0%)

Real Estate Investment Division( Units)

84,318 (62.6%)

20,920 (16.5%)

25,504 (18.9%)

Japanese financial institutions andsecurities companies

Other Japanese
corporations

Foreign institutions
and individuals

18

Corporate
Planning
Department

Finance andAccounting
Department

Business
Management
Department

Investment
Planning
Department

19

Real Estate
Investment
Department

Real EstateManagement
Department

About Japan Excellent, Inc.
Sponsor Companies Providing
Pipeline Support

Investment Corporation

Administrative Agent
Asset Custodian❹

A. Kowa Real Estate Co., Ltd.
B. Sekisui House, Ltd.
C. Mizuho Trust & Banking Co., Ltd.

Japan Excellent’s
Basic Strategy for
Future Investments

Mizuho Trust & Banking Co., Ltd.
● Our medium-to-long-term management target is steady growth in distributions❷
Unitholders’ Meeting

Japan Excellent
Asset Management Co., Ltd.

❸❶

A. Mizuho Research Institute, Ltd.
B. Urban Research InstituteCorporation

while also optimizing our capital strategy and improving corporate governance

Mizuho Trust & Banking Co., Ltd.

Board of Directors
Executive Director: Junichi Tamura
Supervisory Director: Makoto Sakagami
Supervisory Director: Tsuyoshi Nagahama

Think Tanks● Our goal is to increase both profitability and assets under management through a well-balanced plan,

Transfer Agent❺

Asset Management Company

Underwriters❻

Accounting Auditor
Ernst & Young ShinNihon

Mizuho Securities Co., Ltd.
Morgan Stanley Japan
Securities Co., Ltd.
Others❶ Asset management agreement ❷ (A) Pipeline support agreement with Kowa Real Estate (B) Pipeline support
agreement with Sekisui House (C) Pipeline support agreement with Mizuho Trust & Banking ❸ (A) Agreementwith Mizuho Research Institute for provision of market and other information (B) Agreement with Urban ResearchInstitute for provision of market and other information ❹ Agreement to entrust administrative duties and asset
custody ❺ Agreement to entrust administration of unitholders’ register ❻ New issue underwriting agreement◆ External Growth Strategy◆ Internal Growth Strategy◇ Increasing rental income through portfolio
expansion◇ Diluting the weight of management fees paid
to the asset management company throughportfolio expansion◇ Raising rents while meeting tenant satisfaction◇ Sustaining and heightening occupancy rates◇ Reducing management costs▼

Note 1. Shunichi Maekawa assumed as Supervisory Director on November 1, 2007.

Increasing Profitability

Internal
GrowthInvestment unit price transition

Risk
Management

External
GrowthPerformance versus TSE J-REIT Index
Index
260
240

Maximize
Unitholder Value& Increase DPU

quisitionp e r t y ac
ro
p
:
th
t
6
March 1 announcemen
th: issueJune 18ision
dec

220

Financial
Strategy

Compliance

200

J EI
180
160

◆ Enhancement of Compliance140

TSE J-R

120
100

Feb

Mar

ch 2

Apri

l 27,

May
200

27,

June
200

7, 2
ruar
7
007
y 27
, 20
7
,
0
200
7
er 2
emb
Octo
7
7, 2
er 2
Sep
ber
006
7, 2
tem
2
Aug
7
,
006
ber
200
ust 2
July
27,
6
7, 2
27,
June
200
006
200
6
27,
6
200
Note: Indexed with the listing date (2006/6/27) as 100
6
Nov

80

and Risk Management Measuresx
EIT Inde

Dec

20

emb

Janu

ary 2

7

27,

▼
200

7

Optimizing Stakeholders’ Reliability
Decreasing Risk Premiums◆ Financing Strategy◇ Accurate understanding of the market environment◇ Preparation measures for potential interest rate
hikes
◇ Maintaining the LTV between 35%-50%◇ Improving credit ratings▼

Optimized Capital Strategy

21

Compliance andRisk Management
Japan Excellent, Inc. (JEI) takes compliance seriously and is solemnly committed to ensuring throughits asset manager, Japan Excellent Asset Management (JEAM), that its transactions and operations are
run in strict accordance with the governing laws including the Law concerning Investment Trusts andInvestment Corporations and the Financial Instruments and Exchange Law. One of the methods that
JEI has employed to ensure this compliance since its founding is to have the asset manager establish atransparent organization and responsibilities for the Compliance Officer and Compliance Committee.
The key to any compliance strategy is naturally in its enhancement. The close relationship with sponsors
at JEI is achieved by the pipeline support agreements made with Kowa Real Estate Co., Ltd., Sekisui
House, Ltd., and Mizuho Trust & Banking Co., Ltd. JEI also maintains strong ties with Morgan Stanley
Properties Japan K.K. (name change to Morgan Stanley Capital K.K. as of December 1, 2007) and other
JEAM sponsors as well. While this provides JEI with a distinct advantage in sourcing property informationand contracting it also requires meticulous care and structure to ensure that it is paying what is recognized
as a rational and fair value in the marketplace in the event of such interested party transactions.
JEAM has set an internal rule to restrict transactions, including the acquisition and disposition of assets,
between JEI and interested parties such as the core sponsors of the asset management company. Under
such internal rules, in principle, a purchase price of an asset which JEI acquires from interested parties
should be no more than the appraisal value of such asset obtained from a real estate appraiser (the“appraisal value”), and the sale price of an asset which JEI sells to interested parties should be no lessthan the appraisal value of such asset.
Consequently, JEI has established a clear decision-making flow to ensure to the best of its abilities thatcompliance and transparency are secured in its real estate transactions.
Proposals for decisions to buy or sell individual assets are submitted by the Real Estate Investment
Department to the Compliance Officer (CO). The CO verifies that the said transaction is not in violationof the respective laws, regulations, and asset manager/REIT rules and contracts, along with generally
accepted compliance practices. If no problems are found, the CO returns the proposal to the Real Estate
Investment Department which then submits it to the Investment Committee. If the ensuing Investment
Committee and Board of Directors’ examination reveals any issues with the proposal, they return it tothe original department and the process is repeated, unless they have been instructed that the proposal
is to be abolished. After approvals by the Investment Committee and Board of Directors are reported to
the Board of Directors of JEI, final approval or rejection is determined. In this manner, a proposed
investment or divestiture must be approved at several levels and can be rejected at multiple levels, allowing
for numerous safeguards against decisions that would be detrimental to the interests of unitholders, forwhom the REIT seeks to maximize value.
The CO and the CO’s team also conduct an internal operational audit once a year to ensure that decisions
and operations are proceeding in compliance with laws, regulations, and asset manager/REIT rules.
Further, with the implementation of the Financial Instruments and Exchange Law, the asset manager
engaged the assignment of an outside consultant in November 2006, to examine the internal management
system and provide advice for reinforcing the system.

Decision-making Flow of the Asset Manager
for Buying and Selling Real Estate

Department submitting request

Final DecisionThis process is depicted in the chart below. The consultant further defined several risks and provided
advice in drafting measures to counter risks, and the drafting of the guidelines for internal audits, etc. wascompleted in the beginning of the third fiscal period.

Approval
Compliance Officer

Further reinforcement of internal management system using outside consultant(commenced November 2006)

Compliance Committee
ReportInvestment Committee
Board of Directors ofJapan Excellent, Inc.

Step 1

Step 2

Step 3

Step 4

Step 5

Procedural
flow/manual
maintenanceApprehensionof procedural
content

Discovery ofprocedural
risks

Risk countermeasuredrafting

Internal audit(execution
guideline
drafting)

Board of Directors
Instruction to revise, resubmit,
or abolish proposal

22

To ensure maximum value for our unitholders, JEI through its asset manager, has established the above
steps to preclude interested parties and other transactions that are a detriment to JEI and hence to ourstakeholders.

23

WebsiteJapan Excellent, Inc. (JEI) is committed to disclosing information in a timely manner. Our website is the best
vehicle to do this, where information is provided through web releases, presentation documents, and the like.
The URL for the English website is http://www.excellent-reit.co.jp/eng/,with disclosure documents at http://www.excellent-reit.co.jp/eng/cms/disclosure.html
and the portfolio covered from http://www.excellent-reit.co.jp/eng/portfolio/portfolio_01.html.

PERFORMANCE REPORT
I. Overview of Asset Management(1) Operating PerformanceFirst Fiscal Second Fiscal
PeriodPeriodFebruary 20,
January 1,
2006 December 31, 2007 - June30, 2007
2006

Fiscal Period
Calculation Period

Information for Investors
The annual IR schedule is
as follows.

February: Announcementof the accounts for the period
ending in December
December: Closing of accounts

June: Closing of accounts●●

Informationis regularly
disclosed on thewebsite■■▶

March: Payment of
the distributions for the period
ending in December

▶

■

24

August: Announcement of
the accounts for the period
ending in June●

September: Payment of
the distributions for the period
ending in June

Revenues
Of which, rental revenues
Operating expenses
Of which, property operating expenses
Operating income
Income before Income taxes
Net income
Total assets
Net assets
Unitholders’ capital
Total investment units outstanding
Net assets per unit
Net income per unit
Total cash distributions
Cash distributions per unit
Of which, distributions of earnings per unit
Of which, distributions in excess of earnings per unit
ROA (Return on Assets) (Note 1)
ROE (Return on Equity) (Note 2)
Unitholders’ equity ratio (Note 3)
Dividend payout ratio (Note 4)
Number of properties at end of period
Number of tenants at end of period
Total leasable floor space
Occupancy rate at end of period
Depreciation and amortization
Capital expenditures
NOI (Net Operating Income) (Note 5)
FFO (Funds from Operations) per unit (Note 6)
FFO ratio (Note 7)
Debt service coverage ratio (Note 8)
Interest-bearing debt
LTV (Loan-to-Value) (Note 9)(mm yen)(mm yen)(mm yen)(mm yen)(mm yen)(mm yen)(mm yen)(mm yen)(mm yen)(mm yen)(units)(yen)(yen)(mm yen)
(yen)
(yen)
(yen)
(%)
(%)
(%)
(%)
(buildings)(tenants)(m2)(%)(mm yen)(mm yen)(mm yen)(yen)(times)(times)(mm yen)
(%)

4,751
4,751
2,382
1,977
2,369
1,858
1,856
114,199
69,32967,641
134,800
514,317
13,858
1,856
13,773
13,773
(-)
2.0
2.8
60.7
99.9
14
99
135,264
98.5
631
155
3,405
18,45921.1
9.938,500
33.7

5,505
5,505
2,851
2,409
2,653
2,240
2,239
156,291
69,81367,641
134,800
517,906
16,614
2,239
16,614
16,614
(-)
1.7
3.2
44.7
100.0
18
120
190,051
98.2
674
182
3,770
21,61624.3
7.2
77,60049.7(Note 1) ROA = Ordinary income ÷ [(Total assets at beginning of period + Total assets at end of period) ÷ 2] × 100
The figures are rounded to the first decimal place.
June 27, 2006, is the date when asset management actually started and it is deemed the beginningof the first fiscal period.
(Note 2) ROE = Net income ÷ [(Net assets at beginning of period + Net assets at end of period) ÷ 2] × 100
The figures are rounded to the first decimal place.
June 27, 2006, is the date when asset management actually started and it is deemed the beginningof the first fiscal period.

25

(Note 3) Unitholders’ equity ratio = Net assets at end of period ÷ Total assets at end of period × 100
The figures are rounded to the first decimal place.
(Note 4) The figures are rounded down to the first decimal place.
(Note 5) NOI = Rental revenues − Property operating expenses + Depreciation and amortization(Note 6) FFO per unit = (Net income + Depreciation and amortization) ÷ Total investment units outstanding
The figures are rounded down to the nearest whole number.
(Note 7) FFO multiple = Investment unit price at end of period ÷ Annualized FFO per unit
The figures are rounded down to the first decimal place.
(Note 8) Debt service coverage ratio = Net income before interest and income taxes ÷ Interest expenses
The figures are rounded to the first decimal place.
(Note 9) LTV = Interest-bearing debt at end of period ÷ Total assets at end of period
The figures are rounded to the first decimal place.
(Note 10) The calculation period for the first fiscal period of JEI was the 315 days from February 20, 2006, toDecember 31, 2006, but the operating period (period when asset management was actually conducted) was the 188 days from June 27, 2006, to December 31, 2006.

(2) Overview of Asset Management This Fiscal Period
Japan Excellent, Inc. (JEI) was established on February 20, 2006, by Japan Excellent Asset Management Co.,
Ltd. (JEAM) based on the Investment Trusts and Investment Corporations Law (ITL). Registration with the
Kanto Local Finance Bureau was completed on March 15, 2006 (registration number: Director-General of Kanto Local Finance Bureau No. 52), and JEI was successfully listed on the Tokyo Stock Exchange’s Real Estate
Investment Trust section (securities code: 8987) on June 27, 2006. The settlement for the first fiscal period was
conducted at the end of December 2006, and it was decided to distribute roughly all of the net income for the
fiscal period. The distribution of earnings was 13,773 yen per unit.
JEI owned 14 office buildings as of the end of the first fiscal period, and acquired four more office buildings during this fiscal period (total acquisition price: 40,681.5 mm yen). The portfolio as of the end of the second fiscal
period (real estate and real estate beneficiaries in trust) was eighteen office buildings (total acquisition price:
139,127 mm yen).
Management Environment and Performance
The office rental market has enjoyed a strong supply and demand environment, and performed strongly due tomoves resulting from the integration and expansion of offices accompanying the economic recovery generating
demand. In central Tokyo and its surrounding areas, rents of both new and continuing contracts are rising due
to a seeming lack of supply.
The official land prices for 2007 on a national average (all uses) rose for the first time in sixteen years, and thereal estate investment market experienced this rise most conspicuously in Tokyo and the other major cities.
Private funds, J-REITs, and other entities continue to proactively invest in real estate, causing an even more
intense competition over the acquisition of strong properties. The rises in real estate prices have led to an increasingly severe property acquisition environment.
In this environment, JEI effectively collaborated with the sponsors of the asset manager (Note 1) and used thoserelationships to enhance the portfolio and achieve the following: 1) Acquisition of large buildings located in thecity center to be the core of the portfolio while also maintaining profitability, and 2) Promoting regional diversification by acquiring the four properties of Akasaka Garden City (acquisition price: 23,300 million yen), Ebina
Prime Tower (acquisition price: 6,470 million yen), Sendai Kowa Building (acquisition price: 4,238 million yen)and JEI Nishi-Honmachi Building (acquisition price: 6,673.5 million yen) (Note 2). As a result, the assets undermanagement as of the end of the second fiscal period totaled 18 office buildings with a total acquisition priceof 139,127 million yen.

26

Management of the portfolio is conducted in accordance with the basic investment policy of JEI of pursuing astrong balance between steady earnings and expansion over the medium to long term, by primarily investing in
office buildings in major metropolises.
As for internal growth, the greatest priority has been placed on improving earnings per share while improving
the rental revenues from existing tenants and reducing costs. The asset manager and property managers arecollaborating to achieve higher rental revenues at each property and negotiating with existing tenants withrental contracts felt to be far below present market levels. In these negotiations, we are calling for tenants torenew their agreements at appropriate rent levels based on market levels and property competitiveness.
Additionally, the property managers of each portfolio asset closely monitor and manage the buildings in a manner that ensures the understanding of end tenants (Note 3). While on one hand conducting negotiations to raise
rents, JEI is also endeavoring to make beneficial investments (renovations) to meet specific tenant needs andraise tenant satisfaction.
Besides active application of energy conservation and management cost reduction measures in property management, JEI has implemented innovations to effectively use unused space in our properties. As a result,sublease contracts have been concluded with parking lot operators for three portfolio assets with low-use orunused parking lots and these agreements are bearing fruit by raising earnings.
(Note 1) Sponsor companies refer to the following eight companies that are shareholders of the asset manager:
Kowa Real Estate Co., Ltd., The Dai-ichi Mutual Life Insurance Company, Sekisui House, Ltd., Dai-ichi
Building Co., Ltd., Sohgo Housing Co., Ltd., Morgan Stanley Properties Japan K.K. (name change toMorgan Stanley Capital K.K. as of December 1, 2007), Mizuho Corporate Bank, Ltd., and Mizuho Trust& Banking Co., Ltd.
(Note 2) The name of this property was changed on March 28, 2007, from Nishi-Honmachi Mitsui Building to
JEI Nishi-Honmachi Building (both names were used together through September 28, 2007). The
name of JEI Nishi-Honmachi Building will be used hereinafter.
(Note 3) The end tenant is the lessee that has directly concluded a lease agreement with JEI, or the trust fiduciary (excluding master lessees) or sub-lessees that have concluded lease agreements with the master
lessees.
Fund-raising Performance and an Overview of Fund Raising
During this fiscal period, JEI raised capital for the purpose of acquiring new properties on March 28, March 29,
and April 24, 2007.
1) Acquired 27.7 billion yen (Loan A) and 7 billion yen (Loan B) short-term loans from Mizuho Corporate Bank,
Ltd. (repayment date July 31, 2007; un-secured free and un-guaranteed free), and
2) Short-term borrowings of 10.4 billion yen and 8 billion yen from Mitsubishi UFJ Trust and Banking Corporationand Sumitomo Mitsui Banking Corporation using a (uncommitted) revolving credit facility agreement on April 24,
2007 (repayment date of July 31, 2007; collateral free and guarantee free).
Regarding 1), a total of 14 billion yen was repaid before maturity on April 24, 2007, with 7 billion yen of Loan A
and 7 billion yen of Loan B repaid.
As a result, the total borrowings as of the end of the second fiscal period (June 30, 2007) were 39.1 billion yen
in short-term borrowings and 38.5 billion yen in long-term borrowings for a total of 77.6 billion yen. Further, 50%of the total long-term borrowings have had the interest rate fixed through fixed interest loans and interest
swaps.

27

Prior to listing on June 27, 2006, JEI obtained an issuer rating of A3 from Moody’s Investors Service, which wasraised to A2 on January 25, 2007, during this fiscal period. In addition, the Rating and Investment Information,
Inc. (R&I) released an issuer rating of AA- on April 13, 2007.
The following are the ratings that have been acquired as of June 30, 2007.
Issuer rating

Outlook

Moody’s Investors Service
A2
StableHistory of Investment Unit Price on the Tokyo Stock Exchange
Japan Excellent’s investment securities are listed on the Real Estate Investment Trust section of the Tokyo Stock
Exchange, and the high and low prices for each period are listed below based on the respective closing prices.
Fiscal PeriodHigh and low investment
Settlement Dateunit prices by fiscal
High (yen)periodLow (yen)

R&I
AAStableFirst Fiscal Period
December 2006
815,000
548,000

Second Fiscal Period
June 2007
1,400,000
761,000

Performance and Distribution Overview(Note) The high and low investment unit prices for each fiscal period are based on the closing prices on the Real
Estate Investment Trust section of the Tokyo Stock Exchange.

As a result of the above management performance, JEI posted the following figures this fiscal period: Revenuesof 5,505 million yen; operating income of 2,653 million yen; income before income taxes of 2,240 million yen,and net income of 2,239 million yen.

(4) Distribution Results

Due to the application of the special rule for corporate tax taxation (Special Taxation Measures Law Article 6715), distributions on earnings are included in expenses. With this in mind, it was decided that the distribution
per investment unit for this period would amount to the entire disposable profit at the end of this fiscal period
minus fractions of less than one yen in distribution per investment unit. As a result, the distribution per investment unit for this fiscal period was set at 16,614 yen.

JEI did not raise capital this fiscal period, and there has been no change in the number of outstanding investment units or the unitholders’ capital. The following table shows the number of outstanding units and unitholders’ capital and variation for the current and preceding fiscal periods.
Description

No. of Outstanding Units
Variation

February 20,
2006Foundedthrough
privateplacement

June 26, 2006 Public offering
July 21, 2006

Third-party
allotment

PeriodFirst Fiscal Period
February 20, 2006 –December 31, 2006
1,856,675,000 yen
75,000 yen
1,856,600,000 yen(13,773 yen)
1,856,600,000 yen(13,773 yen)(-)

Accounting Period(3) Capital Raising

Payment Date

The distribution per unit for the current (second) fiscal period is 16,614 yen, and the entire disposable profit asof the end of this fiscal period will be distributed, except for the fraction below one yen in distribution per unitthat exists when the profit is divided by this distribution. This amount was reached to meet a special corporation tax measure that allows an investment corporation to deduct an amount equivalent to profit distributions
from taxable income as an expense (Special Taxation Measures Law Article 67-15).

400

Total
400

Total Equity(mm yen)
Variation
Total
200

200

Remarks

Retained Earnings for this fiscal period
Undistributed earnings
Total cash distributions(distribution per unit)
Of which, total profit distributions of earnings(profit distribution)
Of which, refund of unitholders’ capital(refund of unitholders’ capital per unit)

Second Fiscal Period
January 1, 2007 –June 30, 2007
2,239,620,000 yen
53,000 yen
2,239,567,000 yen(16,614 yen)
2,239,567,000 yen(16,614 yen)(-)

(Note 1)

(5) Future Management Policy and Current Issues
128,000

128,400

64,23064,430(Note 2)6,400

134,800

3,211

67,641(Note 3)(Note 1) JEI was founded with an issue price of 500,000 per investment unit.
(Note 2) The issue price per investment unit was 520,000 yen (underwriting price: 501,800 yen) and the newinvestment units were issued through a public offering with the objective of raising capital to acquire
properties purchased upon listing.
(Note 3) The issue price per investment unit was 501,800 yen and these new investment units were issued
through a third-party allotment with the objective of applying some of the funds to the acquisition of
new properties.

28

Overview of Investment Environment
The tone of the recovery in the office leasing market in Tokyo and other centers of major metropolises has become conspicuous with both dropping vacancy rates and increasing difficulty in securing large floor areas. The
trend of rents being hiked has become evident not only in large buildings in central city areas, but also in medium-sized buildings, and buildings in areas that surround them. However, there is also a clear difference
emerging in the results depending on the hardware aspects of location, building, and facility grade, etc. and thesoftware aspects such as tenant satisfaction with regard to management. The future trend is expected to be
one of rents rising on properties with clear advantages in these areas, and the gap between these buildings andinferior buildings in these areas is widening.
As for the real estate investment market, there are no signs of the appetite for real estate investment slowing
among private funds, J-REITs, and other players, reflecting the recovery trend in the office leasing market. The
severe competition over blue-chip properties in major cities is expected to continue.

29

Future Management Policy and Current Issues
As for the acquisition of new properties, JEI will maintain its policy of expansion in portfolio size over the medium to long term, and will continue to acquire new properties during the next fiscal period and beyond, througha collaborative relationship with our sponsors in order to continue to achieve steady external growth.
As for the management of properties owned by JEI, as noted earlier, a full-fledged recovery is underway in theoffice leasing market, but the degree of that recovery differs considerably depending on the competitiveness of
the area in which the property is located and the competitiveness of the property itself. With regard to thehardware aspects of the building and facilities, JEI puts high priority on the improvement of tenant satisfaction,
which will be achieved by implementing measures to maintain appropriate maintenance and by raising the levelof functions and the grades of units to more accurately ascertain tenant needs, which will only increase fromthis point forward.
Therefore, JEI will continue to work to improve both rent levels and cost reductions. JEI is convinced of theimportance to implement the following measures, based on our foremost mission of achieving rent levels oneach property that truly reflect the value of that building.
1) Improving the rent levels of existing tenants
The portfolio occupancy of JEI was at nearly full capacity as of June 30, 2007, at 98.2%, and the issues for thetime being are maintaining the high occupancy level and a further hike in rent levels where the upward trend
continues. Most of the contracts with existing tenants are standard 2-year lease agreements with renewals
every two years (there are three fixed-period lease agreements as of June 30, 2007). JEI will determine thecontracted rents that are distinctly different from present market levels and continue negotiations with thosetenants to renew at appropriate levels given the market price and property competitiveness. JEI is focused onbuilding strong relations with tenants in these negotiations by developing a mutual understanding through theproffering of comprehensive proposals that take into account not only rent levels but also contract periods,
contract methods, etc.
2) Maintaining and improving management quality and reducing costs
The property managers of each of the properties owned by JEI provide building management attuned to theproperties for which they are responsible, and that enable the maintenance of mutual understanding with tenants. As for management quality, on-site surveys are conducted periodically and efforts are constantly madeto maintain and improve management quality by implementing measures successful at other properties in theportfolio. Concerning outsourcing cleaning costs and other charges, various measures to reduce unit prices
without a drop-off in management quality have been taken with a well-balanced approach to both service quality and the outsourcing costs. JEI will continue to implement these measures as well as measures to conserve
energy, which also contributes to reductions in utility costs, as well.
3) Implementing beneficial investments (renovations)
Naturally JEI will also analyze properties from a medium- to long-term perspective and initiate appropriate maintenance while implementing planned investments (renovations) to further improve tenant satisfaction. JEI willconduct corrective work upon property acquisition and then check building usage safety and convenience andenact further measures in areas where it is determined that safety and convenience require further enhancement.

30

Specifically, JEI is initiating major renovations at the Sendai Kowa Building and JEI Nishi-Honmachi Building, theproperties it acquired this fiscal period, in the pursuit of increased quality. Regarding the Sendai Kowa Building,one of the terms established at the time of acquisition was the conducting of renovations by the seller, andprimarily common area renovations such as the virtually comprehensive renewal of facilities and the entrance
are currently in progress. These renovations are being conducted at the expense of the seller. In the case of
the JEI Nishi-Honmachi Building, safety is being improved by removing asbestos, and steps are being taken toraise the grade of the building and further enhance convenience by installing office automation floors, etc. The
asbestos was found within the ceiling of a dedicated tenant area and JEI will undertake the work while earnestly obtaining the understanding of tenants, as they will be required to relocate temporarily to other floors
within the building.
As for financial strategy, JEI will work to efficiently and flexibly raise capital by diversifying lenders and spreadingout repayment terms. This, in line with external growth, will be performed while taking into account the balance
between short- and long-term loans. JEI also plans to pursue the fixing of interest rates on borrowings to prepare for any future rise in interest rates.
Meanwhile, the environment surrounding the REIT business is undergoing changes both in terms of real estate
acquisition and financing. There are also a number of major systematic changes to the environment underway
or already implemented, including the Financial Instruments and Exchange Law to be put into effect from September 2007, the revision of the Trust Law and Trust Business Law, the revision of real estate appraisal standards, and the system for executing new BIS regulations. In recognition of these changes, JEI and JEAM will
work to ensure that appropriate steps are taken.

(6) Material Developments after Closing of Accounts
Issuance of New Investment Units through Public Offering (General Offering)
The board of directors on June 18, 2007, decided on the following issuance of new investment units, and thepayment for the units was completed on July 11, 2007.
Number of new investment units issued: 19,000 units
Issue price (offer price): 1,019,200 yen per unit
Total issue price: 19,364,800,000 yen
Issue value (underwriting price): 984,360 yen per unit
Total issue value: 18,702,840,000 yen
Payment date: July 11, 2007
Distribution calculation start date: July 1, 2007
Issuance of New Investment Units through Third-party Allotment (Allotment to Third Party following
Exercising of Green Shoe Option)
The board of directors on June 18, 2007, decided on the following issuance of new investment units through athird-party allotment, and payment was completed on August 8, 2007. As a result, the number of outstanding
units following this issuance and that noted above is now 154,550 units and the total unitholders’ capital is87,083,030,000 yen.
Number of new investment units issued: 750 units
Issue value (underwriting price): 984,360 yen per unit
Total issue value: 738,270,000 yen
Allottee: Mizuho Securities Co., Ltd.
Payment date: August 8, 2007
Distribution calculation start date: July 1, 200731

Early Repayment of Borrowings

II. Overview of Investment Corporation

JEI repaid 20.7 billion yen in short-term borrowings from Mizuho Corporate Bank, Ltd. before maturity on July24, 2007.

1. Overview of Equity Capital
PeriodBorrowing of Funds (Refinancing)
JEI refinanced a short-term borrowing using an uncommitted revolving credit facility agreement issued by Mitsubishi UFJ Trust and Banking Corporation and one other company (repayment date: July 31, 2007; original
borrowing amount: 18.4 billion yen) on July 31, 2007. As a result, effective the same day, JEI has borrowed 7
billion yen from Mitsubishi UFJ Trust and Banking Corporation and three other companies (repayment date: July
31, 2012), 7 billion yen from Mizuho Corporate Bank, Ltd. and three other companies (repayment date: July 31,2012), and 4 billion yen from The Dai-ichi Mutual Life Insurance Company and one other company (repayment
date: July 31, 2014).

First Fiscal Period(as of December 31, 2006)

Number of issuable investment
units
Total number of outstanding
investment units
Total unitholders’ capital
No. of unitholders

Second Fiscal Period(as of June 30, 2007)

2,000,000 units

2,000,000 units

134,800 units

134,800 units

67,641 mm yen
2,529

67,641 mm yen
2,193

2. Information on Investment Units
The following are the primary unitholders as of June 30, 2007.
Name

Address

Ownership
Ratio (%)

14,312

10.62

8,471

6.28

NikkoCiti Trust and Banking
Corporation (investment trust account)

1-15-5 Minami Aoyama, Minato Ward,Tokyo
2-3-14 Higashi Shinagawa, Shinagawa
Ward, Tokyo

Trust & Custody Services Bank, Ltd.
(securities investment trust account)

Harumi Island Triton Square Office Tower
Z, 1-8-12 Harumi, Chuo Ward, Tokyo

8,252

6.12

The Master Trust Bank of Japan, Ltd.
(investment trust account)
Japan Trustee Services Bank, Ltd.
(investment trust account)
The Dai-ichi Mutual Life Insurance
Company

2-11-3 Hamamatsucho, Minato Ward,
Tokyo

7,863

5.83

1-8-11 Harumi, Chuo Ward, Tokyo

7,452

5.53

1-13-1 Yurakucho, Chiyoda Ward, Tokyo

4,132

3.07

4,012

2.98

3,432

2.55

3,169

2.35

2,733

2.03

63,82847.35

Kowa Real Estate Co., Ltd.

1-3-8 Kamiyacho, Naka Ward, Hiroshima
City, Hiroshima Prefecture
2-1-11 Jonan, Ikeda City, Osaka
Bank of Ikeda, Ltd.
Prefecture
The Bank of New York, Treaty JASDEC Avenue Des Arts, 35 Kunstlaan, 1040
Account
Brussels, Belgium
CB Hong Kong - CB Korea - Macquarie 4F Hanwha Bldg., 110 Sokong-dong,
IMM Asian REIT Fund of Funds
Chung-ku, Seoul, Korea

Hiroshima Bank, Ltd.

Total
(Note) Figures for Ownership Ratio have been rounded to the second decimal place.

32

Units
Owned

33

3. Information on Board of Directors

III. Overview of Assets Managed by JEINames of Directors during the Second Fiscal Period

1. Configuration of Japan Excellent’s Portfolio

Post

Name

Executive Director

Junichi Tamura

Supervisory Director

Makoto Sakagami

Supervisory Director

Tsuyoshi Nagahama

Supervisory Director

Yasuyuki Maeba(Note 1)Misuzu Audit
Corporation (Note 2)

Accounting Auditor

Primary Concurrent Positions

Compensation
during Concerned
Operational Period
Asset Type

President and Representative
Director, Japan Excellent AssetManagement Co., Ltd.
Sakagami CPA OfficePartner, Anderson Mori &Tomotsune
Deputy Branch Manager, Dexia
Credit Local Tokyo BranchArea

4.69 mm yen
Real estate(Note 3)-

4.5 mm yen(Note 1) Yasuyuki Maeba resigned as supervisory director from JEI as of January 31, 2007.
(Note 2) Misuzu Audit Corporation resigned from accounting auditor of JEI on July 31, 2007 and Ernst andYoung ShinNihon was selected as the temporary accounting auditor from August 1, 2007 by JEI.
(Note 3) Neither the executive director nor the supervisory directors own investment units of JEI. There arecases where the supervisory directors are directors of corporations not indicated above, but in none of
the cases including the above does an interest relationship exist with JEI.
Description of Non-Auditing Work for which JEI Pays Compensation to the Accounting Auditor
JEI has outsourced the following work not stipulated in Article 2-1 of the Certified Public Accountant (CPA) Law(Law No. 103 in 1948) (non-audit work) to the accounting auditor.
Non-audit Work Description
Compensation for audit of English financial statements
Total

Usage

-

Amount
2.1 mm yen
2.1 mm yen

Policy on Dismissal of Accounting Auditor and Decision to Not Re-employ
The board of directors shall examine the dismissal of an accounting auditor in accordance with stipulations of
the Investment Trusts and Investment Corporation Law and examine the non re-employment of said party after
thorough consideration of various circumstances.

4. Investment Trust Manager, Asset Custodian, and Administrative Agent

Trust
beneficiaryinterests inreal estate(Note 3)

OfficeFirst Fiscal Period
Second Fiscal Period(as of December 31, 2006)(as of June 30, 2007)
Total Assets
Total Assets
underShare ofunder
Share ofManagement Portfolio (%) Management Portfolio (%)(mm yen)(Note 2)(mm yen)(Note 2)
(Note 1)
(Note 1)

Area II (Note 4)

4,340

3.8

4,310

2.8

Area I (Note 4)

52,74746.2

76,007

48.6

Area II (Note 4)
Area III (Note 4)
Area IV (Note 4)

41,834
98,921
15,277
114,199

36.6
86.6
13.4
100.0

6,928
48,345
4,276
139,868
16,422
156,291

4.4
30.9
2.7
89.5
10.5
100.0

OfficeTotal
Deposits and other assets
Total assets(Note 1) The Total Assets under Management amount is the amount entered on the balance sheet as of thesettlement date (the book value after depreciation for the real estate and trust beneficiary interests inreal estate).
(Note 2) The figures for the Share of Portfolio have been rounded to the first decimal place.
(Note 3) Land leasehold rights owned with buildings are combined with the buildings and entered in the realestate and trust beneficiary interests in real estate rows.
(Note 4) The following are the divisions of area.
Area I: Six central Tokyo wards of Chiyoda, Chuo, Minato, Shinjuku, Shinagawa, and Shibuya
Area II: Central Osaka City (Umeda, Dojima, Nakanoshima, Yodoyabashi, Honmachi District, etc.), central Nagoya City (Meieki area, Fushimi, Sakae district, etc.), and central Fukuoka City (Tenjin, area infront of Hakata Station, etc.)
Area III: Tokyo excluding Area I and the area around Tokyo (Kanagawa, Saitama, and Chiba Prefectures)
Area IV: Osaka City, Nagoya City, and Fukuoka Cities excluding Area II and other ordinance-designatedcities, etc.

The investment trust manager, asset custodian, and administrative agent as of June 30, 2007 are as follows.
Description
Name
Investment trust manager (asset management company) Japan Excellent Asset Management Co., Ltd.
Asset custodian
Mizuho Trust & Banking Co., Ltd.
Administrative agent (affairs regarding the managementof the unitholders’ list, administering of accounts andMizuho Trust & Banking Co., Ltd.
the institution, etc.)

3435

2. Primary Assets under Management

3. Itemized Statement of Incorporated Real Estate and Other Assets

An overview of the primary assets under management by JEI (top ten in terms of book value) as of June 30,
2007 is as follows.
Leasable Floor Leased Floor Occupancy Ratio of Rental
Book ValuePrimary
Property NameSpace (m2)
Revenue (%)
Space (m2)(%)(mm yen)
Usage(Note 1)
(Note 2)
(Note 4)(Note 3)
Akasaka Garden
23,3758,769.53
8,769.53
100.0
5.4
OfficeCity

The following is an itemized statement of the real estate, etc. owned by JEI (real estate or trust beneficiary interests in real estate) as of June 30, 2007.

Omori Bellport D
Musashikosugi
Tower Place
Kowa Kawasaki
Higashiguchi
Building
Shiba 2-Chome
Building
Shuwa Daiichi
Hamamatsucho
Building
JEI Nishi-Honmachi
Building

22,82725,828.29

25,743.26

99.7

18.9

Office13,82925,275.07

25,275.07

100.0

14.3

OfficeProperty
No.

I-1

I-2
10,893

18,612.72

18,612.72

100.0

9.9

OfficeI-3

9,464

11,749.30

11,559.68

98.4

6.3

OfficeI-4

8,370

6,411.26

6,411.26

100.0

5.0

Office6,928

10,601.70

10,187.80

96.1

2.7

OfficeI-6

Ebina Prime Tower

6,724

25,362.37

25,021.36

98.7

5.3

OfficeI-7

Hongo TS Building

5,374

4,078.37

4,078.37

100.0

3.2

OfficeNo. 32 Kowa
Building

5,046

5,365.72

5,365.72

100.0

4.3

OfficeTotal

112,835

142,054.33

141,024.77

99.3

75.4

I-5

II-1

II-2
(Note 1) The area entered as leasable floor space is the leasable floor space of the portion acquired by JEI as
of June 30, 2007, and is rounded to the second decimal place. For jointly owned properties, the figure
entered is the leasable floor space of the entire jointly owned property multiplied by the percentage
actually owned by JEI.
(Note 2) In the case of the leased floor space, it is rounded to the second decimal place and the area under thelease agreement with the end tenants as of June 30, 2007 is entered. For jointly owned properties, thefigure entered is the leased floor space of the entire jointly owned property multiplied by the percentage
actually owned by JEI.
(Note 3) The occupancy is the ratio of leased floor space to leasable floor space as of June 30, 2007, and isrounded to the first decimal place.
(Note 4) The ratio of rental revenue of each asset is rounded to the first decimal place.

36

Property Name

Omori Bellport D

Shiba 2-Chome
Building
Shuwa Daiichi
Hamamatsucho
Building
No. 32 Kowa
Building
No. 36 Kowa
Building
No. 28 Kowa
Building
Akasaka Garden
City
NHK Nagoya
Housou-Center
Building
JEI NishiHonmachi
Building

End-of-Period
Appraisal(mm yen)(Note)

Book Value(mm yen)23,71022,8272-6-1 Shiba, Minato Ward,
TBIRE
Tokyo

12,2009,464

2-2-12 Hamamatsucho,
Minato Ward, Tokyo

TBIRE

9,390

8,370

TBIRE

5,462

5,046

TBIRE

4,235

4,062

TBIRE

3,640

2,861

TBIRE

23,50023,375

82,13776,007

Real Estate

5,430

4,310

TBIRE

6,760

6,928

12,190

11,239Address

OwnershipForm

6-26-3 Minami-Oi,
Shinagawa Ward, Tokyo

Trust
beneficiaryinterests inreal estate(TBIRE)

5-2-32 Minami-Azabu,
Minato Ward, Tokyo
5-19 Sanbancho, Chiyoda
Ward, Tokyo
2-20-1 Nishi-Gotanda,
Shinagawa Ward, Tokyo
4-15-1 Akasaka, Minato
Ward, Tokyo
Area I
1-13-3 Higashi Sakura,
Higashi Ward, Nagoya
City, Aichi Prefecture
1-3-15 Awaza, Nishi
Ward, Osaka City, Osaka
Prefecture
Area II

37

Property
No.

III-1

III-2
III-3
III-4
III-5
III-6
III-7
III-8

Property Name

End-of-Period
Appraisal(mm yen)(Note)

Book Value(mm yen)

TBIRE

17,70013,829

TBIRE

11,13010,893

TBIRE

5,490

5,374

TBIRE

4,510

4,016

TBIRE

5,220

3,935

TBIRE

1,610

1,033

TBIRE

2,563

2,537

TBIRE

6,550

6,724

54,773

48,345

Ownership
Form

Address

1-403 Kosugimachi,Musashikosugi
Nakahara Ward, Kawasaki
Tower Place
City, Kanagawa Prefecture
Kowa Kawasaki 1-53 Nisshincho,
Higashiguchi
Kawasaki Ward, Kawasaki
Building
City, Kanagawa Prefecture
Hongo TS
2-38-16 Hongo, Bunkyo
Building
Ward, Tokyo
Shuwa Iidabashi 2-3-19 Koraku, Bunkyo
Building
Ward, Tokyo
Kawasaki
7-1 Nisshincho, Kawasaki
Nisshincho
Ward, Kawasaki City,
Building
Kanagawa Prefecture
No. 44 Kowa
1-2-7 Higashiyama, MeBuilding
guro Ward, Tokyo
Ryogoku Dai-ichi 3-25-5 Ryogoku, SumidaLife Building
Ward, Tokyo
Ebina Prime
2-9-50 Chuo, Ebina City,
Tower
Kanagawa Prefecture

IV-1

2-4-1 Ichibancho, Aoba
Ward, Sendai City, Miyagi
Prefecture

Property Name

I-1

Omori Bellport D
Shiba 2-Chome
Building
Shuwa Daiichi
Hamamatsucho
Building
No. 32 Kowa
Building
No. 36 Kowa
Building
No. 28 Kowa
Building
Akasaka Garden
City
Area I
NHK Nagoya
Housou-Center
Building
JEI NishiHonmachi Building
Area II
Musashikosugi
Tower Place
Kowa Kawasaki
Higashiguchi Building
Hongo TS
Building
Shuwa Iidabashi
Building
KawasakiNisshincho
Building
No. 44 Kowa
Building
Ryogoku Dai-ichi
Life Building
Ebina Prime Tower
Area III
Sendai Kowa
Building
Area IV
Total

I-2
I-3
I-4
I-5
I-6
I-7

Area III
Sendai Kowa
Building

Property
No.

II-1
II-2

TBIRE

4,309

4,276

Area IV

4,309

4,276

Total

153,409

139,868

III-1(Note) In accordance with the articles of incorporation of JEI and the rules designated by the Investment Trusts
Association, the end-of-period appraisal values have been written in appraisal reports prepared with apricing point of June 30, 2007, by appraisers of the Japan Real Estate Institute, Chuo Real Estate Appraisal Co., Ltd., or HIRO & REAS Network, Inc.

III-2
III-3
III-4
III-5
III-6
III-7
III-8
IV-1

38

First Fiscal Period
Second Fiscal Period(February 20, 2006 - December 31, 2006)(January 1, 2007 - June 30, 2007)
Share of No. of
Share ofNo. ofOccupancy Rental
Occupancy Rental
Rental Tenants
RentalTenants(end-of- Revenue(end-of- Revenue
Revenue (end-ofRevenue(end-ofperiod) (during period)
period) (during period)(%)(%)
period)period)(%)(mm yen)(%)(mm yen)(Note 2) (Note 1)(Note 2)
(Note 1)
1
97.3
1,028
21.6
1
99.7
1,042
18.9
2

98.4

351

7.4

2

98.4

346

6.3

1

89.7

281

5.9

1

100.0

277

5.0

17

100.0

238

5.0

15

100.0

237

4.3

1

100.0

(Note 3)(Note 3)1100.0(Note 3)(Note 3)

1

100.0

158

3.3

1

100.0

154

2.8

-

-

-

-

1

100.0

295

5.4

23

97.4

2,260

47.6

22

99.6

2,553

46.4

39

97.6

358

7.5

39

98.0

349

6.3

-

-

-

-

1

96.1

150

2.7

39

97.6

358

7.5

40

96.9

500

9.1

31

100.0

815

17.2

32

100.0

789

14.3

1

100.0

(Note 3)(Note 3)1100.0(Note 3)(Note 3)

1

100.0

182

3.8

1

100.0

176

3.2

1

100.0

(Note 3)(Note 3)1100.0(Note 3)(Note 3)

1

100.0

209

4.4

1

100.0

211

3.8

1

100.0

94

2.0

1

100.0

88

1.6

1

94.5

115

2.4

1

100.0

114

2.1

37

99.7

2,132

44.9

19
57

98.7
99.6

291
2,360

5.3
42.9

-

-

-

-

1

77.8

91

1.7

99

98.5

4,751

100.0

1
120

77.8
98.2

91
5,505

1.7
100.0

39

(Note 1) The figure for the number of tenants is the total number of tenants on each property as of the end ofeach fiscal period. In the case of a master lease agreement, the number of tenants is entered as ‘one.’
When a single tenant leases multiple spaces, it is recognized as one tenant when this occurs on asingle property, and as multiple tenants when it occurs on multiple properties.
(Note 2) The share of rental revenue is rounded to the first decimal place.
(Note 3) No figure is entered for said property because approval for disclosure has not been obtained from theend tenants.

IV. Capital Expenditures on Owned Real Estate
1. Planned Capital Expenditures
The following table indicates the primary planned capital expenditures as of June 30, 2007, for scheduled renovations, etc. to assets owned at the end of the second fiscal period by JEI. The following planned construction
amounts include portions that will be treated as expenses for accounting purposes.

Property Name

LocationObjective

Shuwa Daiichi
Hamamatsucho
Building

Minato Ward,Tokyo

Upgrading of
humidifier

November
2007 December 2007

25

-

-

Shuwa
Iidabashi
Building

Bunkyo Ward,Tokyo

Upgrading ofventilation andhumidifier

September2007 December 2007

47

-

-

No. 44 Kowa
Building

Meguro Ward,Tokyo

Renovation ofcommon areas

October 2007 December 2007

24

-

-

JEI NishiHonmachi
Building

Nishi Ward,
Asbestos
Osaka City,
removal work
Osaka Prefecture (phase 1)

August 2007 December 2007

178

-

-

4. Other Asset Information
Stocks and Investment Securities
Issue
NHK Nagoya Build
Systems Co., Ltd.

No. ofStocks64

Acquisition Price(1,000 yen)
Unit Price Amount168

10,768

Appraised Value(1,000 yen)
Unit Price Amount
168

LatentProfit/Loss Remarks(1,000 yen)

10,768-(Note)(Note) The acquisition price is entered as the appraised value of said unlisted stocks.
Table of Specific Transaction Agreements and Market Values
Contract Amount (1,000 yen)
Of which, more
Category
Type(Note 1)than 1 year
(Note 1)Non-market transaction

Interest rate swap
Floating interest andfixed interest

16,250,000

16,250,000

Market Value(1,000 yen)
(Note 2)

Planned Construction Amount (mm yen)AmountAmount
Total
Paid This
Already
PeriodPaid

PlannedSchedule(67,776)

2. Capital Expenditures during the Second Fiscal Period(Note 1) The indicated balance for the interest rate swap is indicated based on the assumed principal.
(Note 2) The appraisal is made at the amount calculated by the other party involved in said transaction basedon the going rate of interest, etc.

The following is the construction work on assets under management as of the end of the second fiscal periodthat fall under capital expenditures conducted by JEI during the fiscal period ending in June 2007. Capital expenditures during this period were 182 million yen, and the total amount for construction work was 306 million
yen when the preceding figure is combined with the 124 million yen in maintenance and repair costs classified
as expenses in the period ended June 2007.
Property Name
Shuwa Daiichi
Hamamatsu
Building
Omori Bellport D
KawasakiNisshincho
Building

LocationObjective

Minato Ward, Tokyo
Shinagawa Ward,Tokyo
Kawasaki Ward,
Kawasaki City,
Kanagawa
Prefecture

Newly built first floor December 2006 lavatory
January 2007

Amount Paid(mm yen)13

Lavatory renovations

February 2007 June 200745

Upgrading of air
conditioner fan coiland pipes (second
fiscal period)

April 2007 June 200716

Other construction

Total

40

Schedule

41

106
182

3. Reserves for Maintenance and Repair Costs

V. Expenses and Liabilities

JEI is applying maintenance and repair reserves to payment for major maintenance and repairs, etc. based onlong-term maintenance and repair plans established for each property, and these funds are being accumulated
from among depreciation and other surplus cash flow.

1. Itemization of Management Expenses

Category

First Fiscal Period(February 20, 2006 - December 31, 2006)

Second Fiscal Period(January 1, 2007 - June 30, 2007)

-

164

164

67

-

-

164

232

Balance of reserves frompreceding fiscal period (mm yen)
Current reserves(mm yen)Withdrawals from reserves(mm yen)Amount carried forward(mm yen)(unit: thousand yen)
Category(a) Asset management fees(b) Asset custodian outsourcing fee(c) Administrative agent fee(d) Director compensation(e) Accounting auditor compensation(f) Other expenses
Total

First Fiscal Period(February 20, 2006 - December 31, 2006)
306,290
8,975
18,014
11,8584,500
54,513404,152

Second Fiscal Period(January 1, 2007 - June 30, 2007)
328,491
7,435
14,541
4,690
4,500
83,014
442,671

2. Borrowing Conditions
The following are the borrowing conditions for each financial institution as of the end of the second fiscal period(as of June 30, 2007).
Category
LenderShort-term
Borrowings

Subtotal

42

Balance Balance Average
Loan
End ofof This Interest Repayment Repayment
Execution Previous End
Date
MethodPeriod(%)
Date
Period(mm yen) (mm yen) (Note 1)

MizuhoCorporate 3/28/07
Bank, Ltd.
Mitsubishi
UFJ TrustandBanking
Corporation 4/24/07
Sumitomo
Mitsui
Banking
Corporation--

20,700-10,400

-

8,000

-

39,10043

Usage

Description

ForNo
collateral
One-time property
0.87250 7/31/07
or
payment acquisition
funds
guarantee

0.87250

-

-

-

-

Category
LenderBalance Balance Average
Loan
End ofof This Interest Repayment Repayment
Execution Previous End
Date
MethodPeriod(%)
Date
Period
(mm
yen)
(Note
1)
(mm yen)AozoraBank, Ltd.
Chuo Mitsui
Trust andBankingCo., Ltd.
MizuhoTrust &
BankingCo., Ltd.
Sumitomo 6/29/06
Mitsui
Banking
Corporation
MizuhoCorporate
Bank, Ltd.
Mitsubishi
UFJ Trustand Banking
Corporation
The
Long-term Norinchukin
borrowings Bank
MizuhoCorporate
Bank, Ltd.
6/29/06
Mitsubishi
UFJ Trustand Banking
Corporation
AozoraBank, Ltd.
MizuhoCorporate
Bank, Ltd.
Mitsubishi
UFJ Trustand Banking
Corporation 6/29/06
ResonaBank, Ltd.
The Dai-ichi
Mutual Life
Insurance
Company
Subtotal
Total
-

3,000

3,000

3,000

3,000

3,000

Usage

Description

3,000(Note 1) The indicated average interest is the weighted average of the end-of-period balance with the borrowinginterest rate for each loan agreement as of the end of the period, and has been rounded to the fifth
decimal place. The weighted average after factoring in the benefits of the interest rate swap has beenentered for the borrowings where interest rate swaps have been concluded to avoid the risk of interest
variations.
(Note 2) This is a fixed-interest loan.
(Note 3) The following is the scheduled repayment amount within five years of the settlement date for the borrowings.
CategoryLess than 1 year
(mm yen)

Borrowings

39,1001 year – Less
than 2 years(mm yen)13,0002 years – Less
than 3 years(mm yen)13,0003 years – Less
than 4 years(mm yen)12,5004 years – Less
than 5 years(mm yen)-

1.35712 6/29/09
2,000

2,000

1,000

1,000

1,000

1,000

3. Overview of Investment Corporation Bonds
Not applicable.

VI. Property Sale and Purchase Conditions during the Second Fiscal Period
1. Sale and Purchase Conditions of Real Estate and Asset-backed Securities

5,000

3,000

For
No
collateral
One-time propertyorpayment acquisition
funds
guarantee

5,000

3,000

(unit: mm yen)
Asset Type

Property Name

1.51077 6/29/10
Akasaka Garden City
3,000

2,000
5,000

3,500

3,000

JEI
Trust
Nishi-Honmachi
beneficiary
Building
interests inreal estate Ebina Prime Tower

2,000

1.49832

1,000

3,000

3,000

1.96625(Note 2)38,50038,50038,50077,6001.49131
1.17951

44

23,300March 28,
2007

6,674
-

Transfer
Transfer
Price

Book
Value

Capital
Gains

-

-

-

-

-

-

6,470
4,238
40,682(Note) The figure entered for the acquisition price (property transfer price entered in the agreement to transfer
beneficiary interests in trust, etc.) is an amount that does not factor in the acquisition costs of the concerned property, etc. (brokerage fee, public charges, etc.), and figures have been rounded to the nearest
million yen.

6/29/11
1,000

March 28,
2007

March 29,
2007
April 24,
Sendai Kowa Building
2007
Total

5,000

3,500

Acquisition
Acquisition Acquisition
Transfer
Price
Date
Date
(Note 1)

2. Other Asset Sale and Purchase Conditions
-

-

-

-

The primary assets other than the above property, asset-backed securities, etc. are bank deposits or bankdeposits of property placed in trust.

45

B. Amounts of Fees Paid

3. Appraisal of Qualified Asset Values
Real estate, etc. (Note 1)
Acquisition orTransfer

Property Name

Category
Type of Asset

Acquisition Price Appraised Value of(mm yen)
Qualified Asset
Acquisition Date
(Note 2)(mm yen)

Trust beneficiary
Akasaka Gardeninterests in real
March 28, 2007
City
estate (TBIRE)
JEI
Nishi-Honmachi TBIRE
March 28, 2007
Building
Ebina Prime
TBIRE
March 29, 2007
Tower
Sendai Kowa
TBIRE
April 24, 2007
Building
Total

Acquisition

23,30023,300

6,674

6,770

6,470

6,550

4,238

4,303

40,68240,923(Note 1) The appraisals of the values, etc. for the qualified assets above were conducted at the time of acquisition of the assets by Misuzu Audit Corporation based on Occupation Audit Committee Report No. 23
Investigation of Qualified Asset Prices for Investment Trusts and Investment Corporations of the Japanese Institute of Certified Public Accountants. In addition to the above appraised value, JEI has
received appraisal reports for other items needed for determination of the actual concerned property
such as property address and lot number.
(Note 2) The acquisition price figures (property transfer price entered in the agreement to transfer beneficiaryinterests in trust, etc.) do not factor in acquisition costs for the concerned property, etc. (brokerage fee,public charges, etc.) and figures have been rounded to the nearest million yen.

Maintenance andManagement Fees
(Note 2)
Total

Total Fees Paid(A)

863,810,000 yen

Breakdown of Transactions
with Interested Parties
and Major Stockholders
Paid To
Kowa Real EstateCo., Ltd.
Sekisui House, Ltd.

863,810,000 yen

Amount Paid (B)247,722,000 yen

28.7%

24,532,000 yen
272,254,000 yen

2.8%
31.5%

(Note 1) The entries are for Kowa Real Estate Co., Ltd., The Dai-ichi Mutual Life Insurance Company, and Sekisui
House, Ltd., with whom the asset manager had transactions this fiscal period and which fall under interested parties, etc. of the investment trust manager that has concluded an asset management agreement with JEI as stipulated in Article 20 of the Enforcement Rules for the Investment Trusts and Investment Corporation Law and major stockholders of the investment trust manager as defined in Article
9-3 of the Investment Trusts and Investment Corporation Law.
(Note 2) The maintenance and management fees include property management fees and construction management fees recorded as assets and not treated as expenses.
(Note 3) The amounts do not include consumption tax.

5. Existence of Transactions between the Asset Manager and Concurrent Operations of Said Manager
This entry is not applicable because the asset manager – JEAM – is not involved in securities, real estate brokerage, or real estate syndication businesses.

Other

VII. Accounting

There were no other transactions subject to appraisals during the subject period from January 1, 2007 – June30, 2007.

1. Conditions of Assets, Liabilities, Principal, and Profits/Losses

4. Transactions with Interested Parties and Major Stockholders

Please refer to Balance Sheet, Income Statement, Form of Changes to Investor Capital, Annotation Table, andCash Distribution Calculation Form for information on the conditions of assets, liabilities, principal, and profits/losses noted later.

Transactions
Sale or Purchase Amount
Purchase AmountSale Amount
40,682 mm yen- mm yenOf
which,
34,008
mm
yen
are
Of
which,mm
yen are sales toTotal Amountacquisitions from interested
interested parties and major
parties and major stockholders
stockholders
Breakdown of transactions with interested parties and major stockholders
Sekisui House, Ltd.
23,300 mm yen (57.3%)- mm yen(-%)
The Dai-ichi Mutual Life
6,470 mm yen (15.9%)- mm yen(-%)
Insurance Company
Kowa Real Estate Co., Ltd.
4,238 mm yen (10.4%)- mm yen(-%)
Total
34,008 mm yen (83.6%)- mm yen(-%)
Category46

B/A

2. Changes in the Depreciation Calculation Method
Not applicable

3. Changes to the Real Estate Valuation Method
Not applicable47

Financial Statements
VIII. Other
1. Notification
The following is an overview of the primary agreements concluded, changed, etc. with the approval of the boardof directors of JEI during this fiscal period.
Date of Approval
by Board of
Directors

January 25, 2007

Approval Item

Description
Of the regulations governing criteria forhandling operations outsourced to the asset
manager, partial changes were made to
the regulations governing further
outsourcing to a third party

Amendment to asset managementagreement

2. Other
When there is no particular indication, values below those indicated in this document have been cut off in thecase of monetary amounts and rounded in the case of ratios (percentages).

Table of Contents
Report of Independent Auditors

51

Balance Sheets

52

Statements of Income and Retained Earnings

53

Statements of Changes in Net Assets

54

Statements of Cash Flows

55

Notes to Financial Statements

56

September 26, 2007

48

49

50

51

Japan Excellent, Inc.

Japan Excellent, Inc.

Balance Sheets

Statements of Income and Retained Earnings

As of June 30, 2007 and December 31, 2006

For the periods from January 1, 2007 to June 30, 2007
and from February 20, 2006 to December 31, 2006

As of
As of
June 30,
December 31,
2007
2006
(Thousands of yen)
AssetsCurrent assets:
Cash and cash equivalents including trust accounts (Note 4)
Rental receivables
Consumption taxes refundable
Other current assets
Total current assets
Property and equipment (Note 6):
Buildings and building improvements
Construction in progress
Buildings and building improvements for trust accounts
Machinery and equipment for trust accounts
Furniture and fixtures for trust accounts
Land for trust accounts
Construction in progress for trust accounts
Less: accumulated depreciation
Total property and equipment
Investments and other assets:
Leasehold rights
Leasehold rights for trust accounts
Investment in securities (Note 5)
Security deposits
Long-term prepaid expenses
Other assets
Total investments and other assets
Total assets
Liabilities
Current liabilities:
Accounts payable – trade
Short-term loans (Note 7)
Accounts payable – other
Other current liabilities
Total current liabilities
Long-term liabilities:
Long-term debt (Note 7)
Security deposits from tenants
Security deposits from tenants for trust accounts
Derivative liabilities
Total long-term liabilities
Total liabilities
Net assets (Note 8):
Unitholders’ equity:
Unitholders’ capital:
Units authorized: 2,000,000 units
Units issued and outstanding: 134,800 units as ofJune 30, 2007 and December 31, 2006
Retained earnings
Total unitholders’ equity
Valuation and translation adjustments:
Unrealized loss on deferred hedge transactions
Total valuation and translation adjustments
Total net assets
Total liabilities and net assets

As ofJune 30,
2007(U.S. dollars)(Note 2)

¥ 15,319,710
357,859
518,641
86,645
16,282,855¥ 13,119,877
195,683
1,765,147
32,671
15,113,378$ 124,277,684
2,903,046
4,207,357
702,892
132,090,979

3,204,845
126
47,625,937
380,957
4,771
81,393,329
210(1,306,053)
131,304,122

3,198,296
6,396
34,109,076
315,648
2,147
53,363,405–(631,656)
90,363,312

25,998,581
1,021
386,354,642
3,090,429
38,709660,284,974
1,704(10,595,057)
1,065,175,003

1,185,045
7,380,017
10,76815,182
112,681545
8,704,238¥156,291,215

1,185,045
7,380,017
10,76815,182
131,521576
8,723,109¥114,199,799

9,613,409
59,868,717
87,353
123,158
914,105
4,420
70,611,162$1,267,877,144

¥

¥

$

447,648
39,100,000
308,346
26,97839,882,972

472,372–
299,964
26,636
798,972

3,631,441
317,189,908
2,501,390
218,855
323,541,594

38,500,000
516,494
7,510,209
67,776
46,594,479
86,477,451

38,500,000
483,185
4,919,047
168,61044,070,842
44,869,814

312,322,544
4,189,943
60,924,867
549,820
377,987,174
701,528,768

67,641,920

67,641,920

548,729,780

2,239,620
69,881,540

1,856,675
69,498,595

18,168,416
566,898,196(67,776)(67,776)
69,813,764¥156,291,215(168,610)(168,610)
69,329,985¥114,199,799(549,820)(549,820)
566,348,376$1,267,877,144

For the period
For the period
from Januaryfrom February
1, 2007 to
20, 2006 toJune 30,
December 31,
2007
2006
(Thousands of yen)

For the period
from January
1, 2007 toJune 30,
2007(U.S. dollars)(Note 2)

Revenues:
Rental revenues (Note 11)
Other (Note 11)
Total revenues¥5,069,179
436,637
5,505,816¥4,335,709
416,137
4,751,846$41,122,566
3,542,119
44,664,685

Operating expenses:
Property operating expenses (Note 11)
Asset management fees
Custodian fees
Administrative service fees
Compensation for directors
Other operating expenses
Total operating expenses
Operating income

2,409,279
328,491
7,435
14,542
4,690
87,5142,851,951
2,653,865

1,977,987
306,291
8,975
18,014
11,85859,014
2,382,139
2,369,707

19,544,732
2,664,810
60,316
117,964
38,047
709,938
23,135,807
21,528,878

16,384
7,975
319

–
5,017
–

132,91464,6992,586

Other expenses:
Interest expense
Loan arrangement fees
New unit issuance costs
IPO expenses
Organization costs
Other
Income before income taxes

361,110
46,77730,126––12,240,529

208,919
85,46862,916
104,727
54,305
1
1,858,388

2,929,424
379,474
244,388––6
18,175,785

Income taxes – current (Note 10)
Income taxes – deferred
Net income
Retained earnings at beginning of period
Retained earnings at end of period965
192,239,545
75¥2,239,620

1,750
(37)
1,856,675–¥1,856,675

7,824
155
18,167,806
610$18,168,416

Other income:Refund of consumption taxes including interest
Interest income
Other

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

The accompanying notes are an integral part of these financial statements.
52

2

53

Japan Excellent, Inc.

Japan Excellent, Inc.

Statements of Changes in Net Assets

Statements of Cash Flows

For the periods from January 1, 2007 to June 30, 2007
and from February 20, 2006 to December 31, 2006

For the periods from January 1, 2007 to June 30, 2007
and from February 20, 2006 to December 31, 2006

Number ofunits
Balance as of February 20, 2006
Changes during the fiscal period:
Issuance of new units
Net income
Changes in unrealized loss ondeferred hedge transactions
Total changes during the fiscal period
Balance as of December 31, 2006

–

–

–

–

–

134,800–¥67,641,920––¥1,856,675¥67,641,920
1,856,675

–
–

–
–

¥67,641,920
1,856,675––
134,800–
67,641,920¥67,641,920–
1,856,675¥1,856,675–
69,498,595¥69,498,595¥(168,610)(168,610)¥(168,610)¥(168,610)(168,610)¥(168,610)(168,610)
69,329,985¥69,329,985

For the period from January 1, 2007 to June 30, 2007
Net assets
Valuation and translation
Unitholders’ equity
adjustments
Unrealized
loss onTotal
deferredvaluation andTotalunitholders’translation
hedge
Unitholders’
Retainedtransactions
capitalearnings
equityadjustments(Thousands of yen)Total
net assets

134,800¥67,641,920¥ 1,856,675¥69,498,595¥(168,610)¥(168,610)¥69,329,985

–
–

–
–

(1,856,600)
2,239,545(1,856,600)
2,239,545

–
–

–
–

(1,856,600)
2,239,545––
134,800––¥67,641,920–
382,945¥ 2,239,620–
382,945¥69,881,540

100,834
100,834¥ (67,776)

100,834
100,834¥ (67,776)

100,834
483,779¥69,813,764

Number ofunits issued
Balance as of December 31, 2006
Changes during the fiscal period:
Distributions from retained earnings
Net income
Changes in unrealized loss ondeferred hedge transactions
Total changes during the fiscal period
Balance as of June 30, 2007

Total
net assets–

Number ofunits
Balance as of December 31, 2006
Changes during the fiscal period:
Distributions from retained earnings
Net income
Changes in unrealized loss ondeferred hedge transactions
Total changes during the fiscal period
Balance as of June 30, 2007

For the period from February 20, 2006 to December 31, 2006
Net assets
Valuation and translation
Unitholders’ equity
adjustments
Unrealized
loss onTotal
deferredTotalvaluation andhedge
translation
unitholders’
Unitholders’
Retained
equitytransactions
adjustments
capitalearnings(Thousands of yen)

For the period from January 1, 2007 to June 30, 2007
Net assets
Valuation and translation
adjustments
Unitholders’ equity
Unrealized
loss on
Total
Total
valuation anddeferred
unitholders’
hedge
Unitholders’
Retainedtranslation
adjustments
equitytransactions
capitalearnings(U.S. dollars) (Note 2)

Total
net assets

134,800$548,729,780$ 15,061,861$563,791,641$(1,367,815)$(1,367,815)$562,423,826

–
–

–
–

(15,061,251)
18,167,806(15,061,251)
18,167,806

–
–

–
–

(15,061,251)
18,167,806––
134,800––$548,729,780–
3,106,555$ 18,168,416–
3,106,555$566,898,196

817,995
817,995$ (549,820)

817,995
817,995$ (549,820)

817,995
3,924,550$566,348,376

The accompanying notes are an integral part of these financial statements.
54

Cash flows from operating activities
Income before income taxes
Depreciation and amortization
Amortization of new unit issuance costs
IPO expenses
Interest income
Interest expense
Increase in rental receivables
Decrease (increase) in consumption taxes refundable
Increase in prepaid expenses
Increase in accounts payable – trade
Increase in accounts payable – other(Decrease) increase in advanceｓ received
Decrease (increase) in long-term prepaid expenses
Other, net
SubtotalInterest received
Interest paid
Income taxes paid
Net cash provided by operating activities

For the period
For the period
from Januaryfrom February
1, 2007 to
20, 2006 toJune 30,
December 31,
2007
2006
(Thousands of yen)

For the period
from January
1, 2007 toJune 30,
2007(U.S. dollars)(Note 2)

¥ 2,240,529
674,428
30,126–(7,975)361,110(162,175)
1,246,506(55,059)
82,743
31,107(1,333)
18,839(14,842)4,444,004
9,186(356,787)(2,677)
4,093,726¥ 1,858,388
631,715
62,916
104,727(5,017)208,919(195,683)(1,765,147)(30,387)279,758
245,719
17,649(131,521)
16,454
1,298,490
3,806(204,649)(761)
1,096,886$ 18,175,785
5,471,146
244,388–(64,699)
2,929,424(1,315,612)
10,111,996(446,654)
671,236
252,344(10,812)
152,829(120,400)
36,050,971
74,523(2,894,356)(21,720)
33,209,418

Cash flows from investing activities
Purchase of investment in securities
Purchases of property and equipment
Purchases of property and equipment for trust accounts
Purchases of intangible assets
Purchases of intangible assets for trust accounts
Payments for security deposits
Proceeds from security deposits from tenants
Payments of security deposits to tenants
Proceeds from security deposits from tenants for trust
accounts
Payments of security deposits to tenants for trust accounts
Net cash used in investing activities–(10,963)(41,687,477)
(8)
(108)
–
33,452(3,872)(10,768)(3,193,298)(87,632,905)(1,185,672)(7,379,908)(15,182)
500,106(13,193)–(88,936)(338,180,228)
(66)
(877)
–
271,375(31,407)3,002,228(471,393)(39,138,141)

5,051,303(71,929)(93,951,446)

24,354,895(3,824,072)(317,499,316)

Cash flows from financing activities
Proceeds from short-term loans
Repayment of short-term loans
Proceeds from long-term debt
Proceeds from issuance of new units
Payments for new unit issuance costs
Payments for IPO expenses
Distributions to unitholders
Net cash provided by financing activities

53,100,000(14,000,000)––(1,197)(161)(1,854,394)
37,244,248––
38,500,000
67,641,920(62,916)(104,567)–
105,974,437

430,761,742(113,571,834)––(9,711)(1,303)(15,043,351)
302,135,543

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

2,199,833
13,119,877¥ 15,319,710

13,119,877–¥ 13,119,877

17,845,645
106,432,039$ 124,277,684

The accompanying notes are an integral part of these financial statements.
55

Japan Excellent, Inc.

3.

Summary of Significant Accounting Policies

Cash and cash equivalents

Notes to Financial Statements

Cash and cash equivalents consist of cash on hand, deposits with banks and short-term
investments which are highly liquid, readily convertible into cash with an insignificant riskof price fluctuation and with an original maturity of three months or less.

For the periods from January 1, 2007 to June 30, 2007
and from February 20, 2006 to December 31, 2006

Investments in securities
1.

Organization

Japan Excellent, Inc. (hereinafter, “JEI”), established on February 20, 2006 under the Law
Concerning Investment Trusts and Investment Corporations of Japan (the “Investment TrustLaw”), is a real estate investment corporation which primarily invests in office buildings.
JEI is externally managed by a licensed asset management company, Japan Excellent AssetManagement (“JEAM”). JEAM is owned 40% by Kowa Real Estate Co., Ltd., 20% by
The Dai-ichi Mutual Life Insurance Company, 15% by Sekisui House, Ltd. and 25% byother corporations.
JEI was listed on the Tokyo Stock Exchange on June 27, 2006. As of June 30, 2007, JEI
held 18 properties with 190,051 square meters of total leasable space and had leases with
120 tenants excluding residential tenants.
2.

Non-marketable securities classified as other securities are carried at cost.
securities sold is determined by the moving average method.

Cost of

Property and equipment including trust accounts
Depreciation is computed by the straight-line method over the estimated useful lives of therespective assets as follows:
Buildings
Building improvements
Machinery and equipment
Furniture and fixtures

2 – 59 years
4 – 59 years
7 – 16 years
4 – 10 years

Amortization of trademark rights is computed using the straight-line method over a periodof 5 years.
Organization costs and unit issuance costs

Basis of Presentation

JEI maintains its accounting records and prepares its financial statements in accordancewith accounting principles generally accepted in Japan (“Japanese GAAP”), including
provisions set forth in the Investment Trust Law, the Corporation Law of Japan, theSecurities and Exchange Law of Japan and related regulations, which are different incertain respects as to the application and disclosure requirements of International Financial
Reporting Standards.
The accompanying financial statements are a translation of the financial statements of JEI,
which were prepared in accordance with Japanese GAAP and presented in the Securities
Report of JEI filed with the Kanto Local Finance Bureau. In preparing the accompanying
financial statements, certain reclassifications and modifications have been made for theconvenience of readers outside Japan. In addition, the notes to financial statements
include information that might not be required under Japanese GAAP but is presented
herein as additional information. Amounts have been rounded to the nearest thousand yen
in the accompanying financial statements and in the notes thereto whereas amounts weretruncated in the Japanese financial statements prepared in accordance with Japanese GAAP.
Amounts in U.S. dollars are included solely for the convenience of readers outside Japan.
The rate of ¥123.27 = U.S.$1.00, the foreign exchange rate prevailing on June 30, 2007, hasbeen used for translation. The inclusion of such amounts is not intended to imply thatJapanese yen have been or could be readily converted, realized or settled into U.S. dollars
at that or any other rate.

Organization costs and new unit issuance costs are charged to income as incurred.
Income taxes
Income taxes are accounted for on the basis of income for financial statement purposes.
The asset and liability method is used to recognize deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities.
Consumption taxes
Consumption taxes received and paid are not included in the accompanying statements ofincome and retained earnings.
Property-related taxes
Principally, property-related taxes including property taxes, urban planning taxes anddepreciable property taxes are imposed on a calendar year basis and are expensed as
property and other taxes (refer to Note 11).
For the period from January 1, 2007 to June 30, 2007, JEI capitalized the property-related
taxes allocated to the sellers of properties to JEI at the time of acquisition of such properties
for trust accounts.
The capitalized amounts for the periods from January 1, 2007 to June 30, 2007 and fromFebruary 20, 2006 to December 31, 2006 were ¥193,439 thousand and ¥339,095 thousand,respectively.

56

6

57

3.

Summary of Significant Accounting Policies (continued)

6.

Revenue recognition

Schedule of Property and Equipment

Property and equipment at June 30, 2007 and December 31, 2006 consisted of thefollowing:

Rental revenues are generally recognized on an accrual basis over the life of each lease.
Derivatives and hedge accounting

JEI deferred recognition of gains or losses resulting from changes in the fair value ofinterest-rate swap agreements because its interest-rate agreements met the criteria fordeferred hedge accounting.
Properties in trust accounts
All assets and liabilities held in trust, for which real estate in possession of JEI was
entrusted, and all earnings and expenses resulting from such trust are properly reflected in
the accompanying balance sheets and statements of income and retained earnings.

As of
As of
June 30,
December 31,
2007
2006
(Thousands of yen)
¥ 5,223,560
10,096,150¥15,319,710¥ 5,978,072
7,141,805¥13,119,877

As ofJune 30,
2007(U.S. dollars)$ 42,374,948
81,902,736$124,277,684

Investment in Securities

Investment in securities as of June 30, 2007 and December 31, 2006 was as follows:
As of
As of
December 31,
June 30,
2006
2007(Thousands of yen)
Non-listed stock

Acquisition
cost

Accumulated
depreciation

As of June 30, 2007

Net
book value

Acquisition
cost

Accumulated
depreciation¥10,768

58¥10,768

As ofJune 30,
2007(U.S. dollars)$87,353(U.S. dollars)

210

–

210

–

–

–

1,704

–

1,704

Total

¥132,610,175¥(1,306,053)¥131,304,122¥90,994,968¥(631,656)¥90,363,312$1,075,770,060$(10,595,057)$1,065,175,003

7.

¥

Net
book value¥ 3,204,845(79,365)¥ 3,125,480¥ 3,198,296¥ (43,117)¥ 3,155,179

47,625,937(1,201,899)

46,424,038

34,109,076(576,109)

33,532,967

386,354,642(9,750,136)

376,604,506

380,957(24,450)

356,507

315,648(12,372)

303,276

3,090,429(198,342)

2,892,087

4,771
81,393,329
126

(339)
–
–

4,432
81,393,329
126

2,147
53,363,405
6,396

(58)
–
–

2,089
53,363,405
6,396

38,709660,284,974
1,021(2,750)––35,959660,284,974
1,021

$

25,998,581$(643,829)

Short-Term Loans and Long-Term Debt

Short-term loans and long-term debt as of June 30, 2007 and December 31, 2006 consistedof the following:
As of June 30, 2007
WeightedaverageAmountinterest rate
(Thousands ofｙen)

Cash and cash equivalents including trust accounts in the accompanying balance sheets andcash and cash equivalents in the accompanying statements of cash flows at June 30, 2007
and December 31, 2006 consisted of the following:

5.

Netbook value

Buildings and structures
Buildings and structures
for trust accounts
Machinery and equipment
for trust accounts
Furniture and fixtures fortrust accounts
Land for trust accounts
Construction in progress
Construction in progress
for trust accounts

Cash and Cash Equivalents

Cash and cash deposits
Cash in trust and deposits in trust
Cash and cash equivalents

Accumulated
depreciation(Thousands of yen)

JEI utilizes interest-rate swap agreements as derivative financial instruments solely for the
purpose of hedging its exposure to fluctuation in interest rates. JEI has entered into
interest-rate swap contracts to hedge variable rates for long-term debt obligations.

4.

As of December 31, 2006

As of June 30, 2007
Acquisition
cost

Short-term loans:
Loans from banks due on
July 31, 2007
Long-term debt
Loans from banks due on
June 29, 2009
Loans from banks due on
June 29, 2010
Loans from banks due on
June 29, 2011
Loans from an insurancecompany due on
June 29, 2011
Subtotal
Total

8.

As of December 31, 2006
WeightedaverageAmountinterest rate
(Thousands of
ｙen)–

As of June 30,
2007

Amount(U.S. dollars)¥39,100,000

0.87250%–$317,189,908

13,000,000

1.35712%¥13,000,000

0.96370%

105,459,560

13,000,000

1.51077%

13,000,000

1.02857%

105,459,560

9,500,000

1.49832%

9,500,000

0.96834%

77,066,602

3,000,000
38,500,000¥77,600,000

1.96625%

3,000,000
38,500,000¥38,500,000

1.96625%

24,336,822
312,322,544$629,512,452

Net Assets

JEI issues only non-par value investment units in accordance with the Investment TrustLaw.
JEI is required to maintain net assets of at least ¥50 million in accordance with theInvestment Trust Law.

59$

25,354,752

9.

Per Unit Information

11.

Breakdown of Property Rental Business Revenues and Expenses

Net assets per unit were ¥517,906 and ¥514,317 as of June 30, 2007 and December 31,
2006, respectively. Net income per unit was ¥16,614 and ¥13,858 for the periods fromJanuary 1, 2007 to June 30, 2007 and from February 20, 2006 to December 31, 2006,
respectively, which were computed based on the weighted-average number of units
outstanding during the respective periods.

For the period For the period
from January from February
1, 2007 to
20, 2006 toJune 30,
December 31,
2007
2006
(Thousands of yen)
Rental business revenues:
Rental income
Other
Property operating expenses:
Property management costs
and fees
Utilities
Property and other taxes
Insurance
Repairs and maintenance
Depreciation
Other
Profit10. Income Taxes
JEI is subject to income taxes in Japan.
JEI’s policy is to make dividend distributions in excess of 90% of taxable income for eachfiscal period in order to meet the condition set forth in the Special Taxation Measures Law
of Japan concerning the deductibility of cash dividends paid for income tax purposes.
Details of significant components of deferred tax assets and liabilities as of June 30, 2007
and December 31, 2006 are summarized as follows.
As of
As of
June 30,
December 31,
2007
2006
(Thousands of yen)
Deferred tax assets:
Accrued enterprise taxes
Unrealized loss on deferred hedgetransactions
Gross deferred tax assets
Valuation reserve
Total deferred tax assets
Net deferred tax assets

As ofJune 30,
2007(U.S. dollars)

12.
¥

18

26,697
26,715(26,697)
18
¥
18

¥

37

66,41566,452(66,415)
37
¥
37

$

146

216,573
216,719(216,573)
146
$
146

A reconciliation of the differences between the adjusted statutory tax rate and the effective
tax rates for the period from January 1, 2007 to June 30, 2007 and for the period fromFebruary 20, 2006 to December 31, 2006 was as follows:
For the period
from January
1, 2007 toJune 30,
2007
Statutory tax rate
Reconciliation:
Deductible distributions paid
Other
Effective tax rates

60

For the period
from February
20, 2006 to
December 31,
2006

39.39%

39.39%(39.38)0.03
0.04%(39.35)0.05
0.09%

For the period
from January
1, 2007 toJune 30,
2007(U.S. dollars)¥5,505,816
5,069,179
436,637
2,409,279¥4,751,846
4,335,709
416,137
1,977,987$44,664,685
41,122,566
3,542,119
19,544,732

859,980452,266
174,558
19,063
124,121674,396
104,895¥3,096,537

712,749
406,340–
13,790120,178
631,656
93,274¥2,773,859

6,976,392
3,668,909
1,416,064
154,644
1,006,901
5,470,889
850,933$25,119,953

Related Party Transactions

JEI has entered into real estate lease agreements and purchase agreements for investment
assets with Kowa Real Estate Co., Ltd. which owns 10% of the outstanding units of JEI.
In addition, JEI has entered into an asset management agreement and other transactions
with Junichi Tamura who is the President of JEAM and Executive Director of JEI.
For the period from January 1, 2007 to June 30, 2007
(1) Major unitholders

Company name

Description oftransaction

Amount(Thousandsof yen)Amount(U.S.
dollars)

Account

Acquisition of realestate¥4,238,000$34,379,817–

Kowa Real
Property leasing
Estate Co., Ltd.

¥1,399,789

Payment of property
management costs ¥ 245,054
and fees

61

Advancereceived$11,355,477
Security
depositAccounts$ 1,987,947 payable –trade

Balance atthe end of
period(Thousandsof yen)Balance atthe end of
period(U.S.
dollars)

–

–

¥

801

$

6,495

¥1,985,940$16,110,489¥$

67,539547,894

12.

Related Party Transactions (continued)

13. Significant Subsequent Events

For the period from January 1, 2007 to June 30, 2007 (continued)(1) Cash distribution(2) Directors and major individual unitholders

Name

Description oftransaction

Amount(Thousandsof yen)Junichi Tamura

Payment of asset
management fees
to JEAM¥328,491

Amount(U.S.
dollars)$2,664,810

Account

Balance atthe end of
period(Thousandsof yen)Balance atthe end of
period(U.S.
dollars)

Accounts
payable¥216,850$1,759,147

On August 22, 2007, the Board of Directors approved a resolution to make a cash
distribution of ¥16,614 per unit aggregating to ¥2,239,567,200 to unitholders of record
as of June 30, 2007.

For the period from February 20, 2006 to December 31, 2006
(1) Major unitholders

Company name

Description of transaction
Acquisition of real estate

Kowa Real
Property leasing
Estate Co., Ltd.
Payment of property
management costs and fees(2) Issuance of new units
Amount(Thousandsof yen)¥22,875,000¥ 1,364,656¥

232,974

Account–
Advance received
Security deposit
Accounts payable –trade

Balance at theend of period(Thousandsof yen)–¥147¥1,533,890

On June 18, 2007, the Board of Directors approved a resolution to complete a public
offering of new units as outlined below. JEI received payment on July 11, 2007 andAugust 8, 2007 for the said units which were issued in accordance with the conditions
outlined below. As a result of the issuance of new units, JEI had unitholders’ capitalof ¥87,083 million ($706,441 thousand) with 154,550 units in issue at August 8, 2007.

¥

A. Issuance of new units through public offering

40,740(2) Directors and major individual unitholders

Name

Description of transaction

Junichi Tamura

Payment of asset management
fees to JEAM
Payment of foundation
arrangement fees to JEAM

In accordance with Section 33.1.2 of the bylaws set forth by JEI for distributions ofcash dividends, the amount of dividends payable is limited by the amount of income toan amount exceeding 90% of income available for distributions of dividends of JEI as
set forth in Section 67.15 of the Special Taxation Measures Law. Consequently, JEI
set income available for distributions of dividends at ¥2,239,567,200, the maximum
integral multiple of the 134,800 units issued not exceeding unappropriated income atJune 30, 2007. No cash distribution exceeding the income amount set forth in
Section 33.1.4 of the bylaws of JEI shall be made.

Amount(Thousandsof yen)¥306,291¥ 50,000

Account

Accounts payable–

Balance at theend of period(Thousandsof yen)¥184,708–(i)
Method of issuance:(ii) Number of units issued:(iii) Issue price (offer price):(iv) Total offer price:(v) Proceeds per unit:(vi) Aggregate proceeds:(vii) Payment date:(viii) Beginning date of dividend
calculation for new unitholders:Public offering
19,000 units¥1,019,200 ($8,268) per unit
¥19,365 million ($157,093 thousand)¥984,360 ($7,985)¥18,702 million ($151,723 thousand)July 11, 2007
July 1, 2007

B. Issuance of new units through allocation to a third party
(i)
(ii)
(iii)
(iv)
(v)
(vi)

Method of issuance:
Number of units issued:
Proceeds per unit:
Aggregate proceeds:
Payment date:
Beginning date of dividend
calculation for new unitholders:(vii) Allottee:

62

63

Allocation to a third party
750 units¥984,360 ($7,985) per unit
¥738 million ($5,989 thousand)August 8, 2007
July 1, 2007
Mizuho Securities Co., Ltd.

13. Significant Subsequent Events (continued)(3) Early repayment of a loan
On July 23, 2007, the Board of Directors approved a resolution to repay the following
outstanding short-term loan on July 24, 2007 prior to its due date:(i)
Total amount of the loan:(ii) Lender:(iii) Interest rate:
(iv)
(v)

¥20,700 million ($167,924 thousand)
Mizuho Corporate Bank, Ltd.
0.87250% (from June 25, 2007 throughJuly 24, 2007)
March 28, 2007
July 31, 2007

Start of the loan period:
Original due date:(4) Borrowing from financial institutions
On July 31, 2007, JEI borrowed ¥18,000 million from certain financial institutions forthe repayment of short-term loans.

Loans from banks and other due on
July 31, 2012
Loans from banks and other due on
July 31, 2012
Loans from an insurance company
due on July 31, 2014
Loans from a bank due on July 31,
2014
Total

Amount(Thousands ofyen)

Amount(U.S. dollars)Interest rate

¥ 7,000,000$ 56,785,917

1.11500%

7,000,000

56,785,917

1.96907%2,000,000

16,224,548

2.25875%

2,000,000¥18,000,000

16,224,548$146,020,930

2.28417%64