NAF Report
September 2015 – February 2016
http://www.naf-r.jp/english/

20 th
Period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 theTokyo Stock Exchange on August 4,
2006 with assets of more than ¥100
billion. NAF invests in accommodation
assets* located mainly in the 23 wardsof Tokyo. The Investment Trust andInvestment Corporation Act of Japanrequires an investment corporation to
be managed by an external entity.
NAF’s assets are managed by Mitsui
Fudosan Accommodations FundManagement 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)/Average Monthly Occupancy Rate/Distribution per Unit
(Yen in millions)
350,000

95.6%

300,000

94.5%

95.4%

95.6%

95.8%

95.7%

95.9%

95.9%

96.1%

96.3%

Average monthly occupancy rate during the period
Assets under management (left axis)

267,406

Distribution per unit (right axis)

250,000

223,877
200,000

180,026
150,000

95.7%

140,000

186,975

231,227

231,936

95.7%

96.1%

287,733

287,733

95.9%

96.4%

96.0%

294,918

294,918

298,718

271,713242,140

186,975

140,000(Yen)
10,000100,000

7,293

6,813

7,283

6,874

7,043

6,754

7,274

7,153

7,445

6,858

7,444

7,672

7,984

7,688

8,036

7,870

50,000

5,000

0

0

February 28, August 31, February 28, August 31, February 28, August 31, February 29, August 31, February 28, August 31, February 28, August 31, February 28, August 31, February 29, August 31,
2009
2009
2010
2010
2011
2011
2012
2012
2013
2013
2014
2014
2015
2015
2016
2016
Note: NAF implemented a two-for-one split of investment units with an effective date of March 1, 2014. Distribution per unit for the period ended February 28, 2014
and earlier is adjusted for this split (actual distribution divided in half, rounded down to the nearest yen).

(Forecast announced
Apr. 19, 2016)

NAF Snapshot
Profitability (20th Period)

96.4%

An average monthly occupancy rate of 96.4 percent

5.3%

Net operating income (NOI) yield* of 5.3 percent¥8,036

Distribution per unit of ¥8,036 for the 20th Period

Outstanding Portfolio (As of February 29, 2016)¥294,918 million

Portfolio of 116 superior properties with a totalacquisition price of ¥294,918 million

476,444.82m2/
11,558 units

11,558 units with a total rentable area of 476,444.82m2

87.5%

87.5 percent of portfolio located in the 23 wards of Tokyo

Financial Stability (As of February 29, 2016)

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

50.2%

LTV (Loan-to-value) ratio of 50.2 percent,long-term debt ratio of 96.6 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
33

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

34
1
3
6
8
12
13

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 2015 – February 2016

1

NAF’s Two Core Strategies

Investment in Accommodation Assets
Investment in accommodation assets to meet diversified needs for residential properties

Social Background

Changes in lifestyles

Changes in family structures

Diversified needs for residential properties＜Real Estate for Living Accommodations＞
High

Investment Target “Accommodation Assets”
Senior Residences

Service Provided

HotelsServiced
Apartments

Corporate
Housing/
Dormitories/
Student
Apartments

RentalApartments

HousesBuilt for
Retail Sale

Low
Short

2

Nippon Accommodations Fund Inc.

Length of Time/StayLong

Leveraging the Mitsui Fudosan Group
Delivering quality portfolio and efficient operating system by leveraging the Mitsui FudosanGroup’s value chain

Operation, Planning / Development ofResidential Leasing Business
Provision of Property Information

Provision of Property Information

Market Research/
Analysis

Parent Company of
REIT Management Company

Feedback to Planning/
Development
REIT Management

Site Acquisition

Comprehensive
operating system
conducted by the
Mitsui Fudosan GroupManagement/
Operation

Planning and
DesignConstruction
Management/
Supervision
Leasing

Residential Building Maintenance
Tenant Brokerage
PropertyP
t M
Managementt

Mitsui Housing Loop
Membership services

Provide various housing and lifestyle services
for continued strong customer relationships

Note: Mitsui Fudosan Housing Lease Co., Ltd. changed its name to Mitsui Fudosan Residential Lease
Co., Ltd. on April 1, 2016.

NAF Report September 2015 – February 2016

3

To Our Stakeholders

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

Nippon Accommodations Fund Inc.
Management Team

From left: Tsunehisa Ota, Nobumi Tobari, Tateyuki Ikura,
Hiroyuki Sodeyama, Hiroaki Saito

Nobumi Tobari

Executive Director

Tateyuki Ikura

Executive Director

Hiroyuki Sodeyama(Certified Public Accountant,Certified Public Tax Accountant)

Tsunehisa Ota(Attorney at Law)

Hiroaki Saito(Certified Public Tax Accountant,
Real Estate Appraiser)

4

During the six months ended February 29, 2016 (the “20th Period”), the Japanese
economy continued to recover gradually due to factors such as improved corporate
earnings and employment conditions, although there was weakness in some sectors
including exports. Looking ahead, the gradual economic recovery is expected tocontinue, with ongoing improvement in the employment and income environment, as
well as the effect of various government policies. At the same time, weakness isapparent in overseas economies, including downturns in China, other emerging
economies in Asia and resource producing countries, with the risk of an economic decline
in Japan. Therefore, rising uncertainty in overseas economies and the effect of volatility
in financial and capital markets require careful attention.
In the residential rental market, occupancy rates remained high at rental apartments
held by J-REITs, with ongoing gradual increases in rents. Moreover, stable demand is
expected 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 influxof people into these areas from other regions and growth in the number of households
due to an increase in single- and two-person households. At the same time, the balanceof supply and demand is expected to remain favorable for the time being due to factors
such as the limited supply of the quality rental apartments in which NAF typically invests.
In the real estate trading market, competition for property acquisitions remains
overheated. Therefore, the acquisition environment remains challenging due to factors
such as further decreases in expected yield and increases in acquisition and disposition
prices for quality rental real estate.
In this environment, Mitsui Fudosan Residential Lease Co., Ltd., our master property
management company, and Mitsui Fudosan Accommodations Fund Management Co.,
Ltd., our asset management company, conducted collaborative management and otheractivities, which successfully maintained NAF’s average monthly occupancy rate at a highlevel of 96.4 percent during the 20th Period.
As a result, distribution per unit was ¥8,036. This report presents our results andoperational status for the 20th Period.
NAF will continue working to earn the trust of our unitholders and requests yourcontinued support and cooperation.
June 2016

Supervisory Director
Supervisory Director
Supervisory Director

Nippon Accommodations Fund Inc.

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

Financial Highlights
19th Period (Actual)

20th Period (Actual)

21st Period (Forecast)

Total revenues¥10,435 million¥10,433 million¥10,546 million

Operating income¥4,372 million¥4,531 million¥4,456 million

Net income¥3,725 million¥3,893 million¥3,813 million

Total assets¥295,644 million¥293,684 million—

LTV (Loan-to-value) ratio

50.6%

50.2%

—

Distribution per unit (Yen)¥7,688¥8,036¥7,870Acquisition price basis¥294,918 million¥294,918 million¥298,718 million

Number of properties

116

116

119

(Ended August 31, 2015)(Ended February 29, 2016)(Ending August 31, 2016)

Assets under management

Note: The above forecast was announced on April 19, 2016.

New Acquisitions in the 21st Period
NAF acquired a total of three properties in March and April 2016, after the end of the 20th Period.
Rentable units

Acquisition
date

1,450

55 residential

April 7, 2016

Taito-ku, Tokyo

1,250

45 residential

April 7, 2016

Suginami-ku, Tokyo

1,100

71 residential

March 30, 2016

3,800

171 residential

Location

Acquisition price

120 Park Axis Magome Residence

Ota-ku, Tokyo

121 Park Axis Higashi Ueno
119 Dormy Nishi Ogikubo

Property nameTotal

120 Park Axis Magome Residence

121 Park Axis Higashi Ueno

(Yen in millions)

119 Dormy Nishi Ogikubo

NAF Report September 2015 – February 2016

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 29, 2016, the end of the 20th Period, consisted of 116 properties valued at¥294,918 million on an acquisition price basis.

Assets under management(Yen in millions)
300,000

287,733
Other Accommodation Assets

267,406

Park Axis Series

223,877

Shibaura Island Air Tower

271,713

231,936

231,227

242,140

Okawabata Apartment Communities

200,000

180,026

186,975

186,975

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

101,385

100,000

50,000294,918

Park Cube Series

250,000

150,000

294,918

287,733

38,98641,0360Establishment March 31, February 28,
2006
2007

Rentable units

2,761

February 28, August 31, February 28, August 31, February 29, August 31, February 28, August 31, February 28, August 31, February 28, August 31, February 29,
2010
2010
2011
2011
2012
2012
2013
2013
2014
2014
2015
2015
2016

6,214 6,464 6,464 8,722 9,131 9,281 9,509 10,516 10,685 11,295 11,295 11,558 11,558

Rental Apartments Characteristics(As of February 29, 2016)

1. Location

2. Property Age4

87.5% in the 23 wards of Tokyo
GreaterTokyo: 4.3%

Average 10.5 years[ 8.5 years excluding Okawabata Apartment Communities ]Other Major Cities: 8.2%

20 yearsor more:10.8%

Less than 3 years: 1.2%
3-5 years: 6.7%

3. Monthly Rent5

Average ¥150 thousand per unit
¥300,000¥500,000: 2.7%

Tokyo CBD2: 34.9%
23 Wardsof Tokyo:
87.5%

10-20 years:
25.9%
5-10 years: 55.4%

Tokyo 23 Wards
excluding Tokyo CBD: 52.6%

Notes: 1. The data above are calculations for rental apartments owned as of February 29, 2016 and do not include other accommodation assets.
2. Tokyo CBD (Central Business District) includes Minato, Chuo and Chiyoda wards.
3. The calculations for graphs 1 and 2 above are based on acquisition price. The calculations for graph 3 above are based on units, excluding retail units.
4. The calculations are based on individual property age as of February 29, 2016.
5. The calculations are based on total monthly rent (rent and common area fees) per unit as of February 29, 2016.

6

Nippon Accommodations Fund Inc.

¥200,000¥300,000:
16.4%¥150,000¥200,000:
24.1%¥500,000or more: 0.4%
Less than¥100,000:
26.1%¥100,000¥150,000: 30.3%

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
Chuo-ku

Minato-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

Meguro-ku

mainly within the 23 wards of Tokyo while also acquiring

Setagaya-ku

carefully selected properties in major regional cities.

Shinagawa-ku

NAF also invests in accommodation assets* other thanrental 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 29, 2016

4. Category3

5. Unit Area

Single and compact units: 82.5%

Average 43.0m2 per unit

Large: 4.7%80m2
or more: 4.9%

Family:12.8%

60-80m2:
12.6%
Singlecompact:
82.5%

Compact: 42.1%

Single:40.4%

Less than
30m2: 31.7%

50-60m :14.1%
2

40-50m2:
16.2%

30-40m2:
20.5%

Notes: 1. The data above are calculations for rental apartments owned as of February 29, 2016 and do not include other accommodation assets.
2. The calculations for graphs 4 and 5 above are based on units, excluding retail units.
3. The calculations are based on unit categories as of February 29, 2016.

NAF Report September 2015 – February 2016

7

Portfolio Summary (As of February 29, 2016)
No. Name

Location

Okawabata Apartment Communities
River Point Tower
Park Side Wings
Pier West House
Okawabata Parking
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 3)
Air Tower
Air Terrace
84 Park Cube Higashi Shinagawa
86 Park Cube Sasazuka
88 Park Axis Higashi Jujo
91 Park Cube Heiwadai
92 Park Cube Meguro Tower
93 Park Cube Nihonbashi Suitengu

Chuo-ku, Tokyo

1

8

Nippon Accommodations Fund Inc.

Acquisition Price (Note 1) Portfolio Share Rentable Area

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
Nerima-ku, Tokyo
Meguro-ku, Tokyo
Chuo-ku, Tokyo(Yen in millions)

(%)

(m2)

30,816

10.4

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
1,204
9,000
2,711

0.6
1.1
0.6
0.5
1.7
1.5
0.3
0.6
1.3
0.4
2.6
0.7
1.0
1.0
0.7
3.3
0.4
0.6
0.8
0.7
0.9
0.8
0.5
0.6
1.2
0.4
1.3
0.6
0.9
1.9
0.7
0.6
1.4
0.3
0.5
0.3
0.5
2.5
0.8
0.3
0.5
0.4
0.4
4.8
0.6
0.3
0.3
0.9
1.4
0.4
0.2
0.5
0.6
2.7

2.1
0.7
0.6
0.4
3.1
0.9

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
2,656.00
12,367.62
4,235.33

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.
34
193 residential, 1 retail, etc.
77

1.8
2.7
2.7
1.7
5.0
4.1
4.5
3.0
4.2
3.6
3.2
2.4
3.0
4.1
4.5
3.3
4.0
3.5
5.8
3.9
4.0
3.9
2.4
2.9
2.8
2.8
3.8
5.8
3.4 East, 3.3 West
3.3
5.8
4.0
3.2
4.2
5.8
5.1
2.9
6.8
3.2
2.4
4.2
5.1
5.6
3.0
5.3
4.9
2.7
3.9
3.2
4.0
7.4
5.1
2.4
6.7
4.2
2.5
3.1
1.9
7.5
3.5
3.4
3.1
2.8
2.2
4.4

No. Name

Location

94 Park Cube Ginza East

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
Kita-ku, Tokyo
Minato-ku, Tokyo
Minato-ku, Tokyo
Taito-ku, Tokyo
Ota-ku, Tokyo
Sumida-ku, Tokyo
Sumida-ku, Tokyo

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
111 Park Cube Nishigahara Stage112 Park Cube Atagoyama Tower
113 Park Axis Shibaura
114 Park Axis Asakusa Kuramae
115 Park Axis Kamata Station Gate
116 Park Axis Kinshicho Residence
117 Park Axis Oshiage Sumida Koen
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
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
118 Medical Home Granda Sangen Jaya
(Land with leasehold interest)
Other Accommodation Assets Total
Grand Total

Acquisition Price (Note 1) Portfolio Share Rentable Area

PML (Note 2)

3,358.63
77
1,695.06
27 residential, 1 retail, etc.
2,241.63
45
1,159.84
36
1,569.00
48
2,326.32
56
1,992.29
59
1,890.20
58
2,355.0772
2,085.62
60
3,581.09
68
4,442.09
121 residential, 1 retail, etc.
1,847.01
49
1,808.12
49
19,693.35
357 residential, 1 retail, etc.
8,389.91
165
1,273.60
42
1,456.35
45
4,582.72
157 residential, 1 retail, etc.
1,793.33
56
1,610.49
49
365,780.51 7,885 residential, 23 retail, etc.
3,082.32
47 residential, 1 retail, etc.
2,074.35
55
2,706.59
99 residential, 1 retail, etc.
3,318.15
77 residential, 7 retail, etc.
2,270.32
91
2,358.66
108 residential, 1 retail, etc.
3,057.36
136
1,682.46
63
2,325.92
70 residential, 1 retail, etc.
22,876.13
746 residential, 11 retail, etc.
5,565.13
169
3,821.75
98 residential, 1 retail, etc.
3,473.67
111 residential, 1 retail, etc.
4,668.29
176 residential, 1 retail, etc.
2,707.88
112
4,735.89
86
8,843.17
204
3,461.85
112
2,289.21
70
7,845.01
146
3,729.05
84 residential, 1 retail, etc.
4,309.24
1304,952.45
133
4,683.33
138
65,085.92
1,769 residential, 4 retail, etc.
453,742.56 10,400 residential, 38 retail, etc.
2,826.00
140
2,785.40
134
2,043.32
113
1,035.00
69

3.0
3.2
4.6
3.7
3.4
3.9
3.3
3.8
3.0
7.5
2.7
5.5
3.0
2.5
2.5
2.4
5.2
3.0
3.2
4.0
5.2

(%)

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
4,110
8,650
1,045
1,095
4,144
1,251
1,055
248,874
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
23,154284,354
928
991
916
374

0.8
0.4
0.4
0.2
0.4
0.5
0.5
0.5
0.6
0.5
0.9
1.0
0.4
0.5
1.4
2.9
0.4
0.4
1.4
0.4
0.4
84.4
0.4
0.3
0.5
0.6
0.3
0.4
0.8
0.4
0.5
4.2
0.8
0.7
0.5
0.6
0.3
0.5
0.8
0.3
0.2
0.6
0.3
0.8
0.8
0.7
7.9
96.4
0.3
0.3
0.3
0.1

1,478
1,041
1,249
1,152
540
1,160

0.5
0.4
0.4
0.4
0.2
0.4

2,293.20
1,911.00
2,184.00
1,996.47
1,564.40
4,063.47

735
10,564294,918

0.2
3.6
100.0

—
22,702.26
476,444.82

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
Setagaya-ku, Tokyo

Rentable Units(Yen in millions)

(m2)

126
105
120
111
60
142

(%)

4.0
3.2
6.3
1.9
2.3
1.6
3.3
4.1
8.2
3.7
2.9
2.5
3.0
2.9
3.0
2.8
2.7
5.1
1.1
2.4
4.9
8.6
5.7

6.6
12.9
8.8
8.8
3.0
5.5
5.3
7.3
3.0
2.7

—
—
1,120
11,558 2.4 (Portfolio PML)

Notes: 1. Acquisition Price does not include acquisition-related expenses, property tax or consumption tax.
2. PML = Probable maximum loss
Portfolio PML is the PML for all NAF’s portfolio, 115 properties excluding Medical Home Granda Sangen Jaya (Land with leasehold interest).
3. 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.

NAF Report September 2015 – February 20169

Management’s Discussion and Analysis

Summary of Selected Financial Data
20th Period

Total revenues (Note 2)
Rental revenues
Other revenues related to property leasing
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)

19th Period

18th Period

September 1, 2015
to February 29, 2016

March 1, 2015
to August 31, 2015

September 1, 2014
to February 28, 2015

¥ 10,433
10,052
380
5,901
3,894
3,893

¥ 10,435
9,959
475
6,062
3,725
3,725

¥ 10,129
9,778
350
5,754
3,685
3,684

5,967
7,723
3,893
2,073
240

5,808

5,759

7,564
3,725
2,083
163

7,524
3,683
2,075
159

20th Period

September 1, 2015
to February 29, 2016$

91,82388,4703,344
51,93634,272
34,26352,517
67,972
34,263
18,245
2,112

Total assets (c)Interest-bearing debt
Total net assets (d)293,684
147,500
139,567

295,644

290,463

149,500
139,398

154,500
129,4412,584,791
1,298,186
1,228,366

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

484,522
288,051
8,036
12,315484,522287,703
7,688
11,988461,422
280,526
7,984
12,481

2,535.21
70.72
108.38

ROA (Note 4)(Annual rate)
ROE (Note 4)(Annual rate)
LTV (Loan-to-value) ratio (Note 3)
Capital ratio (d) / (c)Payout ratio (b) / (a) (Note 5)
Number of days in the period

1.3%(2.7%)
2.8%(5.6%)
50.2%
47.5%
100.0%
182

1.3%(2.5%)
2.8%(5.5%)
50.6%
47.2%
100.0%
184

1.3%(2.6%)
2.8%(5.7%)
53.2%
44.6%
100.0%
181

Number of investment properties (Note 6)
Total rentable area (m2)
Average occupancy rate at the end of the period (Note 6)

116
476,44497.0%

116
476,44496.2%

112
468,458
96.6%

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥113.62 = U.S.$1.00, the approximate exchange rate as of February 29, 2016.
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. 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 29, 2016: Amount for the period ÷ Actual days in the period (182) x 365 days
Annual equivalent amounts for the period ended August 31, 2015: Amount for the period ÷ Actual days in the period (184) x 365 days
Annual equivalent amounts for the period ended February 28, 2015: 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.
5. “Payout ratio” is calculated to one decimal place only.
6. “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 29, 2016 (the “20th Period”), the Japanese economy continued to recover gradually due tofactors such as improved corporate earnings and employment conditions, although there was weakness in some sectors including
exports. Looking ahead, the gradual economic recovery is expected to continue, with ongoing improvement in the employment andincome environment, as well as the effect of various government policies. At the same time, weakness is apparent in overseas economies,
including downturns in China, other emerging economies in Asia and resource producing countries, with the risk of an economic
decline in Japan. Therefore, rising uncertainty in overseas economies and the effect of volatility in financial and capital markets
require careful attention.
In the J-REIT market, two new J-REITS listed their shares while capital increases through public offerings by existing listed J-REITs
were brisk. The Tokyo Stock Exchange REIT Index rose to 1,873.29 points at the end of the period (February 29, 2016) as a result of
quantitative and qualitative monetary easing with negative interest rates by the Bank of Japan.
In the residential rental market, occupancy rates remained high at rental apartments held by J-REITs, with ongoing gradual increases
in rents. Moreover, stable demand is expected 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 andgrowth in the number of households due to an increase in single- and two-person households. At the same time, the balance of supply
and demand is expected to remain favorable for the time being due to factors such as the limited supply of the quality rental apartments
in which NAF typically invests.
In the real estate trading market, competition for property acquisitions remains overheated. Therefore, the acquisition environment
remains challenging due to factors such as further decreases in expected yield and increases in acquisition and disposition prices for
quality rental real estate.
No properties were acquired during the period under review, and NAF’s assets under management at the end of the period underreview were unchanged from the end of the previous period. As a result, NAF’s portfolio as of February 29, 2016 consisted of 116 properties
valued at ¥294,918 million on an acquisition price basis.
NAF has chosen Mitsui Fudosan Residential Lease Co., Ltd. as master property management company (below, “Master PM”) on management of NAF’s rental apartments portfolio. The company and the asset management company collaborate in the management ofproperties NAF owns with the aim of implementing effective management and operational activities based on regional characteristics
and the individual features of each property. These include efforts such as speedy management and operations by the Master PM byapplying the portfolio management system, the tenant recruiting activities suited to the circumstances of individual properties, thestreamlining efforts such as reduction of management cost, etc., and providing tenants the “accommodation” services by corresponding
to various needs based on the results of resident questionnaires.
In order to maintain and improve the competitiveness of NAF’s portfolio, operations are adequately planned and carried out at theasset management company. These include appropriate renewal work according to the property age, and work to enhance the property
value at 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 introducing such features as environmentally friendly, energy-saving facilities in a timely manner.
In the period under review, NAF carried out renovations in private areas at Okawabata Apartment Communities and common areas at
Park Cube Nishigahara Stage. Changes implemented at other properties include reviews of contract capacity for electricity through theintroduction 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 29, 2016 remained at a high level of 97.0
percent.
Consequently, for the 20th Period, total revenues were ¥10,433 million, operating income was ¥4,531 million, income before income
taxes was ¥3,894 million and net income was ¥3,893 million.

NAF Report September 2015 – February 201611

Changes in Assets, Liabilities and Net Assets
Total assets as of February 29, 2016 were essentially unchanged, a decrease of ¥1,960 million from August 31, 2015 to ¥293,684
million. Total current assets decreased by ¥240 million to ¥8,833 million and total investment properties net of accumulated depreciationcompared with August 31, 2015 decreased by ¥1,705 million to ¥283,143 million as a result of normal depreciation.
One of NAF’s basic policies is to carry out operations, while paying attention to risk factors and market trends, in a conservative manner that gives consideration to such matters as maintaining stable distributions in the medium and long term. Based on this policy,
during the period under review, while taking into account market trends and interest rate levels, NAF refinanced its existing loans andrepaid ¥2,000 million of its loans.
As a result, at the end of the period, total interest-bearing debt amounted to ¥147,500 million, the long-term debt ratio was 96.6 percent, the fixed-rate debt ratio was 96.6 percent, the LTV (loan-to-value) ratio was 50.2 percent. The average annual current maturity oflong-term interest-bearing debt was 4.3 years and the number of financial institutions was 21. Furthermore, the weighted average interest
rate at the end of the period was 0.84 percent.
NAF has also established a commitment line with a total maximum borrowing amount of ¥10,000 million, for the purpose of securingflexible and stable fund procurement methods.
Net assets totaled ¥139,567 million as of February 29, 2016. Unitholders’ capital was unchanged at ¥135,603 million, and retained
earnings increased to ¥3,963 million from ¥3,795 million as of August 31, 2015.

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 20th Period, cash distributions totaled¥3,893,618,792 or ¥8,036 per unit.
Yen in thousands, except per unit amounts

20th Period

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

19th Period

18th Period

September 1, 2015
to February 29, 2016

March 1, 2015
to August 31, 2015

September 1, 2014
to February 28, 2015

¥3,893,706
87
3,893,618
8,036
3,893,618
8,036
—
—

¥3,725,260
255
3,725,005
7,688
3,725,005
7,688
—
—

¥3,684,248
255
3,683,993
7,984
3,683,993
7,984
—
—

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 29, 2016, NAF had issued 484,522 investment units outof 4,000,000 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 issuance 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

Increase(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
March 2, 2015
March 24, 2015

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
Public offering
Third-party allocation200
42,28067,2003,800
42,000698
37,5001,033
34,0002,000
230,71122,000
1,100

Notes

Balance(Yen in millions)200
42,480109,680
113,480
155,480
156,178
193,678
194,711
228,711230,711
461,422483,422484,522¥100
21,14037,611
2,126
19,795328
21,539593
21,204
1,247
—
9,444
472

¥

100
21,24058,85160,97880,773
81,102
102,641
103,235
124,439
125,686
125,686
135,131
135,603

Note 1
Note 2
Note 3Note 4Note 5Note 6Note 7Note 8Note 9Note 10Note 11
Note 12Note 13

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.
12. Public offering of new units for ¥443,868 per unit (excluding underwriting fee: ¥429,300) to fund property acquisition.
13. Additional issue of new units (third-party allocation) for ¥429,300 per unit undertaken pursuant to the public offering in Note 12.

Market Price of Units
High/Low (closing price) of units on the Tokyo Stock Exchange:
19th Period
March 1, 2015 toAugust 31, 2015

20th Period
September 1, 2015 toFebruary 29, 2016

18th Period
September 1, 2014 to
February 28, 2015

17th Period
March 1, 2014 toAugust 31, 2014

(Yen)

(Yen)

(Yen)

(Yen)

High

¥448,000¥481,000¥500,000¥400,000

Low

364,000

396,500

370,000

339,000

16th Period
September 1, 2013 to
February 28, 2014
(Yen)¥732,000(Note) 353,500
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 from financial institution as of February 29, 2016 are shown below.
Short-term loans
LenderBalance(Yen in millions)Interest rate
(Note 1)

Date of maturity(Note 2)The 77 Bank, Ltd.

¥2,0000.1%

March 31, 2016

Shinsei Bank, Limited

3,000

0.1%

March 31, 2016

Total short-term loans¥5,000

Repayment
methodBulletpayment

Use of
funds

Notes

(Note 3)

Unsecured/
unguaranteed/pari passu(Note 4)

NAF Report September 2015 – February 201613

Long-term loans (Note 5)
LenderSumitomo Mitsui Banking
Corporation

Sumitomo Mitsui Trust Bank,
LimitedNIPPON LIFE INSURANCECOMPANY

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

14

Nippon Accommodations Fund Inc.

(Yen in millions)

Balance

Interest rate
(Note 1)

Date of maturity

Repayment
method¥ 5,000
5,500
3,000
2,000
4,000
2,000
3,500
2,000
2,000
1,000
2,000
3,000
1,000
5,000
2,000
3,000
3,000
2,500
2,500
2,500
1,000
1,500
1,000
1,000
2,000
3,000
2,000
2,000
2,000
1,000
1,000
1,000
3,000
2,000
2,000
1,000
2,500
3,000
2,000
4,000
1,000
3,000
3,000
3,000
2,000
3,000
3,000
2,000
2,000
3,000

1.2%
0.9%
0.7%
0.5%
0.3%
0.5%
1.0%
0.4%
1.3%
1.5%
0.9%
1.0%
0.5%
1.2%
1.0%
1.0%
1.1%
1.3%
1.4%
1.2%
0.5%
0.8%
0.6%
1.5%
0.8%
0.9%
0.7%
0.8%
0.6%
1.2%
0.7%
1.0%
0.6%
0.9%
0.6%
0.8%
0.6%
1.2%
0.7%
0.7%
1.0%
0.8%
0.9%
0.8%
0.5%
0.6%
0.7%
0.4%
1.2%
0.6%

August 13, 2018
February 28, 2020
May 28, 2021
May 31, 2019
September 28, 2018
November 30, 2021
August 14, 2017
September 30, 2020
February 28, 2017
February 28, 2018
November 30, 2022
May 31, 2024
November 30, 2021
October 18, 2017
December 21, 2018
April 11, 2019
April 11, 2023
February 6, 2024
August 6, 2024
April 1, 2025
September 14, 2017
May 31, 2019
April 9, 2021
April 19, 2018
October 12, 2016
October 31, 2017
June 15, 2020
November 30, 2021
July 31, 2023
January 19, 2023
May 28, 2021
May 28, 2024
October 12, 2018
February 20, 2017
April 27, 2018
January 8, 2020
April 28, 2020
April 25, 2017
March 16, 2020
September 15, 2020
August 23, 2021
March 7, 2022
September 7, 2022
May 31, 2022
October 1, 2021
October 3, 2022
November 30, 2020
December 30, 2021
April 3, 2017
December 16, 2019

Bulletpayment

Use of
funds

Notes

(Note 3)

Unsecured/
unguaranteed/pari passu(Note 4)

Management’s Discussion and Analysis

LenderMizuho Trust & Banking Co., Ltd.

The Yamaguchi Bank, Ltd.
The Daishi Bank, Ltd.
MITSUI LIFE INSURANCECOMPANY LIMITEDThe Ashikaga Bank, Ltd.
DAIDO LIFE INSURANCECOMPANYTAIYO LIFE INSURANCECOMPANY
Total long-term loans
Total loans(Yen in millions)

Balance

Interest rate
(Note 1)

Date of maturity¥ 1,000
1,000
1,000
1,000
1,000
1,000
1,000
2,000
1,000

1.0%
1.2%
1.0%
1.1%
1.3%
1.3%
1.0%
0.6%
0.4%

June 14, 2021
June 14, 2022
February 23, 2022
August 23, 2022
June 14, 2023
July 19, 2023
May 31, 2024
April 28, 2020
June 30, 2021

1,000

1.0%

March 28, 2024

2,000

0.3%

June 30, 2019

1,000

0.6%

June 30, 2021

2,000

0.6%

December 30, 2024

Repayment
methodBulletpayment

Use of
funds

Notes

(Note 3)

Unsecured/
unguaranteed/pari passu(Note 4)¥135,500¥140,500

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 loans if the institution has provided more than one short-term loan.
2. The earliest maturity of short-term loans 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 loans, and operating expenses.
4. The loan agreements between NAF and each financial institution stipulate that the above loans from all financial institutions rank pari passu to each other.
5. The expected annual maturities of long-term loans 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¥18,500¥17,000¥18,000¥17,500

Bonds
Issue

Issue date

Balance as ofFebruary 29, 2016
(Yen in millions)

CouponMaturitydate

Redemption

Use ofproceeds

Notes

No. 2 unsecured
bonds
Total

July 30,
2010¥7,000

1.2%

July 29,2016

Bulletpayment(Note 1)

(Note 2)

¥7,000Notes: 1. Use of proceeds includes repayment of borrowings.
2. This bond is only issued to rank pari passu with other bonds issued.

NAF Report September 2015 – February 201615

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 planning of expenditures for construction, repair and renovationof facilities, a plan 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, 2015 toFebruary 29, 2016)

Cumulative
amount paid

(Yen in millions)Okawabata Apartment
Renewal of common use From March 2016
Communities, Other Properties area equipment, etc.
to August 2016
Park Cube Nishigahara Stage,
Other Properties

Renovation of common
use areas, etc.

From March 2016
to August 2016

¥163

¥—

¥—

62

—

—

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NAF posted ¥240 million in capital expenditures together
with ¥418 million for repairs and maintenance expenses.
Name of property

Objective

PeriodExpenditure(Yen in millions)Okawabata Apartment
Communities

Renovation of rentable areas, etc.

From September 2015
to February 2016

¥ 91

Park Cube Nishigahara Stage,
Other Properties

Renovation of common use areas, etc.

From September 2015
to February 201621

Okawabata Apartment
Communities, Other Properties

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

From September 2015
to February 2016

127

Total

¥240

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

Reserve balance at the beginning of the period
Amount accumulated in the current period
Withdrawal from reserves in the current period
Amount carried forward

16

Nippon Accommodations Fund Inc.

As of February 29, 2016

As of August 31, 2015

As of February 28, 2015

¥1,979425
265¥2,139¥1,845314
180¥1,979¥1,613391
159¥1,845Management’s Discussion and Analysis

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

20th Period

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

19th Period

18th Period

September 1, 2015
to February 29, 2016

March 1, 2015
to August 31, 2015

September 1, 2014
to February 28, 2015

¥ 754
14
30
7
12
298
¥1,117

¥ 745
14
36
7
12
292
¥1,108

¥ 727
13
30
7
12
282
¥1,074

Related Party Transactions
1. Transactions
None applicable

2. Fees Paid for the Period from September 1, 2015 to February 29, 2016
Description of transactions with related parties (Note 1)
Total fees paid (A)(Yen in millions)Category

Property management fees

¥684

Building management fees

378

Operation management fees

4

Leasing related service fees

163

Paid to

B/A

Amount ofpayment (B)(Note 2)

¥684
373
4
4
15
2
1
0
0
0

100.0%
98.8%
1.2%
100.0%
9.5%
1.4%
1.1%
0.2%
0.1%
0.1%

(Yen in millions)

Mitsui Fudosan Housing Lease Co., Ltd.
Mitsui Fudosan Housing Lease Co., Ltd.
Mitsui Fudosan Realty Co., Ltd.
Mitsui Fudosan Investment Advisors, Inc.
RESIDENT FIRST CO., LTD.
Mitsui Fudosan Realty Co., Ltd.
Mitsui Home Estate Co., Ltd.
Mitsui Fudosan Realty Sapporo Co., Ltd.
Mitsui Fudosan Realty Tohoku Co., Ltd.
Mitsui Fudosan Realty Kyushu Co., Ltd.

3. Other Payments to Related Parties (Note 1)
Paid toMitsui Fudosan Reform Co., Ltd.
Accommodation First Co., Ltd.
Mitsui Fudosan Facilities Co., Ltd.
MITSUI Designtec Co., Ltd.

Amount of payment(Yen in millions)

¥26
13
6
1

Item

Repair and maintenance costs
Repair and maintenance costs
Repair and maintenance costs
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.

NAF Report September 2015 – February 201617

Financial Statements

Balance Sheets
Nippon Accommodations Fund Inc.

As of February 29, 2016 and August 31, 2015

U.S. dollars in thousands

Yen in millions

20th Period(Note 1)19th Period

20th Period

As of February 29, 2016

As of August 31, 2015

¥ 7,364
1,400
68
8,833

¥ 7,666
1,340
66
9,074

177,883

177,869

1,565,595

132,395(27,135)
283,143
1,706

132,042(25,062)
284,849
1,721

1,165,243(238,822)
2,492,017
15,014¥293,684¥295,644$2,584,791¥ 5,000
7,000
6,000
1,037
1,704
314
21,055¥ 5,000
7,000
2,000
1,188
1,680
304
17,173$

129,500
3,561
133,061

135,500
3,572
139,072

1,139,764
31,341
1,171,105

Total Liabilities¥154,117¥156,245$1,356,424

Net Assets
Unitholders’ capital (Note 5)
Retained earnings¥135,603
3,963¥135,603
3,795$1,193,478
34,879Total Net Assets¥139,567¥139,398$1,228,366

Total Liabilities and Net Assets¥293,684¥295,644$2,584,791

AssetsCurrent assets:
Cash and cash equivalents (Note 11)
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

As of February 29, 2016$

64,812
12,321
598
77,741

Liabilities and Net Assets
Liabilities
Current liabilities:
Short-term loans (Notes 4,11)
Bonds due within one year (Notes 4,11)
Long-term loans due within one year (Notes 4,11)
Accounts payable
Rent received in advanceAccrued expenses and other liabilities
Total current liabilities
Long-term liabilities:
Long-term loans (Notes 4,11)
Tenant security deposits (Note 11)
Total long-term liabilities

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

18

Nippon Accommodations Fund Inc.

44,006
61,60852,807
9,126
14,997
2,763
185,310

Statements of Income
Nippon Accommodations Fund Inc.

September 1, 2015 to February 29, 2016, March 1, 2015 to August 31, 2015 and September 1, 2014 to February 28, 2015

U.S. dollars in thousands

Yen in millions

20th Period

Revenues (Note 6):
RentalOther revenues related to property leasing
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
Other expenses
Income before Income Taxes
Current and deferred income taxes (Note 8)
Net Income

19th Period(Note 1)18th Period

20th Period

September 1, 2015 toFebruary 29, 2016

March 1, 2015 toAugust 31, 2015

September 1, 2014 to
February 28, 2015

September 1, 2015 toFebruary 29, 2016

¥10,052380¥ 9,959475¥ 9,778350$88,470
3,344

10,433

10,435

10,12991,823

1,102
587
418
602
2,073
754
363

1,125
587
462
694
2,083
745
363

1,097
517
358
632
2,075
727
347

9,698
5,166
3,678
5,298
18,245
6,636
3,194

5,901

6,062

5,754

51,936

4,531
5
(628)
(15)
3,894

4,372
9
(642)
(13)
3,725

4,374
15
(690)
(14)
3,685

39,87844(5,527)(132)
34,27200

10¥ 3,893¥ 3,725¥ 3,684$34,263

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

NAF Report September 2015 – February 201619

Statements of Changes in Net Assets
Nippon Accommodations Fund Inc.

For the period from September 1, 2014 to February 29, 2016

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

Total

461,422¥125,686¥ 3,610¥129,296

Cash distribution——(3,540)(3,540)Net income

—

—

3,684

3,684

461,422

125,686

3,754

129,441——(3,683)(3,683)Issuance of new units through public offering as of March 2, 2015

22,000

9,444

—

9,444

Issuance of new units through allocation to a third party as ofMarch 24, 2015

1,100

472

—

472

—

—

3,725

3,725

484,522

135,603

3,795

139,398

Cash distribution——(3,725)(3,725)

Net income

—

—

3,893

3,893

484,522¥135,603¥ 3,963¥139,567

Balance as of September 1, 2014

Balance as of February 28, 2015
Cash distribution

Net income
Balance as of August 31, 2015

Balance as of February 29, 2016

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

484,522$1,193,478$ 33,400$1,226,879

Cash distribution——(32,784)(32,784)

Net income——

34,26334,263

484,522$1,193,478$ 34,879$1,228,366

Balance as of August 31, 2015

Balance as of February 29, 2016
The accompanying notes to financial statements are an integral part of these statements.

20

Nippon Accommodations Fund Inc.

Total

Financial Statements

Statements of Cash Flows
Nippon Accommodations Fund Inc.

September 1, 2015 to February 29, 2016, March 1, 2015 to August 31, 2015 and September 1, 2014 to February 28, 2015

U.S. dollars in thousands

Yen in millions

20th Period

Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
Amortization of investment unit issuance
expenses
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
Other, net
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Payments for purchases ofinvestment properties
Purchase of intangible assets
Proceeds from security deposits
paid to lessors
Payments for security deposits
paid to lessors
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
Redemption of bonds
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

19th Period(Note 1)18th Period

20th Period

September 1, 2015
to February 29, 2016

March 1, 2015
to August 31, 2015

September 1, 2014
to February 28, 2015

September 1, 2015
to February 29, 2016

¥ 3,894
2,073¥ 3,725
2,083¥ 3,685
2,075$ 34,272
18,245

4
3
628
(60)
(215)

4
3
642
(31)
137

—
4
690
(73)
(73)

35
26
5,527
(528)
(1,892)

23
(640)
28
5,739

45
(671)
(15)
5,922

40
(724)
34
5,659

202
(5,632)
246
50,510(304)(0)(7,168)
(615)

(250)
—

(2,675)
(0)

—

28

—

—

—
322
(334)
(3)
(319)

(29)
492
(383)
(6)
(7,683)

—
344
(310)
(3)
(219)

—
2,834
(2,939)(26)(2,807)30,000(30,000)—(2,000)——(3,722)(5,722)(301)

51,000(50,000)
2,000(8,000)9,892—(3,684)
1,208
(552)

43,000(43,000)
19,000(11,000)—(10,000)(3,539)(5,539)(99)

264,038(264,038)—(17,602)——(32,758)(50,360)(2,649)

7,666

8,219

8,318

67,470¥ 7,364¥ 7,666¥ 8,219$ 64,812

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

NAF Report September 2015 – February 201621

Notes to Financial Statements
Nippon Accommodations Fund Inc.
September 1, 2015 to February 29, 2016, March 1, 2015 to August 31, 2015 and September 1, 2014 to February 28, 2015

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 29, 2016, NAF had ownership and beneficiary interests in 116 properties containing approximately 476,444 square
meters of rentable space. As of February 29, 2016, NAF had leased approximately 461,951 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 29, 2016, which was ¥113.62 to U.S.$1.00. 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 purchase price and related costs and expenses for acquisition of theproperties 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

2-45 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
Investment unit issuance expenses are amortized over the period of three years under the straight-line method.
Bond issue costs are amortized over the period of the bonds under the straight-line method.

22

Nippon Accommodations Fund Inc.

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.

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. Capitalized property tax forthe period ended August 31, 2015 amounted to ¥13 million. No property tax was capitalized for the period ended February 29, 2016.

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 29, 2016 and August 31, 2015 consisted of the following:
Yen in millions

As of February 29, 2016
Acquisition
costs

Accumulated
depreciation

As of August 31, 2015

Book value

Acquisition
costs

—
—

¥120,069
57,813¥120,055
57,813

177,883—

177,883

Buildings and improvements

89,855(15,990)

Buildings and improvements in trust

35,896(7,607)

Buildings and improvements
including those in trust total

125,751(23,597)

Structures
Machinery and equipment
Tools, furniture and fixtures
Construction in process
Structures in trust
Machinery and equipment in trust
Tools, furniture and fixtures in trust
Construction in process in trust

1,613
1,880
1,070
0
1,121
556
393
7

(654)
(1,005)
(884)
—
(317)
(364)
(311)
—

6,643
¥310,279

Land
Land in trust
Land including trust total

Other investment properties total
Total¥120,069
57,813¥

Accumulated
depreciation¥

Book value——¥120,055
57,813

177,869—

177,869

73,86589,703(14,666)

75,03628,28935,784(7,099)28,685102,154

125,488(21,766)

103,722

959
875
186
0
803
191
82
7

1,612
1,806
1,065
—
1,120
553
386
7

(605)
(919)
(839)
—
(297)
(332)
(301)
—

1,006
887
226
—
823
221
84
7

(3,537)

3,106

6,554

(3,296)

3,257¥(27,135)¥283,143¥309,912¥(25,062)¥284,849

NAF Report September 2015 – February 201623

Note 4

Short-Term Loans and Long-Term Debt

The annual interest rate on short-term loans as of February 29, 2016 was 0.1% and the rate as of August 31, 2015 was 0.2%.
Long-term debt consists of the following:
Yen in millions

As of February 29, 2016

As of August 31, 2015

¥135,500
7,000¥142,500¥137,500
7,000¥144,500

Unsecured loans due 2016 to 2025 principallyfrom banks and insurance companies withinterest rates mainly ranging from 0.3% to 1.5%
1.2% unsecured bonds due 2016

The annual maturities of long-term debt as of February 29, 2016 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¥18,500
17,00018,00017,50058,500

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 29, 2016.

Note 5Unitholders’ Capital

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

As of February 29, 2016

As of August 31, 2015

As of February 28, 2015

4,000,000
484,5224,000,000
484,5224,000,000
461,422

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

24

Nippon Accommodations Fund Inc.

Notes to Financial Statements

Note 6

Rental Revenues and Expenses

Rental revenues and expenses for the periods ended February 29, 2016, August 31, 2015 and February 28, 2015 were as follows:
Yen in millions

20th Period

Revenues from Property Leasing:
Rental:Rental revenues
Facility charge
Subtotal
Other revenues related to property leasing:
Income from leasing rights, etc.
Miscellaneous income
Subtotal
Total revenues from property leasing
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

Note 719th Period

18th Period

September 1, 2015
to February 29, 2016

March 1, 2015
to August 31, 2015

September 1, 2014
to February 28, 2015

¥ 9,581471
10,052¥ 9,488470
9,959¥ 9,313
465
9,778

254
126
380
10,433340
135
475
10,435239
111
350
10,129

1,102
418
574
11
134
13
2,073
163
293
4,784
¥ 5,649

1,125
462
574
11
139
13
2,083
213
330
4,954
¥ 5,481

1,097
358
503
11
147
13
2,075
182
291
4,680
¥ 5,449

LeasesNAF leases some of its investment properties to outside parties under non-cancelable operating leases. As of February 29, 2016 andAugust 31, 2015, future minimum rental revenues under the non-cancelable operating leases were as follows:
Yen in millions
As of February 29, 2016
As of August 31, 2015

Due within one year
Due after one year
Total

¥ 774
2,526

¥ 774
2,841

¥3,300¥3,616

NAF Report September 2015 – February 201625

Note 8

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 0.02%,
0.02% and 0.03% for the periods ended February 29, 2016, August 31, 2015 and February 28, 2015, respectively. The following tablesummarizes the significant differences between the statutory tax rates and NAF’s effective tax rates for financial statement purposes.

20th Period

Statutory effective tax rate
Deductible distributions paid
Others
Effective tax rate

19th Period

18th Period

September 1, 2015
to February 29, 2016

March 1, 2015
to August 31, 2015

September 1, 2014
to February 28, 201532.31%(32.31)0.02
0.02%

34.15%(34.14)0.01
0.02%

34.16%(34.15)0.02
0.03%

The tax effects of significant temporary differences that resulted in net deferred tax assets or liabilities as of February 29, 2016,
August 31, 2015 and February 28, 2015 were as follows:
Yen in thousands

Deferred tax assets:
Enterprise taxes

As of February 29, 2016

As of August 31, 2015

As of February 28, 2015

¥9

¥14

¥19

Total deferred tax assets

9

14

19

Net deferred tax assets

¥9

¥14

¥19

The Act on Partial Revision of the Income Tax Act (Act No. 15 of 2016) was promulgated on March 31, 2016, resulting in a reductionof corporate tax rates for fiscal periods beginning on or after April 1, 2016. Accordingly, the effective statutory tax rate used to measuredeferred tax assets and liabilities will be changed from 32.31% to 31.74% for temporary differences expected to be reversed in fiscal
periods on or after September 1, 2016. The effect of this change in the tax rate was 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.

Note 9Per Unit Information

Information about earnings per unit for the periods ended February 29, 2016, August 31, 2015 and February 28, 2015 and net assets
per unit as of February 29, 2016, August 31, 2015 and February 28, 2015 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

20th Period

September 1, 2015
to February 29, 2016

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

26

Nippon Accommodations Fund Inc.

19th Period
March 1, 2015
to August 31, 2015

18th Period

September 1, 2014
to February 28, 2015

¥8,035¥7,692¥7,984

484,522484,264

461,422

As of February 29, 2016

As of August 31, 2015

As of February 28, 2015

¥288,051¥287,703¥280,526

Notes to Financial Statements

Note 10

Transactions with Related Parties(September 1, 2015 – February 29, 2016)(1) Parent Company and Major Corporate Unitholders: None applicable(2) Affiliates: None applicable(3) Sister Companies: None applicable(4) Directors and Major lndividual Unitholders
Classification

Director and/or
close relative

Name

Tateyuki Ikura

Principal businessor occupation

Executive Directorof NAF and
President & CEOof MFAFM

Nature oftransaction

Amount oftransaction

Account(Yen in millions)

Balance at theend of the period(Yen in millions)Payment of asset
management fee to
MFAFM (Note 1)¥754(Note 2)

Accounts
payable¥814

Payment for the provision ofgeneral administration
relating to organizational
management to MFAFM (Note 3)

¥0

—

¥—

Notes: 1. Tateyuki Ikura 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. No fees for management related to acquisition of properties included in the book value of each investment property, etc. were required to be disclosed as asset management fees.
3. Tateyuki Ikura 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.

(March 1, 2015 – August 31, 2015)(1) Parent Company and Major Corporate Unitholders: None applicable(2) Affiliates: None applicable(3) Sister Companies: None applicable(4) Directors and Major lndividual Unitholders
Classification

Director and/or
close relative

Director and/or
close relative

Name

Principal businessor occupation

Nature oftransaction

Kosei Murakami

Executive Directorof NAF and
President & CEOof MFAFM

Payment of asset
management fee to
MFAFM (Note 2)(Note 1)

Tateyuki Ikura(Note 1)

Executive Directorof NAF and
President & CEOof MFAFM

Payment of asset
management fee to
MFAFM (Note 2)
Payment for the provision ofgeneral administration
relating to organizational
management to MFAFM (Note 5)

Amount oftransaction

Account(Yen in millions)¥7

Balance at theend of the period(Yen in millions)—¥—(Note 4)

Accounts
payable

¥804

¥0

—

¥—

(Note 3)¥745

Notes: 1. Kosei Murakami retired from his positions as Executive Director of NAF and President and CEO of MFAFM on March 31, 2015. In addition, Tateyuki Ikura assumed these
positions on May 21, 2015 and April 1, 2015, respectively.
2. Kosei Murakami and Tateyuki Ikura entered into these transactions as representatives of MFAFM, and these amounts are subject to the conditions set forth in the
by-laws of NAF.
3. The amount of asset management fees includes management fees related to the acquisition of Medical Home Granda Sangen Jaya (Land with leasehold interest;
acquired March 31, 2015) included in its book value.
4. No fees for management related to acquisition of properties included in the book value of each investment property, etc. were required to be disclosed as asset management fees.
5. Tateyuki Ikura 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.
6. The “Amount of transaction” included in the above amounts are for transactions before Kosei Murakami retired from his positions as Executive Director of NAF andafter Tateyuki Ikura became Executive Director of NAF.
“Amount of transaction” does not include consumption taxes.
“Balance at the end of the period” includes consumption taxes.

NAF Report September 2015 – February 2016

27

(September 1, 2014 – February 28, 2015)(1) Parent Company and Major Corporate Unitholders: None applicable(2) Affiliates: None applicable(3) Sister Companies: None applicable(4) Directors and Major lndividual 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)¥727(Note 2)

¥1

Balance at theend of the period(Yen in millions)

Accounts
payable¥785

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. No fees for management related to acquisition of properties included in the book value of each investment property, etc. were required to be disclosed as asset management fees.
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.

Note 11

Financial Instruments(September 1, 2015 – February 29, 2016)

1. Status of Financial Instruments(1) Policy for Financial Instruments
NAF procures 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.

28

Nippon Accommodations Fund Inc.

Notes to Financial Statements

2. Estimated Fair Value of Financial Instruments
Book value, fair value and the difference between the two as of February 29, 2016 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

Assets(1) Cash and cash equivalents
Total
Liabilities(1) Short-term loans(2) Bonds due within one year
(3) Long-term loans due within one year
(4) Long-term loans
Total

Book value

Fair value

Difference¥ 7,364¥ 7,364¥ 7,364¥ 7,364¥¥¥ 5,000
7,000
6,000
129,500¥147,500¥ 5,000
7,030
6,048
133,512¥151,591

¥

—
—

—
30
48
4,012
¥4,091

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
Fair values of these bonds are based on observable market value.
(3) Long-term loans due within one year and (4) Long-term loans
Fair values of these 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.
2. Financial instruments for which it is very difficult to estimate the fair value
Yen in millions
Book value

Tenant security deposits¥3,561

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 29, 2016
Yen in millions
Due within
one year

Cash and cash equivalents¥7,364

4. Repayment schedule for loans and bonds due after February 29, 2016
Yen in millions
Due within
one year

Short-term loans
Bonds
Long-term loans
Total¥ 5,000
7,000
6,000¥18,000

Due after
one to two years¥——
18,500¥18,500

Due after
two to three years¥——
17,000¥17,000

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

Due after
four to five years¥——
17,500¥17,500

Due after
five years¥——
58,500¥58,500

NAF Report September 2015 – February 2016

29

(March 1, 2015 – August 31, 2015)

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, 2015 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

Assets(1) Cash and cash equivalents
Total
Liabilities(1) Short-term loans(2) Bonds due within one year
(3) Long-term loans due within one year
(4) Long-term loans
Total

Book value

Fair value

Difference¥ 7,666¥ 7,666¥ 7,666¥ 7,666¥¥¥ 5,000
7,000
2,000
135,500¥149,500¥ 5,000
7,059
2,017
138,264¥152,341

¥

—
—

—
59
17
2,764
¥2,841

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
Fair values of these bonds are based on observable market value.
(3) Long-term loans due within one year and (4) Long-term loans
Fair values of these 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.
2. Financial instruments for which it is very difficult to estimate the fair value
Yen in millions
Book value

Tenant security deposits¥3,572

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, 2015
Yen in millions
Due within
one year

Cash and cash equivalents¥7,666

4. Repayment schedule for loans and bonds due after August 31, 2015
Yen in millions
Due within
one year

Short-term loans
Bonds
Long-term loans
Total

30

Nippon Accommodations Fund Inc.

¥ 5,000
7,000
2,000¥14,000

Due after
one to two years¥——
14,500¥14,500

Due after
two to three years¥——
18,000¥18,000

Due after
three to four years¥——
17,500¥17,500

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

Due after
five years¥——
67,500¥67,500

Notes to Financial Statements

Note 12Investment and Rental Properties(September 1, 2015 – February 29, 2016)
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
Book value
As of September 1, 2015

Fair value

Change during the 20th Period¥285,457

As of February 29, 2016

As of February 29, 2016

¥283,751¥323,142¥(1,705)

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 20th Period,” the main factor for the decrease in book value was depreciation.
3. “Fair value as of February 29, 2016” 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 29, 2016 is disclosed in Note 6,
Rental Revenues and Expenses.
(March 1, 2015 – August 31, 2015)
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
Book value
As of March 1, 2015

Fair value

Change during the 19th Period¥279,758

As of August 31, 2015

As of August 31, 2015

¥285,457¥319,808¥5,698Notes: 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 19th Period,” the main factor for the increase in book value was the acquisition of properties for ¥7,438 million. The main factor for the decreasein book value was depreciation.
3. “Fair value as of August 31, 2015” 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, 2015 is disclosed in Note 6,
Rental Revenues and Expenses.

Note 13

Segment Information(September 1, 2015 – February 29, 2016)

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.

Operating revenues(Yen in millions)¥9,992

Related segment

Real estate leasing business

NAF Report September 2015 – February 201631

(March 1, 2015 – August 31, 2015)

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.

Operating revenues(Yen in millions)¥10,011

Related segment

Real estate leasing business(September 1, 2014 – February 28, 2015)

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 14Significant Subsequent Events

None applicable

32

Nippon Accommodations Fund Inc.

Operating revenues(Yen in millions)¥9,724

Related segment

Real estate leasing businessIndependent Auditor’s Report

NAF Report September 2015 – February 2016

33

Facts and Figures

Contents
Rental Apartment Investment Characteristics .... 1
Corporate Structure and Governance ................. 3
Primary Related Corporations ............................ 6
Portfolio Policy ................................................... 8
Corporate Data .................................................. 12
Status of Unitholders ......................................... 13

NAF Report September 2015 – February 201634

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
Population and Number of Households
In the 23 wards of Tokyo, where most of NAF’s assets undermanagement are located, the population influx is continuing,reflecting an increasing desire to live closer to work and theprogressive concentration of economic activities in Tokyo. Graph 1
shows migration trends in the 23 wards of Tokyo as well as net
in-migration. In-migration has continued to exceed out-migration
indicating stable demand for residential rental housing in highly
convenient areas.

and two-person households for single and compact (rentable area
under 60m2 with two or fewer bedrooms) apartments, which
comprise the majority of NAF’s portfolio.

Rental Housing Stock
Graph 2 shows the number of rental apartment construction
starts in the 23 wards of Tokyo. Construction starts increased moreor less steadily until 2006, but decreased significantly followingchanges in the building authorization procedure resulting fromrevisions in 2007 to the Building Standards Law (Law No. 201 of1950 as amended). The number of construction starts has been at alow level since 2007.

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

1. Net Migration into Tokyo (23 Wards of Tokyo)(People)NAF projects solid demand from the growing number of single

Net in-migration

In-migration

Out-migration

400,000(Units)
50,000200,000

33,101

30,0000-200,000

23,707
17,054 17,994

20,86324,532
20,582

10,0002004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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

1

31,88026,512
21,71820,000-400,000

43,371
39,08440,000

Nippon Accommodations Fund Inc.

02004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Ministry of Land, Infrastructure, Transport and Tourism (SRC and RC)

Stability of Apartment Rent
Graph 3 shows relative rents for apartments and offices inTokyo metropolitan area, with 2005 levels set as 100. Apartment
rent has remained relatively stable in comparison to office rent.

Common Practices in Japan’s Rental
Apartment Market

Rental housing is a necessary expense in the same way as
clothing and food. Therefore, apartment rent is considered stablebecause it is generally unaffected by fluctuations in economic
conditions and asset value, with relatively low risk of change.
In addition, rental housing enables a more diversified portfolio

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

in terms of number of properties and tenants due to its relatively
small scale in comparison to office buildings and other properties.
Investment in rental housing of this nature is perfectly matchedwith NAF’s core strategy of securing stable revenues. Furthermore,
new properties are scarce, comprising a limited share of rental
housing stock. Such properties, which make up the majority of

Security Deposit
The tenant must pay a security deposit in advance to thelandlord to insure against future unpaid rent and /ordamages. Generally, it is equal to two months’ rent and istypically refunded when moving out (a cleaning and/or
repair fee may be deducted prior to refund).

NAF’s investment portfolio, ensure market competitiveness andKey Money

asset value.

The tenant pays key money to the landlord prior to signinga lease contract. Generally, it is equivalent to two months’
rent and is not refunded.

Commission Fee

3. Rent Fluctuation: Apartments / Offices

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

(Index: 2005 = 100)
140
Apartment rent index (Tokyo metropolitan area)
Office rent index (Tokyo metropolitan area)

130
120
110
100.0

100.2

100.5

100.4

96.9

100

96.3

96.3

96.4

96.7

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 theapartment if the tenant causes any damage.

98.4

90
80

96.6

Guarantor/Joint Surety

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Japan Real Estate InstituteFacts 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.

Asset Custodian

Sumitomo Mitsui
Trust Bank, Limited
Transfer Agent

Sumitomo Mitsui
Trust Bank, Limited
General Administrative Agent(Accounting)

Heiseikaikeisha Tax Co.
General Administrative Agent(Tax Return Filing)

PwC Zeirishi-Hojin
Real Estate Information/Advisory
Real Estate Information Provider

Mitsui Fudosan
Residential Co., Ltd.
Real Estate Information Provider

Mitsui Fudosan
Realty Co., Ltd.

Asset Custody Agreement

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 is a 100 percent
subsidiary of Mitsui Fudosan Co., Ltd., and has concluded contracts
with other companies in the Mitsui Fudosan Group to promotesmooth, effective management of NAF’s assets. An Agreement on
Provision of Real Estate Information/Advisory Service and an
Agreement on Provision of Real Estate Information with Mitsui
Fudosan Residential Co., Ltd. provide information regarding realestate owned or developed by Mitsui Fudosan Residential’s Rental
Apartment Development Department, and other managementadvisory information. A Memorandum on Provision of Real Estate
Brokerage Information with Mitsui Fudosan Realty Co., Ltd. provides
access to certain real estate property information. A Basic Agreement
on Property Management with Mitsui Fudosan Residential Lease Co.,
Ltd., the master property management company to which NAF has
entrusted property management services of all its rental apartments,
is fundamental to NAF’s policy of outsourcing such property
management services required in managing real estate.

Nippon Accommodations
Fund Inc.
(TSE 3226)

Fiscal Administrative Service
Agreement (Tax Return Filing)
Agreement on Provision ofReal Estate Information/
Advisory Service
Agreement on Provisionof Real Estate
Information
Memorandum on
Provision of Real Estate
Brokerage Information

Nippon Accommodations Fund Inc.

Financial Agency
Agreement

Master Property
Management Company

Mitsui Fudosan
Residential Lease Co., Ltd. (Note)
General Administrative Agent(Bond Administration)

Sumitomo Mitsui
Banking Corporation

REIT Management Agreement andGeneral Administrative Service Agreement
REIT Management Company

Mitsui Fudosan
Accommodations FundManagement Co., Ltd.
Parent Company of
REIT Management Company

Mitsui Fudosan Co., Ltd.

Note: Mitsui Fudosan Housing Lease Co., Ltd. changed its name to Mitsui Fudosan Residential Lease Co., Ltd. on April 1, 2016.

3

KPMG AZSA LLC

Master Lease andProperty Management
Agreement

Transfer Agency Service
Agreement/Agreement
regarding Management ofSpecial Accounts
General Administrative
Service Agreement (Accounting)

Independent Auditor

REIT

Master Property
Management Company
Basic Agreement on
Property Management

Mitsui Fudosan
Residential Lease Co., Ltd. (Note)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

Investment
Division

Financial
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.

Compliance Checking System

Investment Policy & Acquisition/Sale Decision Process

Confirmation by the Chief Compliance Officer (CCO)

Preliminary Plan

The following require approval of Compliance Committee
Related-party transaction*
When CCO determines that a compliance issue has arisen

Approval of CCO
Related-party transaction
When CCO determines thata compliance issue has arisen

Approval ofCompliance
Committee

Proposal by CIO
Investment Committee*Property acquisition price from sponsor-related parties is below appraisal value

Compliance Committee
Requires approval by independent external professionals
Members: CCO (Chairman), CEO, 2 external professionals(Currently 1 lawyer and 1 CPA)
External professionals: Appointed professionals independent from Mitsui Fudosan
Resolutions: Require the votes of 2/3 or more members and at least 1 of the 2
independent external professionals(Note)

Functions as a Check on the Investment Committee
CCO can suspend discussion when he sees any problem in the discussion process

Report to Board of NAF

Related-party transactions require approval by independent external professionals

Note: When NAF acquires or disposes of assets in transactions with related parties as defined by the Investment Trust and Investment Corporation Act of Japan, the REIT Management Company
must obtain consent from NAF based on the approval of NAF’s Board of Directors prior to the deliberations of the Investment Committee. However, such consent is not required for property
or other real estate acquisitions stipulated by Article 245-2-1 of the Investment Trust and Investment Corporation Act as having immaterial impact on NAF’s assets because the acquisition
cost represents less than 10 percent of the book value of NAF’s investment properties.

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 andit s as s et management company, in principle the REI T
Management 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-par t y transac tions. 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 of Unitholders;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 theTransfer Agent are not included in the above matters set forth in (1) and (2).

Real estate information/
advisory service provider(Note)

Mitsui Fudosan
Residential Co., Ltd.

Real estate
information provider

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

In principle, MFAFM will entrust to Mitsui Fudosan Residential 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 Residential Lease dated March 31, 2006.

Note: On February 23, 2006, NAF and Mitsui Fudosan Co., Ltd. concluded an Agreement on Provision of Real Estate Information/Advisory Service. Mitsui Fudosan Residential Co., Ltd.
assumed Mitsui Fudosan’s rights and responsibilities in the residential leasing business by way of a company split on October 1, 2015. In conjunction with the assumption of theserights, the rights and responsibilities under this agreement and subsequent amendments thereto transferred to Mitsui Fudosan Residential as of October 1, 2015.

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

Under takes asset management of N A F pursuant to a REITManagement Agreement based on an entrustment from NAF in
accordance with the Articles of Incorporation of NAF and theInvestment 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 asfollows.

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

Provision of Information on Real Estate and Other Assets
Owned or Developed by Mitsui Fudosan Residential
In the case Mitsui Fudosan Residential decides to provide any third party
with information on real estate or real estate-related assets that it owns or isplanning to develop and sell under its Rental Apartment Development
Department or otherwise solicits the third party to purchase such real estateor assets, and such real estate or assets are consistent with MFAFM’s asset
management guidelines, Mitsui Fudosan Residential provides suchinformation to MFAFM before or at the same time as it provides information
to and/or solicits the third party, unless prevented from doing so due to lackof consent of third parties or for any other unavoidable reason.
When MFAFM receives such information and provides written notificationthat it will consider the purchase of such real estate or assets, Mitsui Fudosan
Residential deals with NAF as a prospective purchaser on a pari passu basiswith any third party interested in purchasing such real estate or other assets.

Provision of Third-Party Real Estate Sales Information
Regardless of whether Mitsui Fudosan Residential has originated or isbrokering the sale, Mitsui Fudosan Residential’s Rental Apartment
Development Department in principle provides MFAFM with information
concerning available real estate or real estate-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 ofconsent of third parties or for any other unavoidable reason, or because
Mitsui Fudosan Residential 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 Residential will provide inwriting, upon request by MFAFM, real estate management information (seenote below) that its Rental Apartment Development Department supervises if
MFAFM requests such information and Mitsui Fudosan Residential agrees tosuch provision.

7

Nippon Accommodations Fund Inc.

Note: “Real estate management information” means the following
information.
(a) Mitsui Fudosan Residential’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)(b) Mitsui Fudosan Residential’s qualitative view of short-term trends relevantto the operating 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)(c) Mitsui Fudosan Residential’s quantitative data regarding real estateleasing market conditions up to the present (including but not limited torent rolls of residential properties for lease owned by Mitsui Fudosan
Residential or NAF and supplementary data such as records of lease
contracts entered into and cancelled, and related expenses)(d) Other information related to items (a), (b) or (c) above that MFAFM
requests, as needed

Provision of Advisory Services
Mitsui Fudosan Residential provides technical advice to MFAFM regarding
the buildings and facilities of the real estate and real estate-related assets that
NAF has purchased or is considering purchasing (but in no case does it
provide MFAFM with investment advice). This technical advice includes thefollowing.
(a) Advice and investigational suppor t for the preparation andimplementation of daily and long-term maintenance plans for saidbuildings and facilities(b) Advice and investigational suppor t for the preparation andimplementation of plans for small repairs, renovations, periodic
inspections and response to facility and equipment recalls(c) Advice, investigational support and other assistance for the preparationand implementation of large-scale renovations

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

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
NAF emphasizes Greater Tokyo and other major cities in Japan ininvesting 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.

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 whole properties. However, NAF may invest in co-ownership;compartmentalized ownership; leaseholds, including fixed-term leaseholds; and limited proprietary rights of the land upon
consideration of specific properties.

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 various written
assessments and reports from third-party specialists. Based on the results
Item
Economic
feasibility
studies

Physicalcondition
studiesof such due diligence, the REIT Management Company in principle
undertakes investigation of the items listed below in order to makeinvestment 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 includes relationships between NAF and others in cases such as co-ownership; compartmentalized ownership; leaseholds,
including fixed-term leaseholds; and limited proprietary rights of the land).
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 lessor, the land lease right holder, other compartmentalized ownership holders, otherco-owners and any other relevant parties
8. Characteristics of the lessor, the land lease right holder, compartmentalized ownership holders, co-owners or other relevant
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 plan for
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 theassets 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.

2. Selection and Monitoring of the Property
Management Company
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 of9

Nippon Accommodations Fund Inc.

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 Residential 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
Residential Lease, on the condition that it meets the following requirements.
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
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.

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 acquisitionof 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 topurchase 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 ( LT V) ratio. The REIT Management Company
determines the upper limit of NAF’s LTV ratio. NAF’s policy is to keep the
LTV ratio below 60 percent, although issues including the acquisition ofassets 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

Portfolio Policy

Sustainability Policy
MFAFM, as the asset management company for NAF, in recognitionof the importance of initiatives for sustainability including environmental
considerations, etc. for carrying out asset management activities, strives
to achieve asset management activities giving consideration to reduction

11

Nippon Accommodations Fund Inc.

of environmental load, enhancement of safety, security and comfort, as
well as diversified affiliations and collaborations with various entities, inline with the "Group Environmental Policy" established by the Mitsui
Fudosan Group.

Corporate Data

Corporate office

4-1, Nihonbashi 1-chome, Chuo-ku, Tokyo 103-0027, Japan+81-3-3246-3677
http://www.naf-r.jp/english/

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.
4-1, Nihonbashi 1-chome, Chuo-ku, Tokyo 103-0027, Japan+81-3-3246-3677

Facts and Figures

12

Status of Unitholders

Major Unitholders(As of February 29, 2016)

Name

Number of units held

Percentage of total*

116,565
45,11436,587
18,964
15,600
9,576
6,922
6,656
5,916
5,818
267,718

24.05%
9.31%
7.55%
3.91%
3.21%
1.97%
1.42%
1.37%
1.22%
1.20%
55.25%

Japan Trustee Services Bank, Ltd. (Trust Account)
The Master Trust Bank of Japan, Ltd. (Trust Account)
Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account)
The Nomura Trust and Banking Co., Ltd. (Investment Account)
Mitsui Fudosan Co., Ltd.
The Chugoku Bank, Limited
JP Morgan Chase Bank 380055
Trust & Custody Services Bank, Ltd. (Money Trust Tax Account)
MetLife Insurance
The Hachijuni Bank, Ltd.
Total
*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 29, 2016)

Individuals
and others

Financial
institutions

Other domestic
corporations

Overseas corporations
and individuals

Securities
companies

Total

Number of units held

29,815(6.15%)

356,324(73.54%)23,852(4.92%)

64,335(13.28%)

10,196(2.11%)

484,522(100.00%)

Number of unitholders

6,460(92.46%)153(2.19%)

151(2.16%)

203(2.90%)

20(0.29%)

6,987(100.00%)

Disclaimer
This document was prepared solely for the convenience of andreference by overseas investors and does not correspond to the original
Japanese documents. The information provided in this document does
not constitute the disclosure or asset management reports required
under the Financial Instruments and Exchange Act or laws relevant toinvestment trusts or investment corporations.
This English document contains selected information including a partial
translation of the Securities Report (Yuka shoken hokokusho ) filed on May
27, 2016 pursuant to the Financial Instruments and Exchange Law ofJapan, and the Financial Statements and Performance Information Reportfor the period from September 1, 2015 to February 29, 2016, 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. Nippon Accommodations
Fund Inc. has exercised due care in providing the information in thisdocument, but does not guarantee its accuracy or completeness.
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. Investment decisions should be based on your own
judgment and responsibility. Please consult with a securities company
regarding the purchase of units or investment corporation bonds ofNippon Accommodations Fund Inc.
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

13

Nippon Accommodations Fund Inc.

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.
The information in this document may be changed without prior notice.
Duplication or use of information in this document for other purposes
without the prior consent of Nippon Accommodations Fund Inc. is
prohibited.

Nippon Accommodations Fund Inc.
4-1, Nihonbashi 1-chome,
Chuo-ku, Tokyo 103-0027, Japan

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