16th Period
NAF Report | September 2013 – February 2014
http://www.naf-r.jp/english/index.html

Profile
Nippon Accommodations Fund Inc.
(“NAF”) was incorporated as aninvestment corporation on October 12,
2005 with an initial investment by
Mitsui Fudosan Co., Ltd. (“Mitsui
Fudosan”), and was listed on the Tokyo
Stock Exchange on August 4, 2006 withassets of more than ¥100 billion. NAF
invests in accommodation assets*located mainly in the 23 wards of Tokyo.
The Investment Trust and Investment
Corporation Act of Japan requires aninvestment corporation to be managed
by an external entity. NAF’s assets aremanaged by Mitsui Fudosan
Accommodations Fund Management
Co., Ltd., a 100 percent subsidiary of
Mitsui Fudosan.
* Accommodation assets in this report are defined as rental
apartments, corporate housing, dormitories/student
apartments, serviced apartments and senior residences. They
do not include hotel properties.

Asset Growth (Acquisition Price Basis)/Occupancy Rate/Distribution per Unit
300,000 (Yen in millions)

97.2%

96.9%

97.2%

96.0%

96.2%

94.4%

96.5%

95.5%

96.5%

95.5%

96.2%

95.8%

250,000

223,877

Occupancy rate
Distribution per unit (right axis)

180,026

150,000

140,000
140 000
August 2006:
108,233
Listed on the J-REIT 101,385
section of the Tokyo
8,935
Stock Exchange

38,98641,036 4,435

Establishment

March 31,2006

186,975 186,975
86 975140,000 140,000
14123,245(Yen) 10,000

6,375
50,000242,140

Assets under management (left axis)

200,000

100,000

231,227 231,936

95.6% 97.0% 287,733
267,406 271,7133

96.4%

7,183

7,230

7,293

6,813

7,283

6,874

7,043

6,754

7,274

7,153

7,445

6,858

7,444

7,300
5,000

0

0

February 28, August 31, February 29, August 31, February 28, August 31, February 28, August 31, February 28, August 31, February 29, August 31, February 28, August 31, February 28, August 31,
2011
2012
2012
2013
2014
2007
2007
2008
2008
2009
2009
2010
2010
2011
2013
2014
(Forecast announced
Apr. 17, 2014)

Note: NAF implemented a two-for-one split of investment units with an effective date of March 1, 2014. Distributions per unit for the 16th Period and earlier are adjusted for this split(actual distribution divided in half, rounded down to the nearest yen).

NAF Snapshot (As of February 28, 2014)
Profitability

97.0%
5.3%
¥14,888

An occupancy rate of 97.0 percent

Net operating income (NOI) yield* of 5.3 percent

Distribution per unit of ¥14,888 for the 16th Period

Outstanding Portfolio¥271,713 million

Portfolio of 108 superior properties with a totalacquisition price of ¥271,713 million

437,645.07m2/
10,685 units

10,685 units with a total rentable area of 437,645.07m2

86.5%

86.5 percent of portfolio located in the 23 wards of Tokyo

Financial Stability

AA–, A+, A3

Rated AA– by Rating and Investment Information; A+ (Long-term)and A-1 (Short-term) by Standard & Poor’s; and A3 by Moody’s

51.2%

LTV (Loan-to-value) ratio of 51.2 percent,long-term loan ratio of 97.2 percent*Weighted average of annual NOI yield on the acquisition value of each property

Contents
NAF Snapshot ..............................................................
NAF’s Two Core Strategies ............................................
To Our Stakeholders .....................................................
Portfolio Strategy ........................................................
Portfolio Summary .......................................................
Management‘s Discussion and Analysis ........................
Financial Statements ....................................................
Notes to Financial Statements ......................................
Independent Auditor’s Report .......................................

1
2
4
6
8
10
18
22
32

Facts and Figures .......................................................
Rental Apartment Investment Characteristics ...............
Corporate Structure and Governance ...........................
Primary Related Corporations ......................................
Portfolio Policy ............................................................
Corporate Data............................................................
Status of Unitholders ...................................................

33
1
3
6
8
11
12

Note: In this report, amounts less than 1 million yen have been omitted. As a result, the totals in Japanese yen shown in the financial statements do not necessarily agree with the sum of theindividual amounts.

NAF Report September 2013 – February 20141

NAF’s Two Core Strategies

1. Utilization of the Mitsui Fudosan Group
Full and active use of the Mitsui Fudosan Group’s value chain from planning and development to management
and operation
Access to investment opportunities through Mitsui Fudosan’s properties and its Group’s extensive real estate
information network
Operation, Planning/
Development of Accommodation Business

Provision of
Property Information

Market Research/
Analysis

REIT Management

Feedbackto Planning/
Development

Site Acquisition

Comprehensive
operating system
conducted by the
Mitsui Fudosan GroupManagement/
Operation

Planning and
DesignConstruction
Management/
SupervisionMarket Research/Analysis
Analysis of supply and demand trends using statistical
data, occupancy surveys of new properties and fixed
property observation. Examination of micro market
characteristics and needs based on representative data,
real estate brokers’ opinions, and historical occupancy
and rental data.

Site Acquisition
Development of site acquisition strategy based on
macro market and potential demand trends. An
extensive site information database supports property
development capabilities of all types from smallbuildings to complexes and large development
projects.

Leasing

Planning and Design

Property
Management

Residential Building* Maintenance

Leasing/
Tenant Brokerage

Management/Operation

Leasing

Construction Management/Supervision

Working to understand tenant needs, and using the
feedback obtained in reinvestment and development.
The decision to reinvest in renewal and renovation isbased on appropriate investment return analysis. Valueadded services take advantage of economies of scale.

The leasing process includes individual planevaluation; discussions on living environment,competitive landscape and other conditions; and setting
rents. Other activities include creating a framework forconveying product appeal, using leasing specialists andmanaging a leasing agency network.

Management of the design and construction processusing real estate development expertise gained fromtenant feedback. Quality control includes a rental
apartment construction and design checklist, andfrequent on-site meetings and checks by professionals inconstruction, structures and facilities.

*Mitsui Fudosan Housing Service Co., Ltd. changed its name to Mitsui Fudosan Residential Service Co., Ltd. on April 1, 2014.

2

Targeting of customers and development of property
concepts according to purpose, number of residents,
family structure and lifestyle. Strategic planning covers
specifications, grades and tastes suitable for target
demographics and concepts, as well as design, safety,
function, operation and maintenance.

Nippon Accommodations Fund Inc.

2. Investment in Accommodation Assets
Accommodation assets: Newly developed residential properties created in response to ongoing social andlifestyle changes
Objective: To maximize the value of accommodation assets by providing accommodations that satisfy diverse
tenant needs

Real Estate for Living Accommodations

Accommodation assets
Senior residences

Corporate
housing/
Dormitories/
Student
apartments

Rentalapartments

Houses built forretail saleServiced apartments

HotelsService provided

High

Low
Short

Length of time/stayLong

Real estate for living accommodations is classified in relation to two axes,“length of time/stay” and “service provided.” Accommodation assets are defined as rental apartments,
corporate housing, dormitories/student apartments, serviced apartments and senior residences.

NAF Report September 2013 – February 20143

To Our Stakeholders

We are enhancing value for our unitholders bygenerating steady growth from an expanding
portfolio of quality properties.

From left: Michihiko Takabe, Nobumi Tobari, Kosei Murakami,
Takeo Tomita, Hiroyuki Sodeyama

During the six months ended February 28, 2014 (the “16th Period”), theJapanese economy gradually recovered. Looking forward, the trend toward
economic recovery is expected to continue with increases in household income andinvestment supported by improving exports and the effects of various government
policies. However, the slump in overseas economies continues to present a risk of
downward pressure on the Japanese economy, while demand is expected to fallback after increased last-minute demand prior to the increase in Japan’s
consumption tax rate.
In the J-REIT market, during the 16th Period three J-REITs listed their shares
while several existing J-REITs actively conducted equity financings.
In the residential rental market, actual rents have virtually stopped falling, which
was among the factors providing stronger signs the market has bottomed. The
range of rent decreases at high-rent properties has also been contracting. Demandis expected to remain steady in the 23 wards of Tokyo, where nearly 90 percent of
NAF’s portfolio is located, and in the centers of other major cities. Contributing
factors include the continuing influx of people into these areas from other regions
and growth in the number of households due to an increase in single- and twoperson households. At the same time, the number of construction starts for thequality rental apartments in which NAF typically invests is low, and the balance of
supply and demand is expected to remain favorable for the time being.
In the real estate trading market, competition for property acquisitions has
intensified due to the growing number of participants, including but not limited to
J-REITs. Prices for the limited supply of quality rental real estate are expected tocontinue rising.
In this environment, NAF acquired three properties. Mitsui Fudosan Housing
Lease Co., Ltd., our master property management company, and Mitsui Fudosan
Accommodations Fund Management Co., Ltd., our asset management company,
also conducted collaborative management and other activities. As a result, theoccupancy rate for our overall portfolio as of February 28, 2014 remained at a highlevel of 97.0 percent. Distribution per unit was ¥14,888. This report presents our
results and operational status for the 16th Period.
We will continue working to earn the trust of our unitholders and request yourcontinued support and cooperation.

Nobumi Tobari

Executive Director

June 2014

Kosei Murakami

Executive Director

Takeo Tomita

Supervisory Director

Michihiko Takabe

Supervisory Director

Hiroyuki Sodeyama

Supervisory Director

Nippon Accommodations Fund Inc.
Management Team

(Attorney at Law)
(Attorney at Law)

(Certified Public Accountant,Certified Public Tax Accountant)4

Nippon Accommodations Fund Inc.

Kosei Murakami
Executive Director of Nippon Accommodations Fund Inc.
President and CEO of Mitsui Fudosan Accommodations Fund Management Co., Ltd.

Financial Highlights
15th Period (Actual)

16th Period (Actual)

17th Period (Forecast)1(Ended August 31, 2013)(Ended February 28, 2014)(Ending August 31, 2014)

Total revenues¥9,002 million¥9,241 million¥10,092 million

Operating income¥3,964 million¥4,181 million¥4,219 million

Net income¥3,164 million¥3,434 million¥3,368 million

Total assets¥273,872 million¥277,125 million

—

50.8%

51.2%

—

¥6,858¥7,444¥7,300¥267,406 million
105¥271,713 million
108¥287,733 million112

LTV (Loan-to-value) ratio
2

Distribution per unit (Yen)

Assets under management
Acquisition price basis
Number of properties

Notes: 1. The above forecast was announced on April 17, 2014.
2. NAF implemented a two-for-one split of investment units with an effective date of March 1, 2014. Distributions per unit for the 16th and 15th Periods are adjusted for this split(actual distribution divided in half, rounded down to the nearest yen).

New Acquisitions
16th Period
Property Name

Acquisition Price(Yen in millions)

Park Axis
Shin Okachimachi East

¥1,299Park Axis
Nihonbashi Honcho

1,469Park Axis
Yokohama Yamashitacho

1,539

Total

¥4,307

Acquisition Date

September 27, 2013

Park Axis Yokohama Yamashitacho

Park Axis Nihonbashi Honcho

Park Cube Nishigahara Stage

Park Cube Atagoyama Tower

17th Period*
Acquisition Price(Yen in millions)

Acquisition Date

Park Cube
Nishigahara Stage

¥4,110March 7, 2014

Park Cube
Atagoyama Tower

8,650

March 7, 2014

Park Axis Shibaura

1,045

April 1, 2014

Park Axis
Asakusa Kuramae

1,095

April 1, 2014

Okawabata Parking

1,120

March 7, 2014

Property Name

Total
* As of April 17, 2014

¥16,020

NAF Report September 2013 – February 2014

5

Portfolio Strategy
Steady Portfolio Expansion
NAF has steadily expanded its portfolio, primarily by acquiring properties in the Park Axis series. NAF’s
portfolio as of February 28, 2014, the end of the 16th Period, consisted of 108 properties valued at¥271,713 million on an acquisition price basis.

Assets under management (Yen in millions)
300,000

287,733
267,406 271,713

250,000

223,877
200,000

180,026

231,227

231,936

Other
Accommodation
Assets242,140

186,975 186,975

150,000

August 2006:
Listed on the J-REIT
section of the Tokyo
Stock Exchange

100,000

50,000101,385

Shibaura
IslandAir Tower

41,03638,986

Okawabata
Apartment
Communities

0

Establishment March 31,
2006

Units

February 28,
2007

February 28, August 31, February 28, August 31, February 29, August 31, February 28, August 31, February 28, August 31,
2010
2011
2010
2011
2012
2012
2013
2013
2014
2014
(Forecast)

2,761

6,214 6,464 6,464 8,722 9,131 9,281 9,509 10,516 10,685 11,295

A Portfolio Mainly Composed of Large-Scale Properties in the 23 Wards of Tokyo(As of February 28, 2014)

1. Portfolio by Location
GreaterTokyo: 4.7%

2. Portfolio by Acquisition Price

Other Major Cities: 8.8%

3

Tokyo CBD : 33.8%
23 Wards ofTokyo: 86.5%
Tokyo Wards
excluding Tokyo CBD:
52.7%

86.5% in the 23 wards of Tokyo
Amount excluding
the Okawabata Apartment Communities ➤ ➤ ➤More than¥10 billion:
16.8%
Less than(2 properties) ¥2 billion:
31.5%(61 properties)¥5 – ¥10 billion:
22.3% (8 properties)¥2 – ¥5 billion:
29.4% (27 properties)

3. Portfolio by Property Age4
Less than
3 years: 1.5%

Less than
2 years: 3.8%
More than
10 years:
13.3%

Less than
5 years: 9.1%

Less than
10 years: 72.3%

Average ¥2.6 billion per property

Average 8.8 years[ Average ¥2.3 billion per property ][ Average 6.7 years ]Notes: 1. The data above are totals for rental apartments owned as of February 28, 2014 and do not include other accommodation assets.
2. The calculations for graphs 1 to 3 above are based on acquisition price. Graph 3, Portfolio by Property Age, uses a weighted average.
3. Tokyo CBD (Central Business District) includes Chiyoda, Chuo and Minato wards; Greater Tokyo includes Tokyo (other than the 23 wards), Kanagawa, Chiba and Saitama; Other
Major Cities include Sapporo, Sendai, Nagoya, Kyoto, Osaka, Kobe, Hiroshima and Fukuoka.
4. The calculations are based on individual property age as of February 28, 2014.

6

Nippon Accommodations Fund Inc.

Portfolio Composition
Rental apartments have a lower earnings fluctuation risk than real estate leased for other uses. By
concentrating the majority of its portfolio in the 23 wards of Tokyo where demand for rental apartments
is strong, NAF achieves even greater earnings stability.
NAF aims for steady portfolio expansion centered on
properties in the high-quality Park Axis series planned andAdachi-ku
Itabashi-ku

developed by the Mitsui Fudosan Group, complemented

Kita-ku
Nerima-ku

with acquisitions of properties that meet NAF’s

Katsushika-ku

Arakawa-ku
Toshima-ku

proprietary standards in the Park Cube series constructed
Bunkyo-ku

Taito-ku

Sumida-ku

by other developers. In addition, NAF focuses investment

Nakano-ku
Shinjuku-ku
Edogawa-ku

Chiyoda-ku

Suginami-ku

Imperial
Palace5km

10km

Koto-ku

Shibuya-ku
Minato-ku

Chuo-ku

Setagaya-ku

on single and compact apartments for which it expects
high occupancy rates, as well as on large-scale andrelatively new properties. Geographically, NAF invests
mainly within the 23 wards of Tokyo while also acquiring

Tokyo Bay
Meguro-ku

carefully selected properties in major regional cities.

Shinagawa-ku

NAF has also begun investing in accommodation
assets* other than rental apartments.
Rental apartments

Ota-kuOther accommodation assets*NAF defines accommodation assets as rental apartments, corporate housing,dormitories/student apartments, serviced apartments and senior residences.
Note: Portfolio as of February 28, 2014

A Balanced Mix of Properties Centered on Single and Compact Units(As of February 28, 2014)

4. Portfolio by Category3
Large: 4.6%

5. Portfolio by Monthly Rent 4¥300,000 –¥500,000: 2.4%
¥200,000 –¥300,000:
16.1%

Family: 12.4%
Single: 40.9%
Compact: 42.1%

More than¥500,000: 0.5%

6. Portfolio by Unit Area
More than80m2: 5.1%
60m2 –
80m2: 11.8%

Less than¥100,000:
27.5%

50m2 –
60m2: 14.1%¥150,000 –¥200,000:
23.0%¥100,000 –¥150,000: 30.5%40m2 –
50m2: 15.8%

Less than
30m2: 31.8%30m2 –
40m2: 21.4%

Percentage of single andcompact units: 83.0%

Average ¥148 thousand per unit

Average 42.9m2 per unit

[ 87.5% ][ Average ¥140 thousand per unit ][ Average 40.6m2 per unit ]Notes: 1. The data above are calculations for rental apartments owned as of February 28, 2014 and do not include other accommodation assets.
2. The calculations for graphs 4 to 6, above are based on units, excluding retail units.
3. The calculations are based on unit categories as of February 28, 2014.
4. The calculations are based on total monthly rent (rent and common area fees) per unit as of February 28, 2014.

NAF Report September 2013 – February 2014

7

Portfolio Summary (As of February 28, 2014)
No. Name
Okawabata Apartment Communities
River Point Tower
Park Side Wings
Pier West House
2 Park Axis Gakugei Daigaku
4 Park Axis Shibuya Jinnan
5 Park Axis Aoyama Kotto Dori
6 Park Axis Kagurazaka Stage
7 Park Axis Shirokanedai
8 Park Axis Bunkyo Stage
9 Park Axis Tsukishima
10 Park Axis Otsuka
11 Park Axis Minami Azabu
12 Park Axis Shibuya
13 Park Axis Nihonbashi Stage
14 Park Axis Hamamatsucho
15 Park Axis Hongo no Mori
16 Park Axis Tameike Sanno
17 Park Axis Roppongi Hinokicho Koen
18 Park Axis Ochanomizu Stage
19 Park Axis Okachimachi
20 Park Cube Hongo
21 Park Cube Kanda
22 Park Cube Ichigaya
23 Park Cube Asakusa Tawaramachi
24 Park Cube Ueno
28 Park Cube Ikebukuro Kanamecho
29 Park Axis Meguro Honcho
30 Park Axis Shin Itabashi
31 Park Axis Akihabara
32 Park Axis Toyocho
33 Park Axis Takinogawa
34 Park Axis Asakusabashi
38 Park Axis Nihonbashi Hamacho
39 Park Cube Yoyogi Tomigaya
41 Park Axis Monzen Nakacho
42 Park Cube Itabashi Honcho
43 Park Cube Gakugei Daigaku
44 Park Cube Oimachi
46 Park Axis Nishigahara
47 Park Axis Kinshicho
48 Park Axis Tatsumi Stage
51 Park Axis Kameido
52 Park Axis Honancho
53 Park Axis Itabashi
54 Park Axis Oshiage
55 Park Axis Takadanobaba
59 Park Axis Toyosu
60 Park Axis Hatchobori
61 Park Axis Itabashi Honcho
62 Park Axis Sumiyoshi
63 Park Cube Yotsuya Sanchome
64 Park Cube Hatchobori
68 Park Axis Kamata Ichibankan
70 Park Axis Taito Negishi
72 Park Axis Komagome
74 Park Axis Itabashi Honcho Nibankan
75 Shibaura Island Air Tower (Note 4)
Air Tower
Air Terrace
84 Park Cube Higashi Shinagawa
86 Park Cube Sasazuka
88 Park Axis Higashi Jujo
1

8

Nippon Accommodations Fund Inc.

Location

Acquisition Price (Note 1) Portfolio Share Rentable Area

Chuo-ku, Tokyo

Setagaya-ku, Tokyo
Shibuya-ku, Tokyo
Minato-ku, Tokyo
Shinjuku-ku, Tokyo
Minato-ku, Tokyo
Bunkyo-ku, Tokyo
Chuo-ku, Tokyo
Toshima-ku, Tokyo
Minato-ku, Tokyo
Shibuya-ku, Tokyo
Chuo-ku, Tokyo
Minato-ku, Tokyo
Bunkyo-ku, Tokyo
Minato-ku, Tokyo
Minato-ku, Tokyo
Bunkyo-ku, Tokyo
Taito-ku, Tokyo
Bunkyo-ku, Tokyo
Chiyoda-ku, Tokyo
Shinjuku-ku, Tokyo
Taito-ku, Tokyo
Taito-ku, Tokyo
Toshima-ku, Tokyo
Meguro-ku, Tokyo
Itabashi-ku, Tokyo
Chiyoda-ku, Tokyo
Koto-ku, Tokyo
Kita-ku, Tokyo
Taito-ku, Tokyo
Chuo-ku, Tokyo
Shibuya-ku, Tokyo
Koto-ku, Tokyo
Itabashi-ku, Tokyo
Meguro-ku, Tokyo
Shinagawa-ku, Tokyo
Kita-ku, Tokyo
Sumida-ku, Tokyo
Koto-ku, Tokyo
Koto-ku, Tokyo
Nakano-ku, Tokyo
Kita-ku, Tokyo
Sumida-ku, Tokyo
Toshima-ku, Tokyo
Koto-ku, Tokyo
Chuo-ku, Tokyo
Itabashi-ku, Tokyo
Sumida-ku, Tokyo
Shinjuku-ku, Tokyo
Chuo-ku, Tokyo
Ota-ku, Tokyo
Taito-ku, Tokyo
Toshima-ku, Tokyo
Itabashi-ku, Tokyo
Minato-ku, Tokyo

Shinagawa-ku, Tokyo
Shibuya-ku, Tokyo
Kita-ku, Tokyo(Yen in millions)

(%)

(m2)

29,696

10.9

43,812.41

1,760
3,230
1,730
1,400
5,140
4,440
930
1,655
3,939
1,282
7,557
2,025
2,910
2,860
2,170
9,710
1,070
1,760
2,454
1,949
2,508
2,233
1,608
1,810
3,430
1,200
3,950
1,820
2,717
5,540
1,975
1,700
4,170
910
1,440
840
1,448
7,464
2,359
745
1,448
1,193
1,222
14,300
1,760
987
1,006
2,749
4,200
1,069
672
1,389
1,859
7,905

6,060
2,200
1,700

0.6
1.2
0.6
0.5
1.9
1.6
0.3
0.6
1.4
0.5
2.8
0.7
1.1
1.1
0.8
3.6
0.4
0.6
0.9
0.7
0.9
0.8
0.6
0.7
1.3
0.4
1.5
0.7
1.0
2.0
0.7
0.6
1.5
0.3
0.5
0.3
0.5
2.7
0.9
0.3
0.5
0.4
0.4
5.3
0.6
0.4
0.4
1.0
1.5
0.4
0.2
0.5
0.7
2.9

2.2
0.8
0.6

2,437.66
2,766.62
1,537.24
1,891.05
4,704.44
6,078.93
1,383.99
2,606.37
3,938.14
1,094.28
10,025.40
2,426.45
3,317.94
2,710.69
2,054.46
12,025.25
1,621.73
2,160.12
3,194.59
2,288.46
4,012.68
3,041.61
1,886.82
1,884.77
4,395.99
1,346.07
5,412.40
2,924.75
3,400.78
6,999.83
1,929.10
1,886.39
5,317.07
957.88
1,511.12
1,435.83
2,288.13
16,474.06
3,986.78
1,231.08
2,567.96
2,121.29
1,463.25
25,537.94
2,416.29
2,048.31
1,785.72
3,599.82
5,191.86
1,721.28
1,283.13
1,979.51
3,661.58
17,646.33

10,636.67
2,416.00
2,893.54

Rentable Units

PML (Note 2)
(%)

544

64
75
40
59
99
154
30
52
64
20
184 residential, 1 retail, etc.
80
86 residential, 1 retail, etc.
70
46
324
42
60
95
53
76
91
65
60
152
41
140
48 residential, 1 retail, etc.
78 residential, 1 retail, etc.
118
38
55
165 residential, 1 retail, etc.
24
65
46
65
299 residential, 1 retail, etc.
118
31
64
57 residential, 1 retail, etc.
36 residential, 1 retail, etc.
401 residential, 2 retail, etc.
63 residential, 1 retail, etc.
66
60
130
118 residential, 2 retail, etc.
63
40
39 residential, 1 retail, etc.
99
270 residential, 2 retail, etc.

201
92 residential, 1 retail, etc.
70 residential, 1 retail, etc.

4.5
7.9
7.0
7.6
6.8
7.0
7.5
8.7
6.6
6.8
6.5
7.4
7.9
7.6
7.1
8.8
8.2
9.2
7.2
6.8
8.2
8.9
6.8
8.8
7.5
8.1
8.3
7.3 East, 7.5 West
7.4
10.2
5.8
8.9
8.1
7.1
10.1
8.1
6.8
10.0
7.7
10.7
10.0
11.0
8.0
9.1
10.5
7.9
7.8
9.1
9.2
11.4
8.7
8.2
9.5
10.5
8.5
7.7
2.3
8.7
9.8
9.5
6.8

No. Name
91 Park Cube Heiwadai
92 Park Cube Meguro Tower
93 Park Cube Nihonbashi Suitengu
94 Park Cube Ginza East
95 Park Cube Kayabacho
96 Park Cube Honjo Azumabashi
97 Park Axis Kiyosumi Shirakawa
98 Park Axis Asakusabashi Nichome
99 Park Axis Nishi Sugamo
100 Park Axis Ueno
101 Park Axis Akihabara East
103 Park Axis Kayabacho
104 Park Axis Kinshicho Shinsui Koen
105 Park Cube Kasuga Andozaka
106 Park Cube Kameido
108 Park Axis Shin Okachimachi East
110 Park Axis Nihonbashi Honcho

23 Wards of Tokyo Total
26 Park Cube Keio Hachioji II
40 Park Axis Nishi Funabashi
66 Park Axis Yokohama Idogaya
67 Park Axis Chiba Shinmachi
69 Park Axis Chiba
85 Park Cube Kita Matsudo
87 Park Cube Musashi Kosugi
102 Park Axis Yokohama Tanmachi Koen
109 Park Axis Yokohama Yamashitacho
Greater Tokyo Total (Note 3)
27 Park Axis Meieki Minami
35 Park Axis Marunouchi
36 Park Axis Ropponmatsu
37 Park Axis Hakataeki Minami
45 Park Axis Naka Gofukumachi
49 Park Axis Shirakabe
50 Park Axis Sendai
56 Park Axis Hakata Minoshima
57 Park Axis Takamiya Higashi
58 Park Axis Sapporo Shokubutsuen Mae
65 Park Axis Shin Sapporo
71 Park Axis Esaka Hiroshibacho
73 Park Axis Utsubo Koen
107 Park Cube Kitahama
Other Major Cities Total
Rental Apartments Total
76 Dormy Ashiya
77 Kawaijuku Kyoto Gakushin Ryo
78 Sundai Horikawa Ryo
79 Dormitory Rakuhoku
80 Rikkyo University International
Dormitory (RUID) Shiki
81 Dormy Naka Itabashi
82 Philosophia Nishidai
83 Dormy Musashi Kosugi
89 Artis Sendai Kakyoin
90 Artis Sendai Kimachi-dori
Other Accommodation Assets Total
Grand Total

Location

Acquisition Price (Note 1) Portfolio Share Rentable Area
(Yen in millions)

(%)

(m2)

1,204
9,000
2,711
2,269
1,105
1,252
696
1,079
1,439
1,389
1,369
1,809
1,369
2,670
3,020
1,299
1,469
226,404
1,130
1,020
1,419
1,679
970
1,200
2,250
1,119
1,539
12,326
2,440
1,920
1,515
1,890
742
1,547
2,320
960
605
1,650
827
2,369
2,399
1,970
23,154
261,884
928
991
916
374

0.4
3.3
1.0
0.8
0.4
0.5
0.3
0.4
0.5
0.5
0.5
0.7
0.5
1.0
1.1
0.5
0.5
83.3
0.4
0.4
0.5
0.6
0.4
0.4
0.8
0.4
0.6
4.5
0.9
0.7
0.6
0.7
0.3
0.6
0.9
0.4
0.2
0.6
0.3
0.9
0.9
0.7
8.5
96.4
0.3
0.4
0.3
0.1

2,656.00
12,367.62
4,235.33
3,358.63
1,695.06
2,241.63
1,159.84
1,569.00
2,326.32
1,992.29
1,890.20
2,355.07
2,085.62
3,581.09
4,442.09
1,847.01
1,808.12
326,980.76
3,082.32
2,074.35
2,706.59
3,318.15
2,270.32
2,358.66
3,057.36
1,682.46
2,325.92
22,876.13
5,565.13
3,821.75
3,473.67
4,668.29
2,707.88
4,735.89
8,843.17
3,461.85
2,289.21
7,845.01
3,729.05
4,309.24
4,952.45
4,683.33
65,085.92
414,942.81
2,826.00
2,785.40
2,043.32
1,035.00

1,478
1,041
1,249
1,152
540
1,160
9,829
271,713

0.5
0.4
0.5
0.4
0.2
0.4
3.6
100.0

2,293.20
1,911.00
2,184.00
1,996.47
1,564.40
4,063.47
22,702.26
437,645.07

Nerima-ku, Tokyo
Meguro-ku, Tokyo
Chuo-ku, Tokyo
Chuo-ku, Tokyo
Chuo-ku, Tokyo
Sumida-ku, Tokyo
Koto-ku, Tokyo
Taito-ku, Tokyo
Kita-ku, Tokyo
Taito-ku, Tokyo
Taito-ku, Tokyo
Chuo-ku, Tokyo
Sumida-ku, Tokyo
Bunkyo-ku, Tokyo
Koto-ku, Tokyo
Taito-ku, Tokyo
Chuo-ku, Tokyo
Hachioji-shi, Tokyo
Funabashi-shi, Chiba
Yokohama-shi, Kanagawa
Chiba-shi, Chiba
Chiba-shi, Chiba
Matsudo-shi, Chiba
Kawasaki-shi, Kanagawa
Yokohama-shi, Kanagawa
Yokohama-shi, Kanagawa
Nagoya-shi, Aichi
Nagoya-shi, Aichi
Fukuoka-shi, Fukuoka
Fukuoka-shi, Fukuoka
Fukuoka-shi, Fukuoka
Nagoya-shi, Aichi
Sendai-shi, Miyagi
Fukuoka-shi, Fukuoka
Fukuoka-shi, Fukuoka
Sapporo-shi, Hokkaido
Sapporo-shi, Hokkaido
Suita-shi, Osaka
Osaka-shi, Osaka
Osaka-shi, Osaka

Ashiya-shi, Hyogo
Kyoto-shi, Kyoto
Kyoto-shi, Kyoto
Kyoto-shi, Kyoto
Shiki-shi, Saitama
Itabashi-ku, Tokyo
Itabashi-ku, Tokyo
Kawasaki-shi, Kanagawa
Sendai-shi, Miyagi
Sendai-shi, Miyagi

Rentable Units

PML (Note 2)(%)

34
193 residential, 1 retail, etc.
77
77
27 residential, 1 retail, etc.
45
36
48
56
59
58
72
60
68
121 residential, 1 retail, etc.
49
49
7,014 residential, 21 retail, etc.
47 residential, 1 retail, etc.
55
99 residential, 1 retail, etc.
77 residential, 7 retail, etc.
91
108 residential, 1 retail, etc.
136
63
70 residential, 1 retail, etc.
746 residential, 11 retail, etc.
169
98 residential, 1 retail, etc.
111 residential, 1 retail, etc.
176 residential, 1 retail, etc.
112
86
204
112
70
146
84 residential, 1 retail, etc.
130
133
138
1,769 residential, 4 retail, etc.
9,529 residential, 36 retail, etc.
140
134
113
69

6.5
3.1
9.3
6.9
7.6
9.5
10.8
7.8
9.6
8.5
9.7
9.7
8.0
6.5
10.4
7.4
7.6
7.6
7.9
11.4
11.1
7.8
9.2
9.6
9.5
11.2
4.3
6.1
2.2
3.1
2.8
6.1
5.7
2.9
2.3
2.4
2.5
11.2
13.1
11.0

10.0
5.5
6.9
6.5

126
5.4
105
7.1
120
8.3
111
8.3
60
4.5
142
5.0
1,120
10,685 3.7 (Portfolio PML)

Notes: 1. Acquisition Price does not include acquisition-related expenses, property tax (to be capitalized) and consumption tax (not refundable for residential properties).
Amounts are rounded to the nearest million.
2. PML = Probable maximum loss
3. Greater Tokyo includes Tokyo (other than the 23 wards), Kanagawa, Chiba and Saitama.
4. Rentable units and rentable area for Shibaura Island Air Tower are calculated by multiplying NAF’s equity share (31%) by the property’s total rentable units (871 residential,
7 retail, etc.) and total rentable area (56,923.63m2) and rounded to the nearest unit and one-hundredth of a square meter, respectively.
5. Numbers in blue indicate properties acquired during the 16th Period.

NAF Report September 2013 – February 20149

Management’s Discussion and Analysis

Summary of Selected Financial Data

Total revenues (Note 2)
Rental revenues
Other revenues related to property leasing
Dividend income
Operating expenses
Income before income taxes
Net income (a)Funds from operations (Note 3)
Net operating income from property leasing activities (Note 3)
Total amount of cash distribution (b)Depreciation and amortization
Capital expenditures

Yen in millions

U.S. dollars in thousands(Except per unit data or
where otherwise indicated)(Note 1)
(Except per unit data)

16th Period

15th Period

14th Period

16th Period

September 1, 2013
to February 28, 2014

March 1, 2013
to August 31, 2013

September 1, 2012
to February 28, 2013

September 1, 2013
to February 28, 2014

¥ 9,241
8,917
324
—
5,060
3,435
3,434

¥ 9,002
8,605
392
4
5,037
3,165
3,164

¥ 8,082
7,813
265
3
4,426
2,900
2,899

5,411
7,090
3,434
1,976
247

5,079

6,783
3,164
1,915
252

4,647
6,222
2,899
1,748
278

53,08069,55033,686
19,383
2,422$

90,65187,473
3,178—
49,637
33,696
33,686

Total assets (c)Interest-bearing debt
Total net assets (d)277,125
142,000
129,191

273,872
139,000
128,921245,982
134,500
106,204

2,718,510
1,392,976
1,267,323

Total number of common units issued (Units) (e)Net assets per unit (Yen/$) (d) / (e) (Note 4)Distribution per unit (Yen/$) (b) / (e)Funds from operations per unit (Yen/$) (Note 3)

230,711
279,985
14,88823,454

230,711
279,400
13,71722,018

194,711272,723
14,89023,8702,746.56
146.04230.07

ROA (Note 5)(Annual rate)
ROE (Note 5)(Annual rate)
LTV (Loan-to-value) ratio (Note 3)
Capital ratio (d) / (c)Payout ratio (b) / (a) (Note 6)
Number of days in the period

1.2%(2.5%)
2.7%(5.4%)
51.2%
46.6%
100.0%
181

1.2%(2.4%)
2.7%(5.3%)
50.8%
47.1%
100.0%
184

1.2%(2.4%)
2.7%(5.5%)
54.7%
43.2%
100.0%
181

Number of investment properties (Note 7)
Total rentable area (m2)
Average occupancy rate at the end of the period (Note 7)

108
437,64597.0%

105431,66495.6%

90392,366
96.4%

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥101.94 = U.S.$1.00, the approximate exchange rate as of February 28, 2014.
2. “Total revenues” do not include consumption tax.
3. Funds from operations: Net income + Depreciation and amortization – Gain on sale of investment properties
Net operating income from property leasing activities: (Revenues from property leasing – Rental expenses) + Depreciation and amortization
Funds from operations per unit: (Net income + Depreciation and amortization – Gain on sale of investment properties) ÷ Total number of units issued and outstanding at the end of the period
LTV ratio: Interest-bearing debt ÷ Total assets
4. NAF implemented a two-for-one split of investment units with the effective date of March 1, 2014. “Net assets per unit” is calculated on the assumption that this split of investment
units was implemented at the start of the period ended February 28, 2013.
5. ROA: Income before income taxes ÷ {(Initial total assets + Total assets at the end of the period) ÷ 2}
ROE: Net income ÷ {(Initial net assets + Net assets at the end of the period) ÷ 2}
The figures in parentheses are annualized based on the number of actual days in each period.
Annual equivalent amounts for the period ended February 28, 2014: Amount for the period ÷ Actual days in the period (181) x 365 days
Annual equivalent amounts for the period ended August 31, 2013: Amount for the period ÷ Actual days in the period (184) x 365 days
Annual equivalent amounts for the period ended February 28, 2013: Amount for the period ÷ Actual days in the period (181) x 365 days
Net assets and total assets used in calculating ROA and ROE are beginning-of-period and period-end averages, respectively.
6. “Payout ratio” is calculated to one decimal place only.
7. “Number of investment properties” means properties generally perceived to be one residential building.
“Average occupancy rate at the end of the period” is the ratio of gross leased area to total rentable area at the end of the period.

10

Nippon Accommodations Fund Inc.

Overview
Investment Environment and Operating Performance
During the six months ended February 28, 2014 (the “16th Period”), the Japanese economy gradually recovered. The Nikkei Averageindex rose from ¥13,572.92 at the beginning of the 16th Period on September 2, 2013 to its highest point during the year of ¥16,291.31
on December 30, 2013. Factors supporting the recovery included the selection of Tokyo as the host for the 2020 summer Olympics andpositive expectations for various government policies to expedite the end of deflation and revitalization of the economy. The Nikkei index
subsequently receded to ¥14,841.07 at the end of the 16th Period on February 28, 2014 because of ongoing factors including caution
regarding prospects for growth in the economies of emerging countries and political unrest in Ukraine. Looking forward, the trend toward
economic recovery is expected to continue with increases in household income and investment supported by improving exports and theeffects of various government policies. However, the slump in overseas economies continues to present a risk of downward pressure on
the Japanese economy, while demand is expected to fall back after increased last-minute demand prior to the increase in Japan’s consumption tax rate.
In the J-REIT market, the selection of Tokyo for the Olympics and the positive expectations for various government policies mentioned
above helped the J-REIT index rise steadily from 1,302.73 points at the beginning of the 16th Period to 1,504.90 points at the close of the
16th Period. In this environment, three J-REITs listed their shares while several existing J-REITs actively conducted equity financings.
In the residential rental market, actual rents have virtually stopped falling, which was among the factors providing stronger signs themarket has bottomed. The range of rent decreases at high-rent properties has also been contracting. Demand is expected to remain steadyin the 23 wards of Tokyo, where nearly 90 percent of NAF’s portfolio is located, and in the centers of other major cities. Contributing factors include the continuing influx of people into these areas from other regions and growth in the number of households due to anincrease in single- and two-person households. At the same time, the number of construction starts for the quality rental apartments inwhich NAF typically invests is low, and the balance of supply and demand is expected to remain favorable for the time being.
In the real estate trading market, competition for property acquisitions has intensified due to the growing number of participants
including but not only J-REITs. Prices for the limited supply of quality rental apartments are expected to continue rising.
During the 16th Period, NAF acquired three new properties in September 2013 (total acquisition price: ¥4,307 million). As a result,
NAF’s portfolio as of February 28, 2014 consisted of 108 properties valued at ¥271,713 million on an acquisition price basis.
NAF has chosen Mitsui Fudosan Housing Lease Co., Ltd. as master property management company (below, “Master PM”) for management of
NAF’s rental apartments portfolio. This company and the asset management company collaborate in the management of properties NAF owns
with the aim of implementing effective management and operational activities based on regional characteristics and the individual features ofeach property. These include efforts such as speedy management and operations by the Master PM by applying the portfolio management system,
tenant recruiting activities suited to the circumstances of individual properties, and streamlining efforts such as reduction of management costs,
and providing tenants with “accommodation” services that correspond to various needs based on the results of resident questionnaires.
In the period under review, NAF changed the property management fee structure for Mitsui Fudosan Housing Lease Co., Ltd. on November 2013
for certain properties. The new fee structure is linked to the revenue and income of NAF’s rental business. NAF believes that, with both parties sharing an even firmer common goal, which is to maximize unitholder value, further improvement in NAF’s property management capabilities, further
enhancement of the value chain of the Mitsui Fudosan Group, and further utilization of this value chain can be expected.
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 property age, and work to enhance the value of properties
such as Okawabata Apartment Communities, which is one of the core properties of NAF. In addition, NAF is not only making continuous
efforts to reduce costs, but also implementing such features as environmentally friendly, energy-saving facilities in a timely manner.
In the period under review, NAF carried out renovations in common areas and private areas at Okawabata Apartment Communities.
Changes implemented at other properties included reviews of contract capacity for electricity through the introduction of controllable
circuit breakers, and work to change the lighting in common areas to LED lighting. As a result of these activities, the occupancy rate for
NAF’s overall portfolio as of February 28, 2014 remained at a high level of 97.0 percent.
Consequently, for the 16th Period, total revenues were ¥9,241 million, operating income was ¥4,181 million, income before income
taxes was ¥3,435 million and net income was ¥3,434 million.
NAF Report September 2013 – February 201411

Changes in Assets, Liabilities and Net Assets
Total assets as of February 28, 2014 increased from August 31, 2013 by ¥3,253 million to ¥277,125 million. Total current assets
increased by ¥484 million to ¥9,855 million and total investment properties net of accumulated depreciation compared with August 31,
2013 increased by ¥2,782 million to ¥266,681 million as a result of NAF’s acquisition of three new properties during the 16th Period, in
addition to normal depreciation.
One of NAF’s basic policies is to carry out financing in a conservative manner while giving consideration to such matters as maintaining
stable distributions in the medium and long term, and paying attention to various risk factors and market trends. Based on this policy, NAF
has pursued financing from various sources with diversified repayment dates and long-term, fixed interest rates in its procurement of funds
during the period under review.
As a result, at the end of the period, total interest-bearing debt amounted to ¥142,000 million, the long-term loan ratio was 97.2
percent, the fixed-rate loan ratio was 87.3 percent, and the LTV (loan-to-value) ratio was 51.2 percent. The average annual current
maturity of long-term interest-bearing loans was 4.2 years and the number of financial institutions was 17. Furthermore, the weighted
average interest rate at the end of the period was 1.02 percent, and NAF achieved both further progress in its conversion to long-termborrowing and a reduction in financing costs.
NAF has also established commitment lines totaling ¥10,000 million to ensure flexible, stable access to funding.
Net assets totaled ¥129,191 million as of February 28, 2014. Unitholders’ capital was unchanged at ¥125,686 million, and retained
earnings increased to ¥3,504 million from ¥3,234 million as of August 31, 2013.

Distributions to Unitholders
NAF determines the amount of cash distributions such that they exceed 90 percent of NAF’s retained earnings available for dividends as
set forth in Article 67-15 of the Act on Special Measures Concerning Taxation. For the 16th Period, cash distributions totaled¥3,434,825,368, or ¥14,888 per unit.
Yen in thousands, except per unit amounts

16th Period

15th Period

14th Period

September 1, 2013
to February 28, 2014

March 1, 2013
to August 31, 2013

September 1, 2012
to February 28, 2013

Retained earnings
Undistributed earnings¥3,434,842
17¥3,164,705
42¥2,899,342
95

Total cash distribution(Per unit)
Distribution of retained earnings(Per unit)
Cash distribution in excess of retained earnings(Per unit)

3,434,825
14,8883,434,825
14,888——3,164,662
13,717
3,164,662
13,717——2,899,246
14,8902,899,246
14,890——Note: The above cash distributions were paid after the close of the period.

Funding
Balance of Paid-in Capital
NAF was established on October 12, 2005 with initial paid-in capital of ¥100 million. NAF began investing activities on November 29,
2005 after ¥21,140 million was raised through private placement. As of February 28, 2014, NAF had issued 230,711 investment units outof 2,000,000 total authorized units. NAF’s investment units were listed on the J-REIT section of the Tokyo Stock Exchange in August 2006
upon the completion of a public offering. As the Investment Trust and Investment Corporation Act of Japan does not contain any provision
for the issue of more than one class of units, NAF’s investment units comprise the sole class of units authorized and issued by NAF.

12

Nippon Accommodations Fund Inc.

Management’s Discussion and Analysis

Units outstanding
Issue date

Remarks

Increase

Paid-in capital

Balance(Units)

October 12, 2005
November 29, 2005
August 3, 2006
September 4, 2006
November 4, 2009
December 1, 2009
March 1, 2011
March 28, 2011
March 1, 2013
March 26, 2013
March 1, 2014

Initial capital (private)
Private placement
Public offering
Third party allocation
Public offering
Third party allocation
Public offering
Third party allocation
Public offering
Third party allocation
Split of investment units

200
42,28067,2003,800
42,000698
37,5001,033
34,0002,000
230,711

Increase

Notes

Balance(Yen in millions)200
42,480109,680
113,480
155,480
156,178
193,678
194,711
228,711230,711
461,422¥ 100
21,14037,611
2,126
19,795328
21,539593
21,204
1,247
—

¥

100
21,24058,85160,97880,773
81,102
102,641
103,235
124,439
125,686
125,686

Note 1
Note 2
Note 3Note 4Note 5Note 6Note 7Note 8Note 9Note 10Note 1113th Period
March 1, 2012 toAugust 31, 2012

12th Period
September 1, 2011 to
February 29, 2012

Notes: 1. NAF was established with initial capital of ¥500,000 per unit.
2. Follow-on private offering at ¥500,000 per unit to raise funds for acquisition of investment properties.
3. Public offering of new units for ¥580,000 per unit (excluding underwriting fee: ¥559,700) to fund property acquisition.
4. Additional issue of new units (third party allocation) for ¥559,700 per unit undertaken pursuant to the public offering in Note 3.
5. Public offering of new units for ¥487,910 per unit (excluding underwriting fee: ¥471,311) to fund property acquisition.
6. Additional issue of new units (third party allocation) for ¥471,311 per unit undertaken pursuant to the public offering in Note 5.
7. Public offering of new units for ¥593,872 per unit (excluding underwriting fee: ¥574,380) to fund property acquisition.
8. Additional issue of new units (third party allocation) for ¥574,380 per unit undertaken pursuant to the public offering in Note 7.
9. Public offering of new units for ¥644,816 per unit (excluding underwriting fee: ¥623,652) to fund property acquisition.
10. Additional issue of new units (third party allocation) for ¥623,652 per unit undertaken pursuant to the public offering in Note 9.
11. NAF implemented a two-for-one split of investment units with the effective date of March 1, 2014.

Market Price of Units
High/Low (closing price) of units on the Tokyo Stock Exchange:
16th Period
September 1, 2013 to
February 28, 2014

15th Period
March 1, 2013 toAugust 31, 2013

(Yen)

High

¥732,000

14th Period
September 1, 2012 toFebruary 28, 2013

(Yen)

(Yen)

(Yen)

(Yen)

¥831,000¥699,000¥554,000¥590,000

601,000

524,000

488,500

477,000(Note) 353,500
Low

635,000(Note) 351,000

Note: Unit prices are for the term following the ex-rights date (February 26-28, 2014) for the investment unit split.

Borrowings
Borrowings by financial institution as of February 28, 2014 are shown below.
Short-term loans
LenderSumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust Bank,
LimitedMitsubishi UFJ Trust andBanking Corporation
Shinkin Central Bank
Total short-term loans(Yen in millions)

Balance

Interest rate
(Note 1)

Date of maturity(Note 2)

¥1,5000.3%

March 28, 2014

500

0.3%

March 28, 2014

1,500

0.3%

March 28, 2014

500
¥4,0000.3%

March 28, 2014

Repayment
methodUse of
funds

Notes

Bulletpayment(Note 3)

Unsecured/unguaranteed/pari passu(Note 4)

NAF Report September 2013 – February 201413

Long-term loans (Note 7)
LenderSumitomo Mitsui Banking
Corporation

Sumitomo Mitsui Trust Bank,
LimitedThe Bank of Tokyo-Mitsubishi
UFJ, Ltd.
Nippon Life Insurance Company

Development Bank of Japan Inc.

The Hachijuni Bank, Ltd.

Mizuho Bank, Ltd.

The Chugoku Bank, Limited
Shinsei Bank, Limited
Shinkin Central Bank

The Bank of Fukuoka, Ltd.

Mitsubishi UFJ Trust andBanking Corporation

The Norinchukin Bank
Resona Bank, Limited

Mizuho Trust & Banking Co., Ltd.

THE YAMAGUCHI BANK, Ltd.
The Daishi Bank, Ltd.
Total long-term loans
Total borrowings
14

Nippon Accommodations Fund Inc.

(Yen in millions)

Balance

Interest rate
(Note 1)

Date of maturity¥ 4,000
5,000
5,000
5,500
2,000
3,000
3,500

1.7%
0.6% (Note 5)
1.2%
0.9%
1.7%
0.6% (Note 5)
1.0%

May 30, 2014
November 30, 2015
August 13, 2018
February 28, 2020
May 30, 2014
November 30, 2015
August 14, 2017

2,000
2,000
1,000
2,000
5,000
2,000
3,000
3,000
2,500
2,500
1,000
1,000
1,500
1,000
2,000
3,000
2,000
2,000
2,000
2,000
1,000
1,000
1,500
3,000
2,000
2,000
1,000
2,500
3,000
3,000
6,000
2,000
4,000
1,000
1,500
3,000
2,000
3,000
1,000
1,000
1,000
1,000
1,000
1,000
2,000
¥121,000¥125,000

1.6%
1.3%
1.5%
0.9%
1.2%
1.0%
1.0%
1.1%
1.3%
1.4%
1.2%
0.5%
0.8%
1.5%
0.8%
0.9%
0.7%
0.8%
1.0%
1.0%
1.0%
1.2%
0.9%
0.6%
0.9%
0.6%
0.8%
0.6%
1.7%
1.2%
0.5% (Note 6)
0.7%
0.7%
1.0%
0.9%
0.7%
1.2%
0.6%
1.0%
1.2%
1.0%
1.1%
1.3%
1.3%
0.6%

Repayment
methodUse of
funds

Notes

(Note 3)

Unsecured/unguaranteed/pari passu(Note 4)

March 5, 2015
February 28, 2017
February 28, 2018
November 30, 2022
October 18, 2017
December 21, 2018
April 11, 2019
April 11, 2023
February 6, 2024
August 6, 2024
April 11, 2014
September 14, 2017
May 31, 2019
April 19, 2018
October 12, 2016
October 31, 2017
June 15, 2020
November 30, 2021
April 1, 2016
April 20, 2015
April 20, 2015
January 19, 2023
April 1, 2015
October 12, 2018
February 20, 2017
April 27, 2018
January 8, 2020
April 28, 2020
May 30, 2014
April 25, 2017
September 3, 2018
March 16, 2020
September 15, 2020
August 23, 2021
April 1, 2015
November 30, 2020
April 3, 2017
December 16, 2019
June 14, 2021
June 14, 2022
February 23, 2022
August 23, 2022
June 14, 2023
July 19, 2023
April 28, 2020

Bulletpayment

Management’s Discussion and Analysis

Notes: 1. “Interest rate” is presented by loan from each lending institution and is rounded to the nearest tenth. The weighted average interest rate is presented for theoutstanding balance of short-term borrowings if the institution has provided more than one short-term loan.
2. The earliest maturity of short-term borrowings is presented if the institution has provided more than one short-term loan.
3. Use of the proceeds of debt financing included purchase of property or real estate trust beneficiary interests, refinancing of other borrowings, and operating expenses.
4. The loan agreements between NAF and each financial institution stipulate that the above borrowings from all financial institutions rank pari passu to each other.
5. From February 28, 2014 to March 30, 2014.
6. From February 3, 2014 to March 2, 2014.
7. The expected annual maturities of long-term borrowings within five years (excluding maturities within one year) of the balance sheet date are as follows.
(Yen in millions)

Amount1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥16,000¥8,000¥18,500¥19,000

Bonds
Issue

Issue date

Balance as ofFebruary 28, 2014
(Yen in millions)

Coupon¥10,000

1.7%

7,000

1.2%

No. 1 unsecured November 15,
bonds
2007
No. 2 unsecured
July 30,
bonds
2010
Total

Maturitydate

Redemption

Use ofproceeds

Notes

November 14,
2014
July 29,2016

Bulletpayment(Note 1)

(Note 2)

¥17,000

Notes: 1. Use of proceeds includes repayment of borrowings.
2. These bonds are only issued to rank pari passu with other bonds issued.

Capital Expenditures
1. Planned
NAF is planning the following capital expenditures for the renovation of its properties. The amounts below include repairs and maintenancecosts that will be expensed as incurred. Moreover, in addition to a steady program of expenditures for construction, repair and renovationof facilities, a program of renewal construction is being implemented in order to increase competitive power in the market as well as toincrease the level of tenant satisfaction.
Estimated amounts
Name of property

Objective

Estimated duration

Total amounts

Payment for thecurrent period(September 1, 2013
to February 28, 2014)

Cumulative
amount paid

(Yen in millions)Okawabata
Apartment
Communities,
Other Properties

Renewal of common use areaequipment, etc.

From March 2014
to August 2014

¥86

¥—

¥—

Renovation of common use areas,
etc.

From March 2014
to August 2014

67

—

—

NAF Report September 2013 – February 201415

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NAF posted ¥247 million in capital expenditures together
with ¥323 million for repairs and maintenance expenses.
Name of property

Okawabata Apartment
Communities
Okawabata Apartment
Communities, Other Properties

Objective

Expenditure

Period(Yen in millions)Renovation of rentable areas, etc.

From September 2013
to February 2014

¥112

Renovation of common use areas, etc.

From September 2013
to February 2014

79

Renewal of common use area equipment, etc.,
other construction

From September 2013
to February 2014

56

Total

¥247

3. Cash Reserve for Capital Improvements
NAF accumulates a cash reserve from cash flows to prepare for large-scale mid-term to long-term capital improvements and repairs andmaintenance that will be conducted based on NAF’s business plan for each property.
Yen in millions
As of February 28, 2014

As of August 31, 2013

As of February 28, 2013

¥1,451243
257¥1,437¥1,228481
259¥1,451¥1,244242
258¥1,228Reserve balance at the beginning of the period
Amount accumulated in the current period
Withdrawal from reserves in the current period
Amount carried forward

Expenses regarding Entrustment, etc.
The following table sets forth the breakdown of entrustment fees, etc. paid by NAF.
Yen in millions

Asset management fees
Asset custody fees
Agent fees (stock transfer, accounting and administrative)
Directors’ remuneration
Auditor’s fees
Other expenses
Total

16th Period

15th Period

14th Period

September 1, 2013
to February 28, 2014

March 1, 2013
to August 31, 2013

September 1, 2012
to February 28, 2013

¥667
13
30
7
12
201

¥640
12
34
8
13
198

¥578
11
28
9
12
181

¥932

¥907

¥822

Related Party Transactions(1) Transactions
Category

Total amount
paid (A)(Yen in millions)

Description of transactions with related parties (Note 1)
Paid toAmount ofpayment (B)

B/A(Note 2)

(Yen in millions)

Acquisition price of real estate
and real estate held in trust

16

Nippon Accommodations Fund Inc.

¥4,307

Mitsui Fudosan Co., Ltd.

¥4,307100.0%

Management’s Discussion and Analysis(2) Fees Paid for the Period from September 1, 2013 to February 28, 2014
Description of transactions with related parties (Note 1)
Total fees paid (A)(Yen in millions)Category

Amount ofpayment (B)Paid to

B/A(Note 2)

(Yen in millions)

Property management fees

¥614

Mitsui Fudosan Housing Lease Co., Ltd.

¥614

100.0%

Building management fees

330

Mitsui Fudosan Housing Lease Co., Ltd.

330

100.0%

Operation management
fees

4

Mitsui Fudosan Investment Advisors, Inc.

4

100.0%RESIDENT FIRST CO., LTD.

21

14.1%

Mitsui Fudosan Realty Co., Ltd.

1

1.1%

Mitsui Home Estate Co., Ltd.

1

0.8%

Mitsui Fudosan Realty Kyushu Co., Ltd.

0

0.1%

Mitsui Fudosan Realty Tohoku Co., Ltd.

0

0.1%

Mitsui Fudosan Realty Sapporo Co., Ltd.

0

0.0%

Leasing related service fees

155(3) Other Payments to Related Parties (Note 1)
Paid toAmount of payment(Yen in millions)

Item

MITSUI Designtec Co., Ltd.

¥61

Repair and maintenance costs

Mitsui Fudosan Reform Co., Ltd.

49

Repair and maintenance costs

Accommodation First Co., Ltd.

13

Repair and maintenance costs

MF Housing Service Hokkaido Co., Ltd. (Note 3)

1

Repair and maintenance costs

Notes: 1. “Related parties” means parties defined in the government ordinance regarding the Investment Trust and Investment Corporation Act of Japan, principally, parties
related to an asset management company.
2. Figures indicate percentages of total price.
3. On April 1, 2014, MF Housing Service Hokkaido Co., Ltd. changed its corporate name to Mitsui Fudosan Residential Service Hokkaido Co., Ltd.

NAF Report September 2013 – February 201417

Financial Statements

Balance Sheets
Nippon Accommodations Fund Inc.
As of February 28, 2014 and August 31, 2013

U.S. dollars in thousands
Yen in millions

AssetsCurrent assets:
Cash and cash equivalents
Rent receivables
Consumption tax receivables and other current assets
Total current assets
Investment properties (Note 3):
Land including trust accounts
Depreciable property andimprovements including trust accounts
Accumulated depreciation
Total investment properties
Other assets
Total Assets(Note 1)

16th Period

15th Period

16th Period

As of February 28, 2014

As of August 31, 2013

As of February 28, 2014

¥ 8,579
1,241
34
9,855

¥ 8,178
1,140
51
9,370

$

163,809

161,026

1,606,915

121,696(18,823)
266,681589¥277,125

119,739(16,867)
263,899603¥273,872

1,193,800(184,647)
2,616,058
5,777$2,718,510¥ 4,000
10,00010,000
838
1,487
343
26,670¥ 3,500—
19,000
971
1,433
351
25,256$

111,000
7,000
3,264
121,264¥147,934

99,50017,0003,194
119,694¥144,951

1,088,875
68,66732,0181,189,562$1,451,186¥125,686
3,504¥129,191¥277,125¥125,686
3,234¥128,921¥273,872$1,232,940
34,373$1,267,323$2,718,510

84,157
12,173333
96,674

Liabilities and Net Assets
Liabilities
Current liabilities:
Short-term loans (Note 4)
Bonds due within one year (Note 4)Long-term loans due within one year (Note 4)
Accounts payable
Rent received in advanceAccrued expenses and other liabilities
Total current liabilities
Long-term liabilities:
Long-term loans (Note 4)
Bonds (Note 4)
Tenant security deposits
Total long-term liabilities
Total Liabilities
Net Assets
Unitholders’ capital (Note 5)
Retained earnings
Total Net Assets
Total Liabilities and Net Assets
The accompanying notes to financial statements are an integral part of these statements.

18

Nippon Accommodations Fund Inc.

39,23898,09698,096
8,220
14,587
3,364
261,624

Statements of Income
Nippon Accommodations Fund Inc.
September 1, 2013 to February 28, 2014, March 1, 2013 to August 31, 2013 and September 1, 2012 to February 28, 2013

U.S. dollars in thousands
Yen in millions

Revenues (Note 6):
RentalOther revenues related to property leasing

Dividend income
Total revenues
Operating Expenses (Note 6):
Property management fees
Real estate taxes and insurance
Repairs and maintenance
Other rental expenses
Depreciation and amortization
Asset management fees
Other expenses
Total operating expenses
Operating Income
Interest and other income
Interest expense
New investment unit issue costs
Other expenses
Income before Income Taxes
Current and deferred income taxes (Note 8)
Net Income(Note 1)

16th Period

15th Period

14th Period

16th Period

September 1, 2013 to
February 28, 2014

March 1, 2013 toAugust 31, 2013

September 1, 2012 toFebruary 28, 2013

September 1, 2013 to
February 28, 2014

¥8,917324—
9,241¥8,605392
49,002¥7,813265
3
8,082$87,473
3,178—
90,651

988
432
323
406
1,976
667
264
5,060
4,181
7
(737)
—
(15)
3,435
0
¥3,434

989
432
363
428
1,915
640
267
5,037
3,964
10
(752)
(45)
(11)
3,165
0
¥3,164

852
391
258
352
1,748
578
244
4,426
3,655
4
(750)
—
(9)
2,900
0
¥2,899

9,691
4,237
3,168
3,982
19,3836,543
2,589
49,63741,01468(7,229)—(147)
33,6960$33,686

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

NAF Report September 2013 – February 201419

Statements of Changes in Net Assets
Nippon Accommodations Fund Inc.
For the period from September 1, 2012 to February 28, 2014

Yen in millions
Number of
Units(Note 5)Unitholders’CapitalRetained
Earnings

Total

194,711¥103,235¥ 2,855¥106,090

Cash distribution——(2,785)(2,785)

Net income

—

—

2,899

2,899

194,711103,235

2,969

106,204——(2,899)(2,899)Issuance of new units through public offering as ofMarch 1, 2013

34,00021,204—

21,204Issuance of new units through allocation to a third party
as of March 26, 2013

2,000

1,247

—

1,247

—

—

3,164

3,164

230,711

125,686

3,234

128,921

Cash distribution——(3,164)(3,164)

Net income

—

—

3,434

3,434

230,711¥125,686¥ 3,504¥129,191

Balance as of September 1, 2012

Balance as of February 28, 2013
Cash distribution

Net income
Balance as of August 31, 2013

Balance as of February 28, 2014

U.S. dollars in thousands (Note 1)
Number of
Units(Note 5)Unitholders’CapitalRetained
Earnings

Total

230,711$1,232,940$ 31,724$1,264,675

Cash distribution——(31,037)(31,037)

Net income——

33,686

33,686

230,711$1,232,940$ 34,373$1,267,323

Balance as of August 31, 2013

Balance as of February 28, 2014
The accompanying notes to financial statements are an integral part of these statements.

20

Nippon Accommodations Fund Inc.

Financial Statements

Statements of Cash Flows
Nippon Accommodations Fund Inc.
September 1, 2013 to February 28, 2014, March 1, 2013 to August 31, 2013 and September 1, 2012 to February 28, 2013

U.S. dollars in thousands
Yen in millions

Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
New investment unit issue costs
Amortization of bond issue costs
Interest expense(Increase) Decrease in rent receivables
Increase (Decrease) in accounts payable
Increase (Decrease) in rents received
in advanceCash payments of interest expense(Increase) Decrease in consumption tax
refund receivable
Other, net
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Payments for purchases ofinvestment properties
Proceeds from tenant security deposits
Payments for tenant security deposits
Other, net
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Proceeds from short-term loans
Repayment of short-term loans
Proceeds from long-term loans
Repayment of long-term loans
Proceeds from issuance of investment units
Payment of distribution
Net Cash Provided by (Used in) Financing Activities
Net Change in Cash and Cash Equivalents
Cash and Cash Equivalents at the Beginningof the Period
Cash and Cash Equivalents at the Endof the Period(Note 1)

16th Period

15th Period

14th Period

16th Period

September 1, 2013
to February 28, 2014

March 1, 2013
to August 31, 2013

September 1, 2012
to February 28, 2013

September 1, 2013
to February 28, 2014

¥ 3,435
1,976
—
7
737
(100)
(132)

¥ 3,165
1,915
45
7
752
(51)
272

¥ 2,900
1,748
—
7
750
(78)
(117)

$ 33,696
19,383
—
68
7,229
(980)
(1,294)

53
(766)

109
(723)

48
(787)

519
(7,514)

13
33
5,259

2
60
5,556

(15)
(87)
4,368

127
323
51,589(4,761)
368
(298)
(2)
(4,693)(26,389)
640
(375)
143
(25,981)(11,141)
388
(241)
(152)
(11,147)(46,703)
3,609(2,923)(19)(46,036)

32,500(32,000)
11,500(9,000)35,500(45,500)
24,500(10,000)

318,814(313,910)
112,811(88,287)—(31,037)(1,608)3,933—

22,406(3,164)(164)
401(2,899)24,006
3,581

46,000(40,000)
11,000(9,000)—(2,784)
5,215(1,563)

8,178

4,596

6,159

80,223¥ 8,579¥ 8,178¥ 4,596$ 84,157

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

NAF Report September 2013 – February 201421

Notes to Financial Statements
Nippon Accommodations Fund Inc.
September 1, 2013 to February 28, 2014, March 1, 2013 to August 31, 2013 and September 1, 2012 to February 28, 2013

Note 1

Organization and Basis of Presentation

Organization
Nippon Accommodations Fund Inc. (hereinafter “NAF”) was established on October 12, 2005 as an investment corporation under theInvestment Trust and Investment Corporation Act of Japan with Mitsui Fudosan Accommodations Fund Management Co., Ltd. (hereinafter“MFAFM”) acting as a sponsor. Registration with the Kanto Local Finance Bureau of the Ministry of Finance was completed on November
11, 2005 and NAF started acquisition of properties on November 30, 2005.
NAF is an externally managed real estate fund, formed as an investment corporation. MFAFM, as NAF’s asset management company, isengaged in the acquisition, management, and renovation of accommodation assets. MFAFM is a 100% subsidiary of Mitsui Fudosan Co., Ltd.
On August 3, 2006, NAF had raised approximately ¥40,000 million through an initial public offering of investment units. Those investment units are listed on the J-REIT section of the Tokyo Stock Exchange.
As of February 28, 2014, NAF had ownership and beneficiary interests in 108 properties containing approximately 437,645 square
meters of rentable space. As of February 28, 2014, NAF had leased approximately 424,612 square meters to tenants. The occupancy rate
for the properties was approximately 97.0%.

Basis of Presentation
The accompanying financial statements have been prepared in accordance with the provisions set forth in the Investment Trust andInvestment Corporation Act of Japan and the Financial Instruments and Exchange Law of Japan and its related accounting regulations, and in
conformity with accounting principles generally accepted in Japan (hereinafter “Japanese GAAP”), which are different in certain respects as toapplication and disclosure requirements of International Financial Reporting Standards.
The accompanying financial statements have been restructured and translated into English from the financial statements of NAF preparedin accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Financial
Instruments and Exchange Law. Some supplementary information included in the statutory Japanese language financial statements, but notrequired for fair presentation, is not presented in the accompanying financial statements. NAF does not prepare consolidated financial statements, as NAF has no subsidiaries.
Amounts less than 1 million yen have been omitted. As a result, the totals in Japanese yen shown in the financial statements do not necessarily agree with the sum of the individual amounts.
The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers outside Japan, using theapproximate exchange rate on February 28, 2014, which was ¥101.94 to U.S. $1. The convenience translation should not be construed as representation that the Japanese yen amounts have been, or could in future be, converted into U.S. dollars at this or any other rate of exchange.

Note 2

Summary of Significant Accounting Policies

Cash and Cash Equivalents
NAF considers all highly liquid investments with original maturity of three months or less to be cash and cash equivalents.

Investment Properties
Investment properties are recorded at cost, which includes the allocated purchase price and related costs and expenses for acquisitionof the properties and the beneficiary interests of properties in trust. Property and equipment balances are depreciated using the straightline method over the estimated useful lives. The estimated useful lives of the principal investment properties (including assets held in trust)
are as follows:
Buildings and improvements

2-63 years

Structures

3-60 years

Machinery and equipment

3-45 years

Tools, furniture and fixtures

2-15 years

Costs related to the renovation, construction and improvement of properties are capitalized. Expenditures for repairs and maintenancewhich do not add to the value or prolong the useful life of a property, are expensed as incurred.

Deferred Assets
New investment unit issue costs are charged to income when incurred.
Bond issue costs are amortized over the period of the bonds under the straight-line method.

Income Taxes
Income taxes are accounted for on the basis of income for financial statement purposes. The tax effect of temporary differences
between the amounts of assets and liabilities for financial statements and for income tax purposes is recognized as deferred taxes.
22

Nippon Accommodations Fund Inc.

Real Estate Taxes
Properties are subject to taxes including property tax, city planning tax and depreciable asset tax. Taxes for each fiscal period arecharged to income on an accrual basis.
The owner of properties is registered in a record maintained by the local government in each jurisdiction, and the taxes are imposed on
the owner registered in the record, as of January 1, based on the assessment made by the local government.
Even when a property is purchased on a date other than January 1 of any given calendar year, these taxes for that year are imposed on
the seller. The buyer pays the seller the corresponding tax amounts for the period from the property’s transfer date to December 31 of thatyear as part of the purchase prices of each property, and capitalizes these amounts as the cost of the property. Those taxes capitalized by
NAF for the periods ended February 28, 2014 and August 31, 2013 amounted to ¥3 million and ¥59 million, respectively.

Accounting Treatment of Beneficiary Interests in Trust Assets including Real Estate
For trust beneficiary interests in real estate, all assets and liabilities associated with assets in trust as well as all income generated andexpenses incurred from assets in trust are recorded in the relevant balance sheet and income statement accounts.

Note 3

Schedule of Investment Properties

Investment properties as of February 28, 2014 and August 31, 2013 consisted of the following:
Yen in millions

As of February 28, 2014
Accumulated
depreciation

Acquisition
costs

Land
Land in trust¥105,995
57,813

Land including trust total¥

As of August 31, 2013

Book value

Acquisition
costs

—
—

¥105,995
57,813¥103,212
57,813

Accumulated
depreciation¥

Book value——¥103,212
57,813

163,809—

163,809

161,026—

161,026

Buildings and improvements
Buildings and improvements in trust

79,99035,404(10,730)(5,533)

69,26029,871

78,29935,211(9,525)(5,008)68,77330,203

Buildings and improvements
including those in trust total
Structures
Machinery and equipment
Tools, furniture and fixtures
Structures in trust
Machinery and equipment in trust
Tools, furniture and fixtures in trust
Construction in process in trust

115,395
1,504
1,737
1,013
1,119
545
370
9

(16,263)
(460)
(667)
(696)
(236)
(228)
(271)
—

99,131
1,044
1,070
317
883
317
98
9

113,511
1,486
1,725
986
1,115
545
359
9

(14,533)
(414)
(585)
(642)
(236)
(193)
(260)
—

98,977
1,072
1,139
343
879
352
98
9

Other investment properties total
Total

Note 46,301(2,560)

3,741

6,228

(2,333)

3,895¥285,505¥(18,823)¥266,681¥280,766¥(16,867)¥263,899

Short-Term Loans and Long-Term Debt

The annual interest rate on short-term loans as of February 28, 2014 was 0.3% and the rate as of August 31, 2013 was 0.3%.
Long-term debt consists of the following:
Yen in millions

Unsecured loans due 2014 to 2024 principallyfrom banks and insurance companies withinterest rates mainly ranging from 0.5% to 1.7%
1.7% unsecured bonds due 2014
1.2% unsecured bonds due 2016

As of February 28, 2014

As of August 31, 2013

¥121,000
10,0007,000¥118,500
10,0007,000¥138,000¥135,500

NAF Report September 2013 – February 201423

The annual maturities of long-term debt as of February 28, 2014 were as follows:
Yen in millions

Due after one to two years
Due after two to three years
Due after three to four years
Due after four to five years
Due after five years¥16,000
15,00018,50019,00049,500

NAF currently has commitment line contracts of ¥10,000 million with two financial institutions. The unused amount of such commitment line was ¥10,000 million as of February 28, 2014.

Note 5Unitholders’ Capital

Total number of common units authorized
Total number of common units issued and outstanding

As of February 28, 2014

As of August 31, 2013

As of February 28, 2013

2,000,000
230,7112,000,000
230,7112,000,000
194,711

NAF shall maintain minimum net assets of at least ¥50 million as required by the Investment Trust and Investment Corporation Act of Japan.

Note 6

Rental Revenues and Expenses

Rental revenues and expenses for the periods ended February 28, 2014, August 31, 2013 and February 28, 2013 were as follows:
Yen in millions

16th Period

15th Period

14th Period

September 1, 2013
to February 28, 2014

March 1, 2013
to August 31, 2013

September 1, 2012
to February 28, 2013

¥8,644273
8,917¥8,330274
8,605¥7,549263
7,813

Other revenues related to property leasing:
Income from leasing rights, etc.
Miscellaneous income
Subtotal
Total revenues from property leasing

213
110
324
9,241

285
107
392
8,997

185
80
265
8,078

Rental Expenses:
Property management fees
Repairs and maintenanceReal estate taxes
Trust fees
Utilities
Insurance
Depreciation and amortization
Leasing-related service fees, etc.
Other rental expenses
Total rental expenses
Operating income from property leasing activities

988
323
421
11
134
11
1,976
155
105
4,128
¥5,113

989
363
421
11
117
11
1,915
188
110
4,129
¥4,867

852
258
381
10
107
10
1,748
141
93
3,604
¥4,474

Revenues from Property Leasing:
Rental:Rental revenues
Facility charge
Subtotal

24

Nippon Accommodations Fund Inc.

Notes to Financial Statements

Note 7

LeasesNAF leases some of its investment properties to outside parties under non-cancelable operating leases. As of February 28, 2014 andAugust 31, 2013, future minimum rental revenues under the non-cancelable operating leases were as follows:
Yen in millions

Due within one year
Due after one year
Total

Note 8

As of February 28, 2014

As of August 31, 2013

¥ 774
3,735

¥ 774
4,049

¥4,509¥4,824

Income Taxes

NAF is subject to income taxes in Japan. The effective tax rates on NAF’s income based on applicable Japanese tax law were 0.03%,
0.03% and 0.03% for the periods ended February 28, 2014, August 31, 2013 and February 28, 2013, respectively. The following tablesummarizes the significant differences between the statutory tax rates and NAF’s effective tax rates for financial statement purposes.

Statutory effective tax rate
Deductible distributions paid
Others
Effective tax rate

16th Period

15th Period

14th Period

September 1, 2013
to February 28, 2014

March 1, 2013
to August 31, 2013

September 1, 2012
to February 28, 201336.59%(36.58)0.02

36.59%(36.58)0.02

36.59%(36.57)
0.01

0.03%

0.03%

0.03%

The tax effects of significant temporary differences that resulted in net deferred tax assets or liabilities as of February 28, 2014,
August 31, 2013 and February 28, 2013 were as follows:
Yen in thousands

As of February 28, 2014

As of August 31, 2013

As of February 28, 2013

Deferred tax assets:
Enterprise taxes

¥16

¥15

¥18

Total deferred tax assets
Deferred tax liabilities

16
—

15
—

18
—

Net deferred tax assets

¥16

¥15

¥18

On March 31, 2014, the Bill for Partial Amendment of the Income Tax Act (2014, Law No. 10) was promulgated and the Special
Reconstruction Corporation Tax will not be charged for fiscal periods beginning on or after April 1, 2014. Accordingly, the statutory
effective tax rate for calculating deferred tax assets and deferred tax liabilities will change from 36.59% to 34.16% for expected temporary differences to be settled on or after September 1, 2014. The effect of this change is immaterial.
NAF was established as an investment corporation under the Investment Trust and Investment Corporation Act of Japan, and as longas an investment corporation distributes to its unitholders at least 90% of earnings available for dividends for a period and otherrequirements prescribed in Japanese tax regulations are met, the investment corporation is allowed to deduct the total amount of distributions paid in calculating its taxable income under Japanese tax regulations.

NAF Report September 2013 – February 201425

Note 9Per Unit Information

Information about earnings per unit for the periods ended February 28, 2014, August 31, 2013 and February 28, 2013 and net assets
per unit as of February 28, 2014, August 31, 2013 and February 28, 2013 were as follows.
The computation of earnings per unit is based on the weighted average number of common units outstanding during the period.
The computation of net assets per unit is based on the number of common units outstanding at each period end.
Yen

Earnings per Unit:
Net income
Weighted average number ofcommon units outstanding

Net Assets per Unit

16th Period

15th Period

14th Period

September 1, 2013
to February 28, 2014

March 1, 2013
to August 31, 2013

September 1, 2012
to February 28, 2013

¥7,443¥6,866¥7,445

461,422460,879

389,422

As of February 28, 2014

As of August 31, 2013

As of February 28, 2013

¥279,985¥279,400¥272,723

Note: NAF implemented a two-for-one split of investment units with the effective date of March 1, 2014. “Net income per unit”, “Weighted average number of common units
outstanding” and “Net assets per unit” are calculated on the assumption that this split of investment units was implemented at the start of the period ended February 28, 2013.

Note 10

Transactions with Related Parties(September 1, 2013 – February 28, 2014)(1) Parent Company and Major Corporate Unitholders: None applicable(2) Affiliates: None applicable(3) Sister Companies: None applicable(4) Directors and Major Individual Unitholders
Classification

Director and/or
close relative

Name

Kosei Murakami

Principal businessor occupation

Executive Directorof NAF and
President & CEOof MFAFM

Nature oftransaction
Payment of asset
management fee to
MFAFM (Note 1)
Payment for the provision ofgeneral administration
relating to organizational
management to MFAFM (Note 3)

Amount oftransaction

Account(Yen in millions)

Balance at theend of the period(Yen in millions)(Note 2)

Accounts
payable

¥700

¥0

—

¥—

¥688

Notes: 1. Kosei Murakami entered into this transaction as a representative of MFAFM, and this amount is subject to the conditions set forth in the by-laws of NAF.
2. The amount of asset management fees includes ¥21 million for management fees related to acquisition of properties included in the book value of each investment property, etc.
3. Kosei Murakami entered into this transaction as a representative of MFAFM, and this amount is set forth in the “General Administration Agreement relating to Organizational
Management” concluded between NAF and MFAFM.
4. “Amount of transaction” does not include consumption taxes.
“Balance at the end of the period” includes consumption taxes.

26

Nippon Accommodations Fund Inc.

Notes to Financial Statements(March 1, 2013 – August 31, 2013)(1) Parent Company and Major Corporate Unitholders: None applicable(2) Affiliates: None applicable(3) Sister Companies: None applicable(4) Directors and Major Individual Unitholders
Classification

Name

Director and/or
close relative

Kosei Murakami

Principal businessor occupation

Executive Directorof NAF and
President & CEOof MFAFM

Nature oftransaction
Payment of asset
management fee to
MFAFM (Note 1)
Payment for the provision ofgeneral administration
relating to organizational
management to MFAFM (Note 3)

Amount oftransaction

Account(Yen in millions)¥843(Note 2)

¥6

Balance at theend of the period(Yen in millions)

Accounts
payable¥672

Accounts
payable¥0

Notes: 1. Kosei Murakami entered into this transaction as a representative of MFAFM, and this amount is subject to the conditions set forth in the by-laws of NAF.
2. The amount of asset management fees includes ¥203 million for management fees related to acquisition of properties included in the book value of each investment property, etc.
3. Kosei Murakami entered into this transaction as a representative of MFAFM, and this amount is set forth in the “General Administration Agreement relating toOrganizational Management” concluded between NAF and MFAFM.
4. “Amount of transaction” does not include consumption taxes.
“Balance at the end of the period” includes consumption taxes.

Note 11

Financial Instruments(September 1, 2013 – February 28, 2014)

1. Status of Financial Instruments(1) Policy for Financial Instruments
NAF raises funds for acquisition of assets and other uses through bank loans, issuance of bonds and investment units.
NAF may enter into derivative transactions solely for the purpose of hedging interest rate risk. Currently, NAF is not engaged inany derivative transactions. NAF strives for efficiency in its funding plans and has an operating policy of minimizing surplus funds.
(2) Financial Instruments, Their Risks and Risk Management System
Funds from loans and bonds are primarily used for acquiring assets and to repay interest-bearing debt. NAF manages associatedliquidity and interest rate fluctuation risk in ways such as diversifying its credit sources and maturities, and by mainly using fixedrate loans.
(3) Supplemental Explanation regarding Fair Values of Financial Instruments
The fair value of financial instruments is based on their observable market value, if available. When there is no observable market value available, fair value is based on a price that is reasonably estimated. Since various factors are reflected in estimating thefair value, different assumptions and factors could result in a different value.

NAF Report September 2013 – February 201427

2. Estimated Fair Value of Financial Instruments
Book value, fair value and the difference between the two as of February 28, 2014 were as follows. The financial instruments for which it
is very difficult to estimate the fair value are excluded from the following table (See Note 2, below).
Yen in millions
Book value

Fair value

Difference

Assets(1) Cash and cash equivalents
Total¥ 8,579¥ 8,579¥ 8,579¥ 8,579¥¥

Liabilities(1) Short-term loans(2) Bonds due within one year
(3) Long-term loans due within one year
(4) Bonds(5) Long-term loans
Total¥ 4,000
10,00010,0007,000
111,000¥142,000¥ 4,000
10,095
10,072
7,147
112,518¥143,833

¥

—
—

—
95
72
147
1,518
¥1,833

Notes: 1. Methods to estimate fair value of financial instruments
Assets:(1) Cash and cash equivalents
Book values of these instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments are settled within a short-term period.
Liabilities:(1) Short-term loans
Book values of these instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments are settled within a short-term period.
(2) Bonds due within one year and (4) Bonds
Fair values of these bonds are based on observable market value.
(3) Long-term loans due within one year and (5) Long-term loans
Fair values of fixed-rate instruments are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied if similar new loans were entered into. Fair values of variable-rate instruments are considered to be their book values because these instruments reflect market interest rates overshort time periods.
2. Financial instruments for which it is very difficult to estimate the fair value
Yen in millions
Book value

Tenant security deposits¥3,264

Security deposits from tenants are not subject to fair value disclosure because they are not marketable, and the actual deposit period is not estimable as leases may becancelled, renewed or re-signed even if a lease term is set in the lease contract, making a reasonable estimate of future cash flows difficult.
3. Redemption schedule for monetary claims with maturity dates after February 28, 2014
Yen in millions
Due within
one year

Cash and cash equivalents¥8,579

4. Repayment schedule for loans and bonds due after February 28, 2014
Yen in millions
Due within
one year

Short-term loans
Bonds
Long-term loans
Total

28

Nippon Accommodations Fund Inc.

¥ 4,000
10,00010,000¥24,000

Due after
one to two years¥——
16,000¥16,000

Due after
two to three years

¥

—
7,000
8,000
¥15,000

Due after
three to four years¥——
18,500¥18,500

Due after
four to five years¥——
19,000¥19,000

Due after
five years¥——
49,500¥49,500

Notes to Financial Statements(March 1, 2013 – August 31, 2013)

1. Status of Financial Instruments
Same as above.

2. Estimated Fair Value of Financial Instruments
Book value, fair value and the difference between the two as of August 31, 2013 were as follows. The financial instruments for which it isvery difficult to estimate the fair value are excluded from the following table (See Note 2, below).
Yen in millions
Book value

Fair value

Assets(1) Cash and cash equivalents
Total

Difference¥ 8,178¥ 8,178¥ 8,178¥ 8,178¥¥

Liabilities(1) Short-term loans(2) Long-term loans due within one year
(3) Bonds(4) Long-term loans
Total¥ 3,500
19,00017,00099,500¥139,000¥ 3,500
19,19017,253
100,468¥140,411

¥

—
—

—
190
253
968
¥1,411

Notes: 1. Methods to estimate fair value of financial instruments
Assets:(1) Cash and cash equivalents
Book values of these instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments are settled within a short-term period.
Liabilities:(1) Short-term loans
Book values of these instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments are settled within a short-term period.
(2) Long-term loans due within one year and (4) Long-term loans
Fair values of fixed-rate instruments are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied if similar new loans were entered into. Fair values of variable-rate instruments are considered to be their book values because these instruments reflect market interest rates overshort time periods.
(3) Bonds
Fair values of bonds are based on observable market value.
2. Financial instruments for which it is very difficult to estimate the fair value
Yen in millions
Book value

Tenant security deposits¥3,194

Security deposits from tenants are not subject to fair value disclosure because they are not marketable, and the actual deposit period is not estimable as leases may becancelled, renewed or re-signed even if a lease term is set in the lease contract, making a reasonable estimate of future cash flows difficult.
3. Redemption schedule for monetary claims with maturity dates after August 31, 2013
Yen in millions
Due within
one year

Cash and cash equivalents¥8,178

4. Repayment schedule for loans and bonds due after August 31, 2013
Yen in millions
Due within
one year

Short-term loans
Bonds
Long-term loans
Total¥ 3,500—
19,000¥22,500

Due after
one to two years¥—
10,0008,000¥18,000

Due after
two to three years

¥

—
7,000
10,000¥17,000

Due after
three to four years¥——
14,500¥14,500

Due after
four to five years¥——
18,000¥18,000

Due after
five years¥——
49,000¥49,000

NAF Report September 2013 – February 201429

Note 12Investment and Rental Properties(September 1, 2013 – February 28, 2014)
NAF owns rental properties including land located in Tokyo and other areas. The book value, net changes in the book value and the fairvalue of the investment and rental properties were as follows.
Yen in millions
As of September 1, 2013

Book value
Change during the 16th period

As of February 28, 2014

Fair value
As of February 28, 2014

¥263,889¥2,782¥266,672¥274,691

Notes: 1. “Book value” is the acquisition cost inclusive of acquisition expenses less accumulated depreciation and excluding expenses for construction in process.
2. In “Change during the 16th Period,” the main factor for the increase in book value was the acquisition of properties for ¥4,427 million. The main factor for the decreasein book value was depreciation.
3. “Fair value as of February 28, 2014” is based on appraisals provided by independent real estate appraisers.

Information about profit and loss from investment and rental properties for the period ended February 28, 2014 is disclosed in Note 6,
Rental Revenues and Expenses.
(March 1, 2013 – August 31, 2013)
NAF owns rental properties including land located in Tokyo and other areas. The book value, net changes in the book value and the fairvalue of the investment and rental properties were as follows.
Yen in millions
As of March 1, 2013

Book value
Change during the 15th Period

As of August 31, 2013

Fair value
As of August 31, 2013

¥239,401¥24,487¥263,889¥264,262

Notes: 1. “Book value” is the acquisition cost inclusive of acquisition expenses less accumulated depreciation and excluding expenses for construction in process.
2. In “Change during the 15th Period,” the main factor for the increase in book value was the acquisition of properties for ¥26,076 million. The main factor for the decreasein book value was depreciation.
3. “Fair value as of August 31, 2013” is based on appraisals provided by independent real estate appraisers.

Information about profit and loss from investment and rental properties for the period ended August 31, 2013 is disclosed in Note 6,
Rental Revenues and Expenses.

Note 13

Segment Information(September 1, 2013 – February 28, 2014)

1. Segment Information
Segment information has been omitted as NAF has only one segment, which is real estate leasing business.

2. Related Information(1) Information by Products and Services
Disclosure of this information has been omitted as NAF has a single product/service line that accounts for more than 90% of total revenues.
(2) Information by Geographic Areas
1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total revenues.
2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of the book value of
total investment properties.
(3) Information on Major Tenants
TenantMitsui Fudosan Housing Lease Co., Ltd.

30

Nippon Accommodations Fund Inc.

Operating revenues(Yen in millions)¥8,849Related segment

Real estate leasing businessNotes to Financial Statements(March 1, 2013 – August 31, 2013)

1. Segment Information
Segment information has been omitted as NAF has only one segment, which is real estate leasing business.

2. Related Information(1) Information by Products and Services
Disclosure of this information has been omitted as NAF has a single product/service line that accounts for more than 90% of total revenues.
(2) Information by Geographic Areas
1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total revenues.
2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of the book value of
total investment properties.
(3) Information on Major Tenants
TenantMitsui Fudosan Housing Lease Co., Ltd.

Note 14

Operating revenues(Yen in millions)¥8,605

Related segment

Real estate leasing business

Significant Subsequent Events

Split of Investment Units
As of February 28, 2014 as the record date and as of March 1, 2014 as the effective date, NAF implemented a two-for-one split of investment units.
a. Purpose of Split
With the introduction of the individual savings account system of Japan (“NISA”) on January 1, 2014, NAF has decided to reduce theamount of each investment unit through the split of investment units. NAF expects an increase of long-term investors while expanding theinvestor base by creating an environment for investors to make investments more easily through the split of investment units.
b. Method of Split
As of February 28, 2014 as the record date, NAF implemented a two-for-one split of investment units owned by unitholders registered orrecorded in the final unitholders registry on this date.
c. Number of Investment Units Increased through Split, etc.
Number of investment units issued and outstanding before split:
230,711 units
Number of investment units increased through split:
230,711 units
Number of investment units issued and outstanding after split:
461,422 units
Total number of investment units authorized after split:
4,000,000 units
Please refer to Note 9, Per Unit Information, for per unit data assuming that the split of investment units was implemented at the start of theperiod ended February 28, 2013.

NAF Report September 2013 – February 201431

Independent Auditor’s Report

To the Board of Directors of
Nippon Accommodations Fund Inc.:
We have audited the accompanying financial statements of Nippon Accommodations Fund Inc. (a Japanese Real Estate
Investment Trust), which comprise the balance sheets as at February 28, 2014 and August 31, 2013, and the statements
of income, statements of changes in net assets and statements of cash flows for each of the six months ended February 28,
2014, August 31, 2013 and February 28, 2013, and a summary of significant accounting policies and other explanatory
information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance withaccounting principles generally accepted in Japan, and for such internal control as management determines is necessary toenable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits inaccordance with auditing standards generally accepted in Japan. Those standards require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements arefree from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on our judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider
internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design
audit procedures that are appropriate in the circumstances, while the objective of the financial statement audit is not forthe purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the financial statements present fairly, in all material respects, the financial position of Nippon
Accommodations Fund Inc. as at February 28, 2014 and August 31, 2013, and its financial performance and cash flows
for each of the six months ended February 28, 2014, August 31, 2013 and February 28, 2013, in accordance withaccounting principles generally accepted in Japan.
Convenience Translation
The U.S. dollar amounts in the accompanying financial statements with respect to the period ended February 28, 2014 arepresented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in
our opinion, such translation has been made on the basis described in Note 1 to the financial statements.

June 3, 2014
Tokyo, Japan

KPMG AZSA LLC, a limited liability audit corporation incorporated under
the Japanese Certified Public Accountants Law and a member firm of the
KPMG network of independent member firms affiliated with KPMGInternational Cooperative (“KPMG International”), a Swiss entity.

32

Nippon Accommodations Fund Inc.

Facts and Figures

Contents
Rental Apartment Investment Characteristics .... 1
Corporate Structure and Governance................. 3
Primary Related Corporations ............................ 6
Portfolio Policy................................................... 8
Corporate Data .................................................. 11
Status of Unitholders ......................................... 12

NAF Report September 2013 – February 201433

Rental Apartment Investment Characteristics

Rental apartments have a lower earnings fluctuation risk than real estate leased for other uses. By
concentrating investment in the 23 wards of Tokyo where demand for rental housing is high and developing
a portfolio with high market competitiveness and asset value, NAF will stably increase earnings.

Residential Rental Market Trends inthe 23 Wards of Tokyo

1. Net Migration into Tokyo (23 Wards of Tokyo)(People)Net in-migration

In-migration

Out-migration

400,000

Population and Number of Households
200,000

In the 23 wards of Tokyo, where most of NAF’s assets undermanagement are located, the population influx is continuing,0

reflecting an increasing desire in recent years to live closer to work
-200,000-400,000

and the progressive concentration of economic activities in Tokyo.
Graph 1 shows migration trends in the 23 wards of Tokyo as well
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013as net in-migration. In-migration has continued to exceed outmigration since 1996, indicating stable demand for residential

Source: Tokyo Metropolitan Government, Ministry of Internal Affairs and Communications

rental housing in highly convenient areas.
Moreover, the number of households is increasing at a greater
2. Projected Number of Households and Population (23 Wards of Tokyo)

rate than the population as households divide into smaller units,among other factors. Graph 2 shows the projected number of(Millions of households)
5.00
4.50
4.00
3.50
3.00
2.50

(Millions of people)

households and population for the 23 wards of Tokyo. The number of

9.50

households increased by 760 thousand over the decade from 2000 to

Projected number of households (left axis)
Projected population (right axis)
Increase of
760,000 households
over 10 years
20.4% increase

3.47

2000

9.10

2010. This 20.4 percent increase was more than double the 10.0

9.00

percent increase in population during the same period. This difference
8.50

3.76
8.13

1995

4.53
8.95

4.02

7.97

4.60

implies growth in the number of single and two-person households, a

8.49
Increase of 810,000 residents over 10 years
10.0% increase

2005

2010

2015

trend that is projected to continue through 2015.

8.00

Due to the above factors, NAF projects solid demand from the
7.50

growing number of single and two-person households for single andcompact (rentable area under 60m2 with two or fewer bedrooms)

Source: Tokyo Metropolitan Government, Ministry of Internal Affairs and Communications

apartments, which comprise the majority of NAF’s portfolio.

Rental Housing Stock
Graph 3 shows the number of rental apartment construction

3. Rental Apartment Construction Starts (23 Wards of Tokyo)

starts in the 23 wards of Tokyo. Construction starts increased more or(Units)
50,000less steadily until 2006, but decreased significantly following changes
in the building authorization procedure resulting from revisions in

43,371
39,08440,00030,76530,00022,075 21,878

25,603 23,831 25,888

33,101

2007 to the Building Standards Law (Law No. 201 of 1950 as

31,88026,51220,00021,71823,707
17,054 17,994

amended). The number of construction starts has been at a low level
20,863

10,00001998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: Ministry of Land, Infrastructure, Transport and Tourism

1

Nippon Accommodations Fund Inc.

since 2007.

Stability of Residential Rent

4. Residential and Office Rents

Graph 4 shows relative rents for residential units in the 23 wardsof Tokyo and offices in Greater Tokyo, with 1989 levels set as 100.

(1989 = 100)
150

Residential rent has remained relatively stable in comparison to office140

rent. Rental housing is a necessary expense in the same way as

130clothing and food. Therefore, residential rent is considered stable

120
110

because it is generally unaffected by fluctuations in economic

100

conditions and asset value, with relatively low risk of change.

90

In addition, rental housing enables a more diversified portfolio in

80
70

terms of number of properties and tenants due to its relatively small
scale in comparison to office buildings and other properties.

Office rent index (Tokyo)
Residential rent index (23 wards of Tokyo)

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Source: Ministry of Internal Affairs and Communications, Bank of Japan

Investment in rental housing of this nature is perfectly matched with
NAF’s core strategy of securing stable revenues. Furthermore, newproperties are scarce, comprising a limited share of rental housing
stock. Such properties, which make up the majority of NAF’s
investment portfolio, ensure market competitiveness and asset value.

Common Practices in Japan’s Rental Apartment Market
Contract Validity Period

Commission Fee

Leases in Japan are generally two-year contracts, which can be
renewed by paying an extension fee (usually one month’s rent).

A commission fee is paid to the leasing agent; by regulation, it cannot
exceed one month’s rent.

Security Deposit

Guarantor/Joint Surety

The tenant must pay a security deposit in advance to the landlord to
insure against future unpaid rent and/or damages. Generally, it isequal to two months’ rent and is typically refunded when moving out(a cleaning and/or repair fee may be deducted prior to refund).

A guarantor is required when signing a lease contract. The guarantor
must have an income sufficient to cover the rent if the tenant cannot
pay and/or the cost of repairs to the apartment if the tenant causes
any damage.

Key Money
The tenant pays key money to the landlord prior to signing a lease
contract. Generally, it is equivalent to two months’ rent and is notrefunded.

Facts and Figures2

Corporate Structure and GovernanceNippon Accommodations Fund Inc. has structured systems for compliance and risk management andoperates fairly and transparently with the aim of increasing investor value.

Real Estate Investment Trust (“REIT”) Structure
Nippon Accommodations Fund Inc. (“NAF”) is an investment
corporation established with the objective of investing in assets,
primarily Designated Assets as defined under the Investment Trustand Investment Corporation Act of Japan. NAF was established on
October 12, 2005, with Mitsui Fudosan Accommodations FundManagement Co., Ltd. (the “REIT Management Company” or“MFAFM”) as its asset management company.
NAF has entrusted management of all of its assets to the REITManagement Company, which is the asset management company
required under the Investment Trust and Investment Corporation
Act of Japan. Operating in accordance with the REIT Management
Agreement concluded on October 13, 2005 (as amended), the
REIT Management Company manages NAF’s assets according to
NAF’s asset management and administration policies and the asset
management guidelines embodied in the internal regulations of
the REIT Management Company. The asset management
guidelines take current investment conditions into account andfollow NAF’s basic operating principle of taking a medium-tolong-term perspective in managing assets to secure stableearnings and steadily increase assets under management.

These guidelines may change in the future in response to changes
in the external investment environment and the status of NAF’s
assets under management.
In addition, the REIT Management Company has concluded
contracts with other companies in the Mitsui Fudosan Group topromote smooth, effective management of NAF’s assets. An
Agreement on Provision of Real Estate Information/Advisory Service
with Mitsui Fudosan Co., Ltd. provides information regarding realestate owned or developed by Mitsui Fudosan’s Accommodations
Business Division, and other management advisory information.
Each of (i) a Memorandum on Provision of Real Estate Brokerage
Information with Mitsui Fudosan Realty Co., Ltd. and (ii)an Agreement on Provision of Real Estate Information with
Mitsui Fudosan Residential Co., Ltd. provides access to certain realestate property information. A Basic Agreement on Property
Management with Mitsui Fudosan Housing Lease Co., Ltd., themaster property management company to which NAF has entrusted
property management services of all its rental apartments, isfundamental to NAF’s policy of outsourcing such property
management services required in managing real estate.

Independent Auditor

Asset Custodian

Sumitomo Mitsui
Trust Bank, Limited

KPMG AZSA LLC

Asset Custody
Agreement

Transfer Agent

Sumitomo Mitsui
Trust Bank, Limited
General Administrative Agents(Bond Administration)

Sumitomo Mitsui
Trust Bank, Limited
Sumitomo Mitsui Banking
Corporation
Property Information Provider

Mitsui Fudosan
Realty Co., Ltd.

Transfer Agency
Service Agreement/
Agreement regarding
Management ofSpecial Accounts

REIT
Nippon Accommodations
Fund Inc.
(TSE 3226)

Financial Agency
Agreement

Memorandum on
Provision of Real Estate
Brokerage Information

Nippon Accommodations Fund Inc.

Heisei Kaikeisha Tax Corporation
General Administrative Agent(Tax Return Filing)

Zeirishi-Hojin
PricewaterhouseCoopers

REIT Management Company

Mitsui Fudosan
Accommodations FundManagement Co., Ltd.

Basic Agreement
on Property
Management

Agreement on Provision ofReal Estate Information/Advisory Service
Master Property
Management Company

Real Estate Information Provider

3

Fiscal Administrative
Service Agreement(Tax Return Filing)

General Administrative Agent(Accounting)

REIT Management Agreement andGeneral Administrative Service Agreement

Agreement on Provisionof Real Estate Information

Mitsui Fudosan
Residential Co., Ltd.

General Administrative
Service Agreement(Accounting)

Real Estate Information/Advisory

Mitsui Fudosan Co., Ltd.

Mitsui Fudosan
Housing Lease Co., Ltd.

Corporate Structure
General Meeting of Unitholders
In accordance with the Investment Trust and Investment
Corporation Act of Japan and NAF’s Articles of Incorporation, NAF
convenes a General Meeting of Unitholders within the 23 wardsof Tokyo, generally once every two years. The General Meeting ofUnitholders adopts or vetoes ordinary resolutions on the basis of asimple majority of the voting rights of unitholders in attendance.
Decisions on substantive resolutions such as changes in the
Articles of Incorporation require the attendance of unitholders
holding at least a simple majority of total units issued andoutstanding, and a vote of two-thirds majority of the voting rights
of such unitholders. The asset management policies and standards
are stipulated by NAF’s Articles of Incorporation.

Executive Directors, Supervisory Directors,
Independent Auditor and the Board of Directors
NAF’s Articles of Incorporation stipulate that NAF must haveone or more executive directors, and two or more supervisory
directors (but always equal to the number of executive directors
plus at least one additional supervisory director). NAF’s
independent auditor is KPMG AZSA LLC.
NAF’s executive directors are responsible for businessexecution. In addition, they have authority for all judicial andextrajudicial proceedings related to the operations of NAF.

Supervisory directors are responsible for supervising businessexecution by the executive directors.
The Board of Directors acts in accordance with the Investment
Trust and Investment Corporation Act of Japan and NAF’s Articles
of Incorporation and other internal rules in exercising their
responsibility to supervise the performance of the executive
directors. In accordance with the current Articles of Incorporation,
the Board of Directors passes or vetoes resolutions on the basis ofa simple majority of executive and supervisory directors on the
Board who are in attendance and are able to vote. Executive andsupervisory directors having special interest in a resolution areprohibited from participating in related decisions.
Independent auditors are elected at the General Meeting ofUnitholders. They audit financial and accounting documents
including NAF’s financial statements. In addition, they are charged
with reporting to supervisory directors any unlawful acts ormaterial violations of laws, regulations or NAF’s Articles ofIncorporation that executive directors may commit in the course of
their duties. Independent auditors also perform other duties as
required by laws and regulations.

Compliance Initiatives
The REIT Management Company, MFAFM, assumes full
responsibility for compliance in order to structure an appropriate
asset management system for NAF. A Chief Compliance Officer(CCO) of MFAFM has been appointed to supervise compliancewith laws, regulations and internal rules on the part of the REITManagement Company.
The CCO is responsible for internal audits at the REITManagement Company. The Chief Executive Officer (CEO) may
also appoint other employees of MFAFM to participate as needed
in internal audits, based on the recommendations of the CCO.
MFAFM’s entire organization and all personnel within it are
subject to internal audits. As a rule, internal audits are conducted
on a regular basis in accordance with the compliance program,but the CEO may initiate extraordinary audits.

General Meeting of Stockholders
AuditorBoard of Directors
Compliance Committee

CCO
CEO

Investment Committee

Financial
Division

Investment
Division
CIO

Investment,
Research &Strategy Team

CFO

Asset
Management
Team

FinancialTeam

Corporate
Operation
Team

Facts and Figures4Corporate Structure and Governance

Investment Risk Management System
NAF itself is responsible for complying with the Investment
Trust and Investment Corporation Act of Japan and related laws
and regulations in managing risks. In addition, the REITManagement Company has established appropriate internal
rules. In conjunction with appropriate organizational systems,
NAF is providing education and implementing other measures toenhance the culture of compliance among officers and employeesof MFAFM.
NAF’s Board of Directors convenes as needed at least once
every three months, and resolves important matters and reportson the status of business execution in accordance with laws,
regulations and internal rules for such Board of Directors.
Independent supervisory directors supervise business execution.

Moreover, supervisory directors can obtain as needed reports on
operations and financial condition from the REIT Management
Company and from NAF’s asset custodian, Sumitomo Mitsui Trust
Bank, Limited. Independent supervisory directors can also conduct
required investigations.
The REIT Management Company formulates and revises anannual management plan that is the blueprint for management
and administration policies that comply with the asset
management guidelines. This annual plan and compliance withthe asset management guidelines serve to eliminate or minimize
risk. In addition, the REIT Management Company has establishedinternal risk management regulations and a department that
focuses on managing each type of risk appropriately.

Restrictions on Related-Party Transactions
Laws and regulations prohibit the REIT Management
Company from conducting specified transactions with relatedparties. In the case of a transaction with a potential conflict ofinterest between an entity specified under the Investment Trustand Investment Corporation Act of Japan and its ordinances andits asset management company, in principle the REITManagement Company must prepare a brief describing thetransaction and deliver it to NAF and other entities specified by5

Nippon Accommodations Fund Inc.

the Investment Trust and Investment Corporation Act of Japanand its ordinances.
With the objective of enhancing returns for NAF’s unitholders,the REIT Management Company’s internal regulations specify
rules for handling related-party transactions. The REITManagement Company has established standards and procedures
for related-party transactions and executes appropriate asset
management for NAF by eliminating conflicts of interest.

Primary Related Corporations

Overview of the Roles of Primary Related Corporations
The following outlines the contractual relationship between NAF and its REIT management company, and the contractual relationship between NAF’s REIT
management company and primary related corporations.
Role

Name

Overview of Relevant Operations

REIT managementcompany and generaladministrative agent

Mitsui Fudosan
Accommodations FundManagement Co., Ltd.
(MFAFM)

MFAFM serves as the company entrusted with asset management as a Financial Instruments Business
Operator prescribed in Article 28 Paragraph 4 of the Financial Instruments and Exchange Law and undera REIT Management Agreement entered into between MFAFM and NAF on October 13, 2005
(as amended). Under this agreement, MFAFM undertakes asset management of NAF in accordance withthe asset management guidelines of MFAFM and the Articles of Incorporation of NAF. Under the above
agreement, MFAFM is entrusted with (1) management of assets owned by NAF; (2) fund procurement tobe conducted by NAF; (3) reporting on the condition of assets owned by NAF; (4) formulating
management plans for assets of NAF; and (5) any other matters related to the above items listed in (1)through (4) that NAF may require.
In addition, pursuant to Article 117 of the Investment Trust and Investment Corporation Act of Japan,
MFAFM undertakes management of (1) the Board of Directors; (2) the General Meeting ofUnitholders; and (3) any other matters related to the above items listed in (1) and (2) that NAF may
require, as General Administrative Agent based on a General Administrative Service Agreement dated
March 1, 2006. The matters entrusted to the Transfer Agent pursuant to the Agreement between NAF
and the Transfer Agent are not included in the above matters set forth in (1) and (2).

Real estate information/
advisory service provider

Mitsui Fudosan Co., Ltd.

Mitsui Fudosan provides real estate sales information, real estate management information, and otherservices to MFAFM under an Agreement on Provision of Real Estate Information/Advisory Service that
MFAFM entered into with Mitsui Fudosan on February 23, 2006.

Real estate
information provider

Mitsui Fudosan
Residential Co., Ltd.

Mitsui Fudosan Residential provides real estate sales information to MFAFM under an Agreement on
Provision of Real Estate Information that MFAFM entered into with Mitsui Fudosan Residential on
September 26, 2007.

Property information
providerMitsui Fudosan
Realty Co., Ltd.

Mitsui Fudosan Realty provides real estate brokerage information and other services to MFAFM
under a Memorandum on Provision of Real Estate Brokerage Information that MFAFM entered intowith Mitsui Fudosan Realty on March 31, 2006.

Master property
management company

Mitsui Fudosan
Housing Lease Co., Ltd.

In principle, MFAFM will entrust to Mitsui Fudosan Housing Lease as master property managementcompany, all property management services required for real estate of NAF, under a Basic Agreement
on Property Management between MFAFM and Mitsui Fudosan Housing Lease dated March 31, 2006.

Mitsui Fudosan Accommodations Fund Management Co., Ltd.
REIT Management Company and General Administrative Agent
MFAFM, as a REIT management company provided for in theInvestment Trust and Investment Corporation Act of Japan, performs
management of NAF’s assets and undertakes management of thegeneral affairs of NAF.
MFAFM has no capital relationship with NAF.

Fees for the Asset Management Operation

Operation

Management Fees 1■ Undertakes asset management of NAF pursuant to a REIT

The amount equivalent to 5 percent of the amount of the revenue
arising from Real Estate, etc., as calculated on each closing date (excluding revenues from the sale of Real Estate, etc., and other Managed
Assets) will be payable. Management Fees 1 are paid without delay after
definite settlement of accounts.

Management Agreement based on an entrustment from NAF in accordance with the Articles of Incorporation of NAF and the Investment
Objectives and Policies set forth therein.
■ Undertakes management of the general affairs of the general

meeting of unitholders and the Board of Directors of NAF as General
Administrative Agent based on an entrustment from NAF anda General Administrative Service Agreement.

NAF pays asset management fees to MFAFM, in accordance with the
REIT Management Agreement concluded with MFAFM. These fees comprise items 1 to 4 below, with the method of calculation and payment
dates as follows.

Management Fees 2
The amount equivalent to 5 percent of income before income tax prior
to deduction of Management Fees 1 and 2 as calculated on each closing
date will be payable. Management Fees 2 are paid without delay after
definite settlement of accounts.

Facts and Figures6

Primary Related Corporations

Management Fees 3

Management Fees 4

In the event that Real Estate, etc., is newly acquired, compensationequivalent to 1 percent (0.5 percent if it is acquired from Related Parties)of the total amount of the acquisition price of said Real Estate, etc.,(excluding consumption tax, local consumption tax, and acquisition costs)
will be payable. Management Fees 3 are paid at or before the end of thenext month after the month of the acquisition date.

In the event that Real Estate, etc., is sold, compensation equivalent to
1 percent (0.5 percent if it is sold to Related Parties) of the total amountof the sales price of said Real Estate, etc., (excluding consumption tax,
local consumption tax) will be payable. Management Fees 4 are paid at or
before the end of the next month after the month of the sales date.

Mitsui Fudosan Co., Ltd.
Real Estate Information and Advisory Service Provider
Pursuant to an Agreement on Provision of Real Estate Information/Advisory
Service, Mitsui Fudosan provides to MFAFM a diverse array of support services that employ the information and expertise of Mitsui Fudosan in thearea of real estate management and administration.
In order to receive such services, MFAFM provides Mitsui Fudosan
with acquisition guidelines included in asset management guidelines.

Note: “Real estate management information” means the following
information.

Provision of Information on Real Estate and Other
Assets Owned or Developed by Mitsui Fudosan(b) Mitsui Fudosan’s qualitative view of short-term trends relevant to theoperating environment of the real estate leasing market, including but
not limited to trends in new supply of residential properties for lease(including property summaries, level of rent and initial leasing conditions), lease contracts entered into for specific residential properties,
area marketing surveys, financial data for other real estate investment
corporations, income and expense data for specific real estate or realestate-related assets, and real estate leasing market trends (including
vacancy rate and rent trends)

In the case Mitsui Fudosan decides to provide any third party withinformation on real estate or real estate-related assets that it owns or isplanning to develop and sell under its Accommodations Business Divisionor otherwise solicits the third party to purchase such real estate or assets,
and such real estate or assets are consistent with MFAFM’s asset management guidelines, Mitsui Fudosan provides such information to MFAFM
before or at the same time as it provides information to and/or solicits thethird party, unless prevented from doing so due to lack of consent of third
parties or for any other unavoidable reason.
When MFAFM receives such information and provides written notification that it will consider the purchase of such real estate or assets, Mitsui
Fudosan deals with NAF as a prospective purchaser on a pari passu basiswith any third party interested in purchasing such real estate or other assets.

(a) Mitsui Fudosan’s qualitative view of medium-to-long-term trends relevant to the operating environment of the real estate leasing market(including but not limited to economic trends in Japan, population
dynamics and trends in housing stock)(c) Mitsui Fudosan’s quantitative data regarding real estate leasing market conditions up to the present (including but not limited to rent rollsof residential properties for lease owned by Mitsui Fudosan or NAF
and supplementary data such as records of lease contracts enteredinto and cancelled, and related expenses)(d) Other information related to items (a), (b) or (c) above that MFAFM
requests, as needed

Provision of Third-Party Real Estate Sales Information
Regardless of whether Mitsui Fudosan has originated or is brokering thesale, Mitsui Fudosan’s Accommodations Business Division in principle provides MFAFM with information concerning available real estate or realestate-related assets owned by third parties, when such real estate or assets
are consistent with MFAFM’s asset management guidelines, unless prevented from doing so due to lack of consent of third parties or for any otherunavoidable reason, or because Mitsui Fudosan itself intends to acquire
such real estate or assets with the objective of development or ownership.

Provision of Real Estate Management Information
At least once per calendar year, Mitsui Fudosan will provide in writing,upon request by MFAFM, real estate management information (see note
below) that its Accommodations Business Division supervises if MFAFM
deems such information necessary for its business and Mitsui Fudosan
agrees to such provision.

Provision of Advisory Services
Mitsui Fudosan provides technical advice to MFAFM regarding thebuildings and facilities of the real estate and real estate-related assetsthat NAF has purchased or is considering purchasing (but in no case doesit provide MFAFM with investment advice). This technical advice includes
the following.
(a) Advice and investigational support for the preparation and implementation of daily and long-term maintenance plans for said buildings andfacilities(b) Advice and investigational support for the preparation and implementation of plans for small repairs, renovations, periodic inspections andresponse to facility and equipment recalls(c) Advice, investigational support and other assistance for the preparation and implementation of large-scale renovations

Operation Fees
MFAFM will provide compensation as separately discussed and agreed
with Mitsui Fudosan under this agreement.

7

Nippon Accommodations Fund Inc.

Portfolio Policy

Portfolio Structure Policies
Set forth below are the portfolio structure policies and investment
standards for individual properties for the REIT Management Company
and its internal regulations that serve as asset management guidelines.

1. Proportion of Investment Assets by Category
NAF invests mainly in rental apartments, and currently limits
investment in other accommodation assets to a maximum of 10 percent
of total portfolio value on an acquisition price basis.

2. Investment Areas

investing in accommodation assets. By region, at least 80 percent of
NAF’s assets are located in the 23 wards of Tokyo.
When considering individual investments, NAF studies regional
characteristics and tenant needs. NAF then deploys this information toinvest in properties with suitable residential plans and characteristics.

3. Investment Standards
The REIT Management Company identifies potential investments anddecides whether or not to invest in assets on the basis of the asset
management guidelines summarized in the table below.

NAF emphasizes Greater Tokyo and other major cities in Japan in
ItemStandard

Investment amountIn principle, the value of each property must exceed ¥1 billion. However, NAF may invest in properties at or below ¥1 billion
after taking into account property characteristics and earnings potential and certain relevant matters.

Ownership interests

In principle, NAF shall hold ownership interests of a whole property. However, NAF may invest in compartmentalized ownershipupon consideration of the specific property. NAF may also invest in leaseholds, including fixed-term leaseholds, on the basis of
consideration of earnings potential, the stability of the leasehold rights and other relevant matters.

Building structure

In principle, building structures shall be reinforced concrete (RC) or steel reinforced concrete (SRC). Earthquake resistance shallconform to or substantially satisfy the New Earthquake Resistance Standards (in compliance with the 1981 revision to the
Building Standards Law (Law No. 201 of 1950), as amended, the “Building Standards Law”).

Properties under development

In principle, NAF shall acquire properties that are already producing stable rental income at the time of acquisition, and shall notinvest in land with a view to NAF’s own construction of the building thereon. However, NAF may consider contracts to acquire
uncompleted buildings that, although incomplete, are expected to carry minimum risk in respect to completion, delivery andsubsequent leasing.

4. Due Diligence Standards
NAF selects assets to invest in only after due diligence covering
economic feasibility, physical condition and legal status in accordance withthe asset management guidelines. Due diligence includes real estateappraisals and building inspection reports from third-party specialists.
Item
Economic
feasibility
studies

Physicalcondition
studies

Based on the results of such due diligence, the REIT Management
Company in principle undertakes investigation of the items listed below inorder to make investment decisions as a result of comprehensive review.

Issues InvestigatedMarket survey

1. Current residential environment in the relevant region
2. Demand and supply for rental housing in the relevant region
3. Rental housing competition trends in the relevant region
4. Markets rents in the relevant region
5. Discount rate and rate of return

Tenant survey

1. Tenant creditworthiness and rent income amount
2. Purpose of use and confirmation that tenants are not members of anti-social forces

Survey ofearnings andrelated issues

1. Current property management costs
2. Development of medium-to-long-term plan for repair and renovation expenses
3. Development of cash flow projections
4. Verification that property is consistent with portfolio strategy

Location

1. Street conditions, access to major transportation
2. Convenience and access to public facilities
3. Primarily visual confirmation of status of borders between adjacent tracts and cross-border issues
4. Living conditions including view, light, ambient noise and airflow
5. Presence of unpleasant facilities
6. Future development plans in the surrounding area

Construction,equipment andspecifications

1. Building structure, age and construction company of property and other related matters
2. Layout, ceiling height, interior specifications (including ceiling, walls and floors), materials used for the interior and exterior,
maintenance of facilities including sanitary facilities, ventilation facilities, electrical facilities, elevators and parking
3. Need for immediate repairs

Building
management

1. Status of compliance with related regulations such as the Building Standards Law, the City Planning Law, asbestos-related laws
and regulations, the Law concerning the Promotion of Expansion of Public Lands and the National Land Use Planning Law
2. Actual management status
3. Quality of the property management company and contract terms
Facts and Figures8Legalinvestigation

Antiseismic
resistance andprobable
maximum loss
(PML)

1. Antiseismic resistance that meets the New Earthquake Resistance Standards (the new earthquake resistance standards forbuildings, etc., based on the 1981 revision to the Building Standards Law) or equivalent resistance
2. Checks by the construction company, architectural firm, construction engineering company and construction confirmation andinspection body; confirmation of authenticity of the structural calculation sheets
3. In principle, earthquake PML shall be below 15 percent. In deciding whether or not to purchase a building for which PML is at or
above 20 percent, consideration of additional antiseismic reinforcing work, additional earthquake insurance and other relevant
matters must be considered.

Environmental,
soil and other issues

1. Investigation of whether the building contains hazardous materials
2. Investigation of land use records and soil contamination

Rights andrelated issues

Investigation shall be conducted as to whether the previous owner had obtained the enforceable real right.
1. Issues regarding ownership interests and mortgage
2. Lease contract terms (including confirmation of area of rental units)
3. Any documentation related to confirmation of border or agreement regarding cross-border issues
4. Permission for occupancy of roads under the Traffic Law
5. Compliance with laws and regulations related to environmental preservation, such as the Nature Conservation Law and the
Urban Green Space Conservation Law
6. Existence of factors impeding the enforceability of the previous owner’s rights
In case of complicated relation of rights, the following matters, among others, shall be investigated (the complicated relation ofrights include relationship between NAF and others if NAF does not hold the title to property or jointly holds the title).
1. (If the concerned right is leasehold) the perfection of such leasehold and the absence of any right which supersedes suchleasehold
2. The registration status of the relevant right of site; the limitation on separate transfer of such right of site from the building
thereon and the registration status of such limitation; share of such right
3. Measures to be taken to ensure the maintenance of deposits; reserve rules or measures based on long-term renovation plan
4. Existence of agreement on prohibition of division of co-ownership property and registration status of such agreement;
appropriate treatments in case of request for division of co-ownership property or sales of co-ownership share; (possible)
claims against or from other co-owners
5. Status of compartment of compartmentalized ownership
6. Security arrangements established prior to involvement of NAF and assumption of any encumbrances or obligations inconnection thereto
7. Terms of special agreement with the owner of site (or leasehold originator), other compartmentalized ownership holders,
other co-owners and any other relevant parties
8. Characteristics of owners of site (or leasehold originator), compartmentalized ownership holders, co-owners or otherrelevant parties (for example, corporations or individuals)
9. Terms of trust agreement in case the relevant rights are beneficial interests in real estate trust

Policies for Portfolio Management and Operation
1. Basic Management Policies
The REIT Management Company prepares a yearly management planfor NAF’s assets under its management for each fiscal period. This management plan covers issues such as handling of the assets and projected
capital expenditures for properties, including plans for large-scale renovation, and is subject to Investment Committee approval.
The REIT Management Company acts in accordance with this yearly
management plan in undertaking management and operation of the assets
in cooperation with the property management company. The REITManagement Company is also responsible for implementing appropriatechanges and revisions to the yearly management plan if necessitated bysignificant changes in the operating environment.

9

property management, and its operations must be organized and efficientso that it can provide consistent, high-quality services across a wide arrayof properties and tenants.
For “Rental Apartments” in NAF’s portfolio, NAF has selected Mitsui
Fudosan Housing Lease Co., Ltd. to provide these services as its master property management company. In principle, NAF intends to entrust property
management for assets to be owned by NAF in the future to Mitsui Fudosan
Housing Lease, on the condition that it meets the following requirements.

2. Selection and Monitoring of the Property
Management Company

1. An organizational structure that can execute property management
operations according to the management and operation specificationsof the REIT Management Company
2. The capability to accomplish smooth new tenant recruitment
3. A reasonable compensation level for property management operations
compared to the market level

The property management company is responsible for proposal andimplementation of various measures for day-to-day, on-site managementof tenants and properties. Such functions of the property managementcompany are particularly important to the management of accommodation
assets in general and rental housing in particular. Naturally, the property
management company should have specialized expertise in the business of

In addition, the REIT Management Company will periodically monitor
whether the selected property management company is maintaining its
capabilities at the level dictated by the standards for selection. As a resultof monitoring, the REIT Management Company may require improvements or may change the property management company.

Nippon Accommodations Fund Inc.

Portfolio Policy

3. Policies for Property and Casualty
Insurance Coverage

4. Basic Policies for Renovation Plans andCapital Expenditures

NAF maintains property and casualty insurance coverage, to theextent that is deemed appropriate, to address damage to property due todisasters such as fires and accidents or claims for compensatory damages
from third parties. Asset characteristics determine such coverage.
NAF comprehensively determines earthquake insurance coverage
according to cost effectiveness and the projected impact of an earthquakeon each building and on the portfolio as a whole. When earthquake PML
for specific buildings is projected above 20 percent or when the acquisition of such property causes portfolio PML to rise above 15 percent, NAF
comprehensively considers the impact from an earthquake, insurance premiums and any other relevant issues to determine whether or not to purchase earthquake insurance.

The renovation plans are strategic and require renovation and capital
expenditures in addition to routine expenses incurred by small repairs inorder to maintain and improve the market competitiveness of properties
and tenant satisfaction over the medium-to-long term.
NAF determines and revises, for each property, an annual renovation
plan in yearly management plans that are based on the established 12year medium-term renovation plans.
NAF funds a reserve for renovation according to considerations ofdepreciation expenses and renovation plans based on medium-to-longterm portfolio management. In principle, NAF keeps capital expenditures
within the scope of the overall portfolio renovation plan.

Divestiture Policy
In principle, NAF aims to secure stable operating revenue from assets
under management through ownership over the medium-to-long term,and does not engage in short-term divestiture.
However, NAF decides to sell specific assets after consideration of theoverall portfolio impact based on evaluation of trends affecting the future

rental market in a given area, actual or projected increases or decreases in
asset values, risk of asset impairment, obsolescence and associated costs,
and other relevant factors.

Financial Policies
1. Issuance of New Units

3. Loan-to-Value Ratio

NAF may flexibly issue additional units through an offering with theobjective of financing acquisition of assets, renovation and other capitalrequirements for operation, or to repay debt, including lease deposits,
security deposits, loans and bonds that NAF may have issued.

The ratio of interest-bearing debt to NAF’s total assets is known as
the loan-to-value (LTV) ratio. The REIT Management Company
determines the upper limit of NAF’s LTV ratio as part of its medium-tolong-term asset management plans and its yearly management plans.
NAF’s policy is to keep the LTV ratio below 60 percent, although issues
including the acquisition of assets may cause the LTV ratio to temporarily
exceed 60 percent.

2. Debt Financing
NAF may issue bonds or take on loans, including call market
funding, with the objective of financing acquisition of assets; renovation
expenses; dividend payments; working capital; or debt repayment,
including lease deposits, security deposits, loans and bonds that NAF
may have issued. NAF only borrows capital from qualified institutional
investors as defined under the relevant laws and regulations in Japan. In
addition, NAF may not take on loans or issue bonds that exceed ¥1trillion, respectively, nor may the total of loans and bonds exceed ¥1trillion. According to NAF’s current Articles of Incorporation, NAF may
use its assets under management as collateral for loans and bonds.

4. Derivatives
According to NAF’s current Articles of Incorporation, NAF limits
transactions involving financial derivatives to those with the objective ofhedging risks including the risk of change in the interest rates associatedwith debts.

Information Disclosure Policy
NAF defines itself as an open, transparent investment corporation,and has a disclosure policy for public awareness. Moreover, NAF works
to maintain an environment that encourages timely and accurate
disclosure of unbiased information to all investors. In keeping with its
name, NAF’s fundamental policy is to accommodate investors indisclosing information.

NAF discloses information in accordance with the Investment Trustand Investment Corporation Act of Japan, the Financial Instruments andExchange Law of Japan, and the rules of the Tokyo Stock Exchange andthe Investment Trusts Association, Japan. Moreover, NAF energeticallydiscloses of its own accord information that it believes is relevant toinvestment decisions.

Facts and Figures

10Corporate Data

Corporate office

1-1, Nihonbashi-Muromachi 2-chome, Chuo-ku, Tokyo 103-0022, Japan*+81-3-3246-3677
http://www.naf-r.jp/english/index.html

Date of incorporation

October 12, 2005

Fiscal period

Six months ending February 28 (February 29 in leap years) and August 31

Unit listing

Tokyo Stock Exchange (Securities Code: 3226)

Transfer agent

Sumitomo Mitsui Trust Bank, Limited
4-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8233, Japan

Business office of the transfer agent

Stock Transfer Agency Department of
Sumitomo Mitsui Trust Bank, Limited
8-4, Izumi 2-chome, Suginami-ku, Tokyo 168-0063, Japan

Independent auditor

KPMG AZSA LLCAZSA Center Building
1-2, Tsukudo-cho, Shinjuku-ku, Tokyo 162-8551, Japan

Investor relations

For further information, please contact the REIT Management Company:
Mitsui Fudosan Accommodations Fund Management Co., Ltd.
1-1, Nihonbashi-Muromachi 2-chome, Chuo-ku, Tokyo 103-0022, Japan+81-3-3246-3677* The Company plans to relocate its headquarters to the following address on June 30, 2014.
4-1, Nihonbashi 1-chome, Chuo-ku, Tokyo 103-0027, Japan

11

Nippon Accommodations Fund Inc.

Status of Unitholders

Major Unitholders(As of February 28, 2014)

Number of units held

Percentage of total*

Japan Trustee Services Bank, Ltd. (Trust Account)

62,59527.13%The Nomura Trust and Banking Co., Ltd. (Investment Account)

16,137

6.99%

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

12,907

5.59%

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

10,4894.54%

Mitsui Fudosan Co., Ltd.

7,800

3.38%

Trust & Custody Services Bank, Ltd. (Money Trust Tax Account)

4,791

2.07%

Name

The Chugoku Bank, Limited

4,470

1.93%

JP Morgan Chase Bank 380055

3,861

1.67%

Sumitomo Mitsui Trust Bank, Limited

3,600

1.56%

MetLife Alico Insurance Company GA Company JPY

3,497

1.51%

*Number of units held as a percentage of total units issued and outstanding, rounded down to the nearest hundredth.

Composition and Distribution of Unitholders(As of February 28, 2014)

Individuals
and others

Financial
institutions

Other domestic
corporations

Overseas corporations
and individuals

Securities
companies

Total

Number of unitholders

6,096(93.10%)132(2.02%)

139(2.12%)

165(2.52%)

16(0.24%)

6,548(100%)

Number of units held

16,534(7.17%)

166,669(72.24%)

12,567(5.45%)

33,720(14.61%)

1,221(0.53%)

230,711(100%)

Disclaimer
This document was prepared solely for the convenience of andreference by overseas investors and does not correspond to the original
Japanese documents.
This English document contains selected information including a partial
translation of the Securities Report (Yuka shoken hokokusho) filed on May
28, 2014 pursuant to the Financial Instruments and Exchange Law ofJapan, and the Financial Statements and Performance Information Reportfor the period from September 1, 2013 to February 28, 2014, of Nippon
Accommodations Fund Inc. prepared pursuant to the Investment Trust andInvestment Corporation Act of Japan. This document should not be deemeda summary of the above mentioned Securities Report and the Financial
Statements and Performance Information Report.
The contents of this document do not constitute an offer to sellor solicitation of an offer to buy or sell any securities of Nippon
Accommodations Fund Inc. or otherwise, nor is it advice or therecommendation of Nippon Accommodations Fund Inc. to enter into
any transaction.
English terms for Japanese legal, accounting, tax and businessconcepts used herein may not be precisely identical to the concept of theequivalent Japanese terms. If there exist any discrepancies in the meaning
or interpretation with respect to any and all terms herein including, without
limitation, financial statements, between the original Japanese documents
and English statements contained herein, the original Japanese documents
will always govern the meaning and interpretation. None of Nippon
Accommodations Fund Inc., Mitsui Fudosan Accommodations FundManagement Co., Ltd. or any of their respective directors, officers,
employees, partners, unitholders, agents, parent company or affiliates will
be responsible or liable for the completeness, appropriateness or accuracyof English translations contained in this document. No person has beenauthorized to give any information or make any representations other thanas contained in this document in relation to the matters set out in thisdocument, and if given or made, such information or representation mustnot be relied upon as having been authorized by Nippon Accommodations
Fund Inc., Mitsui Fudosan Accommodations Fund Management Co., Ltd. or
any of their respective directors, officers, employees, partners, unitholders,
agents, parent company or affiliates.
The financial statements of Nippon Accommodations Fund Inc. havebeen prepared in accordance with generally accepted accounting principles
in Japan (Japanese GAAP), which may materially differ in certain respects
from generally accepted accounting principles in other jurisdictions.
This document contains forward-looking statements and information.
We base these statements on our beliefs as well as our assumptions based
solely on certain limited information currently available to us. Because
these statements reflect our current views concerning future events, thesestatements involve known and unknown risks, uncertainties andassumptions. Our future performance could materially differ from those set
out in these forward-looking statements. We do not undertake and will
not undertake to release revisions of forward-looking statements to reflect
future events or circumstances or of any other statements or information
contained herein.

Facts and Figures12

Nippon Accommodations Fund Inc.
1-1, Nihonbashi-Muromachi 2-chome,
Chuo-ku, Tokyo 103-0022, Japan

http://www.naf-r.jp/english/index.html

Printed in Japan