O

October 18, 2018

Financial Results for the Fiscal Period
from March 1, 2018 to August 31, 2018
Nippon Accommodations Fund Inc. (NAF) is listed on the Tokyo Stock Exchange (J-REIT) withthe securities code number 3226. (Website: https://www.naf-r.jp/english/)
Executive Director:
Investment TrustManagement Company:
President and CEO:Inquiries:

Takashi Ikeda

Mitsui Fudosan Accommodations Fund Management Co., Ltd.
Tateyuki Ikura
Tetsuji Kawakami, Director and Chief Financial Officer
Tel: +81-3-3246-3677
Scheduled Filing Date of Securities Report:
November 30, 2018
Scheduled Commencement Date of Cash Distribution Payment: November 15, 2018

1. Business Results for the Fiscal Period from March 1, 2018 to August 31, 2018
(1) Operating Results(in millions of yen, rounded down; except as noted)
Total revenues

Operating income(%)*

Income before income
taxes

(%)*

(%)*

For the period ended
August 31, 2018

11,047

1.6

4,935

(0.4)

4,439

(0.2)

February 28, 201810,870

0.9

4,955

6.0

4,448

8.0

IncomeIncomebeforebeforeNet income Net income/incomeincomeper unit
net assets
taxes/
taxes/
operatingtotal assets income

Net income

(%)*

(yen)

(%)

(%)

(%)

4,438

(0.2)

9,161

3.2

1.5

40.2

4,447

8.0

9,178

3.2

1.5

40.9

For the period ended
August 31, 2018
February 28, 2018

* Percent figures show changes from previous period.

1(2) Distributions(in millions of yen, rounded down; except as noted)
Total
Distribution
Total
distributions Distribution in
per unit
excess of
distributions inDistributions/(not including (not including
Payout ratio
earnings
excess of
net assets
distributions in distributions in
per unit
earnings
excess ofexcess of
earnings)
earnings)
(yen)
(yen)
(%)
(%)

For the period ended
August 31, 2018

9,161

4,438

0

0

100.0

3.2

February 28, 2018

9,179

4,447

0

0

100.0

3.2

(3) Financial Position(in millions of yen, rounded down; except as noted)

Total assets

Net assets

Net assets/
total assets

Net assets per
unit

(%)

(yen)

As of
August 31, 2018294,692

140,16747.6

289,290

February 28, 2018

293,998

140,17647.7

289,308

Cash flows fromoperating activities

Cash flows frominvesting activities(4) Cash Flows(in millions of yen, rounded down; except as noted)

Cash flows fromfinancing activities

Cash and cash
equivalents

For the period ended
August 31, 2018
February 28, 2018

6,775

(2,114)(3,947)

8,380

6,235

(301)

(5,116)7,666

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2. Forecasts for the Fiscal Period from September 1, 2018 to February 28, 2019(in millions of yen, rounded down; except as noted)

Total
revenues

Distribution
per unit
Distribution in
Income(notexcess ofbeforeNet income including
earnings
income taxes
distributions
per unit
in excess ofearnings)

Operatingincome

(%)*

(%)*

(%)*

(%)*

(yen)

(yen)

2.6

4,555 2.6

9,350

0

For the period ending

February 28, 2019 11,058

0.1

5,031

2.0

4,556

* Percent figures show changes from previous period.

Note:
1. Projected net income per unit for the fiscal period ending February 28, 2019 is ¥9,402.
2. “Distribution per unit” is calculated on the assumption that a part of retained earnings be
retained internally.

3. Other
1. Changes in significant accounting policies, Changes in accounting estimates and Restatement(1) Changes in significant accounting policies due to revisions in accounting standards andothers: None
(2) Changes other than in the above item (1): None
(3) Changes in accounting estimates: None
(4) Restatement: None
2. Total number of investment units issued(1) The total number of investment units issued (including treasury investment units) as of theperiod-end
As of August 31, 2018:

484,522 units

As of February 28, 2018:

484,522 units(2) The number of treasury investment units as of the period-end
As of August 31, 2018:- units

As of February 28, 2018:- units

Disclaimer:
The above forecasts are based on information currently available to NAF and on certain
assumptions deemed to be reasonable. Actual operations may differ substantially due to anumber of factors. Accordingly, the forecasts are not a guarantee of any cash distribution
amount.

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25th Period (August 2018) Overview of Investment
External Growth (Acquisition of properties)
During the period under review, NAF newly acquired one property (acquisition price ¥1,700 million)
in March 2018.
Internal Growth (Management and operation of properties held by NAF)
NAF has chosen Mitsui Fudosan Residential Lease Co., Ltd. as property management company
on management of NAF’s rental apartments portfolio. The company and Mitsui Fudosan
Accommodations Fund Management Co., Ltd., the asset management company of NAF,
collaborate in the management of properties NAF owns with the aim of implementing effective
management and operational activities based on regional characteristics and the individualfeatures of each property. Specifically, NAF maintains and improves its rent levels and occupancy
rate through the implementation of a leasing strategy that has been formulated for each individual
property. In addition, NAF aims to reduce costs by utilizing the merits of outsourcing all property
management tasks to the property management company while examining, whenever necessary,
the adequacy of the grade of property management, cost of management and operation.
Meanwhile in the management of “Hospitality Facilities” (Note), NAF contracts out the management
and operational activities to a professional operator or business corporation. The asset
management company regularly monitors the management and operational activities, and makes
adjustments through professional dialog with the operator or business corporation as necessary.
In order to maintain and improve the competitiveness of NAF’s portfolio, operations are adequately
planned and carried out at the asset management company. These include appropriate renewal
work according to the property age, and work to enhance the property value. In addition, NAF is
not only making continuous efforts to reduce costs, but also introducing such features asenvironmentally friendly, energy-saving facilities in a timely manner.
In the period under review, NAF carried out renovations in common and private areas at
Okawabata Apartment Communities. At other properties, NAF planned and implemented suchworks as changing the lighting in common areas to LED lighting.
(Note) “Hospitality Facilities” is a generic term for “Accommodation Assets” that includes the four categories of“Dormitories, Corporate Housing,” “Serviced Apartments,” “Senior Residences,” and “Hotels,” excluding“Rental Apartments.”

Financial Strategy (Overview of funds procurement)
NAF’s basic policy is to carry out operations in a conservative manner that gives consideration tosuch matters as maintaining stable distributions in the medium and long term. During the period
under review, while taking into account market trends and interest rate levels, NAF pursued
financing from various sources with diversified repayment dates and an emphasis on long-term,
fixed-rate loans in its procurement of funds.
As a result, at the end of the period, total interest-bearing debt amounted to ¥147,500 million (¥500
million increase from previous period), the long-term debt ratio was 95.3%, the long-term, fixedrate debt ratio was 92.5%, and the loan-to-value (LTV) ratio was 50.1%. The average annual
current maturity of long-term interest-bearing debt was 4.2 years and the number of financial
institutions was 23. Furthermore, the weighted average interest rate at the end of the period was

40.63%.
NAF has also established a commitment line with a total maximum borrowing amount of ¥10,000
million, for the purpose of securing flexible and stable fund procurement methods.
With respect to financing through investment corporation bonds, NAF filed a shelf-registration
statement regarding its establishment of a maximum issuance amount for investment corporation
bonds for public offering in July 2017. The remaining balance of the planned issuance amount at
the end of the period is ¥100,000 million.
Planned issuance amountUp to ¥100,000 million

Scheduled period of issuance

From July 18, 2017 to July 17, 2019

Purpose for funds

Acquisition of specified new assets (as defined in Article 2,
Paragraph 1 of the Act on Investment Trusts and Investment
Corporations), repayment of borrowings, redemption of
investment corporation bonds, repayment of tenant security
deposits, payment for maintenance and renovations, andoperational use

Rating of NAF as of August 31, 2018 is as follows.
Rating agency
Rating and Investment Information, Inc.
(R&I)
S&P Global Ratings Japan Inc. (S&P)

Rating subject
Issuer credit rating

RatingA A - (Trend of rating: Stable)

Long-term corporate
Short-term corporate

A + (Outlook for rating: Stable)
A -1

Overview of Performance and Distribution
In the period under review, NAF recorded total revenues of ¥11,047 million, operating income of¥4,935 million, income before income taxes of ¥4,439 million and net income of ¥4,438 million. In
addition to the above, NAF has decided to distribute nearly the entire amount of earnings inaccordance with the Distribution Policy (Article 34 of the Articles of Incorporation) set forth by NAF.
The distribution per unit was ¥9,161.

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Management Policy and Issues for the 26th Period Onward
External Growth (New acquisition of properties)
Concerning the real estate trading market, environment for property acquisitions is expected toremain difficult, for example, prime real estate prices remaining at a high level.
NAF steadily acquires properties with highly competitive advantage from a medium- to long-term
perspective, leveraging our pipeline to the Mitsui Fudosan Group and enhancing information
channel at the asset management company.
While concentrating on a property acquisition strategy of stable acquisition of “Rental Apartments”,
NAF will also acquire “Hospitality Facilities” that offer stable revenue and competitiveness over thelong term. With respect to the acquisition of “Hospitality Facilities”, NAF will practice due diligence
depending on the asset’s characteristics.
NAF will keep the Hospitality Facilities’ share of the portfolio (based on acquisition price) to a
maximum of 10% in the near-term.
Internal Growth (Management and operation of leasehold properties)
In the residential rental market, the balance of supply and demand is expected to remain favorable
for the time being.
NAF aims to achieve solid internal growth in accordance with the investment policies bymaintaining customer satisfaction and asset value over the long term, maintaining and improving
rent levels and occupancy rate, and reducing costs, through brand strategies and tenant services
for the investment assets as well as through optimal management and operational activities thatutilize the value chain and highly specialized knowhow of the Mitsui Fudosan Group.
Financial Strategy
In regard to borrowings, taking into account borrowing cost, NAF will conduct financing activities
that emphasize on financing by long-term, fixed-rate loans and diversified repayment dates bytaking measures to counter future interest rate risks and refinancing risks. With respect to the upper
limit of LTV ratio, although the limit is set at around 60% in the asset management guidelines, NAF
is aiming for a near-term upper limit at a level of around 55% in its external growth process.
NAF will examine the necessity of issuance of new units by paying attention to market trends anddistribution amount levels, and taking into consideration the demand for funds for the purpose ofproperty acquisition, as well as our financial position. Additionally, NAF will examine futureissuances of investment corporation bonds in accordance with market trends, within the range ofthe remaining balance of planned issuance amount for which shelf-registration of NAF bonds has
been carried out.

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Significant Subsequent Events
Not applicable(Reference information)
The following asset was acquired on September 3, 2018. The “Acquisition price” is exclusive of
miscellaneous expenses for acquisition, fixed property taxes, urban planning taxes, consumption
taxes, and local consumption taxes.
Park Cube Nishi Shinjuku
Acquisition price:
Appraised value(Note 1):
Type of property:
Location (residence indication):
Completion date:
Structure/Number of stories:
Rentable units:
Rentable area:
Seller:¥2,400 million¥2,430 million(date of value appraisal: January 31, 2018)
Real estate
2-6 Kita-shinjuku 1-chome, Shinjuku-ku, Tokyo
December 26, 2014
Flat-roofed reinforced concrete structure/13 stories
57 residential, 1 retail, etc.
1,809.56 m2
ITOCHU Property Development, Ltd.

The following asset was acquired on September 27, 2018. The “Acquisition price” is exclusiveof miscellaneous expenses for acquisition, fixed property taxes, urban planning taxes,
consumption taxes, and local consumption taxes.
Park Axis Kanayama WEST
Acquisition price:
Appraised value:
Type of property(Note 2):
Location (residence indication):
Completion date:
Structure/Number of stories:
Rentable units:
Rentable area:
Seller:¥1,770 million¥1,840 million(date of value appraisal: August 31, 2018)
Real estate
4-3 Masaki 2-chome, Naka-ku, Nagoya-shi, Aichi
February 17, 2006
Flat-roofed reinforced concrete structure/14 stories
63
4,795.13 m2
Not disclosed as the consent from the seller has notbeen obtained.

The following asset was sold on September 27, 2018. The “Sales price” is exclusive of
miscellaneous expenses, fixed property taxes, urban planning taxes, consumption taxes, andlocal consumption taxes.
Park Cube Ikebukuro Kanamecho
Sales price:
Appraised value:
Type of property(Note 3):¥1,620 million¥1,620 million(date of value appraisal: February 28, 2018)
Real estate7

Location (residence indication):
Completion date:
Structure/Number of stories:
Rentable units:
Rentable area:
Buyer:

27-9 Nishi-ikebukuro 5-chome, Toshima-ku, Tokyo
March 23, 2007
Flat-roofed reinforced concrete structure/14 stories
65
1,886.82 m2
Not disclosed as the consent from the buyer has notbeen obtained.

(Note 1)The outline of real estate appraisal reports (obtained from JLL Morii Valuation & Advisory K.K.)
as of August 31, 2018, which is the 25th period closing date, is as follows.
(in millions of yen, except as noted)
CostmethodIncome capitalization method
Name of property

Park Cube
Nishi Shinjuku

Appraised
value

2,480

Value
calculated bydirectcapitalization
method2,520

Directcap rateValue
calculatedby DCFmethodDiscount
rate

2,440

3.9%

4.1%

Terminal
cap rate

4.3%

Cost
methodvalue
1,250

Appraisalcompany

JLL Morii
Valuation &Advisory K.K.

This property is applicable to forward commitments (refers to the postdated sales contract
under which payment and delivery shall be made at least one month after the conclusion of
the contract, or any other contract similar thereto) by investment corporations as provided forin the Comprehensive Guidelines for Supervision of Financial Instruments Business Operators
etc., defined by the Financial Services Agency. In the case of properties applicable to forward
commitments, if the closing date of the accounting period falls in the period between the
conclusion of the sales contract and the date of payment and delivery, it is specified in theinternal rules of the asset management company to disclose the continually conductedappraised value as of the 25th period closing date.
(Note 2)
NAF terminated the trust as of the acquisition date after acquiring trust beneficiary interests ofwhich trust property is the property acquired.
(Note 3)
NAF sold trust beneficiary interests of which trust property is the property sold after entrusting
the property sold to the trustee as of the handover date.

8Forecasts of Investment Performance
The forecasts for the 26th period (from September 1, 2018 to February 28, 2019) are as follows.
(in millions of yen, rounded down; except as noted)

Total revenues
Operating income
Income before income taxes
Net income
Distribution per unit (not including distributions
in excess of earnings) (yen)Distribution in excess of earnings per unit (yen)26th period(February 2019)11,058
5,031
4,556
4,555
9,350
―

Notes: Underlying assumptions of forecasts
Number of operating days:
Investment assets:

Expenses:

Interest-bearing debt:

Number of units issued:

Distribution per unit:- From September 1, 2018 to February 28, 2019 (181 days)- The number of properties held by NAF as of the date of thisdocument is 123. In the forecasts of investment performance, it isassumed that no subsequent transfer of properties (such as
acquisition of new properties, sale of properties acquired, etc.) shalloccur until February 28, 2019.
- From Park Cube Ikebukuro Kanamecho, which was sold on
September 27, 2018, approx. ¥46 million in gain on sale ofinvestment properties is anticipated.
- The average month-end occupancy rate during the 26th period for
total properties is expected to be 97.3%.
- The following expenses are assumed.
(in millions of yen)
26th period
Fixed property taxes and urban planning taxes
596
Depreciation and amortization
2,004Interest expense, etc.
475
- It is assumed that NAF’s balance of interest-bearing debt that is¥150,500 million as of the date of this document shall not change
until February 28, 2019.
- We assume 484,522 units outstanding as of the date of thisdocument.
- It is assumed that there shall be no issuance of new units until
February 28, 2019.
-Regarding the gain from transfer of Park Cube Ikebukuro
Kanamecho, in order to strengthen its financial position, NAF plans
to internally retain approx. ¥25 million by implementing a reduction
entry utilizing the “Special Provisions for Taxation in the Event ofAdvance Acquisition of Land, etc. in 2009 and 2010.”

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The above forecasted figures are calculated based on certain assumptions at the time of
preparation of this information. Therefore, actual total revenues, operating income, income
before income taxes, net income and distribution per unit may change due to future acquisitionor sale of investment assets, fluctuation in the real estate market or other changes in theenvironment in which NAF operates. Accordingly, the forecasts are not a guarantee of any cash
distribution amount.

Disclaimer:This financial report has been prepared in accordance with Japanese accounting standards andJapanese laws. Figures have been rounded down to eliminate amounts of less than one million
yen.
Please note that this English translation, a summary of the Japanese original document, is provided
solely for informational purposes. In the event of any discrepancy between the Japanese original
and this English translation, the Japanese original shall prevail.

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