JAPAN REAL ESTATE INVESTMENT CORPORATIONG r o w t h i s c r e a t e d b y “ t h e 4 S ’s ”

MARCH 2002 SEMIANNUAL REPORTJAPAN REAL ESTATE INVESTMENT CORPORATIONMARCH 2002 SEMIANNUAL REPORTFOR THE PERIOD FROM MAY 11, 2001 TO MARCH 31, 2002

Growth is created by “the 4 S’s”

> SINCERITY
Highly transparent management,
conducted with integrity and honesty> S TA B I L I T Y
A steadily increasing cash flow derived fromcomprehensive investment strategies> STRENGTH OF WILL
Determination to make investment strategies forsolid growth a reality> SOUNDNESS
Nurturing a healthy financial position toultimately increase shareholder value

We believe that our growth is created by “the 4 S’s”: sincerity, stability, soundness and strength of will. By
consistently incorporating these concepts into management guidelines, we are confident that the success we are
currently enjoying will be far-reaching, and will allow us to continue to fulfill our responsibility to our shareholders.

Factors for Japan Real Estate Investment Corporation’s Success and Growth

24 high quality office buildings
The combined expertise of:* Mitsubishi Estate Co., Ltd. (property management)* The Tokio Marine and Fire Insurance Co., Ltd. (risk management)* The Dai-ichi Mutual Life Insurance Company (long-term asset management)* Mitsui & Co., Ltd. (access to property market information)( Mitsui’s participation commenced in June 2002)

Superior geographic and tenant diversity
Proven performance (both internal and external growth)* 94% occupancy rate
* 6 new acquisitions worth ¥51.9 billion ($389 million) acquired since the IPO as external growth
Issuer credit ratings of A+ from S&P and A2 from Moody’s (the highest ratings for any office REIT in the world)
A healthy financial strategy that supports strong growth through additional share issues and bonds

Contents
PROFILE

p. 2

FINANCIAL HIGHLIGHTS

p. 2

PORTFOLIO HIGHLIGHTSTHE PORTFOLIO OF JAPAN REAL ESTATE INVESTMENT CORPORATIONTHE COMPANY ’ S INVESTMENT POLICIESABOUT J - REIT SYSTEM

p. 50

p. 24

p. 3

STOCK PRICE PERFORMANCE

p. 3
p. 17

TO OUR SHAREHOLDERS

p. 4

p. 14 OVERVIEW OF PORTFOLIO PROPERTIES
p. 32 THE MARKET FOR LEASED OFFICE SPACE IN JAPAN p. 48
CORPORATE DATA p. 54

FINANCIAL SECTIONPROFILE OF J - REA

p. 53

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Profile

Japan Real Estate Investment Corporation (the “Company”) was established as one of the first real estate investment corporations in Japan,
following revisions to the Law Concerning Investment Trusts and Investment Corporations of Japan, as amended, or the Investment Trust Law. Its
investments focus primarily on office buildings, aiming to maintain geographical diversity while seeking stable growth and dividends in themedium to long term. The Company was listed on the Tokyo Stock Exchange (“TSE”) on September 10, 2001. (Securities Code: 8952)
Note: Investment corporations, including Japan Real Estate Investment Corporation, are special legal entities incorporated and operated under the Investment Trust Law . Accordingly,
the “shares” of such investment corporations, including the shares of the Company, are governed by the Investment Trust Law and represent the equity interests in suchinvestment corporations, which may differ in certain material respects from the “shares” governed by the Commercial Code of Japan and representing the equity interests inJapanese ordinary corporations incorporated and operated under the Commercial Code of Japan. Investors and readers are specifically reminded to pay attention to suchdifferences when reviewing this semiannual report and making any investment decision on or in respect of the “shares” of the Company. “Shareholders” of the Company may beconstrued accordingly. See “About J-REIT System” (pages 50-52) for more details. Each of the investors and readers should consult their own legal, tax and other advisors
regarding all Japanese legal, tax and other consequences of an investment in the shares of the Company, with specific reference to their own legal, tax and other situation and any
recent changes in applicable laws, guidelines or their interpretation.

Financial Highlights
For the Period from May 11, 2001 to March 31, 2002

Operating Revenues

Millions of yen

Thousands of U.S. dollars (Note 1)

2002

2002

6,492

48,724

Operating Profits

2,961

22,227

Income before Income taxes

2,405

18,049Net Income

2,403

18,036Net Operating Income (NOI) (Note 2)

4,732

35,519Funds From Operations (FFO) (Note 3)

3,505

26,304

FFO Multiple (Note 4)

13.5 times

13.5 times

Cash Distribution

2,403

18,036

Number of Shares

160,400

160,400

Dividend per Share (yen/U.S. dollars)

14,983112.44

Notes: 1. Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The rate of ¥133.25 = US$1.00, the foreign exchange rate on March 31, 2002, has been used fortranslation. The inclusion of such amounts is not intended to imply that Japanese yen has been or could be readily converted, realized or settled into U.S. dollars at that rate or any other rate.
2. NOI = (Property-Related Revenues – Property-Related Expenses) + Depreciation
3. FFO = Net Income – gains (losses) from sales of specified assets + Depreciation and Amortization
4. FFO Multiple = Share Price at end of March (¥530,000) ÷ FFO per share (annualized)(Investment activity for the period under review officially began on September 10, 2001. Annualized portion of the calculation given in note 4 assumes a fiscal period of 203 days.)This semiannual report includes translations of documents originally filed under the Securities and Exchange Law of Japan. This report was prepared in English solely for theconvenience of readers outside Japan and should not be considered as a disclosure statement. The original Japanese documents shall take precedence in the event of any discrepancies
arising from the translations or interpretations contained in this report.
Estimates for Japan Real Estate Investment Corporation’s future operating results contained in this semiannual report are forward-looking statements and are based on information
currently available to the Company and its asset management company and are subject to risks and uncertainties. Consequently, these projections should not be relied upon as the solebasis for evaluating Japan Real Estate Investment Corporation. Actual results may differ substantially from the projections depending on a number of factors.
02Portfolio Highlights
Trends in the state of portfolio management
Number ofbuildings

Total numberof tenants(Note)

Total leasable
floor space

Occupancy
rate

September 2001

20

198

133,927m2

94.6%

October 2001

20

197

136,381m2

93.9%

November 2001

21

248

164,883m2

94.7%

December 2001

22

266

171,734m

2

93.8%

January 2002

23

269

178,698m2

94.1%

February 2002

24

325

201,934m

2

94.0%

March 2002

24

328

201,884m

2

94.0%

120,000

140,000

160,000

200,000

180,000

220,000

Total leasable
floor space (m2)

Total leasable floor space
Occupancy rate

80.0

85.0

90.0

95.0

Occupancy rate (%)

Note: In the event that the same tenant occupies several buildings, the tenant is calculated as one tenant in the total number of tenants.

Portfolio breakdown

Properties by geographic region

Tenants by industry type (Note)(Percentage based on acquisition price)(Top 69 tenants, based on leased floor space)

Real estate
2.6%
Retail and restaurants
3.0%

Others(15 tenants)
11.4%

Machinery
3.5%

Other major cities(33.6%)

Finance,insurance
17.4%

Ceramics
3.5%

Tokyo 23 wards(60.3%)

Information
services
16.1%

Pharmaceuticals
3.7%
Textiles
3.8%

Electric
devices
10.9%

Nonferrous metals
and metal products
3.8%

Serviceindustries
14.9%

Communications
5.2%

Tokyo metropolitan area,
excluding 23 wards(6.2%)

Note: This covers the top 69-ranking tenants with leased floor space of 600m2 (6,458ft2) or more. The leased floor area of the top 69-ranking tenants accounts for approximately 72% of total leased
floor space in our portfolio.

Stock Price Performance
2001

2002

105%

100%

95%

90%

85%
9/10

9/21
9/14

10/5
9/28

10/19
10/12

11/2
10/26

11/16
11/9

11/30
11/22

12/14
12/7

12/28
12/21

1/18
1/11

2/1
1/25

2/15
2/8

3/1
2/22

3/8

3/15
3/20

3/29

The Company’s stock price on TSE
TOPIX

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To Our Shareholders

WE BELIEVE THAT THE KEY TO SUCCESSFUL REAL ESTATE INVESTING CAN BE FOUND IN“THE 4 S’S”: SINCERITY, STABILITY, SOUNDNESS AND STRENGTH OF WILL.

In our first semiannual report, we are very pleased to present the results of our first fiscal period,
commenced on May 11, 2001 and ended March 31, 2002, as well as our prospects for continued
growth. With the support we have received from our shareholders, we are well on the road togreater success. We believe that the keys to successful real estate investing are “the 4 S’s”:
sincerity, stability, soundness and strength of will. By consistently incorporating these ideals into
our management guidelines, we are confident that the success we are currently enjoying will be
far-reaching, and will allow us to continue to fulfill our responsibility to our shareholders.

Incorporation
Japan Real Estate Investment Corporation (the “Company”) was incorporated on May 11, 2001 asa real estate investment corporation by Japan Real Estate Asset Management Co., Ltd. (“J-Rea”)
following revisions to the Law Concerning Investment Trusts and Investment Corporations ofJapan, as amended, which came into effect as of November 30, 2000. The initial paid-in capitalwas ¥200 million ($1,501 thousand). The Company was listed on the Tokyo Stock Exchange (“TSE”)
on September 10, 2001, becoming one of the first listed real estate investment corporations inJapan. Through our initial public offering of 160,000 shares, we raised equity capital of ¥81 billion($608 million), and obtained a further ¥24 billion ($180 million) in loans to begin investing.

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Putting Out to Sea in a Storm
One day after the listing of the Company, the world was shaken by the tragic events of September
11, 2001. The collapse of the World Trade Center had a serious effect on the U.S. economy andcast a shadow over the Japanese economy as well.
With the negative effects of these events, we experienced a sharp decline in the priceof our shares, from ¥525,000 ($3,940) per share in the initial public offering. However, our shareprice rebounded and remained steady, and our quick recovery helped us gain the confidence of themarket with our attractive portfolio, even in a harsh market environment. The price of our shares
as of March 31, 2002 was ¥530,000 ($3,977).

> Executive Director of Japan Real Estate Investment Corporation
Yoneichiro Baba (Left)> CEO & President of Japan Real Estate Asset Management Co., Ltd.
Ryoichi Kakehashi (Right)

05

Portfolio Growth
THE COMPANY’S PROPERTIES ARE WELL-DIVERSIFIED IN TERMS OF BOTH GEOGRAPHIC LOCATION AND TENANTS.

Properties planned for acquisition
The 20 building properties we originally had planned for acquisition were acquired for a total of¥92,845 million ($696,773 thousand), mainly from Mitsubishi Estate Co., Ltd., The Tokio Marine
and Fire Insurance Co., Ltd. and The Dai-ichi Mutual Life Insurance Company, all of which areshareholders of J-Rea, the Company’s asset management company. These properties are welldiversified in terms of both geographic location and tenants.
Several of these buildings were not acquired entirely by the Company, but represented
co-ownership or compartmentalized ownership. However, we have since acquired the remaining
ownership stakes in some of these buildings in order to gain full control of their property
management. By acquiring full possession of these buildings, the Company effectively increased
their value.

06Additionally acquired properties
Signs of a prolonged recession in the Japanese economy as a whole have grown more evident fromthe impact of the U.S. economy’s plunge into a temporary recession following the events of
September 11, 2001. Domestic companies have consequently stepped up efforts to slim down theirasset bases through the liquidation of office buildings.
The Company has responded to these substantial property sales in the Japanese realestate market. We acquired Shibuya Cross Tower for ¥34,600 million ($259,662 thousand) on
November 30, 2001, and three other buildings for a total of ¥8,530 million ($64,015 thousand) by
the end of February 2002.
These investing activities brought the Company’s property holdings as of March 31,
2002, to 24 office buildings at a total acquisition cost of ¥144,697 million ($1,085,906 thousand),providing total leasable floor space of 201,884m2 (2,173,059 ft2) for 328 tenants. The combinationof high-quality buildings and meticulous property management created a strategic advantage thatenabled us to maintain an occupancy rate of 94.0% as of March 31, 2002.

07

Increasing Capital Resources
THE COMPANY ACQUIRED THE ISSUER CREDIT RATINGS OF A+ FOR LONG TERM, A-1 FORSHORT TERM AND AN OUTLOOK OF “STABLE” FROM STANDARD & POOR’ S AND AN A2 RATINGAND OUTLOOK OF “STABLE” FROM MOODY’S INVESTORS SERVICE.

While a portion of the above acquisitions was financed by borrowings, the Company negotiated withseveral qualified institutional investors (as defined in the Securities and Exchange Law of Japan)
before entering into a financing arrangement to ensure that financing costs were minimized. As of
March 31, 2002, our balance of borrowings was ¥64.0 billion ($480 million), ¥24.0 billion ($180
million) of which was in long-term loans.
The Company acquired the issuer credit ratings of A+ for long term, and A-1 for shortterm with an outlook of “stable” from Standard & Poor’s on February 14, 2002, as well as an A2
rating with an outlook of “stable” from Moody’s Investors Service on March 15, 2002, allowing us
to obtain an array of financing sources.
On March 29, 2002 the Company commenced the public offering of an additional
65,000 shares to obtain financing for the payment of a portion of short-term loans and acquisitionof new properties. This public offering, closed on May 8, 2002, provided us with an additional¥30.8 billion ($231 million) in capital.

08Performance Review
The performance of our real estate investments produced operating revenues of ¥6,492 million($48,724 thousand) and operating profits of ¥2,961 million ($22,227 thousand) in the fiscal period
ended March 31, 2002. Excluding interest expenses and public offering expenses, income before
income taxes was ¥2,405 million ($18,049 thousand) and net income was ¥2,403 million ($18,036
thousand). The Company plans to distribute continuously dividends of approximately 100% of
taxable income at the end of each fiscal period, in order to enjoy the tax benefit available under
Article 67-15 of the Special Taxation Measures Law of Japan applicable to Japanese real estate
investment trusts/corporations, or J-REITs. Under this taxation, as long as J-REITs pay dividends ofmore than 90% of their taxable income, all dividends are treated as expenses, making J-REITs
exempt from corporate taxes. The first distribution of the Company was ¥14,983 ($112.44) per share.

09Going Forward
THE COMPANY IS WELL POSITIONED TO AVOID THE YEAR 2003 PROBLEM OF OVERSUPPLY IN
THE TOKYO REAL ESTATE MARKET.

Property acquisition
The outlook for the real estate market in Japan is one of volatility and opportunity. There are few
signs of recovery in the Japanese economy, and continued falling demand for office space andintegration of offices remain a concern. In addition, there is the so-called year 2003 problem in theTokyo real estate market, meaning the year in which the largest addition of office floor space in asingle fiscal year will come onto the market.
The region most affected by the year 2003 problem will be Tokyo’s central business
district. As tenants become more selective in a market trend towards polarization, high quality
office buildings will see a rise in occupancy rates, while the rate in other buildings will fall. Alongwith this realignment, many buildings will come onto the market for liquidation as companies
holding such properties seek to dispose of real estate assets, providing the Company with evenmore opportunity than before to grow its portfolio.

10In anticipation of this opportunity, we are implementing the following policies to achieve stableearnings:* For more information on the real estate market in Japan, see pages 48-49.

1. Reinforcing information channels for potential property acquisition and developing newchannels in order to obtain timely information on liquidation of properties by potential sellers.
2. In the selection of properties for acquisition, conducting comprehensive due diligence from an
economic, physical, and legal standpoint and other related issues. In particular, the Company will
pay special attention to properties that meet or exceed revised earthquake resistance standards
provided for under the Building Standard Law, as amended in 1981, and will be able to remaincompetitive in terms of portfolio quality over the medium to long term.
3. The ideal geographic diversity of properties, in accordance with our principles for acquisition, isfor 60% to 70% of properties held to be located in the Tokyo metropolitan area, Kanagawa
Prefecture, Chiba Prefecture, and Saitama Prefecture (hereinafter collectively referred to as thegreater Tokyo metropolitan area), and 30% to 40% to be located in other regions in Japan.
However, it is possible that the Company will temporarily deviate from this percentage ofdiversification in response to changes in the demand for office properties, and will increase its
holdings in the greater Tokyo metropolitan area.
Safeguards in a challenging environment
Of our 24 buildings, only one, the Mitsubishi Soken Building in Chiyoda ward, will face thecompetitive situation created by the year 2003 problem. The current tenant of the building,however, Mitsubishi Research Institute, Inc., has a long-term lease with commitment of ten years,
from which we may expect a stable cash flow. We understand that the effects of the competition to
the Company will be relatively small.
Regarding the raising of capital for acquisition, as it is difficult to forecast the timingof property acquisition, the Company will, in principle, take short-term loans at the time ofacquisition, and carefully watching the capital markets select from a variety of measures tofinance.

11Property administration
The Company believes that the efficient administration of properties potentially provides it withanother opportunity for growth despite the sluggish market. Since the office market is expected to
be weak, we anticipate that revenue increases in the property leasing business will be limited. It isalso likely that the occupancy rate at some of the properties will decline. Efficient property
management will help maintain revenue, and accordingly, we have adopted the following
principles for property administration:
1. Ensure satisfaction of existing tenants
As of March 31, 2002, the Company contracts with six property management companies forproperty administration. Most of these companies were already involved in administration of theirrespective buildings before they were acquired by the Company, and have established arelationship with the tenants. Further enhancing this relationship will allow us to increase tenantsatisfaction and continue to attract favorable tenants.
2. Timely filling of vacancies
In order to fill vacancies in its properties, the Company will cooperate with the property managementcompanies for its office buildings to select the candidates appropriate to the location andcharacteristics of its buildings, and proactively seek to contract with these candidates as tenants. We
will also work to stimulate demand among existing tenants for increases in office space.
3. Promote fixed and long-term lease contracts
The Company will gradually shift a certain portion of its leasing contracts toward fixed and/or
long-term leases, in order to secure stable revenue in the future.
4. Reduce administrative costs
The Company will promote healthy competition among its six property managers to revise theircosts, maintenance and administrative structures, thereby reducing the amount of the property
management fees and utility expenses for the properties held at March 31, 2002 by 5% within
three years from acquisition of the property.

12Outlook for the Coming Fiscal Periods
DESPITE THE SLUGGISH REAL ESTATE MARKET IN JAPAN, WE EXPECT NET INCOME TO
RISE TO ¥2,800 MILLION IN OUR NEXT FISCAL PERIOD.

For its second fiscal period (from April 1, 2002 to September 30, 2002), the Company on May 27,
2002 announced its forecasts for operating revenues of ¥7,700 million ($57,786 thousand),income before income taxes of ¥2,800 million ($21,013 thousand), net income of ¥2,800 million($21,013 thousand) and dividends of ¥12,400 ($93) per share. For its third fiscal period (fromOctober 1, 2002 to March 31, 2003), we, on the same day, forecast operating revenues of ¥7,800
million ($58,537 thousand), income before income taxes of ¥3,000 million ($22,514 thousand), net
income of ¥3,000 million ($22,514 thousand), and dividends of ¥13,600 ($102) per share.
Due to sluggishness in the Japanese economy and the looming year 2003 problem in the Tokyo realestate market, the period ended March 31, 2002 was challenging. However, because of our strong
portfolio, capable management and well-trained, diligent professionals we were able to overcome
such adverse circumstances and are proud of the financial results for our first fiscal period.
Bearing in mind the inherent growth potential of J-REITs as a whole, the Company is dedicating all
its resources toward future growth, aiming to achieve a portfolio worth ¥300 billion ($2,251
million) by 2006 while maintaining stable dividend growth. By adhering to the “the 4 S’s” webelieve we can accomplish our goals. We offer our most sincere appreciation to our shareholders
for continuing to share and support our vision.

Yoneichiro Baba

Ryoichi Kakehashi

Executive Director of Japan Real Estate Investment Corporation

CEO & President of Japan Real Estate Asset Management Co., Ltd.

1

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The Portfolio of Japan Real Estate Investment Corporation
As of March 31, 2002

PROPERTIES ROSTER
NumberBuilding nameLocation

Type of specified asset

Acquisitiondate

Acquisition
price(¥ millions)Tokyo 23 wards
I- 1

Mitsubishi Soken Building

Otemachi, Chiyoda-ku

Trust

9/25/2001

27,267 (18.8%)

I- 2

Kodenmacho Shin-Nihonbashi Building

Nihonbashi, Chuo-ku

Trust

9/25/2001

3,173 ( 2.2%)

I- 3

Shiba 2chome Daimon Building

Shiba, Minato-ku

Trust

9/10/2001

4,859 ( 3.4%)

I- 4

Cosmo Kanasugibashi Building

Shiba, Minato-ku

Trust

9/25/2001

2,808 ( 1.9%)

I- 5

Takanawadai Building

Higashi Gotanda, Shinagawa-ku

Trust

9/25/2001

2,738 ( 1.9%)

I- 6

JTS Building

Shimo Meguro, Meguro-ku

Trust

9/10/2001

1,362 ( 0.9%)

I- 7

Omori-Eki Higashiguchi Building

Omori Kita, Ota-ku

Trust

9/10/2001

5,123 ( 3.5%)

I- 8

Otsuka Higashi-Ikebukuro Building Higashi-Ikebukuro, Toshima-ku

Trust

9/25/2001

3,541 ( 2.4%)

I- 9

Ikebukuro 2chome Building

Ikebukuro, Toshima-ku

Trust

9/25/2001

1,728 ( 1.2%)

I-10

Shibuya Cross Tower

Shibuya, Shibuya-ku

Ownership

11/30/2001

34,600 (23.9%)

Tokyo Metropolitan area (excluding 23 wards)
II- 1

Urawa Dai-Ichi -Seimei Dowa Kasai Building

Saitama, Saitama Prefecture

Ownership

9/25/2001

1,232

10/11/2001

1,342

total

2,574 ( 1.8%)

II- 2

Kawasaki Isago Building

Kawasaki, Kanagawa Prefecture

Trust

9/25/2001

3,375 ( 2.3%)

II- 3

Ericsson Shin-Yokohama Building

Yokohama, Kanagawa Prefecture

Ownership

1/28/2002

3,000 ( 2.1%)

Other major cities
III-1

Sendai Honcho Honma Building

Sendai, Miyagi Prefecture

Trust

9/25/2001

2,924 ( 2.0%)

III-2

Niigata Ishizuecho Nishi-Bandaibashi Building Niigata, Niigata Prefecture

Trust

9/25/2001

1,010 ( 0.7%)

III-3

Kanazawa Minamicho Building Kanazawa, Ishikawa Prefecture

Trust

9/25/2001

1,331 ( 0.9%)

III-4

Nagoya Hirokoji Building

Nagoya, Aichi Prefecture

Ownership

9/10/2001

14,533 (10.0%)

III-5

Midosuji Daiwa Building

Osaka, Osaka Prefecture

Trust

9/25/2001

6,934

2/28/2002

7,380

total

14,314 ( 9.9%)

III-6

Fukusuke Sakaisujihonmachi Building

Osaka, Osaka Prefecture

Trust

9/25/2001

2,264 ( 1.6%)

III-7

Kobe Itomachi Building

Kobe, Hyogo Prefecture

Trust

9/25/2001

1,436 ( 1.0%)

III-8

Hinode Tenjin Building

Fukuoka, Fukuoka Prefecture

Trust

9/10/2001

3,657 ( 2.5%)

III-9

Tosei Tenjin Building

Fukuoka, Fukuoka Prefecture

Ownership

9/25/2001

1,550 ( 1.1%)

III-10

Kyoto Shijo Kawaramachi Building

Kyoto, Kyoto Prefecture

Ownership

12/20/2001

2,650 ( 1.8%)

III-11Kanazawa Park Building

Kanazawa, Kanazawa Prefecture

Ownership

2/28/2002

2,880 ( 2.0%)

Total

144,697 (100%)

MAJOR TENANTS ROSTER
Name of tenant

Name of building

Leasedarea

1

Mitsubishi Research Institute, Inc. (Note)

Mitsubishi Soken Building

14,529m2 (156,389ft2)

7.7%

2

The Dai-ichi Mutual Life Insurance Company

Midosuji Daiwa Building (also includes another 8 buildings)

13,591m2 (146,292ft2)

7.2%

3

Nippon Ericsson K.K.

Ericsson Shin-Yokohama Building

5,794m2 ( 62,366ft2)

3.1%

Rank

1

4

Percent of total
rentable area

2

2

4

TOTO Ltd.

Nagoya Hirokoji Building, Midosuji Daiwa Building

4,840m ( 52,097ft )

2.6%

5

Janssen Pharmaceutical K.K.

Takanawadai Building, Tosei Tenjin Building

4,318m2 ( 46,479ft2)

2.3%

Note: Lease with this tenant is a fixed-term lease for the period from February 1, 2001 to March 31, 2011. This tenant has agreed not to terminate the contract during thelease period.

Percentage ofownership of thebuilding (%)

Completion

Appraisal(¥ millions)

Total leasable
floor space

Leased area

Total number oftenants

Revenue fromleasing operations(¥ millions)

100

1970

27,80018,006m2 (193,815ft2)

17,537m2(188,767ft2)

4

1,026 (15.8%)

100

1991

3,160

3,897m2 ( 41,947ft2)

3,401m2( 36,608ft2)

5159 ( 2.4%)

2

2

2

2

100

1984

4,730

9,622m (103,570ft )8,592m ( 92,483ft )

20358 ( 5.5%)

100

1992

2,790

4,062m2 (43,723ft2)

3,560m2( 38,319ft2)

8142 ( 2.2%)

100

1991

2,840

4,091m2 ( 44,035ft2)

4,091m2( 44,035ft2)

2

1

154 ( 2.4%)

100

1991

1,320

3,383m ( 36,414ft )3,383m2( 36,414ft2)

1

106 ( 1.6%)

100

1989

4,900

7,708m2 ( 82,968ft2)

7,376m2( 79,395ft2)

19317 ( 4.9%)

100

1987

3,550

7,114m2 ( 76,574ft2)

7,016m2( 75,520ft2)

9204 ( 3.2%)

100

1990

1,600

2,475m2 ( 26,641ft2)

1,465m2( 15,769ft2)

3

73 ( 1.1%)

100

1976

34,50028,501m2 (306,782ft2)

27,293m2(293,779ft2)

52

1,080 (16.6%)

100

1990

2,700

4,510m2 ( 48,545ft2)

4,284m2( 46,113ft2)

2

2

13

149 ( 2.3%)

2

2

2

100

1990

3,320

6,831m ( 73,528ft )5,876m ( 63,249ft )

7187 ( 2.9%)

100

1992

3,010

6,964m2 ( 74,960ft2)

6,964m2( 74,960ft2)

264 ( 1.0%)

93.39

1991

2,870

5,829m2 ( 62,743ft2)

5,829m2( 62,743ft2)

2

12176 ( 2.7%)

2

284 ( 1.3%)

2

100

1984

970

4,383m ( 47,178ft )3,670m ( 39,504ft )

8

100

1987

1,290

3,773m2 ( 40,612ft2)

3,283m2( 35,338ft2)

1295 ( 1.5%)

100

1987

14,70021,605m2 (232,554ft2)

21,300m2(229,271ft2)

31884 (13.6%)

100

1991

14,30020,449m2 (220,111ft2)

20,449m2(220,111ft2)

20497 ( 7.7%)

46.17

1992

2,230

5,337m2 ( 57,447ft2)

4,886m2( 52,592ft2)7165 ( 2.5%)

100

1989

1,400

3,478m2 ( 37,437ft2)

3,212m2( 34,574ft2)2

1295 ( 1.5%)

2

2

2

76.18

1987

3,680

5,944m ( 63,981ft )5,944m ( 63,981ft )

9228 ( 3.5%)

100

1992

1,530

4,080m2 ( 43,917ft2)

3,280m2( 35,306ft2)

1798 ( 1.5%)

100

1982

2,660

6,800m2 ( 73,195ft2)

5,185m2( 55,811ft2)

21

86 ( 1.3%)

55.13

1991

3,090

13,030m2 (140,254ft2)

11,928m2(128,392ft2)

60

54 ( 0.8%)——

144,940

201,884m2 (2,173,059ft2) 189,815m2 (2,043,150ft2)

328

6,492 (100%)15LOCATIONS OF PORTFOLIO PROPERTIES

III-1
III-2
III-3
III-11

III-8

III-7
III-5 III-10
III-6

III 1 – III 11 : Other major cities

III-4

III-9

I 1 – I 10 : Tokyo 23 wards

I-9
I-8

II-1

I-1
I-10

I-4
I-3

I-6
I-5
II-2
II-3
I-7

1

II 1 – II 3 : Tokyo Metropolitan area (excluding 23 wards)

6

I-2

Overview of Portfolio Properties

PROPERTY ACQUISITION
Properties acquired during period ended March 31, 2002

I-1

Mitsubishi Soken Building

Location :3-6, Otemachi 2-chome, Chiyoda-ku, Tokyo

Site area :3,441.35m2 (37,042.35ft2)

Floor area of building :26,372.92m2 (283,875.47ft2)

Structure :Above ground: 15 floors

Completion :July 1970

Location :4-9, Kodenmacho, Nihonbashi, Chuo-ku, Tokyo

Site area :773.28m2 (8,323.51ft2)

Floor area of building :5,822.88m2 (62,676.90ft2)

Structure :Above ground: 9 floors

Below ground: 2 floors

I-2

Kodenmacho Shin-Nihonbashi
Building

I-3

Shiba 2chome Daimon Building

Below ground: 1 floor
Completion :November 1991

Location :3-3, Shiba 2-chome, Minato-ku, Tokyo

Site area :2,820.90m2 (30,363.89ft2)

Floor area of building :16,235.10m2 (174,752.99ft2)

Structure :Above ground: 8 floors
Below ground: 2 floors

I-4

Cosmo Kanasugibashi Building

Completion :March 1984

Location :10-11, Shiba 1-chome, Minato-ku, Tokyo

Site area :758.54m2 (8,164.85ft2)

Floor area of building :5,420.93m2 (58,350.35ft2)

Structure :Above ground: 9 floors
Below ground: 1 floor

Completion :March 1992

1

7

I-5

Takanawadai Building

I-6

JTS Building

Location :1-5, Higashi Gotanda 3-chome, Shinagawa-ku, Tokyo

Site area :1,416.17m2 (15,243.51ft2)

Floor area of building :5,762.70m2 (62,029.13ft2)

Structure :Above ground: 13 floors

Completion :January 1991

Location :7-10, Shimo Meguro 3-chome, Meguro-ku, Tokyo

Site area :1,401.52m2 (15,085.82ft2)

Floor area of building :5,269.58m2 (56,721.23ft2)

Structure :Above ground: 6 floors
Below ground: 1 floor

I-7

Omori-Eki Higashiguchi
Building

I-8

Otsuka Higashi-Ikebukuro
Building

Completion :September 1991

Location :5-1, Omori Kita 1-chome, Ota-ku, Tokyo

Site area :2,199.30m2 (23,673.05ft2)

Floor area of building :14,095.34m2 (151,720.83ft2)

Structure :Above ground: 11 floors
Below ground: 2 floors

Completion :July 1989

Location :32-22, Higashi-Ikebukuro 2-chome, Toshima-ku, Tokyo

Site area :2,121.39m2 (22,834.43ft2)

Floor area of building :9,531.28m2 (102,593.74ft2)

Structure :Above ground: 8 floors
Below ground: 1 floor

Completion :1

8

November 1987

I-9

Ikebukuro 2chome Building

Location :14-2, Ikebukuro 2-chome, Toshima-ku, Tokyo

Site area :397.26m2 (4,276.07ft2)

Floor area of building :3,157.51m2 (33,987.12ft2)

Structure :Above ground: 9 floors
Below ground: 1 floor

I-10

Shibuya Cross Tower

Completion :May 1990

Location :15-1, Shibuya 2-chome, Shibuya-ku, Tokyo

Site area :5,153.45m2 (55,471.22ft2)

Floor area of building :61,862.33m2 (665,879.93ft2)

Structure :Above ground: 32 floors
Below ground: 3 floors

II-1

Urawa Dai-Ichi-Seimei
Dowa Kasai Building

II-2

Completion :April 1976

Location :2-3, Takasago 2-chome, Saitama, Saitama Prefecture

Site area :1,533.06m2 (16,501.70ft2)

Floor area of building :6,258.59m2 (67,366.84ft2)

Structure :Above ground: 8 floors

Completion :March 1990

Location :2-4, Isago 1-chome, Kawasaki-ku, Kawasaki,
Kanagawa Prefecture

Kawasaki Isago Building

Site area :1,594.50m2 (17,163.04ft2)

Floor area of building :9,623.83m2 (103,589.94ft2)

Structure :Above ground: 12 floors
Below ground: 1 floor

Completion :December 1990

1

9

II-3

Location :2-1, Shin-Yokohama 1-chome, Kohoku-ku, Yokohama,
Kanagawa Prefecture

Ericsson Shin-Yokohama
Building

Site area :1,528.00m2 (16,447.24ft2)

Floor area of building :10,403.41m2 (111,981.26ft2)

Structure :Above ground: 10 floors
Below ground: 2 floors

III-1

Completion :April 1992

Location :1-29, Honcho 2-chome, Aoba-ku, Sendai,
Miyagi Prefecture

Sendai Honcho Honma Building

III-2

Site area :1,437.47m2 (15,472.78ft2)

Floor area of building :8,247.50m2 (88,775.27ft2)

Structure :Above ground: 11 floors

Completion :November 1991

Location :1945-1, Ishizuecho Dori-ichinocho, Niigata,
Niigata Prefecture

Niigata Ishizuecho
Nishi-Bandaibashi Building

Site area :957.90m2 (10,310.74ft2)

Floor area of building :6,410.33m2 (69,000.15ft2)

Structure :Above ground: 8 floors
Below ground: 1 floor

III-3

Kanazawa Minamicho Building

20Completion :November 1984

Location :3-10, Oyamamachi, Kanazawa, Ishikawa Prefecture

Site area :887.17m2 (9,549.41ft2)

Floor area of building :5,163.19m2 (55,576.06ft2)

Structure :Above ground: 9 floors

Completion :March 1987

III-4

Nagoya Hirokoji Building

Location :3-1, Sakae 2-chome, Naka-ku, Nagoya, Aichi Prefecture

Site area :4,095.81m2 (44,086.89ft2)

Floor area of building :33,377.73m2 (359,274.55ft2)

Structure :Above ground: 18 floors
Below ground: 2 floors

III-5

Completion :May 1987

Location :6-8, Kyutaromachi 3-chome, Chuo-ku, Osaka,
Osaka Prefecture

Midosuji Daiwa Building

Site area :3,044.65m2 (32,772.31ft2)

Floor area of building :31,213.27m2 (335,976.52ft2)

Structure :Above ground: 15 floors
Below ground: 2 floors

Completion :III-6

Location :September 1991

8-14, Minamihonmachi 1-chome, Chuo-ku, Osaka,
Osaka Prefecture

Fukusuke Sakaisujihonmachi
Building

Site area :2,036.22m2 (21,917.67ft2)

Floor area of building :17,145.59m2 (184,553.42ft2)

Structure :Above ground: 13 floors
Below ground: 2 floors

III-7

Kobe Itomachi Building

Completion :October 1992

Location :121, Itomachi, Chuo-ku, Kobe, Hyogo Prefecture

Site area :808.55m2 (8,703.15ft2)

Floor area of building :4,894.09m2 (52,679.50ft2)

Structure :Above ground: 10 floors

Completion :September 1989

2

1

III-8Location :12-20, Tenjin 1-chome, Chuo-ku, Fukuoka,
Fukuoka Prefecture

Hinode Tenjin Building

Site area :1,452.15m2 (15,630.80ft2)

Floor area of building :12,527.07m2 (134,840.13ft2)

Structure :Above ground: 10 floors
Below ground: 2 floors

III-9

Completion :August 1987

Location :9-25, Tenjin 3-chome, Chuo-ku, Fukuoka,
Fukuoka Prefecture

Tosei Tenjin Building

III-10Site area :1,221.31m2 (13,146.06ft2)

Floor area of building :5,588.57m2 (60,154.81ft2)

Structure :Above ground: 8 floors

Completion :March 1992

Location :338, Tominaga-cho, Kawaramachidori Matsubara-agaru
2-chome, Shimogyo-ku, Kyoto, Kyoto Prefecture

Kyoto Shijo Kawaramachi
Building

Site area :1,471.57m2 (15,839.83ft2)

Floor area of building :9,701.04m2 (104,421.02ft2)

Structure :Above ground: 9 floors
Below ground: 1 floor

III-11Kanazawa Park Building

Completion :November 1982

Location :1-1, Hirooka 3-chome, Kanazawa, Ishikawa Prefecture

Site area :6,642.71m2 (71,501.47ft2)

Floor area of building :43,481.20m2 (468,027.29ft2)

Structure :Above ground: 12 floors
Below ground: 2 floors

Completion :22

October 1991

NEW PROPERTY ACQUISITION
Properties acquired between April 1, 2002 and September 30, 2002

MD Kanda Building

Burex Kyobashi Building

Property Summary
Type of specified asset :Acquisition price :Acquisition date :Location :Intended use :Site area :Floor area of building :Structure :Completion :Leasing Conditions
Number of tenants :Rentable area :Leased area :Occupancy rate :Property Summary
Type of specified asset :Acquisition price :Acquisition date :Location :Intended use :Site area :Floor area of building :Structure :Completion :Leasing Conditions
Number of tenants :Rentable area :Leased area :Occupancy rate :Kandabashi Park Building

Property Summary
Type of specified asset :Acquisition price :Acquisition date :Location :Intended use :Site area :Floor area of building :Structure :Completion :Leasing Conditions
Number of tenants :Rentable area :Leased area :Occupancy rate :Ownership¥9,520 million
May 31, 2002
9-1, Mitoshiro-cho, Kanda, Chiyoda-ku, Tokyo
Office space
1,085.83m2 (11,687.77ft2)
8185.11m2 (88,103.71ft2)
Above ground: 10 floors
February 1998
3
6,334m2 (68,178.54ft2)
6,334m2 (68,178.54ft2)
100%

Ownership¥5,250 million
July 22, 2002
7-11, Kyobashi 2-chome, Chuo-ku, Tokyo
Office space, Retail stores
756.03m2 (8,137.83ft2)
5,649.21m2 (60,807.53ft2)
Above ground: 8 floors
Below ground: 1 floor
February 2002
1
4,279m2 (46,058.73ft2)
4,279m2 (46,058.73ft2)
100%

Ownership¥4,810 million
August 15, 2002
19-1, Kandanishiki-cho 1-chome, Chiyoda-ku, Tokyo
Office space
1,218.56m2 (13,116.46ft2)
9,370.25m2 (100,860.43ft2)
Above ground: 10 floors
Below ground: 1 floor
July 1993
7
3,687m2 (39,686.50ft2)
3,687m2 (39,686.50ft2)
100%

Notes: 1. Details on area, structure etc. listed above as recorded in the registry.
2. Leasing conditions are as of the time of acquisition.

2

3

The Company’s Investment Policies(1) INVESTMENT POLICIES(i) Basic investment policies
The basic investment policies of the Company shall be as follows:1

Basic Policies (Article 23 of the Articles of Incorporation)

The Company shall invest primarily in specified assets (the “portfolio real estate assets”), consisting of certain real estate assets and realestate related securities (as defined below) with the goals of achieving stable growth in value over a medium- to long-term period. The terms“real estate assets” and “real estate related securities” shall mean the items listed below.

I. Real estate assets:
1. Real estate
2. Leaseholds of real estate
3. Surface rights
4. Trust beneficiary rights in trust of real estate, leaseholds of land, and surface rights. These assets referred to herein include beneficiary
certificates of comprehensive trusts over real estate and moneys incidental thereto, but do not include marketable securities as defined in
Article 3, Item 1 of the Cabinet Order of Law on Investment Trusts and Investment Corporations (Cabinet Order No. 480 of 2000, as amended,
the “Cabinet Order”)
5. Trust beneficiary rights in monetary trusts that are invested in real estate, leaseholds of real estate, and surface rights (except formarketable securities)
6. Equity interests in anonymous partnership relating to a contract that (i) either party makes a contribution to the other party for purposes ofmanagement of the assets described in any of the items listed in 1 through 5 above, (ii) the other party manages the contribution as
investments principally in any of such assets, and (iii) its profits are distributed (hereinafter referred to as “anonymous partnership equity
interest”)

II. Marketable securities, value of which derives principally from real estate assets (the “real estate related securities”) are as follows:
1. Preferred Securities (as defined in Article 2, Paragraph 8 of Asset Liquidation Law, Law No. 105 of 1998, as amended, the “Asset LiquidationLaw”) issued by a special purpose company under such Law whose objective is to invest more than half of its assets in real estate assets
2. Beneficiary certificates (as defined in Article 2, Paragraph 12 of the Investment Trust Law) issued by an investment trust whose objective is
to invest more than half of its assets in real estate assets
3. Certificates for shares (as defined in Article 2, Paragraph 22 of the Investment Trust Law) issued by an investment corporation under such
Law whose objective is to invest more than half of its assets in real estate assets
4. Beneficiary certificates of a special purpose trust (as defined in Article 2, Paragraph 12 under the Asset Liquidation Law) , whose objective
is to invest more than half of its assets in real estate assets (except for the trust beneficiary rights referred to in 4. and 5. of I. above)
2

Investment attitude (Article 24 of the Articles of Incorporation)

The following is the basic policy of investment attitude of the Company, especially its policy concerning the acquisition and holding of thePortfolio Real Estate as set forth in the Articles of Incorporation.
A. In accordance with Article 3 of the Ministerial Ordinance of Ministry of Finance (No. 44 of June 6, 2001), the Company shall make an
investment so that at least 75% of its total assets is invested in real estate, leaseholds of real estate, surface rights, trust beneficiaryrights (that entrust solely in real estate, leaseholds of land and surface rights), and anonymous partnership equity interests (that invest
solely in real estate, leaseholds of real estate and surface rights).
B. It is the Company’s asset investment policy to make an investment, so that the ratio (the “specified real estate ratio”) of the aggregate
value of the specified real estate to the aggregate value of the specified assets is at least 75%. The specified real estate shall mean, among
24

the specified assets, the real estate, leaseholds of real estate, surface rights or the trust beneficiary rights of real estate, leaseholds of landand surface rights.
C. It is the Company’s asset investment policy that the ratio of the aggregate value of the real estate to that of the specified assets acquired
during any fiscal period (commencing on April 1 of that year) must be at least one half of the specified real estate ratio.
D. The Company shall principally invest in office buildings which are located in Tokyo and other major metropolitan areas of Japan, including
those as such designated by the relevant Cabinet Order.
E. The Company shall make investment decisions only after it conducts thorough and sufficient due diligence investigations of the relevant realestate assets and becomes fully aware of the investment value in light of the investment climate.
F. The Company shall invest principally in real estate and trust beneficiary rights in trust of real estate, but may invest in other real estate
assets (meaning any asset listed in “I. Real estate assets” above, but excluding the real estate and the trust beneficiary rights in trust of
the real estate) and real estate related securities in addition to those described above in light of investment climate at that time and/or thesize of the assets.
3

Leasing of corporate assets (Article 27 of the Articles of Incorporation)

The Company may enter into leasing contracts with third parties with regard to real estate assets being specified assets, for the purpose ofgenerating earnings, and may cause the trustees to enter into leasing contracts with third parties with regard to the underlying real estate of
the trust beneficiary rights.
4

Loans and corporate bonds (Article 30 of the Articles of Incorporation)

A. In order to manage the portfolio of the Company in an efficient and stable manner, the Company may make borrowings or issue corporate
bonds with a view to utilizing the proceeds thereof toward acquisitions of specified assets, capital improvements of the real estate for leaseand the underlying real estate of the trust beneficiary rights and working capital.
B. The Company shall not make total borrowings, including loans and issuance of corporate bonds, in excess of an aggregate of ¥1 trillion.
C. The Company may borrow only from qualified institutional investors (the “qualified institutional investors”) referred to in Article 2,
Paragraph 3, Item 1 of the Securities and Exchange Law of Japan (Law No. 25 of 1948, as amended).
(ii) Guidelines for investment and management of portfolio real estate assets based on basic investment policies
The asset management company, J-Rea, has internally established the asset management guidelines (the “Asset Management Guidelines”), as
the internal guidelines with regard to investment and management by the Company of its portfolio real estate assets, based on the basic
investment policies outlined in section (i), 1 though 4 above and in accordance with the asset management agreement concluded between
the Company and the asset management company dated May 18, 2001, as amended on August 3, 2001. Accordingly, the asset managementcompany manages the portfolio real estate assets in compliance with such Asset Management Guidelines.
The Asset Management Guidelines have been formed, based on the current Japanese economic environment, real estate market conditions,financial environment, statistics of economy, property conditions and performance of the Company, all at the time of listing on the Tokyo Stock
Exchange, or TSE, the medium- and long-term outlook for the real estate market, and experience and know-how accumulated by the asset
management company and other various complex factors then available to the investment management company. As such, the asset
management company intends to review the Asset Management Guidelines periodically to determine whether or not they appropriately fit withthe external and internal environmental factors. If the asset management company determines that it is in the best interests of the Company
and its investors to revise the Asset Management Guidelines to manage the portfolio, the Asset Management Guidelines may be revised
periodically in line with the Articles of Incorporation and the asset management agreement.
The asset management company will pursue the achievement of internal growth as well as external growth in order to enhance its earnings andstability. Internal growth means that the Company will maximize the profitability of its own existing real estate and other assets. External
growth means that the Company will acquire new portfolio real estate assets within such an appropriate price range as may be considered thebest interests of the Company. The asset management company shall conduct the management by taking into account the stability of the cash
flow and the expected return from a comprehensive perspective. The asset management company will, in managing the assets, consider

2

5various factors, including portfolio composition in terms of geographical diversification, use, size and age as well as the capitalization rate(meaning the return obtained by dividing the cash flow, excluding capital expenditures but after deduction of cost of repairs, by the property
acquisition costs). The Company is continuously engaged in market research activities, for the purpose of the external growth, to seek anopportunity to acquire new portfolio real estate assets. Once the Company makes an acquisition decision, the Company shall promptly make apublic announcement thereof.
1

Guidelines for acquisition of portfolio real estate assets

To achieve the external growth, the guidelines concerning the acquisition of portfolio real estate assets are as follows:
A. Geographic portfolio composition
1. The basic geographical diversification is to make investment of approximately 60-70% of the funds in real estate located in the greater
Tokyo metropolitan area and the approximately remaining 30-40% of the funds in cities in other parts of Japan.
2. It is, however, possible that the funds are invested in different investment allocation percentages as outlined above, if a relatively high rateof return is expected from such investment even though supply and demand are balanced and steady.
3. During the course of expansion of the asset base of the Company, the portfolio composition may tentatively deviate from the investment
allocation percentages as outlined above.
B. Property type portfolio composition
In principle, the asset management company will recommend the Company to invest in portfolio real estate assets used for office buildings.
While these assets may mainly be used for office buildings, they may also partially be used for commercial use or, depending on the relevant
local municipal regulations, may be used for residential use. Accordingly, the Company may acquire the office buildings with certain portion
thereof used for commercial facilities or residential areas.
C. Building size and age in portfolio composition
1. In principle, the asset management company will recommend the Company to invest in land and buildings thereon that have total floor
space or size of 3,000 square meters or more per building.
2. In principle, the asset management company will recommend the Company to invest in buildings with the latest earthquake resistancecapabilities in compliance with the earthquake resistance standards or buildings with the equivalent capabilities as stated above.
3. In addition to the criteria referred to in 1. and 2. above, the asset management company will recommend the Company to make an investment
decision by taking into account such factors as location, building structures (including earthquake resistance standards), facilities (including
ceiling height, floor wiring, space per floor, electrical supply, and so forth), and the complexity of ownership and other rights.
D. Due diligence conducted at the time of acquisition
1. Acquisition of the real property
To thoroughly and accurately assess the quality of properties, the asset management company will conduct a comprehensive due diligenceof the property from an economic, physical, and legal standpoint.
The asset management company will make use of analytical assessment based on real estate appraisal reports, engineering reports, andseismic reports and real estate market reports issued by independent third party professionals who possess analytical capability andrelevant experience.
The asset management company will also make an on-site inspection of the property and hold interviews with persons in charge of property
management of the building.

262. The following table shows the due diligence items based on the above.

Type of Research
Economic Analysis

Details of Research

Source Materials-- Supply and demand conditions for office buildings in the location

real estate appraisal reports,

under consideration including a future outlook; analysis of market rental

market reports,

rates

on-site inspection-- Frontage condition, access to major roads and public transportation-- Level of discount rate and capitalization rate-- Analysis of the current operating costs of the building and room forreduction-- Reflection of inspection of the physical conditions of building, legal
due diligence, economic analysis of the current building operation-- Evaluation of dispositions
Physical Inspection-- Searching the boundary with neighboring properties and status of the

documents from the seller,

over boundary

engineering reports,-- The level of maintenance for the building and facilities and its state

seismic report,of deterioration

on-site inspection-- Medium- and long-term estimated repairs and capital expenditure-- Building and facility specifications (room layout, ceiling height, heat,ventilation and air-conditioning (HVAC) systems, electrical supply, etc.)-- Earthquake resistance capability of the building-- Investigation for existence of toxic substances within the building orwithin the property site-- Whether or not there has been any actual damage to the building as aresult of natural disasters, such as typhoons, earthquakes, etc.
Legal Research-- Research into ownership and other rights and mortgages

documents from the seller,-- Research into lease contracts

engineering reports,-- Certification of the property boundary line, agreement regarding theon-site inspection

boundary-- Research into the level of compliance with legal requirements forconstruction and management of the building--Research into management rules, agreements among the owners, andleasehold agreements in cases where the building and land are notowned by a single owner-- Research into existence and substance of any agreements with theowners in the neighborhood regarding the countermeasures against
defective television radiation acceptance, etc.

27Research on the State of-- Investigation into the operations of the property management

documents from the seller,

Property Managementcompany and compliance with building management manual

on-site inspection-- Research into whether or not there have been any suggestions and/or
complaints made by tenants against the building management-- Tenant composition-- Research into the existence of any rules or stipulations governingbuilding management in cases where the property is not owned by asingle owner

E. Targeted Capitalization Rate
1. The asset management company will set a certain target for its capitalization rate and make acquisition of portfolio real estate assets by
taking into account the capitalization rate set for the total portfolio.
2. The capitalization rate referred to above may be adjusted from time to time in accordance with changes in the Company’s financing policy
and/or changes in interest rates.
*The capitalization rate addressed in this section is based on the return calculated by dividing the cash flow (excluding capital expenditure
and after deduction of the cost of repairs) by the property acquisition costs.
2

Guidelines for management of portfolio real estate assets

A. Policy for maintenance and management
For purposes of internal growth, the asset management company will ensure to make ongoing and scheduled capital expenditures andmanagement for the existing facilities and equipment of real estate owned by the Company with proper repairs and maintenance to enhancetenant satisfaction, the competitiveness of the property, and revenues (by increasing rental rates over time and the occupancy rate), and at
the same time minimize the relevant expenses (by reducing outsourced maintenance costs and reduction of water, gas and electricity costs,
and so forth). The asset management company will make effective use of the multiple property management companies in order to achievethese goals.
B. Insurance policy
In principle, the Company will carry comprehensive casualty and liability insurance covering all of the properties owned by the Company toprotect either from damages to or reduction in revenue from the properties arising from natural causes or accidents or any possible financial
losses arising from liability claims of third parties. In connection with procuring earthquake insurance, the Company will make adetermination based on the amount of the probable maximum loss, or PML, on its properties.
*1. The Company will carry comprehensive casualty insurance to compensate for financial losses due to damages and accidents except forearthquakes, floods, tidal waves and wars. This type of insurance can also include a special provision that compensates for corporate profits.
*2. Liability insurance covers the Company from possible financial losses arising from legal claims with regard to physical harm or financial
damage to third parties that results from possession, use, occupancy or management of the building.
3

Guidelines for disposal of portfolio real estate assets

In principle, the Company seeks to hold investment over a reasonably long-time and has no particular intention to engage in short-term buying
and selling of the properties. In determining the sale of a property, the Company makes a comprehensive analysis and determination by taking
into consideration such factors as the outlook for future profitability of that property, the amount that the property has changed in value andthe outlook for future additional change in value, the economic outlook and stability for the region in which the portfolio real estate assets arelocated, the deterioration of the real estate and other assets and the estimate of future expenses associated with its maintenance, and how
well the particular property fits with the Company’s total portfolio of properties.
2

8

(iii) Financing guidelines
Guidelines for financing are as follows:1

In order to manage the assets of the Company in an efficient and stable manner, the Company may make borrowings or issue corporate
bonds for purposes of making acquisitions of specified assets, capital improvements for the existing portfolio real estate assets andworking capital.

2

The Company shall not make total borrowings, including loans and issuance of corporate bonds, in excess of an aggregate of ¥1 trillion.

3

The Company shall borrow only from qualified institutional investors.

4

In principle, the Company shall not borrow funds (including corporate bonds) in excess of 65% of the total value of its total assets (the“debt ratio”), and will seek to maintain an even lower debt ratio.

5

The Company shall seek to borrow funds at the most favorable possible terms in consideration of the economic climate at the time ofborrowing, with a view to reducing the future effects of refinancing and achieving the lowest possible financing costs . The Company willcompare terms presented from several qualified institutional investors, such as ratio of fixed interest loan, borrowing periods, requirementof collateral for borrowing and so forth, to achieve the best possible terms. However, the financing costs may fluctuate due to changes in
unforeseeable economic conditions in instances where penalties, which may arise from prepayment of borrowings, will be determined by
the interest rate environment at that time.

6

The Company may establish lines of credit facility in advance, including a maximum line of credit facilities and a commitment line or
future loan agreements to finance timely in need of capital whenever it becomes necessary to acquire additional specified assets.

7

The Company may use its properties as collateral for borrowing funds.

(2) INVESTMENT ASSETS(i) Assets in which the Company may invest are as follows:
1

Real estate assets and real estate related securities

2

Other specified assets

1. The Company may invest in the following marketable securities:
a. Government bonds
b. Municipal government bondsc. Bonds issued by special legal entities under special law
d. Corporate bonds (except for convertible bonds, bonds with warrants and bonds with stock acquisition rights)
e. Specified corporate bonds issued by special purpose companies, as set forth in Article 2, Paragraph 1, Item 3-2 of the Securities andExchange Law
f. Commercial paper, as set forth in Article 2, Paragraph 1, Item 8 of the Securities and Exchange Law
g. Securities or certificates which fall within any of the types described in a. through f. above and which are issued by foreign
governments or foreign legal entities
h. Beneficiary certificates except for those described in section (i), 1 , II., 2. of (1) of the investment policy above
i. Certificates for shares of investment corporations except for those described in section (i), 1 , II., 3. of (1) of the investment policy above
j. Corporate bonds issued by investment corporations, as set forth in Article 2, Paragraph 25 of the Investment Trust Law
k. Shares issued by foreign investment corporations, as set forth in Article 220, Paragraph 1 of the Investment Trust Law
l. Trust beneficiary certificates of foreign loan receivables, as set forth in Article 2, Paragraph 1, Item 10 of the Securities and Exchange Law
2

9m.Securities or certificates representing options, as set forth in Article 2, Paragraph 1, Item 10-2 of the Securities and Exchange Law
n. Depositary receipts denominated in Japanese yen of the same nature as for those in a. through d. above, as described in Article 2,
Paragraph 1, Item 10-3 of the Securities and Exchange Law
o. Negotiable certificates of deposit issued by foreign entities denominated in Japanese yen
p. Trust beneficiary certificates of loan receivables, as set forth in Article 2, Paragraph 2, Item 1 of the Securities and Exchange Law
q. Rights against a foreign entity which are of the same nature as the rights in item p. above
2. The Company may invest in monetary claims, with the exception of those described in Article 3, Items 1, 12 and 14 of the Cabinet Order.
3. The Company may invest in financial derivatives, as described in Article 3, Item 14 of the Cabinet Order.
(ii) Investment criteria and future investment plan in terms of property type, geographical location, and business sector and so forth
Please refer to (i) Basic Investment Policies and (ii) Guidelines for investment and management of portfolio real estate assets based on basic
investment policies under (1) Investment Policies above.

(3) DISTRIBUTION POLICYThe Company will make cash distributions subsequent to each fiscal period in accordance with the following guidelines.
(i)

In connection with the total cash amount to be distributed to shareholders, accounting profits will be calculated in accordance withthe generally accepted accounting principles in Japan (Japanese GAAP).

(ii) In making cash distributions to the extent of accounting profits, the Company will distribute profits as cash distributions in excess of
90% of the taxable income as defined in Article 67- 15 of the Special Taxation Measures Law of Japan.
(iii) At the appropriate discretion of the board of directors, the Company may, in accordance with Article 136, Paragraph 1 of theInvestment Trust Law, make distributions in excess of accounting profits based on the Cash Distribution Statement approved
pursuant to Article 131, Paragraph 1 of the Investment Trust Law.
(iv) The Company is allowed to make distributions in excess of accounting profits to the extent of the amount equivalent to the aggregateof the amount of depreciation for the current period and the amount of accounting profits. However, in cases where cash
distributions for the relevant period do not exceed 90% of the “distributable amount” stipulated by Article 39-32-3 of the Cabinet
Order of Enforcement of the Special Taxation Measures Law of Japan, the Company may make distributions in excess of accounting
profits to the extent of 91% of such distributable amount.
(v)

Distributions need to be made in cash in proportion to the number of shares registered on the final records of shareholders(including the records of beneficial shareholders) as of the close of each fiscal period.

(vi) Besides the above provisions, the Company shall comply with the rules on investment trusts and investment corporations(established on March 16, 2001, as amended) stipulated by the Investment Trusts Association of Japan.

30

(vii) If investors need to calculate a gain or loss upon distribution in excess of accounting profits, the Company will not make
distributions in excess of accounting profits to the shareholders. However, the Company will be able to make distributions in excessof accounting profits in the following three cases pursuant to clauses (i) through (vi) above.
1. Due to changes of the tax codes or other reasons, it becomes no longer necessary for an individual investor to calculate a gain or loss
upon distribution in excess of accounting profits for the period.
2. Due to changes of the tax codes or other reasons, the board of directors determines that it is appropriate to make distributions inexcess of accounting profits since it would become a common practice for an investor to file an individual tax return to report a gainor loss upon payouts.
3. The board of directors determines that it is necessary to make distributions in excess of accounting profits to meet the distribution
requirements.
(4) INVESTMENT RESTRICTIONSIn accordance with the Articles of Incorporation, the investment restrictions of the Company are as follows:
1

The Company shall not seek to invest aggressively in the marketable securities and monetary claims described in (2) Investment Assets
above, but rather make investment to secure stability and liquidity (Article 26 of the Articles of Incorporation).

2

The Company shall limit its trading activity in financial derivatives to the extent of hedging the interest rate volatility risks, with regard toits debts and other risks (Article 26 of the Articles of Incorporation).

3

In order to manage the portfolio of the Company in an efficient and stable manner, the Company may make borrowings or issue corporate
bonds (not in excess of ¥1 trillion) with a view to utilizing the proceeds thereof toward acquisitions of specified assets, capital
improvements of the real estate for lease and the underlying real estate of trust beneficiary rights and working capital (Article 30 of the
Articles of Incorporation).

4

The Company shall borrow only from qualified institutional investors (Article 30 of the Articles of Incorporation).

3

1

Financial Section

3

2

FINANCIAL OVERVIEW OF JAPAN REAL ESTATE INVESTMENT CORPORATIONSTATEMENT OF CASH FLOWS

p. 34

BALANCE SHEET

p. 41 STATEMENT OF CHANGES IN SHAREHOLDER ’ S CAPITAL p. 42
p. 43 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS p. 47

p. 38

STATEMENT OF INCOME AND RETAINED EARNINGSSTATEMENT OF CASH DISTRIBUTION

p. 40

p. 42

NOTES TO FINANCIAL STATEMENTS

3

3

FINANCIAL OVERVIEW OF JAPAN REAL ESTATE INVESTMENT CORPORATION

1. Selected Financial Data
Millions of yen

Thousands of U.S. dollars(Note 1)For the Period from May 11, 2001 to March 31, 2002

2002

2002

Operating Revenues

6,492

48,724

Operating Expenses

3,530

26,497

Operating Profits

2,961

22,227

Income before Income taxes

2,405

18,049Net Income

2,403

18,036

Total Assets

161,809

1,214,332

Interest-Bearing Liabilities

64,000480,300

Total Shareholder’s Equity

83,663627,867

Shareholder’s Capital

81,260609,831

Number of Shares

160,400

160,400

Total Shareholder’s Equity Per Share (yen/U.S. dollars)

521,591

3,914

Cash Distribution

2,403

18,036

Dividend Payout Ratio

99.9%

99.9%

Dividend Per Share (yen/U.S. dollars)

14,983112.44

Net Operating Income (NOI) (Note 2)

4,732

35,519Funds From Operations (FFO) (Note 3)

3,505

26,304Return on Assets (ROA) (Note 4)

2.0% (3.6% annualized)

2.0% (3.6% annualized)

Return on Equity (ROE) (Note 5)

2.9% (5.2% annualized)

2.9% (5.2% annualized)

51.7%

51.7%

EOP Equity Ratio (Note 6)
EOP Interest-Bearing Debt Ratio on Total Assets (Note 7)

39.6%

39.6%

FFO Multiple (Note 8)

13.5 times

13.5 times

Debt Service Coverage Ratio (Note 9)

15.5 times

15.5 times

Note 1: Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The rate of ¥133.25=US$1.00, the foreign exchange rate on March 31, 2002, has beenused for translation. The inclusion of such amounts is not intended to imply that Japanese yen has been or could be readily converted, realized or settled into U.S. dollars at thatrate or any other rate.
Note 2: NOI = (Property-Related Revenues – Property-Related Expenses) + Depreciation
Note 3: FFO = Net Income – gains (losses) from sales of specified assets + Depreciation and Amortization
Note 4: ROA = Income before Income taxes ÷ [(Total Assets at beginning of period + Total Assets at end of period) ÷ 2]
Note 5: ROE = Net Income ÷ [(Net Worth at beginning of period + Net Worth at end of period) ÷ 2]
Note 6: EOP Equity Ratio = (Net Worth at end of period ÷ Total Assets at end of period) x 100
Note 7: EOP Interest-Bearing Debt Ratio on Total Assets = (Interest-Bearing Debt at end of period ÷ Total Assets at end of period) x 100
Note 8: FFO Multiple = Share Price at end of March (¥530,000) ÷ FFO per share (annualized)
Note 9: Debt Service Coverage Ratio = Net Income before Interest, Taxes, Depreciation and Amortization ÷ Interest Expenses(Investment activity for the period under review officially began on September 10, 2001. Annualized portions of the calculations given in notes 4, 5 and 8 assume a fiscal period of 203 days.)

34

2. Cash Distribution
The cash distribution for the period from May 11, 2001 to March 31, 2002 consisted of almost all taxable income for the period, qualifying theCompany for special tax treatment as stipulated in Article 67-15 of the Special Taxation Measures Law of Japan. The dividend per share was¥14,983 ($112.44). With 160,400 shares outstanding, the cash distribution totaled ¥2,403,273 thousand ($18,035,822). Retained earnings
carried forward totaled ¥61,000 ($456).
(From May 11, 2001 to March 31, 2002)(¥ thousands)(U.S. dollars)

Net Income

2,403,334

18,036,278

Distribution

2,403,273

18,035,822

61

456

(Dividend per share : ¥14,983)
Retained earnings carried forward

3. Paid-In Capital
The Company was established with funding from Mitsubishi Estate Co., Ltd. (160 shares), The Tokio Marine and Fire Insurance Co., Ltd. (120shares) and The Dai-Ichi Mutual Life Insurance Company (120 shares), each share representing ¥500,000 ($3,752). Additional shares were
issued in an initial public offering at ¥525,000 ($3,940) each (acceptance price of ¥506,625 ($3,802)). An additional 65,000 shares were
issued on May 8, 2002, after the period of this report, at ¥490,980 ($3,685) per share (acceptance price of ¥475,268 ($3,567)).
Common shares outstanding

Increase

BalancePaid-in capital

Increase(¥ millions)

Balance

Payment date

Remarks(U.S.$ thousands)(¥ millions)(U.S.$ thousands)

May 11, 2001

Private placement

400

400

200

1,501

200

1,501

September 10, 2001

Additional share issue (Initial Public Offering)

160,000

160,400

81,060608,330

81,260609,831

May 8, 2002

Additional share issue

65,000225,400

30,892

231,835

112,152

841,666

The Company was listed on the Tokyo Stock Exchange on September 10, 2001. Market quotations from that time are as follows:
Month

High

Low

September 2001 (September 10, 2001 to September 28, 2001)¥550,000¥491,000

October 2001

¥551,000¥534,000

November 2001

¥549,000¥536,000

December 2001

¥542,000¥485,000

January 2002

¥510,000¥480,000February 2002

¥531,000¥499,000March 2002

¥560,000¥527,000

354. Overview of Borrowings
The following is a list of the Company’s borrowings showing amounts and lending institutions as of March 31, 2002.

Balance
Category

LenderShort-term debt Bank of Tokyo Mitsubishi(¥ millions)(U.S.$ thousands) Average interest rate

10,00075,0470.898%The Industrial Bank of Japan, Limited (Note)

10,00075,0470.898%The Sumitomo Trust & Banking Co., Ltd.

10,00075,0470.898%The Mitsubishi Trust and Banking Corporation

10,00075,0470.898%

Subtotal

40,000300,188

Long-term debt Bank of Tokyo Mitsubishi

6,000

45,0281.120%The Industrial Bank of Japan, Limited (Note)

6,000

45,0281.120%The Sumitomo Trust & Banking Co., Ltd.

5,200

39,0241.120%The Mitsubishi Trust and Banking Corporation

5,200

39,0241.120%The Yasuda Fire and Marine Insurance Company Limited

1,600

12,0081.120%

Subtotal

24,000180,11364,000480,300

Total

Due

Use of funds

Remarks

Purchase ofreal estate
and real
estate trust
beneficiaryrightsSecured/unguaranteed/paripassu

Purchase of
Anticipatedreal estate
date fortrust
principal
repayment: June beneficiaryrights23, 2006
Final date forprincipal
repayment: June2, 2008

Secured/unguaranteed/paripassu

June 24, 2002

Note: The Company’s business with The Industrial Bank of Japan, Limited was transferred to the Mizuho Corporate Bank, Ltd. on April 1, 2002.

5. Bonds Issued by the Company
The following list shows details of an issuance of corporate bonds that was approved at the Board of Directors’ meeting held June 7, 2002.
Total principal amounts of bonds¥25 billion (U.S.$188 million)

Issue price¥100 (U.S.$0.75) (par value)Interest Rate

1.32% annually

Closing Date

June 21, 2002

Guaranty

Unsecured/unguaranteed

Redemption method/datePrincipal redeemed in full on June 21, 2007
Cancellation upon repurchase may be made at any time

Note: The Company repaid short-term borrowings of ¥40 billion yen (U.S.$300 million) on June 24, 2002 with the net proceeds from the bond issue and its own capital.

366. Capital Expenditures for Existing Properties
a. PLANNED CAPITAL EXPENDITURES
The following table represents the main capital expenditures planned for renovations of existing properties, as of March 31, 2002. The total
expected construction amount includes portions that will be accounted for as ordinary expenses.
Expected construction amounts (Millions of yen)
Total
Property (Location)

Objective

Kyoto Shijo
Kawaramachi Building(Shimogyo-ku, Kyoto)

Shibuya Cross Tower(Shibuya-ku, Tokyo)

Estimated duration(Millions of yen) (Thousands of U.S. dollars)

Planned payment forthe period underreview

Previously paid total

Addition of packaged From May 2002 to
air conditioning units June 2002

95

713

—

—

Renovation of elevated From October 2002
to December 2002
water storage tank

71

533

—

—

Renovation of lower
floor toilets

From August 2002 to
March 2003

65

488

—

—

Upgrade ofentrance hall

From October 2002
to March 2003

52

390

—

—

b. CAPITAL EXPENDITURES DURING THE PERIOD ENDED MARCH 31, 2002
The following table represents the main capital expenditures for acquired properties during the period under review. Capital expenditures
amounted to ¥472 million (U.S.$3,542 thousand), with repair and maintenance adding ¥321 million (U.S.$2,409 thousand) throughout the term
for a total of ¥794 million (U.S.$5,959 thousand).
Capital expenditures for the period were mainly for renovation to maintain the facilities in the Shibuya Cross Tower property. Expenditures onother properties included, in addition to regular maintenance, construction to upgrade to pedestal access floors and to install new signs forbuildings that changed names.
Construction amounts
Property (Location)

Shibuya Cross Tower(Shibuya-ku, Tokyo)

Objective(Millions of yen)

Renovation of facilities (Installation of building
monitoring system, air distribution systems,
etc.)(Thousands of U.S.dollars)

416

3,122

Other Properties

56

420

Total

472

3,542

c. CASH RESERVES AT END OF PERIOD (RESERVES FOR CAPITAL IMPROVEMENTS)
In order to prepare for renovation of facilities useful for maintaining the value of properties for the future, the Company accumulates cash
reserves each period for capital improvements that will be conducted based on the medium- to long-term renovation strategy formulated foreach of the properties. Cash reserves over the period under review were as follows:
From May 11, 2001 to March 31, 2002
(Millions of yen)

Reserve balance at the beginning of the period
Amount accumulated(Thousands of U.S. dollars)

—

—

1,514

11,362

Withdrawal from reserves

794

5,959

Amount carried forward

719

5,396

3

7

JAPAN REAL ESTATE INVESTMENT CORPORATIONBALANCE SHEETAs of March 31, 2002

Thousands of yen

U.S. dollars (Note 2)

2002

2002

15,323,911

115,001,206

ASSETS
Current Assets:
Cash & bank deposits (Note 5)
Rental receivables

59,275444,837

Consumption tax refundable

714,4935,362,052

Other current assets

64,361

483,010

16,162,040

121,291,105

Land

99,614,150

747,573,361

Buildings and structures

45,676,498

342,787,978

Total current assets
Property and equipment, at cost: (Note 5)

Machinery and equipment
Less accumulated depreciation
Net property and equipment

944,758

7,090,117

146,235,406

1,097,451,456(1,100,006)(8,255,204)

145,135,400

1,089,196,252

Investments and other assets:
Deposits

14,100105,816Long-term prepaid expenses

53,684

402,884

Leasehold rights

444,160

3,333,288

454

3,405

161,809,838

1,214,332,750

Other
Total assets

38Thousands of yen

U.S. dollars (Note 2)

2002

2002

259,617

1,948,344

LIABILITIESCurrent Liabilities:
Trade accounts payable
Other payables

291,225

2,185,555

40,000,000

300,187,617

Accrued expenses

154,557

1,159,900

Accrued income taxes

1,332

9,996

Rent received in advance998,248

7,491,546

Other current liabilities

23,425

175,800

Total current liabilities

41,728,404

313,158,758

Long-term debt (Notes 4 and 5 )24,000,000

180,112,570

Deposits from tenants

12,418,100

93,194,000

Short-term debt (Notes 3 and 5)

Long-Term Liabilities: (Note 12)

Total long-term liabilities
Total Liabilities

36,418,100

273,306,570

78,146,504

586,465,328

81,260,000

609,831,144

SHAREHOLDERS’ EQUITY
Shareholders’ capital (Notes 8 and 12)
Retained earnings

2,403,334

18,036,278

Total Shareholders’ Equity

83,663,334

627,867,422

161,809,838

1,214,332,750

Total Liabilities and Shareholders’ Equity

3

9

JAPAN REAL ESTATE INVESTMENT CORPORATIONSTATEMENT OF INCOME AND RETAINED EARNINGSFor the Period from May 11, 2001 to March 31, 2002

Thousands of yen

U.S. dollars (Note 2)

2002

2002

Operating Revenues and Expenses
Revenues:
Rental revenues (Note 10)
Non-rental revenues (Note 10)6,427,133

48,233,648

65,385490,6936,492,518

48,724,341

Property-related expenses (Note 10)2,859,570

21,460,190

Asset management fees

389,449

2,922,695

Administrative service fees

146,714

1,101,041

Other operating expenses

135,029

1,013,350

3,530,762

26,497,276

2,961,756

22,227,065

Interest received

2,035

15,275

Other non-operating revenues

813

6,099

Interest expenses

241,563

1,812,855

New share issuance costs

121,149

909,188

Share listing expenses

74,901

562,112

Amortization of start-up costs

90,498679,156

Operating Expenses:

Operating Profits
Non-Operating Revenues and Expenses
Non-Operating Revenues:

Non-Operating Expenses

Other non-operating expenses

31,457

236,074

2,405,036

18,049,054

Current

1,738

13,050

Deferred

(36)

(274)

2,403,334

18,036,278——

2,403,334

18,036,278

Income before Income taxes
Income taxes: (Note 7)

Net Income
Retained Earnings at beginning of period
Retained Earnings at end of period

40JAPAN REAL ESTATE INVESTMENT CORPORATIONSTATEMENT OF CASH FLOWS (unaudited)
For the Period from May 11, 2001 to March 31, 2002

Thousands of yen

U.S. dollars (Note 2)

2002

2002

Cash Flows from Operating Activities
Income before income taxes

2,405,036

18,049,054

Depreciation and amortization

1,100,006

8,255,203

Loss on retirement of property and equipment

649

4,869

Non-cash portion of interest income(2,035)(15,275)

Non-cash portion of interest expense

241,563

1,812,855

Rental receivables and other receivables(59,279)(444,869)

Consumption tax refundable(714,493)(5,362,052)

Prepaid expenses(46,183)(346,591)

Other current assets(18,137)(136,113)

Trade accounts payable

259,617

1,948,343

Other payables

291,225

2,185,555

Rent received in advance998,248

7,491,546

Other current liabilities

23,425

175,800

Long-term prepaid expenses(53,684)(402,883)

Sub-total

4,425,958

33,215,442

Interest received

2,035

15,275Interest paid

(87,006)(652,955)(407)(3,054)4,340,580

32,574,708(146,236,055)(1,097,456,325)

Purchases of intangible assets(444,614)(3,336,692)

Payment of deposits(14,100)(105,816)

12,845,326

96,400,195(427,226)(3,206,196)(134,276,669)(1,007,704,834)

40,000,000

300,187,617

Income taxes paid
Net cash provided by operating activities
Cash Flows from Investing Activities
Purchases of property and equipment

Proceeds from lease deposits received
Repayment of lease deposits
Net cash used in investing activities
Cash Flows from Financing Activities
Proceeds from short-term borrowings
Proceeds from long-term borrowings

24,000,000

180,112,570

Proceeds from issuance of shares

81,260,000

609,831,145

145,260,000

1,090,131,332

15,323,911

115,001,206

Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period——

15,323,911

115,001,206

4

1

JAPAN REAL ESTATE INVESTMENT CORPORATIONSTATEMENT OF CHANGES IN SHAREHOLDER’S CAPITAL
From May 11, 2001 to March 31, 2002

CapitalUnits

Beginning
5/11/01 Private placement

Thousands of yen

U.S. dollars (Note 2)

—

—

—
400

200,000

1,500,938

9/10/01 Public offering

160,000

81,060,000

608,330,206

Total

160,400

81,260,000

609,831,144

Thousands of yen

U.S. dollars (Note 2)

2002

2002

JAPAN REAL ESTATE INVESTMENT CORPORATIONSTATEMENT OF CASH DISTRIBUTION

Unappropriated Retained Earnings
Cash Distribution
Retained earnings carried forward

42

2,403,334

18,036,278

2,403,273

18,035,822

61

456

JAPAN REAL ESTATE INVESTMENT CORPORATIONNOTES TO FINANCIAL STATEMENTS
March 31, 2002

1. Organization
Japan Real Estate Investment Corporation (the “Company”), a real estate investment corporation, was incorporated on May 11, 2001 under the Law
Concerning Investment Trusts and Investment Corporations of Japan, or the Investment Trust Law.
The Company was originally formed by Japan Real Estate Asset Management Co., Ltd. (“J-Rea”), a licensed asset management company. The
assets of the Company are managed by J-Rea that are owned 40% by Mitsubishi Estate Co., Ltd., 30% by The Tokio Marine and Fire Insurance Co., Ltd.
and 30% by The Dai-ichi Mutual Life Insurance Company. The Company’s initial shareholders’ capital was ¥200 million($ 1,500 thousand).
On September 10, 2001, the Company commenced operations when the Company was listed on the Tokyo Stock Exchange as one of the first realestate investment corporations in Japan (so-called “J-REITs”).
The Company issued 160,000 shares at a price of ¥525,000 ($3,940), generating gross proceeds of ¥84,000 million ($630,394 thousand). The
proceeds to the Company from the offering of the shares, net of underwriters’ discount, were ¥81,060 million ($608,330 thousand).
The Company was formed to invest primarily in real estate in Japan. At March 31, 2002, the Company owned a portfolio of 24 office properties
containing an aggregate of approximately 202,000 square meters of net rentable area. The Company initially acquired 20 office buildings from
Mitsubishi Estate Co., Ltd., The Tokio Marine and Fire Insurance Co., Ltd. and The Dai-ichi Mutual Life Insurance Company in September 2001. The
Company subsequently acquired 4 office buildings.
2. Summary of Significant Accounting Policies
Basis of presenting financial statements

The Company maintains its accounting records and prepares its financial statements in accordance with accounting principles and practices generally
accepted and applied in Japan (“Japanese GAAP”), including provisions set forth in the Investment Trust Law, the Japanese Commercial Code, theSecurities and Exchange Law of Japan and the related regulations, which may differ in some material respects from accounting principles and practices
generally accepted in countries and jurisdictions other than Japan.
The accompanying financial statements are a translation of the financial statements of the Company which were prepared in accordance withJapanese GAAP and were presented in the Securities Report of the Company filed with the Kanto Local Finance Bureau. In preparing the accompanying
financial statements, certain reclassifications have been made to financial statements issued domestically in order to present them in a format which
is more familiar to readers outside Japan. In addition, the notes to financial statements include information which might not be required under Japanese
GAAP but is presented herein as additional information.
The Company’s fiscal period ends at the end of March and September. The Company’s first fiscal period began on May 11, 2001, the date ofincorporation, and ended on March 31, 2002.
Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The rate of ¥133.25=US$1.00, the foreign exchange rateon March 31,2002, has been used for translation. The inclusion of such amounts is not intended to imply that Japanese yen has been or could be readily
converted, realized or settled into U.S. dollars at that rate or any other rate.
Property and equipment

Property and equipment is stated at cost, less accumulated depreciation. The costs of land, buildings and building improvements include the purchaseprice of property, legal fees and acquisition costs. Depreciation of property and equipment is calculated on a straight-line basis over the estimateduseful lives of the assets ranging as stated below:
Buildings .....................................................................................................................................2-61 years
Structures..................................................................................................................................10-42 years
Machinery and equipment ...........................................................................................................3-10 years
Expenditures for repairs and maintenance are charged to operations as incurred. Significant renewals and betterments are capitalized.

43

Deferred charges

Deferred charges include start-up costs and share issuance costs. Start-up costs were charged to operations when paid. Share issuance costs werealso charged to operations when paid.
The underwriters’ commissions of the initial public offering were not reflected to the financial statements since such costs are not payable by theCompany under the so-called “spread method”. Under the spread method, the difference between the offer price (the price paid by the shareholder) andthe purchase price (the price received by the Company) was directly distributed to the underwriters. The difference incurred at the issuance of shares on
September 10, 2001 amounted to ¥2,940 million($22,064 thousand).
Revenue recognition

Revenues from leasing of office space are recognized as rent accrued over the lease period.
Taxes on property and equipment

Property and equipment is subject to property taxes and city planning taxes. These taxes are generally charged to expense during the period. The taxes
are imposed on the owner registered in the record as of January 1 based on the assessment made by the local government. As such, the sellers of theproperties were liable for these taxes for the calendar year 2002 on the properties purchased after December 31, 2001. The amount equivalent to thetaxes paid to the sellers for the period from the property acquisition date to December 31, 2002 is included in the purchase price of each property andcapitalized as cost of the property.
Consumption taxes

Consumption taxes withheld and consumption taxes paid are not included in the statement of income.
Cash and cash equivalents

The statement of cash flows is provided for information purposes only since it is not required to be prepared by the Investment Trust Law, the JapaneseCommercial Code, the Securities and Exchange Law of Japan and the related regulations. Cash and cash equivalents consists of cash on hand, deposits
placed with bank and short-term investments which are highly liquid, readily convertible to cash and with insignificant risk of price fluctuation, withoriginal maturity of three months or less.
3. Short-term Debt
Short-term debt of ¥40 billion ($300,188 thousand) at March 31, 2002 consists of secured loans from banks, trust banks with variable interest, due on
June 24, 2002. The weighted average interest rate applicable to the bank loans at March 31, 2002 was 0.898% per annum.
4. Long-term Debt
Long-term debt of ¥24 billion ($180,113 thousand) at March 31, 2002 consists of secured loans from banks, trust banks and an insurance company
with variable interest, due on June 23, 2006. The weighted average interest rate applicable to the loans at March 31, 2002 was 1.120% per annum.
5. Secured Assets
At March 31, 2002, the Company pledged the following assets for the short-term borrowings of ¥40 billion ($300,188 thousand) and the long-termborrowings of ¥24 billion ($180,113 thousand):4

4

Thousands of yen

U.S. dollars

Cash and cash equivalents ........................................................................................................13,223,134

99,235,534

Land and land leasehold ............................................................................................................85,666,327

642,899,276

Buildings and structures............................................................................................................32,815,949

246,273,555

Machinery and equipment ...............................................................................................................671,180

5,037,006

6. Shareholders’ Equity
Under the Investment Trust Law and the related regulations, the appropriations of retained earnings and the declaration of a cash distribution for the
fiscal period are made by the resolution of the Board of Directors held subsequent to the close of such fiscal period. As such, the amount of retained
earnings for the fiscal period included the cash distribution declared in the subsequent period.
The amount of the cash distribution for the period ended March 31, 2002 amounted to ¥2,403,273 thousand ($18,036 thousand) as provided by thestatement of cash flows that is required to be prepared as a separate financial statement by the Investment Trust Law and the related regulations.
7. Income Taxes
At March 31, 2002, the Company’s deferred tax assets consist mainly of the enterprise tax, which is not deductible for tax purposes. The reconciliation oftax rate difference between the adjusted statutory tax rate and the effective tax rate for the period from May 11, 2001 to March 31, 2002 was as follows:
Statutory tax rate .............................................................................................................................39.39%
Deductible dividend distribution.....................................................................................................(39.36%)
Others ................................................................................................................................................0.04%
Effective tax rate................................................................................................................................0.07%
The Company is subject to Japanese corporate income taxes on all of its taxable income. However, under the Special Taxation Measures Law of Japan or
the STML, an investment corporation is allowed to deduct dividends of accounting profits, or dividend distributions, paid to investors from its taxable
income if certain tax requirements are satisfied. Such tax requirements include dividend distributions in excess of 90% of its taxable income for the
fiscal period as stipulated by Article 67-15 of the STML. Based on the distribution policy provided by Article 33-2 of the Articles of Incorporation, theCompany made a dividend distribution of approximately 100% of retained earnings in the amount of ¥2,403 million ($18,036 thousand) and treated it
as tax deductible dividend. The Company will not distribute the dividends in excess of accounting profit under Article 33-3 of the Articles ofIncorporation.
8. Per Share Information
Net assets per share at March 31, 2002 were ¥521,591($3,914). In calculating the net assets per share, the amount of the net assets included the cash
distribution declared in the subsequent period.
Net income per share for the period from May 11, 2001 to March 31, 2002 was ¥23,952 ($180). (Net income per share for the operating period from
September 10, 2001 to March 31, 2002 was ¥14,983($112)). Net income per share is computed by dividing net income by the weighted average numberof shares outstanding during the period from May 11, 2001 to March 31, 2002. Diluted net income per share has not been presented since no warrants
and convertible bonds were issued during the period.
9. Related party Transactions
The Company entered into the following related party transactions with affiliates including Mitsubishi Estate Co., Ltd. and certain of its subsidiaries:
Thousands of yen

U.S. dollars

Purchase of the properties

17,413,000

130,679,174

Property management fees

425,423

3,192,669

Commissions for property acquisition

400,000

3,001,876

Utilities

66,191

496,748

Insurance

35,557

266,846

Other operating expenses

1,300

9,756

Other commissions

2,936

22,035

Repair and maintenance

15,331

115,06145J-Rea provides the Company with asset management services. For these services, the Company pays J-Rea the asset management service fees andreimburses it for certain costs as determined in the Asset Management Agreement. For the period from May 11, 2001 to March 31, 2002, the Company
incurred ¥389 million ($2,923 thousand) for asset management service fees, ¥649 million ($4,874 thousand) for property acquisition commissions and¥90 million ($675 thousand) for reimbursement costs of incorporation of the Company.
10. Breakdown of Property-related Revenues and Expenses
For the Period from May 11, 2001 to March 31, 2002
Property-Related Revenues
Rental Revenues

Thousands of yen

U.S. dollars

6,492,518

48,724,341

6,427,133

48,233,648

Rental revenues

4,571,649

34,308,807

Common charges

1,181,816

8,869,167

Parking revenues

247,209

1,855,229

Other rental revenues

426,459

3,200,445

Non-Rental Revenues

65,385490,693

Cancellation charges

51,790388,665

Other miscellaneous revenues

13,595102,028

2,859,570

21,460,190

Property-Related Expenses
Property management fees

915,169

6,868,058

Utilities expenses

493,4133,702,910

Property and other taxes

4,146

31,115

Casualty insurance

15,246

114,421

Repairs and maintenance

321,486

2,412,657

Depreciation

1,100,006

8,255,204

Other rental expenses
Profits

10,10475,825

3,632,948

27,264,151

11. Leases
The Company leases office buildings and earns rent income. The future minimum payments to be received by the Company on non-cancelable leases at
March 31, 2002 were as follows:
Thousands of yen

U.S. dollars

Due within one year ......................................................................................................................2,132,045

16,000,338

Due after one year ......................................................................................................................13,278,205

99,648,822

Total ...........................................................................................................................................15,410,250

115,649,160

12. Subsequent Events
Issuance of additional shares

Based on the approval by the Board of Directors’ meeting held on March 29, 2002, the Company completed a public offering of 65,000 additional shareson May 7, 2002 at an offer price of ¥490,980($3,685) per share, or ¥31,914 million ($239,502 thousand) in total. The proceeds from the public offering,
net of underwriters’ discount, were ¥30,892 million ($231,838 thousand) at an issue price of ¥475,268 ($3,567). As a result of the issuance ofadditional shares, the Company had total equity of ¥112,152 million ($841,669 thousand) with 225,400 shares at May 8, 2002.
Issuance of corporate bonds

Based on the approval by the Board of Directors’ meeting held on June 7, 2002, the Company issued ¥25 billion ($188 million) unsecured corporate
bonds with an interest rate of 1.32 % per annum on June 21, 2002. The bonds will be due on June 21, 2007. The Company used the proceeds to repay
4

6

the short-term bank loans. The Company provided no collateral or guarantee for the issuance of the corporate bonds.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders ofJapan Real Estate Investment Corporation

We have audited the accompanying balance sheet of Japan Real Estate Investment Corporation as of March 31, 2002, and the related statements ofincome and retained earnings, and cash distribution for the period from May 11, 2001 (date of incorporation) to March 31, 2002, all expressed in yen.
Our audits were made in accordance with auditing standards, procedures and practices generally accepted and applied in Japan and, accordingly,
included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the accompanying financial statements, expressed in yen, present fairly the financial position of Japan Real Estate Investment
Corporation at March 31, 2002, and the results of its operations for the period from May 11,2001 (date of incorporation) to March 31, 2002 in conformity
with accounting principles and practices generally accepted in Japan.
The U.S. dollar amounts in the accompanying financial statements are presented solely for convenience. We have also reviewed the translation of yen
amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 2 to the financial statements.

Shin Nihon & Co.
Tokyo, Japan
June 24, 2002

See Note 2 to the financial statements which explains the basis of presentation of the financial statements of Japan Real Estate Investment Corporation
under Japanese accounting principles and practices.

4

7

The Market for Leased Office Space in Japan
This section was translated from the original Japanese by Japan Real Estate Investment Corporation

In order for our shareholders to better understand our business, we believe it would be helpful to provide an overview of the office building real estate market in
Japan and how it may differ from markets in other countries. We feel that many of our shareholders are interested in how the real estate market in Japan isregarded today, and what conditions will be in the future. We are therefore offering this information in the hope of contributing in a small way to better
investment decisions by our shareholders.
For the section describing office leasing practices and customs we have used excerpts from the 1999 version of The Japan Start-up Handbook (with updates
and additions as required), published by the Japan External Trade Organization (JETRO), and for the trends in the 23 wards of Tokyo section have excerpted fromthe Real Estate White Paper 2002 published by Ikoma Data Service System (IDSS). The excerpts used were translated and/or edited by Japan Real Estate
Investment Corporation.

1) OFFICE LEASING PRACTICES AND CUSTOMS IN JAPAN
There are several unique aspects to office leasing practices in Japan. Some of these practices and customs are found only in Japan, while others are the same asin overseas markets, and in some cases positions are completely opposite of those in other markets. We have outlined the major differences by area below.
On March 1, 2000 a major revision to the Land and House Lease Law in Japan was implemented, introducing fixed-term lease regimes similar to those in the
United States and Europe. The explanations below refer mainly to general leasing contracts, but we have noted any differences between these and fixed-termleases. Only a small number of fixed-term leases are currently in the market.
Lease Period: The usual lease period in Japan is two years. In Europe and the United States, tenants must vacate the leased space at the end of the contract
period, but in Japan tenants can usually automatically renew leases, with or without change of rent, when they wish to continue using the leased spaces. In thecase of fixed-term leases, however, tenants must vacate the leased space at the end of the contract period, unless both the owner and tenant agree to renew thecontract.
Lease Termination by the Tenant: In general, leasing contracts in Japan have traditionally included termination clauses allowing the tenant to freely terminate
the lease with six months’ notice. With the introduction of free rent (explained below), however, a greater number of lease contracts now impose penalties forleases terminated before the end of the contract period. In the case of fixed-term leases, the rent for the remaining contract period is often stipulated as a penalty
for early termination.
Leased Floor Space Calculation: Leasing contracts in Japan usually specify net space, which is the common calculation for major building owners. Small andmedium sized buildings, however, as well as buildings in the Kansai region are often contracted with leases specifying gross space (inclusive of such areas as
toilets and hallways).
Key Money and Deposits: A deposit of six to 18 months’ rent is often required as a guarantee against default by tenants. It is also important to note that a
portion of this deposit may be amortized at the end of the contract period, and many contracts stipulate that this will not be returned to the tenant.
Interest on Deposits: Building owners collect interest on deposits. Because this interest is not returned to the tenant, it is considered by the tenant to be part of
the rent.
Free Rent: The free rent period in Japan is approximately one to six months. Because construction work on the interior is conducted only after the contract period
begins, however, it is often the case that the free rent period only covers the time up until the space is ready for use. The free rent period may be extended forlarge-scale contracts.
Contract Renewal: Adjustments to rents in Japan are negotiated at the end of each rental period. When rents in the market were rising, owners tended to avoid
fixed rates of increase in rent at renewal of contracts in order to retain flexibility to demand increases in line with market prices. Now that rents in the market are
falling, however, a fixed rate of increase for the first renewal may be included in the contract as a way of hedging risks.
Non-rent Payments: The principal non-rent payment is a general service fee. Real estate taxes are the responsibility of the owner, but tenants are usuallyrequired to pay a fee for maintenance and upkeep of common spaces. The range of services covered by this fee (such as heating and air conditioning) varies
widely from owner to owner.

48

Subleasing: Subleasing, in principle, is not permitted. Lease periods have traditionally been short, leases can be easily terminated, and subtenants would havethe same rights under tenant protection laws. In the case of long fixed-term leases, however, subleasing is sometimes permitted when there is a provisionprohibiting early termination.
Interior Construction Costs: The costs to set up and equip the leased space are borne solely by the tenant. In Europe and the United States, owners will share the
set-up costs, as spaces are often rented while the buildings are still basically skeletons, and because the real estate markets are softer. In Japan, however,buildings are generally leased in a ready-to-use condition, so tenants cover the costs of erecting partitions and other construction necessary to meet theirrequirements.
Return to Original Condition: Tenants in Japan are required to return leased spaces to their original condition at the conclusion of the contract. Because tenants
are provided with space in a ready-to-use condition, they have a responsibility to return it to that condition (for example, replacing carpet and wallpaper) at thetime of departure. The costs for this renovation are borne by tenants or deducted from the deposit payment (key money and other deposits) received at the time
the contract was signed.

2) TRENDS IN THE REAL ESTATE LEASING MARKET IN TOKYO’S 23 WARDS
To the present, the volume of new demand in Tokyo’s 23 wards has been significantly influenced by economic trends. During the period of Japan’s economic
bubble in the late 1980‘s and early 1990‘s, over 991,000m2 (10,675,000 ft2) in new demand was generated annually. After the bursting of the bubble, however,demand began to trend downward, and in 1993 new demand contracted around 165,000m2 (1,779,000 ft2) . Rents subsequently underwent an adjustment whileneeds—primarily for expansion—began to surface, and from 1994 through 1997 around 661,000m2 (7,117,000 ft2) to 991,000m2 (10,675,000 ft2) in new
demand was created annually. Successive bankruptcies of financial institutions from the second half of 1997, however, caused the volume of new demand toplummet to an exceedingly low level of under 165,000m2 (1,779,000 ft2) in 1998 and 1999. From 2000, robust demand for floor space from foreign-affiliated and
IT-related companies fueled a sharp recovery in the volume of new demand, which amounted to approximately to 860,000m2 (9,252,000 ft2). In 2001, such factors
as the collapse of the IT bubble and the global recession triggered a sharp fall in the volume of new demand, to approximately 331,000m2 (3,558,000 ft2).
Regarding the volume of new supply, annual supply levels remained high immediately before and after the bursting of the bubble in the early 1990‘s andreached 1,223,000m2 (13,166,000 ft2) at the zenith of the bubble period in 1992. The bursting of the bubble had a restraining effect on supplies, and after 1995
the volume of new supply in each city drifted down to the low level of between 331,000m2 (3,558,000 ft2) and 661,000m2 (7,117,000 ft2). Even after the collapseof the bubble, however, supplies of large office buildings remained at relatively stable levels. Particularly noteworthy, from 1994 there was a trend toward morelarge offices being built away from central urban areas, where there was scant leeway for raising supply. From 2000 onward large office building were completed
in succession in core urban areas, driving up total supply. In 2001, supply of small- and medium-sized offices was also pushed up 198,000m2 (2,135,000 ft2),
and in 2001 the volume of new supply reached approximately 496,000m2 (5,337,000 ft2).
Looking at vacancy rates, in 1990 vacancy rates were at an exceedingly low level of 0.6%. From the last half of 1991, vacancy rates rose suddenly in coreurban areas, where rents swelled precipitously, and in 1994 vacancy rates rose to a record-high 9.6%. Later, rent adjustments proceeded, with an improvement in
the supply-demand gap while vacancy rates trended downward throughout 1997. In 1998 and 1999, the market remained static amid a chaotic market
environment prompted by such factors as a series of bankruptcies of financial institutions, and the vacancy rate once again headed upward. From 2000, thevacancy rate declined to 3.8%, owing to perceptions of an economic recovery, but then rose to the 4.3% level in the wake of the bursting of the IT bubble andbecause of the global recession from 2001.
The competition for tenants occupying large buldings is expected to increase dramatically in the near future. An additional 462,800m2 (4,981,000 ft2) incapacity will be added due to the completion of large-scale buildings in 2002, and 793,400m2 (8,540,000 ft2) in 2003. Small and medium-scale buildings are
expected to add a further 165,300m2 (1,779,000 ft2) in 2002 and 2003. From 2004, the negative effects of the skewed supply and demand balance generated
since 2002 will be felt, but supply will be controlled.

49About J-REIT System

J-REIT STRUCTURE AND RELATED ORGANIZATIONS
The organizational structure of the Company is shown in the diagram on the next page, but we feel it would be helpful to add a further explanation of therole played by each of the related organizations. Understanding this relationship is the key to understanding the overall J-REIT system. (Numbers in the
diagram correspond to the numbers below.)1) Investment Corporation: A special type of entity for the specific purpose of owning and operating real estate properties.
The investment corporation is a special type of entity, incorporated and operated under the Investment Trust Law, for the purpose of owning andoperating real estate properties using capital raised from investors. It has a board of directors and shareholders’ meeting just like an ordinary
corporation under the Commercial Code of Japan, but since this structure of the investment corporation is simply a vehicle for owning and operating realestate properties, it is not permitted under its articles of incorporation to engage in any other business activities.
The principal responsibility of the investment corporation is custody and management of its assets, as well as issuance of equity securities. The
corporation does not, however, control its assets directly, as all management functions must be outsourced to a licensed asset management company.
2) Tokyo Stock Exchange & 3) Investors: Buy and sell the Company’s shares, and receive dividends.
Investors provide capital for the investment corporation and receive equity securities, just as they would receive shares of stock issued by an ordinary
corporation. Dividends are also paid to shareholders of record at the end of the fiscal period. Investors may also buy and sell the equity securities on theTokyo Stock Exchange just like shares of an ordinary corporation, and the same trading regulations apply.
4) Asset Management Company: Real estate trust fund manager.
The investment corporation may not manage its assets by itself, but must outsource the investment decision and administration work to an asset
management company. The asset management company, therefore, performs a vital role for the real estate investment corporation.
The asset management company is normally involved with the investment corporation from the time of its incorporation, and afterwards performs therole of fund manager for the real estate properties on consignment from the investment corporation. The asset management company must have a good
grasp of the properties held by the investment corporation, and manage the assets to achieve higher earnings. As necessary, it will sell off some of theassets or acquire new ones.
In this way, the asset management company performs a series of duties in accordance with the Investment Trust Law.
5) Asset Holding Company/Administration Outsourcer
The investment corporation consigns the property holding function (physical possession of the property deeds) or trust beneficiary certificates to trustbanks or similar organizations. Administrative functions such as the transfer of share certificates are also outsourced to trust banks or securities
companies, just like for shares of ordinary corporations.
6) Property Management Companies
The primary responsibility of the property management companies is to manage the maintenance and leasing of buildings. Building maintenanceinvolves proper upkeep of the property to ensure long-term profitability for the investment corporation, and leasing services include monthly invoicing forrents and negotiating contract renewals.

50ORGANIZATIONAL STRUCTURE OF JAPAN REAL ESTATE INVESTMENT CORPORATION

2) Tokyo Stock Exchange
4) Asset Management
Company
3) Investors

Shareholders’ Meeting
Japan Real Estate AssetManagement Co., Ltd.

Trade

Investors

Asset Management
Agreement
Cashdistribution

Trade

Stock
1) Investment Corporation
Investment

Investors

Instruction
Loans

Japan Real Estate Investment
Corporation

Interest
payments

Board

Property management
outsourcing

Rental Revenue

Financial Institutions(Qualified institutional
investors)

Investment

Asset custodyoutsourcing
Administration
outsourcing
5) Asset Holding Company

6) Property Management
Companies

Real estate
management

Office Buildings

Administration
Outsourcer

The Sumitomo Trust &Banking Co., Ltd.

5

1

ROLE OF SHAREHOLDERS IN J-REIT SYSTEM
Set out below, in further detail, is the role shareholders of the investment corporation play in the J-REIT system. In particular, we would like to present a
description of certain principal rights of the shareholders of an investment corporation under the Investment Trust Law, which is in effect as of
September 30, 2002. This summary does not purport to be a comprehensive description of all of the rights of the shareholders under Japanese law that
may be relevant to an investment decision on the shares of the Company.
Voting Rights A shareholder with one or more shares is entitled to one vote for each share. Except as otherwise provided by law or by the Articles ofIncorporation, a resolution can be adopted at a general meeting of shareholders by a majority vote cast in writing or through proxies who are also
shareholders. Shareholders who do not attend and/or do not exercise their voting rights at the general meeting of shareholders will be deemed to be inagreement with proposals submitted at the meeting.
Except in certain minor circumstances, the voting rights of shareholders apply to the following resolutions:Appointment and dismissal of executive director, supervisory directors and independent auditors; approval of the execution or termination of theasset management agreement with an asset management company; consolidation of shares; mergers; dissolution; amendment to the Articles ofIncorporation; and any other matters so required by the Investment Trust Law, any other law or the Articles of Incorporation.
Other Rights of Shareholders
In addition to the rights set out above, shareholders have the following rights:
Dividends upon resolution of the board of directors;
Derivative action;
Right to sue for annulment of resolutions;
Right to request bar on the executive director to prevent misconduct;
Right to void newly issued shares;
Right to sue for the nullification of merger;
Right to make submissions to shareholders’ meetings;
Right to convene a general meeting of shareholders;
Right to request the appointment of an inspector;
Right to request the removal of directors;
Right to request for the dissolution of an investment corporation; andRight to inspect books.
Consolidation or Split of Shares An investment corporation may (i) consolidate shares upon resolution of the general meeting of shareholders, or (ii)split shares into a greater number of shares upon resolution of the board of directors.
No Redemption/Repurchase of Shares As an investment corporation is a closed-end J-REIT, shareholders are not entitled to request forredemption/repurchase of their shares from an investment corporation.
Issue of Additional Shares and Subscription Rights Shareholders have no pre-emptive rights with respect to issuance of additional shares. Shares
may be issued at the times and upon the terms approved by resolution of the board of directors.
Liquidation In the event of liquidation, the assets remaining after payment of all debts, liquidation expenses and taxes will be distributed among theshareholders in proportion to the numbers of shares held.

52

Profile of J-Rea (Asset Management Company)

Organization
Shareholders’ Meeting
Auditors
Board of Directors

CEO & President

Planning Department

Finance and Accounting Department

Real Estate Investment Department

DUTIES PERFORMED FOR JAPAN REALESTATE INVESTMENT CORPORATION

DUTIES PERFORMED FOR JAPAN REALESTATE INVESTMENT CORPORATION

DUTIES PERFORMED FOR JAPAN REALESTATE INVESTMENT CORPORATION* Investor relations and disclosure* Investment risk management* Formulation of financing strategy* Equity financing* Debt financing* Cash management* Accounting and taxation* Acquisition and disposal of realestate assets* Leasing and management of realestate assets

DUTIES PERFORMED FOR J-Rea* Planning and drafting ofmanagement strategies* General, labor and accounting
administration* In-house legal affairs* Negotiation with government
agencies and related groups* Research and analysis of realestate market

Principal Shareholders
Initial Shareholders

Shareholder

Address

Numbers of Shares

Percentage

Mitsubishi Estate Co., Ltd.

7-3, Marunouchi 2-chome, Chiyoda-ku, Tokyo

114,284

40%

The Tokio Marine and Fire Insurance Co., Ltd.

2-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo

85,71330%

The Dai-ichi Mutual Life Insurance Company

13-1, Yuraku-cho, 1-chome, Chiyoda-ku, Tokyo

85,71330%

Total

285,710100%

A portion of the shares held by the three companies listed above was transferred to Mitsui & Co., Ltd. on June 5, 2002. The share percentage breakdown since that dateis as follows.

Shareholder

Address

Numbers of Shares

Percentage

Mitsubishi Estate Co., Ltd.

7-3, Marunouchi 2-chome, Chiyoda-ku, Tokyo

102,855

36%

The Tokio Marine and Fire Insurance Co., Ltd.

2-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo

77,142

27%

The Dai-ichi Mutual Life Insurance Company

13-1, Yuraku-cho, 1-chome, Chiyoda-ku, Tokyo

77,14227%

Mitsui & Co., Ltd.

2-1, Otemachi, 1-chome, Chiyoda-ku, Tokyo

28,571

10%

Total

285,710

100%

5

3

Corporate Data
As of March 31, 2002

Executives

Transfer Agent

Executive Director : Yoneichiro Baba

The Sumitomo Trust & Banking Co., Ltd.

Supervisory Directors : Tsunaya Kawamura

5-33, Kitahama 4-chome, Chuo-ku, Osaka 540-8639, Japan

Kenji Kusakabe
Certified Public Accountants
Paid-in Capital¥81,260,000,000

Shin Nihon & Co.
Hibiya Kokusai Bldg.
2-3, Uchisaiwai-cho 2-chome, Chiyoda-ku, Tokyo 100-0011, Japan

Number of Shares Issued
160,400

Incorporation
May 11, 2001

Number of Shareholders
12,574

Executive Office
Japan Real Estate Investment Corporation

Stock Listing

3-1, Marunouchi 3-chome, Chiyoda-ku, Tokyo 100-0005, JapanTokyo Stock Exchange
For further information, please contact :Securities CodeJapan Real Estate Asset Management Co., Ltd.

8952

Planning Department, Manager
Toshiya Kobayashi
Tel: 81-3-3211-7921
Fax: 81-3-3212-8886
E-mail: toshiya-kobayashi@j-rea.co.jp

54

JAPAN REAL ESTATE INVESTMENT CORPORATION

http://www.j-re.co.jp

MARCH 2002 SEMIANNUAL REPORT

Printed in Japan