7th Fiscal Period
Semi-Annual Report
September 1, 2018 to February 28, 2019
Securities Code: 3462

Nomura Real Estate Master Fund, Inc.
8-5-1 Nishi-Shinjuku, Shinjuku Ward, Tokyo
https://www.nre-mf.co.jp/en/

7t h

Fiscal PeriodDriving the Market as One of Japan’s Largest REITs

CONTENTS

Message from the Management

P3

To Our Unitholders

Financial Strategy
P5

Top Interview
Management StrategyStrengths of NMF
New Acquisitions (2nd Public Offering)Internal Growth

P19

ESG Initiatives

Performance Highlights
TopicsESG Initiatives

P9

Financial Strategy

P21

Portfolio

P25

Financial Section

Portfolio Analysis

Balance Sheet

External GrowthStatement Of Income And Retained
Earnings

Portfolio Gallery
Investor Information

Market Review

Distribution Policy

Notes To Financial Statements

Structure and Organization

Independent Auditor’s Report

Investor Information
Unitholder Information

P33

Statement Of Changes In Net Assets

Balance Sheet Highlights

Statement Of Cash Flows

P37

Message from the Management

TopicsManagement Strategy

ESG Initiatives

Financial Strategy

Portfolio

Investor Information

Financial Section

Message from the Management
PERFORMANCE HIGHLIGHTS
6th Fiscal Period

7th Fiscal Period

8th Fiscal Period(forecast)*

NMF will strive to increase
unitholder value by securing
stable income over the
medium to long term andensuring the steady growthof assets undermanagement.

Cash Distribution
per Unit¥3,084¥3,128¥3,182

Operating Revenues¥34,731¥35,428¥36,394

Net Income¥10,709¥11,560¥11,561

Total Assets¥1,118,644¥1,117,851¥1,164,883

Net Assets¥571,836¥569,843¥600,690¥132,314¥131,853¥132,098(including distribution inexcess of net income)millionShuhei Yoshida
Executive Director
Nomura Real Estate Master Fund, Inc.

millionmillionmillionNet Assets per Unit

To Our Unitholders
In the 7th fiscal period, NMF steadily achieved external

excellent properties developed by the sponsor as well as

growth through acquisition (2 properties/¥9.1 billion) andlower the LTV ratio and further increase distribution.

millionmillionmillionmillionmillionmillionmillionmillion* The above forecast distribution is calculated based on certain assumptions as disclosed in “SUMMARY OF FINANCIAL RESULTS (REIT) For the 7th Fiscal Period Ended
February 28, 2019,” published April 12, 2019. As such, the actual distribution may differ from this forecast due to future property acquisitions or sales, changes in the realestate market, tenant changes or other changes in the circumstances surrounding NMF. The distribution forecast is not a guarantee of distributions.

disposition (5 properties/¥5.3 billion) of properties utilizing theasset management company’s unique network while advanc-

Furthermore, along with its active promotion of management

ing internal growth backed by an ongoing strong leasing

taking into consideration environmental, social and gover-market centering on the office building sector.

nance (ESG) issues based on the idea that realizing a sustain-

Operating Revenues and Net Income(Millions of yen)

Operating Revenues

Cash Distribution per Unit

Net Income(Yen)

40,0003,500

able society is essential for sustainable growth, NMF
As a result, at the end of the 7th fiscal period, NMF’s portfo-

identified highly important materiality issues pertaining tolio comprised 278 properties with a total acquisition price of

ESG that should be addressed from February 2019 in order to¥960.3 billion. Operating revenues totaled ¥35,428 million,

promote ESG initiatives even more actively going forward.

operating profit reached ¥14,056 million, and net income

We would like to further deepen our communication withcame to ¥11,560 million.

unitholders and other stakeholders as well as cooperate to

As a result, the per-unit distribution for the 7th fiscal period

work on these issues.

3,182
30,000

3,028

3,000

3,047

3,084

Gain
on
sales

299

20,000came to ¥3,128.

2,737

We remain strongly committed to enhancing performance
In addition to the external growth achieved to date, NMF

and will manage the fund’s assets with the aim of living up to

expanded its asset size to over ¥1 trillion with its first domes-

the expectations and trust of our unitholders.

2,500
10,000tic and international public offerings since its founding after

3

3,037

3,128

2,219

the close of the 7th fiscal period. Through the public offer-

As we move forward, we ask for your continued support andings, NMF intends to improve portfolio quality by acquiring 10

encouragement.

00
1st FP 2nd FP 3rd FP 4th FP 5th FP 6th FP 7th FP 8th FP

1st FP 2nd FP 3rd FP 4th FP 5th FP 6th FP 7th FP 8th FP(Forecast)(Forecast)4

Message from the Management

Management Strategy

TopicsESG Initiatives

Interview with Top Management

Interview on
Growth Strategy

Financial Strategy

Portfolio

Investor Informationleasing demand, they are likely to show a drop in their com-

replacement and rent revision negotiations, mainly in the

petitiveness. With the acquisition of Serenite Shinsaibashi

office building sector, backed by strong demand in theGrande and the latest sale of the residential facilities, we

leasing market in recent years. The office building sector

have made the portfolio younger in terms of building age

continues to drive internal growth of NMF, as we achieved an

and promoted property replacement to increase proper-

increase in rents by 7.5% through tenant replacement in theties in areas where larger leasing demand is anticipated.

sector in the 7th fiscal period. On top of this, we have taken a

By these, we expect to achieve enhancement of thevariety of measures, including renovations of properties in

portfolio quality as well as improved profitability.

the residential sector to enhance their competitiveness. As

As for improving the profitability of owned properties, weHiroshi Ishigooka

have successfully increased rents through tenant

Executive Officer, Head of the NMF Investment
Management Group and Head of the Asset Management IIof the NMF Investment Management Group,
Nomura Real Estate Asset Management Co., Ltd.

Q1.

Total disposition¥5,347 mln
price

Acquisition price ¥5,567 mln

Average NOI
yield

4.1%
10.6 yrs¥662 mlnsuch as acquisition of nine sponsor-developed properties by
way of the first public offering conducted in February 2018.

Gain on sale

approximately two years since inception through September

As a result, we were able to increase distribution per unit

2017. Meanwhile, up to now, we have also conducted assetby ¥81, or up 2.7%, over a year from ¥3,047 (5th fiscal

management that places more emphasis on the growth ofperiod ended February 2018) to ¥3,128 (7th fiscal period

cash distributions through our endeavors for better profitabil-

ended February 2019). Based on such asset management

ity of the entire portfolio (internal growth) by upward revision

strategy, NMF will aim to achieve continued growth of cashof rents for owned assets and other measures, as well as

distributions by at least 2% over a year going forward.

through vigorously selective investments in excellent assets,

DPU (¥) and LTV (%)

43.8
35

2,725

growth byTargeting DPU

3,037

2,905

45.1

2,950

44.6

3,020

3,047
44.6

3,081

2% or more

3,084

per year.

3,111

3,128

44.5

44.4

2,737

SPR
(External)

NOI yield

4.5%

Building age

0.1 yrs

Q2.

4th FP(Aug. 2017)

5th FP(Feb. 2018)

6th FP(Aug. 2018)

7th FP(Feb. 2019)

Q3.

Shinsaibashi St.
Kyocera Dome
Osaka

Dotonbori

Osaka Castle

NakazaCui-daore
Building

PU Tamatsukuri

Universal StudioJapan

Tsutenkaku

Acquisition

Can you explain to us about the public offering, which was the second for NMF?

We announced global offering (issuance of new investment

income-generating rental properties developed by Nomura

units through public offering both for domestic and overseas

Real Estate Development, and command high competitive-

investors), the first since founding, on February 7, 2019.

ness in the respective areas they are located. The property

With this arrangement, we acquired 12 properties (amount-acquisitions have brought the asset size of NMF, which

ing to ¥57.4 billion) in total; of these, we acquired two

started management with the asset size of ¥783.6 billion

properties (¥9.1 billion) from third parties in the 7th fiscal

upon the founding in October 2015, to ¥1,008.6 billion, andperiod and, after the end of the 7th fiscal period, 10 proper-

have further strengthened our presence in the J-REIT

ties (¥48.2 billion) from Nomura Real Estate Development,

market as Japan’s largest REIT with a diversified portfolio of

the sponsor. This public offering was aimed at enhancing

properties, as we see it.

the portfolio quality, reinforcing the financial base andMoreover, with the acquisition of Summit Store

increasing cash distributions through equity financing.

Honamanuma, we demonstrated a growth cycle by

The following four points are essential to the public offering.

using a new method unique to NMF. Summit Store

anticipate upside gains, many of which are relatively new
and located in the Tokyo area
◗ Realizing enhanced profitability and quality of the portfolio

How do you look back on the 7th fiscal period ended February 2019?

Serenite Shinsaibashi Grande

Disposition

ings and station-front retail facilities that allow us to

3rd FP(Feb. 2017)

Osaka St.

Namba St.

◗ Acquiring excellent properties, centering on office build-

2nd FP(Aug. 2016)

PU Esaka II

Shin-Osaka St.

Acquisition summary

conducting strategic property replacements (SPRs) for3,028

PU Esaka I
PU Esaka III

Disposition summary

NMF had promoted enhancement of the portfolio’s quality by

299

forward.

Replaced to a large symbolic new property improving profitability.

Averagebuilding age

LTVsuch, NFM will continue its focus on internal growth going

Property Replacement in Osaka – Serenite Shinsaibashi Grande

Can you tell us about your ongoing asset management strategy?

■ Gain on sales ■ Forecast ■ Results

Financial Section

through strategic property replacement◗ Steadily achieving rent increases in light of the favorable
market conditions

Honamanuma is located at the site of former Mitsubishi
Motors Suginami (Land) that NMF owned before. NMF had
received a cancellation notice from the tenant of Mitsubishi
Motors Suginami (Land) in September 2016, and investigated the most effective way of using the property from avariety of options. Consequently, NMF sold it to the sponsor in June 2017 by concluding a sale agreement withpreferential negotiation rights to acquire the property after
redevelopment. As the location is in an area that features

With regard to the asset management status for the 7th

newly-built, large-scale and extremely symbolic property

fiscal period, let me explain our asset acquisition and salelocated in a central urban district of Osaka City. In recent

activities and enhanced profitability of owned assets. NMF

years, changes in the leasing demand have created a ten-newly acquired two properties totaling ¥9.1 billion and solddency in the Osaka area in which properties in central urban

five residential facilities totaling ¥5.3 billion in the fiscal

districts, like this property, are more favored. Furthermore, of

period. As a result, the portfolio comprises 278 properties or

the five residential facilities we sold, four properties wereDevelopment, nine properties are all relatively new excel-

Subsequently, NMF exercised the preferential negotiation¥960.3 billion as of the end of the 7th fiscal period. Serenite

located in areas that had been highly popular in the Osaka

lent properties with high added value, under the brands ofrights granted upon concluding the agreement, andShinsaibashi Grande, one of the acquired properties, is aarea before. However, because of such changes in the

PMO, GEMS and Landport brands that are brands ofacquired the property on March 1, 2019 on the opportunity◗ Increasing cash distributions by nearly 4% while pushingdown the interest-bearing debt rate by 0.5 percentage
points through capital increase
Of the ten properties acquired from Nomura Real Estate

more favorable living environment within Suginami Ward,
redevelopment was conducted to build a supermarket, alifestyle-related facility. The redeveloped property was
opened on October 2, 2018 as Summit Store Honamanuma.

of the public offering.

5

6

Message from the Management

Management Strategy

TopicsESG Initiatives

Financial Strategy

Q4.

SPR

Disposition summary (June 2017)

Former Mitsubishi Motors
Suginami (Land)
Disposition price
Actual NOI yield
Realized gain

¥896 mln
4.3%¥140 mln

1
2
3

Portfolio

Investor Information

 lease show us how NMF is working on “ESG” endeavors that haveP
attracted attention in recent years.

Acquisition summary (March 2019)

NMF received anotice of cancellationfrom tenant in
September 2016.
NMF disposed of theproperty on the premiseof redevelopment taking
advantage of its location.

Summit Store Honamanuma
Acquisition priceAppraisal value
NOI yield
Unrealized gain*(Unrealized gain ratio)

NMF acquired theproperty by exercisingpreferential negotiationrights.

¥2,160 mln¥2,880 mln
6.0%¥720 mln(33.3%)* Unrealized gain refers to the difference
between the appraisal value at acquisition
and the acquisition price.

Interests on activities related to what is called “ESG,” or

In order to promote these initiatives even more proactively

Environment, Social and Governance issues, to realize aand in a more specific manner, we have established the ESG

sustainable society have grown dramatically over recent

issues (Materiality) comprising eight highly important items

years. NMF acknowledges that realizing a sustainable societythat NMF should address, in consideration of the impact on

is essential for its continuous growth, and has long promoted

NMF’s business and expectations and interests of our stake-management of its assets with considerations given to ESG

holders. Examples of the Materiality include “Aim to reducefrom a variety of aspects. Our activities are wide-ranging,per-floor-area emission (intensity) of greenhouse gas (GHG)

including more efficient energy use such as through asset

from portfolio properties by 25% (over 2016) by fiscal 2030.”

management such as investments in properties having low

In setting these Materiality items, we referred to theenvironmental burdens and environmental and energy-saving

Sustainable Development Goals (SDGs) adopted by themeasures at owned properties, as well as initiatives on

United Nations Sustainable Development Summit incontributions to local communities. These activities by NMF

September 2015. SDGs represent the 17 goals agreed on by

on environmental considerations and sustainability issues

the countries around the world to create a sustainable soci-were highly evaluated, and NMF was ranked the world’s

ety, and include a variety of issues such as climate changes,

first in the Global Listed Diversified Sector on the GRESB

water resources, food problems and human right problems.

The transaction proved effective in three aspects: (1) wePartly because this strategy was highly appreciated, thesuccessfully avoided any downtime due to the tenant’slatest public offering attracted strong demand that was

Real Estate Assessment conducted in 2018 and was

NMF will continue to promote its ESG-related initiatives, andmove-out, (2) we obtained gain on sale upon the sale ofapproximately 8.3 times larger than the planned issue

selected as a Global Sector Leader.

while disclosing ESG information including the Materiality,

the property, and (3) we were able to acquire a newly-built

amount, and the investment unit price remained higher

property that will generate stable income over a longthan the Tokyo Stock Exchange REIT Index by 1.5 points

term, with a yield that is much higher than before thefrom the announcement to the day when the issue condi-

replacement.

tions were determined. We believe that the second public

Materiality and NMF's Targets

is an integrated developer, to take maximum advantage of the

17 GOALS TO TRANSFORM OUR WORLD

Properties with preferential negotiation rights
after redevelopment

location superiority without limiting the use, and allows NMF,
which is a REIT with a comprehensive portfolio of properties,

PROUD FLAT
Shibuya Tomigaya

to fully exert its strength of being able to acquire properties
without limiting the use. Summit Store Honamanuma is a

(Former Mitsubishi Motors Shibuya(Land))

retail facility, as was Mitsubishi Motors Suginami (Land) that

Total number of units

NMF owned initially. However, for Mitsubishi Motors Shibuya
had sold by concluding similar sale agreements with preferential negotiation rights, redevelopment is under way as PROUDFLAT Shibuya Tomigaya, a residential facility, and Landport
Higashi-Narashino, a logistics facility, respectively, for use that

February 2019Landport Higashi-Narashino
Plan (scheduled)¥955.9 bln
281
5.1%
18.8 yrs
82.1%¥93.7 bln
¥21,688
44.4%

Distribution per unit

7th FP ended Feb. 2019
initial forecast¥3,111

Target:	Reduce per-floor-area emission (intensity) of greenhouse gas (GHG) from portfolio properties by 25%(over 2016) by fiscal 2030
KPI:	Per-floor-area emission (intensity) of GHG

Creating a fair workplace that encourages job satisfaction
Target:	Aim to enhance employee satisfaction through offering
fair evaluation and remuneration systems and creating
work environment that is fair and encouraging job(Former Ito Yokado Higashi-Narashino)

Human resources development and talent management

Total floor area

Target:	Aim to sophisticate human resources through providing
continuous employee education and training andpromoting self-enlightenment of employees

74,724.58 m2

Scheduled completion

July 2019

Acquisition

Disposition¥57.4 bln
124.3%
1.4 yrs
77.5%¥5.3 bln *1
5
4.1%
10.6 yrs
0.0%¥3.1 bln¥0.1 bln

Enhancing governance

After PO

(April 30, 2019)¥1,008.6 bln
288
5.1%
18.1 yrs
82.3%¥110.1 bln *2¥24,220 (+¥2,532)
43.9% (-0.5%)
8th FP ended Aug. 2019
forecast¥3,166 (+1.8%)
9th FP ended Feb. 2020
forecast¥3,224 (+3.6%)*1 The sales price is indicated.
*2 Increase in unrealized gain of appraisal value reacquired in the 7th fiscal period ended February 2019 is also included.

Governance(August 31, 2018)

Asset size
Number of properties
Average NOI yield
Average building age
Greater Tokyo area ratio
Unrealized gain
Unrealized gain per unit
LTV

Responding to climate change

Target:	Aim to enhance tenant satisfaction throughconducting renovations to meet the diversified social
needs and expanding tenant support services

109

Change in Indicators
End of previous FP

Target:	Raise the ratio of green certified properties in theportfolio to 70% by fiscal 2030
KPI:	Ratio of green certified properties

Ensuring tenant security and safety / enhancing comfort

SocietyCompletion

(Land) and Ito-Yokado Higashi-Narashino Store, which NMF

Related SDGs

Incorporating more green properties into the portfolio

offering was a great success, as was the first public offering
conduced in February 2018.

like this one allows Nomura Real Estate Development, which

is different from the original one.

will work to address these issues.

Environment

We believe that the redevelopment/re-acquisition type SPR

7

Financial Section

8th FP ended Aug. 2019revised forecast¥3,182 (+2.3%)
9th FP ended Feb. 2020
revised forecast¥3,238 (+4.1%)

Target:	Aim to establish a highly effective governance systemthrough securing objectiveness and transparency andconducting business operations that put customers first.
	Aim to establish an investment management system that
focus on unitholder interests by sharing interests between
unitholders and the Asset Management Company throughintroducing asset management fees linked to net income.
Thorough implementation of compliance and risk management
Target:	Aim to secure soundness of business management byappropriately managing risks through such measures asconfirming compliance to laws and regulations andelimination of conflicts of interests in transactions withinterested parties.
Stakeholder engagement and timely and appropriate disclosureof information
Target:	Aim to build a strong relationship of trust through timely,
appropriate and proactive disclosure of information on
financial and non-financial matters and through constructive
discussions with stakeholders.

8Message from the Management

TopicsManagement Strategy

ESG Initiatives

Financial Strategy

Portfolio

Investor Information

Financial Section

Strengths of NMF
NMF conducts stable management with a medium- to long-term focus, centering on three pillars: its diversified portStrengths

1 Diversified portfolio strategy

Pursuing stability and growththrough sector diversification

Strengths

Upside sectors

We should be able to pursue both stability and growthof profits, as we do business in the sectors where
profits are expected to remain stable and relatively
untouched by economic fluctuations as well as in the
sectors where profits are anticipated to rise in accordance with economic fluctuations.

56.7%

Office Buildings
45.2%
Retail Facilities (near stations)11.1%
Hotels0.4%

Stable sectors

43.3%

Retail Facilities (near residences)5.9%
Logistics Facilities
16.8%
Residential Facilities
20.1%
Other0.5%

2 Large-

7 properties¥24.6 bln

Merger with TOP
19 properties¥137.4 blnscale portfolio strategy

Reducing risks throughdiversification
NMF endeavors to reduce risks
related to declining revenues
from owned assets, portfolio
imbalances, and tenant concentration by taking advantage ofthe portfolio diversification effect.

Achieved Asset Size Expansion and Portfolio Quality Improvement through the Support of the Sponsor and Property 		

4 properties¥9.0 bln

folio strategy, and large-scale portfolio strategy, and leasing value chain strategy with the Nomura Real Estate GroupStrengths

3 Leasing value chain strategy

Established a leasing value chain
Property diversification(Top 10 properties)
Tenant diversification(Top 10 tenants)

24.4
28.3

Total amount ofsponsor-developed properties
we have acquired

We have established a property acquisition
pipeline and a management pipeline with
the Nomura Real Estate Group, in pursuitof enhanced unitholder value.

%
%

Over

¥140.3 billion* Since concluding leasing value chain
contracts

Replacement

2nd PO

8 properties¥38.9 bln

5 properties¥16.5 bln

Nakaza Cui-daore Bldg.

PMO Shin Nihonbashi GEMS Daimon

1st PO

12 properties¥57.4 bln

10 properties¥33.4 bln

NEC Head Office Bldg. Harumi Triton Y&Z

Major Acquisitions

NMF Kichijoji Bld.

PF Hatchobori

Average NOI
Yield

GEMS Ichigaya

PF Itabashi Honcho

PMO Tamachi

PMO Ginza
Hatchome

PMO Shibakoen

PU Meguro Mita

PMO Nihonbashi
Mitsukoshi-mae

1 property¥10.8 bln

Hotel Vista
Sapporo Odori

LP Kashiwa Shonan II

nORBESA

Summit Store Mukodaicho

PF Sangenjaya II

4.4%

4.3%

4.7%

4.5%

4.2%

4.4%

1st FP end(Feb. 2016)

2nd FP end(Aug. 2016)

3rd FP end(Feb. 2017)

4th FP end(Aug. 2017)

5th FP end(Feb. 2018)

6th FP end(Aug. 2018)

932.8

927.3

922.5

955.9

792.6
19.5

784.6

18.7

Dispositions

Asset Size (bln)
Total Acquisition Price (bln)
Total Disposition Price (bln)Average Building Age (yrs)

19.5

33.6
-34.1
17 properties / ¥34.1 bln*

GEMS Shinbashi

Summit Store Honamanuma

18.8

18.8

220.9

237.4

270.8

-34.1

-81.5

-105.0-105.0

11 properties / ¥47.4 bln*

2 properties / ¥23.4 bln*

Serenite Shinsaibashi GrandeApr. 2019 (after the 2nd PO)

1,008.6(without property
replacement)

19.0

GEMS Namba

4.3%

22.8 yrs

181.9
9.0

PMO Tamachi Higashi

Asset size:

Over ¥1 trillion

18.4
328.2

-110.35 properties / ¥5.3 bln*
* The amount shows disposition price910

Message from the Management

TopicsESG Initiatives

Management Strategy

Financial Strategy

Portfolio

Investor Information

Financial Section

New Acquisitions（2nd Public Offering）

Third party

SponsorSeller

Property Name

SectorAcquisition Appraisal Appraisal
Price
Value
NOI Yield Floor Area
(millions of yen) (millions of yen)
(%)
(m2)

Location

Construction
Completion

Acquisition
Date

Sponsor-Developed Properties (Greater Tokyo Area ratio: 92.1%)
OfficePMO Tamachi Higashi

OfficeMinato Ward, Tokyo

10,90011,4003.6

7,088.17 February 2018

March 1, 2019

PMO Ochanomizu

OfficeChiyoda Ward, Tokyo

3,890

4,080

3.8

2,670.12

July 2018

April 2, 2019

PMO Hatchobori Shinkawa Office

Chuo Ward, Tokyo

3,805

3,990

3.9

5,000.86

April 2018

March 1, 2019

PMO Kyobashi-Higashi

Chuo Ward, Tokyo

2,880

3,020

3.9

2,051.35

May 2018

March 1, 2019

May 2018

March 1, 2019

OfficeGEMS Shinbashi

Retail (near station) Minato Ward, Tokyo

2,810

2,870

3.9

1,478.44

GEMS Kayabacho

Retail (near station) Chuo Ward, Tokyo

2,594

2,720

4.4

1,779.29 February 2018

March 1, 2019

GEMS Shin-Yokohama

Retail (near station)

1,820

1,890

5.4

1,777.40

March 1, 2019

GEMS Namba

Retail (near station) Osaka City, Osaka

3,800

4,260

4.4

2,421.83 November 2018

March 1, 2019

Summit Store Honamanuma

Retail(residential areas)

Suginami Ward,
Tokyo

2,160

2,880

6.0

2,014.36 September 2018

March 1, 2019Landport Ome I

Logistics

Ome City, Tokyo

13,64014,200

4.6

57,721.34 November 2018

March 1, 2019

NMF Kobe Myodani Building

Retail(residential areas)

Kobe City, Hyogo

3,560

3,600

4.9

14,619.46

Osaka City, Osaka

5,567

5,630

4.5

7,794.23 October 2018 December 19, 201857,42660,5404.3 106,416.85

Serenite Shinsaibashi Grande Residential

Yokohama City,
Kanagawa

Total and average of properties acquired by way of the 2nd public offering

May 2018

200,000

Total acquisition price of Sponsor-developed properties

4 brands ratio (PMO, GEMS, Landport, PROUD FLAT)

25.7%
22.3%

150,000

17.1%

16.8%

19.1%

17.2%

18.6%

19.9%

140,330

PMO Ochanomizu

DBJ Green Building:
2018★★★★

August 2000 November 30, 2018

Acquisition Track Record of Sponsor-Developed Properties*1(Millions of yen)

PMO Tamachi Higashi

Located in Minato Ward. Large PMO with standard
floor area of 604 m2
Accessible via 2 train stations and 4 lines: located a 2 minute walkfrom Mita Station on the Toei Asakusa Line and Mita Line and a 5
minute walk from Tamachi station on the JR Yamanote Line andKeihin-Tohoku Line. The property is expected to draw in head office
functions from a wide range of industries and overall strong tenant
demand considering the convenient access to major areas such as
Tokyo Station and Shinagawa Station, with Shinkansen accessfrom Shinagawa Station and direct airport access on the Toei
Asakusa Line.

DBJ Green Building:
2018★★★★
Located in Chiyoda Ward. Access via 5 stations and 10 lines
Accessible via 5 train stations and 10 lines, including Ogawamachi Stationon theToei Shinjuku Line, Awajicho Station on theTokyo Metro Marunouchi
Line, and Akihabara Station on the JR Line, and located a 1 minute walkfrom Shin-Ochanomizu Station on theTokyo Metro Chiyoda Line and a 2
minute walk from Ochanomizu Station on the JR Chuo/Sobu Lines. The
property is expected to benefit from stable tenant demand, namely
demand from the tenants in the medical and pharmaceutical industry
resulting from the concentration of medical facilities in the area, in addition to the growing number of office buildings including large diversified
buildings such as Waterras Tower and Ochanomizu Sola City resulting
from redevelopment of the area around JR Ochanomizu station.

100,000

Office92,03150,0009,030

0Inception(Oct. 2015)

1st FP(Feb. 2016)

33,91023,110
2nd FP(Aug. 2016)

3rd FP(Feb. 2017)

50,805

4th FP(Aug. 2017)62,215

PMO Hatchobori Shinkawa

5th FP(Feb. 2018)

6th FP(Aug. 2018)

PMO Kyobashi-Higashi

After 2nd PO(Apr. 2019)

High Quality Properties Developed by the Sponsor*2
Greater Tokyo Area
■ 4 brands■ Entire portfolio

GreaterTokyo Area Ratio

81.8%

Average Building Age

98.6%

19.2 yrs

Average NOI Yield

5.1%

5.1%
DBJ Green Building:
2018★★★★

7.7 yrs

4 brands

Located in Chuo Ward. Excellent recognition through adominant strategy

Entire portfolio

4 brands

Entire portfolio*1 4 brands ratio indicates the ratio of total acquisition price of 4 brands to the total acquisition price of entire portfolio as at NMF’s establishment, each fiscal period
end and the time after the 2nd PO. Figures of 4 brands ratio are rounded to the first decimal place.
*2 Regarding the portfolio as of the end of the 7th fiscal period ended February 2019, Greater Tokyo Area Ratio indicates the ratio based on acquisition price. Average
Building Age indicates the building age as of the end of the 7th fiscal period ended February 2019 weighted-averaged by acquisition price. Average NOI Yield
indicates figures which total amount of annualized NOI of the 7th fiscal period ended February 2019 divided by total acquisition price of each targeting property.

11

Accessible via 2 train stations and 3 lines, including Kayabacho
Station on the Tokyo Metro Hibiya and Tozai Lines and Hatchobori
Station on the Tokyo Metro Hibiya Line, and located a 1 minute walkfrom Hatchobori Station on the JR Keiyo Line. Situated on the easternside of Tokyo Station, next to Kayabacho, which is a financial district,and Kyobashi, where there are many large companies, providing
direct access to major business areas. The property also supportsbusiness continuity of tenants by providing emergency power generators in private areas accessible by tenants. Furthermore, the property
will enjoy strong recognition based on the 15 PMO buildings alreadycompleted in Chuo Ward, including PMO Kyobashi-Higashi.

DBJ Green Building:
2018★★★★
Located in Chuo Ward. Very convenient access
Accessible via 4 train stations and 5 lines, including Hatchobori
Station on the JR Keiyo Line, Takaramachi Station on the Toei
Asakusa Line, Kayabacho Station on the Tokyo Metro Hibiya andTozai Lines, and Kyobashi Station on the Ginza Line, and located 1
minute walk from Hatchobori Station on the Tokyo Metro Hibiya
Line. Given the convenient access, the property is expected to benefit from strong tenant demand, mainly from Tokyo-based companies and regional companies alike wanting to place their head
offices near Tokyo Station. Additionally, by introducing Pantry
Select Plans, NMF is able to flexibly respond to changes in the working styles of new tenants.

12

Message from the Management

TopicsManagement Strategy

ESG Initiatives

Financial Strategy

Portfolio

Investor Information

Sponsor-developed properties (Greater Tokyo Area ratio: 92.1%)

Sponsor-developed properties (Greater Tokyo Area ratio: 92.1%)

RetailRetailLogistics

Summit Store Honamanuma

Landport Ome IGEMS Shinbashi

GEMS Kayabacho

DBJ Green Building:
2018★

DBJ Green Building:
2017★★

Located in "Shinbashi" crowded with office workers

Sense of freedom generated by the nearby waterways
and parks

Situated in a prime area located a 4 minute walk from Shinbashi
station on the JR lines and the Tokyo Metro Ginza Line and a 3
minute walk from Uchisaiwaicho station on the Toei Mita Line.
Shinbashi has many eateries and other shops, attracting a large
number of office workers from neighboring office areas such as
Uchisaiwaicho, Shiodome and Toranomon. Accordingly, the area isappealing for a wide spectrum of tenants with stores meeting various needs.

In addition to being conveniently located a 2 minute walk from
Kayabacho Station on the Tokyo Metro Hibiya and Tozai Lines, theproperty also has excellent visibility along the shores of the
Kamejima River. The Nihonbashi and Kayabacho area has many
companies such as securities firms and major cosmetics companies. This property provides terraces and other refreshing spaces for
employees that instill a sense of freedom by utilizing the surrounding waterways and parks.

DBJ Green Building:
2018★★★

Financial Section

DBJ Green Building:
2018★★★★★

Newly opened stores with innovative sales floors

New concept: Multi-category logistics facility

The property is accessible from both Ogikubo Station on the JR
Chuo Line and Marunouchi Line and Shimoigusa Station on the
Seibu Shinjuku Line, and is near a popular residential area, a large
proportion of which is a category 1 exclusive district for low-rise
residential buildings. The aim of the property, which opened on
October 2, 2018, is to provide a comfortable store environment withexcellent circulation by utilizing a new sales floor layout, providing
spaces such as Sami Cafe, and positioning full-time information
staff.

Located near National Route 16 and approximately 2.8 km from theOme IC on the Metropolitan Inter-City Expressway, allowing for distribution across the entire greater Tokyo area. The property is also
located an 11 minute walk from the closest train station, enabling
tenants to maintain a steady flow of workers and thereby ensure
continuous operations 24 hours a day, 365 days a year. In addition
to versatile specs contributing to high operational efficiency, theproperty was also designed to optimize and improve the efficiency
of logistics operations by providing multi-category functions meeting the unique needs of tenants.

Properties acquired from outside seller (Properties acquired in the 7th FP)
RetailGEMS Namba

GEMS Shin-Yokohama

DBJ Green Building:
2018★★
Located at the heart of Namba,
Kansai’s premier entertainment district
Located in a prime area accessible via a 1 minute walk from Namba
Station on the Osaka Metro, Osaka Namba Station on the Kintetsu
Railway and Hankyu Railway lines, and a 2 minute walk from
Namba Station on the Nankai Railway line. Namba Station and its
surroundings form a massive commercial area with station buildings, department stores, shopping streets, and underground shopping areas. The property has excellent visibility owing to its location
along Midosuji Boulevard, which is a symbolic street in Osaka.
Strong demand from station users and tourists, etc. can be
expected.

13

Residential

RetailSerenite Shinsaibashi Grande

NMF Kobe Myodani Building

DBJ Green Building:
2018★★
Stable dining demand on both weekdays and the weekend
Located in a prime area accessible via a 4 minute walk from ShinYokohama station on the JR Tokaido Shinkansen Line and JR
Yokohama Line and a 2 minute walk from Shin-Yokohama stationon the Yokohama Municipal Subway Blue Line. Furthermore, train
service is scheduled for fiscal 2022 with the opening of ShinYokohama Station (tentative name) on the Sotetsu and Tokyu Lines.
The Shin-Yokohama area is crowded with office workers from automotive and foreign-affiliated companies on weekdays and bustlingwith people attending events and live shows on the weekend, andattracts shops with foods and products unique to Kanagawa
Prefecture.

View of Suma Patio from Myodani Station

Large-scale rental housing withstrong distinctive value

Located in a popular residential area where steadydemand is expected

Has multiple nearby train lines (an 8 minute walk from Shinsaibashi
Station and a 3 minute walk from Nagahoribashi Station, both on
the subway), providing easy access to major business and commercial areas such as Umeda, Honmachi, and Shin-Osaka. The property
is located in a prime rental housing area where there has been a
recent increase in convenient living facilities and other such services and which is within walking distance to Namba, Kansai’s premier entertainment district. The newly-built property is both large,
with 252 total units, and stylish, with an elegant and unique exterior,making it a symbol of the surrounding area.

Located a 4 minute walk from the Myodani subway station, fromwhich commuters can conveniently travel to Sannomiya, a major
city between Osaka and Kobe, in around 18 minutes. Further, theproperty is situated an area that is a popular residential district due
to the many large diversified retail facilities and convenient living
facilities in front of the station. Sales are expected to remain steadygoing forward considering that development of new retail andother such facilities around the property is limited due to much of
the area being used for residential housing.

14

Message from the Management

TopicsESG Initiatives

Management Strategy

Financial Strategy

Portfolio

Investor Information

Financial Section

Internal Growth -Management StatusOffice
Achieved an increase in average unit rent through tenant replacements and rent revisions (Increasedto ¥18,370/tsubo (+1.0%) from ¥18,189/tsubo at the end of last period.)

Amount of Change in Monthly Rent and Rate of
Change in Monthly Rent upon Tenant Replacement■ Monthly rent decrease■ Monthly rent increase
Monthly rent change rate

(%)

10

10

Pursuing income growth with upside potential through active tenant replacements backed by strong leasing demand

8

5.9%

Rent gaps at the end of 7th fiscal period ended Feb. 2019
(Increased by +1.5% from previous FP)(Yen/tsubo)＋6.0%

Rate of Rent Increase Upon
Rent Revision at PMOs

18,370＋2.9%

18,50017,79517,500

2

8

4

5.8%

6

-2

-1.3%

-4

-3

-1

-1

-0

Unchanged

23
3.7%
1.7%

-0

0.9%
4

0

-1

-2

-2

-4

4

15,500Feb. 2017

Aug. 2017

Feb. 2018

Aug. 2018

-0

13

2.0%
7

1.9%

-0

-0

10
0.6%

2.4%
2

8

0

-0

-0
-7

-10

-2

Feb. 2016 Aug. 2016 Feb. 2017 Aug. 2017 Feb. 2018 Aug. 2018 Feb. 2019(5-month)

RetailPromoting rent increase upon rent revision maintaining stable cash flow by high occupancy rate andfixed rent0Aug. 2016

5

4

Increased

4

16,0006

20

Feb. 2016 Aug. 2016 Feb. 2017 Aug. 2017 Feb. 2018 Aug. 2018 Feb. 2019(5-month)

16,627

(%)

30

2

-1

＋4.4%

(Millions of yen)

100Rent revision within PMO

Average rate of rent increase within
rent revision with with rent increase

4

3

0

17,418Feb. 2016(5-month)

4

4

2

2

17,02017,00016,50018,18918,06018,000

5.3%

4■ Monthly rent decrease■ Monthly rent increase
Monthly rent change rate

8

7.5%

7.4%

6

Average Rent

＋8.6%

10.7%

(Millions of yen)

Asset Management Topics for 7th fiscal period ended Feb. 2019

Average rate of rent increase within
tenant replacement with rent increase

Amount of Change in Monthly Rent and Rate of
Change in Monthly Rent upon Rent RevisionFeb. 2019

Asset ManagementTopics for 7th fiscal period ended Feb. 2019

Change in Floor Area from Move-ins and Move-outs (tsubo)■ Move-out ■ Move-in

5,502

3,444

-3,240-2,755

Feb. 2016(5-month)

Aug. 2016

Feb. 2017

Example827 (Applied)
1,109 (Contracted)-2,020-2,469-2,226

Aug. 2017

Feb. 2018

7th FP: Tenant Turnover Effect5,502 tsubo

1,936

1,791
-1,583-3,662
Aug. 2018-5,456
Feb. 2019(7th FP)＋7.5%

Upper figures show the floor area subject to turnover, and lower
figures show rate of rent increase upon tenant replacement.

Floor area subject to move-out (scheduled):

2,020 tsubo in total

Of the above,
floor area subject Contracted 1,109 tsubo
Applied
827 tsubo*
to move-in(scheduled)
Total
1,936 tsubo
Example99.6%

Feb. 2016

Aug. 2016

Feb. 2017

Aug. 2017

Feb. 2018

Aug. 2018

Feb. 2019

Retail

99.2

99.4

99.3

99.1

99.3

99.6

99.6

Total

98.9

99.1

99.2

98.4

98.6

99.3

99.3

Rent Revenue Breakdown (overall retail)Aug. 2019(8th FP forecast)

8th FP: Progress on Tenant Replacement (as of March 20, 2019)

The rate ofrent increase

Rent increase upon rent revision

Occupancy rate in 7th fiscal period ended Feb. 2019:

3,666

2,326

1,776

3,439

0

in total

Maintaining stable management

Net■ Sales-linked rent
■ Residential areas (fixed-rent)

4.4%(Millions of yen)

8,000

4.0%
3.7%

■ Amount of change in monthly rent

4.3%

4.2

(Thousands of yen)
800

3.6

600

(%)

3.8%

1.6％

(343 thousand yen/month)

Amount of Change in Monthly Rent and Rate of
Change in Monthly Rent upon Rent Revision(retail properties in station area)■ Station areas (fixed-rent)
Rate of sales-linked rent (%)

4.2%

The rate of rent increase

Rate of change in monthly rent

(%)
2.0

3.7%

The rate of rent increase＋13.4%

6,000

1.6%

1.5%

1.5%

1.5

498

Upper figures show the floor area subject to turnover, and lower
figures show rate of rent increase upon tenant replacement.

Pursuing upside
potential

2.4

400

1.0

0.8%
263

Harumi Island
Triton Square
Office Tower Z

NMF Aoyama
1-chome Building

NMF Kayabacho
Building

2,401 tsubo(+1.7%)

734 tsubo(+14.5%)560 tsubo(+20.2%)2,000

NMF Shiba Building

NMF Shibuya Koen-Dori Building

NRE Nishi-Umeda Building

184 tsubo(+13.3%)138 tsubo(+21.9%)206 tsubo(+22.7%)* The figure shows floor area for which NMF received an application for occupancy.

15

1.1%

1.1%
4,000

1.2

200

317

343
273

180

176

0.5

0.3%
0

0

Feb. 2016 Aug. 2016 Feb. 2017 Aug. 2017 Feb. 2018 Aug. 2018 Feb. 2019(5-month)00Feb. 2016 Aug. 2016 Feb. 2017 Aug. 2017 Feb. 2018 Aug. 2018 Feb. 2019(5-month)16

Message from the Management

TopicsESG Initiatives

Management Strategy

Financial Strategy

Portfolio

Investor Information

Financial Section

Internal Growth -Management StatusResidential

Logistics

Promoting rent increase with a focus on the Greater Tokyo Area through move-ins & move-outs

Achieved rent increase by 3.8% compared to previous rent at Landport Urayasu

Asset Management Topics for 7th fiscal period ended Feb. 2019

Asset Management Topics for 7th fiscal period ended Feb. 2019

Change in rent due to tenant replacement or contract renewal

Achieved tenant replacement with rent increase at Landport Urayasu which had material leasing issues.

➀ Change in rent due to tenant replacement

Landport Urayasu (Evacuation due to expiration of a contract is scheduled➁ Change in rent due to contract renewals

594 out of 966 units (61.5%) replaced withincreased rent

96 out of 1,340 units (7.2%) renewed contract
with increased rent

Change in monthly rent
+2.8% (+¥2,934 thousand/month)

Change in monthly rent
+0.2% (+¥253 thousand/month)at the end of April, 2019.)
As to the leasing of 10,569 tsubo with material leasing issues, lease-ups at the early stage
without downtime and upside of rent through tenant replacement have been achieved.
Rent increase by 3.8% compared to previous rent

Sagamihara Onodai Logistics Center
Conducted rent increase by 0.8% upon rent revision in 17,378 tsubo zone.

Example of rent increase by renovation (Prime Urban Ebisu)
Achieved rent increase upon tenant replacement by renovating the entrance and the exclusively owned area
Room layout

Floor area (m2)Monthly rent
after replacement (yen/month)

Rent change rate

1LDK

44.03

190,000

6.1%

2LDK

93.31

316,000

5.7%

1LDK

45.79

193,000

5.5%

Lease Maturity (Rent basis)
20 (%)

Lease maturity has been moved toAugust 2024 by new contract.

15
Under
negotiation

10

12.9%

11.5%

10.3%

before7.7%

8.2%

15th FP(Aug. 2023)

16th FP
Feb. 2024

7.8%

5.9%

5

after

Under
leasing

0.6%

0

7th FP(Feb. 2019)
Challenge in
Landport Iwatsuki

8th FP(Feb. 2020)

9th FP(Aug. 2020)

10th FP(Feb. 2021)

11th FP(Aug. 2021)

12th FP(Feb. 2022)

In the zone of 7,287 tsubo, NMF received an advance noticeof cancellation to be in the 9th FP ending February 2020.

13th FP(Aug. 2022)

14th FP(Feb. 2023)

As is the case with Landport Urayasu,
NMF aims for early completion of leasing activities.
(NMF is considering the use of internal reserves, etc. to guard against thepotential impact to the distribution due to vacancy losses.)

Hotels
RevPAR at Hotel Vista Sapporo Odori has been on a increasing trend since Nov. 2018 (year-on-year),recovering from the impact of natural disasters
Change in Rent upon Tenant Replacement■ Down■ Flat■ Up■ DownMonthly rent change rate

100 (%)

Asset Management Topics for 7th fiscal period ended Feb. 2019

Change in Rent upon Contract Renewal

2.8%■ FlatOperational Performance■ Up

100 (%)

9.6

6.5

9.5

6.9

9.0

5.6

7.2

RevPAR has been on increasing trend since Nov. 2018 on a year-on-year comparison though
RevPAR from Sep. 2018 to Oct. 2018 has decreased due to the impact of natural disasters
June

46.5

63.0
55.9

55.4

56.9

60.2
2.0%

1.3%

50

19.3

1.2%

61.5

1.7%

50

1.0%
20.0
22.3

19.6

21.0

34.2
-0.3%

RevPAR

18.6

93.1

90.2

92.9

91.0

94.3

92.8

AugustSeptember

October

2018

2017

2018

2017

2018

2017

2018

2017

2018

¥7,954¥9,028¥9,50688.2%¥6,052(-34.2%)
59.6%¥6,46086.6%¥10,374(+9.1%)
86.0%¥9,193

88.6%¥9,591(+6.2%)
84.6%

82.5%

¥5,595(-13.4%)72.2%¥10,190¥11,336¥10.978¥12,063¥10,423¥10,153¥7,831¥7,754

Occupancy Rate

86.3%

¥7,904(-0.6%)
80.1%

ADR¥9,217¥9,870November

89.8

20.6

DecemberJanuary

February

2017

2018

2017

2018

2018

2019

2018

2019

RevPAR¥5,066¥5,555
75.0%

65.2%

¥4,626(+3.6%)
63.9%

8,797

74.2%

¥5,912(+6.4%)
77.4%¥4,466

Occupancy Rate

¥5,334(+5.3%)
75.6%

88.4%

¥9,387(+6.7%)
87.5%

ADR¥6,828¥7,061¥7,407¥7,637¥6,851¥7,239¥9,952¥10,732* Figures inparentheses areyear on yearchange (%).

Promoting value enhancement measures through renovation works

21.7

24.6

23.5

18.8

18.4

17.9
0

0

1st FP
2nd FP
3rd FP
4th FP
5th FP
6th FP
7th FP(Feb. 2016) (Aug. 2016) (Feb. 2017) (Aug. 2017) (Feb. 2018) (Aug. 2018) (Feb. 2019)(5-month)

17

July

2017

0.7

0.4

0.3

0.2

0.0

0.1

0.1

1st FP
2nd FP
3rd FP
4th FP
5th FP
6th FP
7th FP(Feb. 2016) (Aug. 2016) (Feb. 2017) (Aug. 2017) (Feb. 2018) (Aug. 2018) (Feb. 2019)(5-month)

Renovation period
November 2018 toApril 2019(scheduled)

Contents• Decoration works in common area (front desk area, corridor etc.)• Installation works of laundry room and smoking area
• Plans to increase the number of guests

Conversion to Double-room from Single-room (12 rooms)
Conversion to Twin-room from Double-room (12 rooms)

18Message from the Management

TopicsManagement Strategy

ESG Initiatives

Financial Strategy

Portfolio

Investor Information

ESG Initiatives

Please visit our website for more detailed information.

NMF is engaged in asset management that takes environment, society and governance (collectively
referred to as “ESG”) issues into consideration to realize a sustainable society.
Participation in GRESB"Global Sector Leader"in the Listed Diversified Sector

Real Estate
Assessment“Green Star”“5-Star”

PublicDisclosure
Level
“A”

• Achieved an “A” rating (five-level rating from “A” to “E” with the highest being “A”) for two
consecutive years in GRESB Public Disclosure Level evaluation scheme introduced in 2017for our proactive information disclosure practices in connection with environmental andsustainability initiatives.

E

Target Raise the ratio of green certified properties in the portfolio to 70% by fiscal 2030
KPI

Ratio of green certified properties

Target Reduce per-floor-area emission (intensity) of greenhouse gas (GHG) from portfolio
properties by 25% (over 2016) by fiscal 2030
KPI

S

1. Saving Energy with LED Lighting

Actual in FY2017

Target for FY2030-13.8%-25%

KPI: Ratio of Green Certification[Target] Raise the ratio to 70% by FY2030(total floor area basis)
As of April 1, 2019

Target for FY2030

60.0%*70%

NMF Sendai Aoba-dori Building

Landport Urayasu: Installing LEDs
Installed LED lighting at the central driveway
and the berth on the 1st floor
Energy-use forecast: - 51 MWh/year(approx. -51%)

NMF Sendai Aoba-dori Building:Upgrading Toilets
Upgraded toilets in common areas on the
1st to 8th floors
Water usage: -2,729 L/year (approx. -52%)

after

beforeRelated SDGs

S

Initiatives for the Society

Intangible Services for the Tenants at PMO Properties
Intangible element

Tangible element

Target Aim to enhance tenant satisfaction through conducting renovations to meet the diversified social needs and expanding tenant support services

PMO 10th anniversary event“Managers Networking Event”

Choice of pantry to suit
workstylesystems and creating work environment that is fair and encouraging job

and training and promoting self-enlightenment of employees

Enhancing governanceTarget • Aim to establish a highly effective governance system through securing objectivenessand transparency and conducting business operations that put customers first.
• Aim to establish an investment management system that focus on unitholder interests
by sharing interests between unitholders and the Asset Management Company throughintroducing asset management fees linked to net income.

G

Diversity of Directors of the Investment Corporation
For the purpose of ensuring diversity in directors of the investment
corporation and the strengthening of governance, appointment of afemale supervisory director will be proposed at the Second General
Meeting of Unitholders scheduled for May 23, 2019.
Candidates for directors

Target Aim to secure soundness of business management by appropriately managing risks throughsuch measures as confirming compliance to laws and regulations and elimination of conflictsof interests in transactions with interested parties.

Executive
director

Stakeholder engagement and timely and appropriate disclosure of information

Supervisory
directors

disclosure of information on financial and non-financial matters and through constructive
discussions with stakeholders.

19

Status of paid vacation days taken *1
Actual for FY2017: 16.3 days
Actual for FY2018: 16.9 days
Target for FY2019: 15 days + 3 days (summer vacation) *2

Initiatives for the GovernanceThorough implementation of compliance and risk management

Target Aim to build a strong relationship of trust through timely, appropriate and proactive

Nomura Real Estate Asset Management aims to bring about
employees’ happiness and realize the company’s growth throughmeasures such as promotion of diverse workstyles and reduction ofworking hours by making operations more efficient.

*1 Actuals for FY2017 and FY2018 include the number of days of summer vacation.
*2 Summer vacation (3 days) is provided separately from paid vacation.

Human resources development and talent management
Target Aim to sophisticate human resources through providing continuous employee education

Promoting Workstyle Reform

Reduction of working hours[Annual average working hours of all employees]
Actual for FY2018: -90 hours
Target for FY2019: -113 hours or more (compared with that in FY2017)

Ensuring tenant security and safety / enhancing comfort

Target Aim to enhance employee satisfaction through offering fair evaluation and remuneration

G

after
beforePer-floor-area emission (intensity) of GHG

Creating a fair workplace that encourages job satisfaction

Governance

2. Saving Water by Upgrading Toilets

Shinjuku Nomura Building
NMF Kayabacho Building
NMF Aoyama 1-chome Building
Kojimachi Millennium Garden
Landport Urayasu, Landport Itabashi
EQUINIA Shinjuku, others

Incorporating more green properties into the portfolio

Responding to climate change

SocietyTaking Specific Measures that Reduce Environmental Impact in 7th FP* The percentage of properties (on a total floor areabasis) which have obtained DBJ Green Building
Certification (54.4%) or BELS Certification (18.9%) as
of April 1, 2019.

Formulated ESG Materiality Issues in Line with SDGs

Environment

Initiatives for the Environment[Target] 25% reduction by FY2030(compared with the FY2016 level)• Acquired a “5-star” rating (five-level rating with the highest being 5-star) for two consecutive
years in GRESB Rating which shows a participants’ relative status of overall GRESB Score.

Targets and Key Performance IndicatorsE

Key Performance Indicator (KPI):
Greenhouse Gas (GHG) Emissions
per Floor Area (intensity)• Acquired “Green Star” for the third consecutive year.

Materiality

Financial Section

Shuhei Yoshida (Reappointment)

Lawyer

Mineo Uchiyama (Reappointment) Accountant
Koichi Owada (Reappointment)

Real estate appraiser

Mika Okada (New appointment)

LawyerPeriodic Assessments of PM and BM
In principle, entrusted PMs and BMs are assessed annually by NMF
to evaluate such items as sustainability policies and frameworks,
legal and regulatory compliance, and information management aswell as financial soundness and quality of services.
NMF manages the PMs and BMs through feedback based on theevaluation results, etc.

ESG-Related Training for PMs
NMF provides ESG-related training for PMs at least once a year,
inviting external specialists as lecturers, in an aim to raise ESG
awareness among PMs and enhance collaboration with them.
Training held in February 2018: Participants: 47 people from 13
companies

20

Message from the Management

TopicsManagement Strategy

ESG Initiatives

Portfolio

Financial Strategy

Investor Information

Financial Section

Financial Strategy

Balance Sheet Highlights

Continued to promote the lowering of average interest rate and extension of borrowing periods
through refinancing utilizing the low-interest rate environment.
Issued investment corporation bonds for the first time since inception.

DPU for 7th fiscal period ended Feb. 2019: ¥3,128 (up ¥44 (+1.4%) from the last fiscal period and ¥17
above forecast)(Millions of yen)

Status of Interest-bearing Debt (as of end of fiscal period)
Feb. 2016(1st FP)

Aug. 2016(2nd FP)

Feb. 2017(3rd FP)

Aug. 2017(4th FP)

Feb. 2018(5th FP)

Aug. 2018(6th FP)

Feb. 2019(7th FP)

Total Interest-bearing debt

¥403,164
million¥409,771
million¥498,784
million¥488,741
million¥486,198
million¥497,155
million¥497,112
millionAverage remaining duration

3.96 years

4.36 years

4.31 years

4.54 years

4.52 years

4.61 years

4.52 years

Average interest rate

1.09%

1.03%

0.95%

0.92%

0.91%

0.88%

0.87%

Ratio of long-term debt

84.1%

85.9%

83.2%

88.0%

88.0%

87.2%

86.9%

Ratio of fixed-rate debt

91.4%

95.8%

92.2%

94.9%

95.4%

95.4%

95.4%

LTV

43.4%

43.8%

45.1%

44.6%

44.6%

44.4%

44.5%

Diversification of Repayment Dates
Commitment Line ¥50 bln + Credit Line ¥30 bln(Millions of yen)

60,00050,00040,000

1.92%

（

1.41%

1.33%

1.18%

1.03%
0.70%

0.60%

）

1.06%
1.01%

0.74%

1.13%

0.93%
0.99%

0.56%

0.68% 0.65% 0.71% 0.66% 0.69% 0.74% 0.74%

1.03%

0.73%

Borrowings
Investment corporation bonds

30,000

Average interest rate
20,00010,0000

8th 9th 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22nd 23rd 24th 25th 26th 27th 28th 29th 30th 31st
FP
FP
FP
FP
FP
FP
FP
FP
FP
FP
FP
FP
FP
FP
FP
FP
FP
FP
FP
FP
FP
FP
FP
FP
(Aug. (Feb. (Aug. (Feb. (Aug. (Feb. (Aug. (Feb. (Aug. (Feb. (Aug. (Feb. (Aug. (Feb. (Aug. (Feb. (Aug. (Feb. (Aug. (Feb. (Aug. (Feb. (Aug. (Feb.
2019) 2020) 2020) 2021) 2021) 2022) 2022) 2023) 2023) 2024) 2024) 2025) 2025) 2026) 2026) 2027) 2027) 2028) 2028) 2029) 2029) 2030) 2030) 2031)

Financial Status during 7th Fiscal Period ended Feb. 2019

Repayment Schedule for
8th Fiscal Period ending Aug. 2019

Refinancing
Repayment Overview*

46th
FP
(Aug.
2038)

Refinancing Overview*

Scheduled Repayment*

Total amount of
repayment¥28,375 mln

Total amount of
repayment¥28,375 mln

Total amount of
repayment¥35,200 mln

Average interest
rate

0.72%

Average interest
rate

0.50%

Average interest
rate

1.03%

Average remaining
duration

4.3 years

Average remaining
duration

7.1 years

Average remaining
duration

5.8 years* Average remaining duration is it at the time of
repayment and average interest rate is weighted
average interest rate at the time of repayment.
Excluding 42.8 million yen in contractual repayment.

* Average interest rate and Average remaining
duration are those at the time of refinancing.

* Excluding 42.8 million yen in contractual
repayment.

Ended Aug.31,2018 Ended Feb.28,2019Differences(6th FP)(7th FP)(B) - (A)Result (A)Result (B)Operating Revenue
34,73135,428696
Rental revenues
31,69531,885
189
Other rental revenues
3,035
2,857
-178
Gain on sales of real estate
–
685
685
Operating Expenses
21,445
21,372-73
Rental business expenses
15,158
14,977-180
Repair expenses
1,555
1,515
-39
Tax and public dues
2,846
2,831
-15
Depreciation and amortization
4,901
4,911
9
Others
5,854
5,719
-135
Loss on sales of real estate–
23
23
Asset management fees
3,074
3,124
49
Amortization of goodwill
2,622
2,622
–
Other operating expenses
590
625
35
Operating Income
13,285
14,056770
Non-operating Revenues
671
Non-operating Expenses
2,536
2,546
10
Interest Expenses and other financial costs
2,508
2,462
-45
Investment units issuance costs
19
75
56
Other non-operating expenses
880
Ordinary Income
10,755
11,516761
Extraordinary Loss
-43
45
88
Net Income
10,70911,560851
Net income (excluding realized gain)(10,709)(10,898)(188)

Long-term Issuer Rating: AA

Rental revenues

189

Rent and common area charges of portfolio
properties(excluding impact of Harumi Triton Z)

193

Impact of tenant turnover at Harumi Triton Z-127

Impact of acquisition/disposition

124

Other rental revenues-178

Seasonal changes in utility expenses received, etc. -106

Gain on sales of real estate
Operating Expenses-73

Rental Business Expenses-180

Seasonal changes in utility expenses paid, etc.

-108

Rental business expenses of portfolio properties-114

Impact of acquisition/disposition

42

626
-436
190

Loss on sales of real estate (PRIME URBAN
Chikusa)

23

Internal Reserves(Total Internal Reserves)–(3,694)662(4,357)–(662)

Asset management fees/Other operating
expenses

84

3,084
2,478

3,128
2,623

(Yen)
44
145

Non-operating Expenses

10Interest Expenses and other financial costs

-45

306

361

55

Investment units issuance costs

56

300

144

-156

Extraordinary Loss

88

Absence of loss on natural disasters in 6th FP

43

Gain on natural disasters in 7th FP

45


DPU
Distributions of earnings per unit
Distributions in excess of retained earnings
per unit [allowance for adjustment of
temporary differences]
Distributions in excess of retained earnings
per unit [other distributions in excess of net
earnings]
Total Assets
Acquisition Price
Interest-bearing debt
LTV
Market capitalization
NOI
FFO

1,118,644
955,984
497,155
44.4%
669,01424,47518,282(Millions of yen)
1,117,851-793
960,3454,361
497,112
-42
44.5%
0.0%
659,506-9,507
24,677201
18,392109(Insurance income>Restoration expenses)

Net Income

851

Internal reserves

662(equivalent to gain/loss on sales)

Main Factors in Change of DPU (Yen/unit）
7th Fiscal Period ended Feb. 2019 Results
Increase in rent revenues and common area charges +15
Office
+1

(Yen)
3,200

(Of which, Harumi Triton Z

Increase factors-29)

Increase in asset management fee
to the asset management company
Decrease in interest expenses and otherfinancial cost
Increase in investment units issuance costs
Increase in other expenses

Retail+8
Logistics+2
Residential+4
Decrease in other Revenues (excl. utility expenses)

+9
+18

20

3,100

21

Decrease factors

-11

DPU

+10
-13
-7

20

25
Increase in rental revenues +30
Increase in rental expenses - 10

Rating & Investment Information, Inc. (R&I)

Issuer Rating: A+

3,084

S&P Global Ratings Japan Inc. (S&P)

Long-term Corporate Rating: A / Short-term Corporate Rating: A-1

6th FP ended Aug. 2018
DPU

Rental profits(Existing properties)

Rental profits(Acquisition and disposition)

3,128

OthersExtraordinary gain

(Result)* 662million yen, an equivalent amount to gain on sales of real estate arose in the 7th fiscal period ended Feb. 2019, has been retained.

21

685

(4 residential properties)

11,3362,182
13,518Decrease in repair expenses
Decrease in PM fee

Japan Credit Rating Agency, Ltd. (JCR)

696

10,7092,619
13,328-17(Decrease in security deposits and contract renewal fees due to seasonal factors, etc.)

Rating description

Operating Revenue

Distribution of Earnings aDistribution in Excess of Net Earnings b
Total Distributions a+b

Credit Ratings
Credit rating agency

Main Factors Accounting for Differences
Between the 6th FP Results and the 7th FP
Results (Millions of yen)

7th FP ended Feb. 2019
DPU
(Result)

22

Message from the Management

TopicsManagement Strategy

ESG Initiatives

Portfolio

Financial Strategy

Investor Information

Financial Section

Market Review
OfficeRetailVacancy Rate (Tokyo Central Five Wards)

Average Monthly Rent (Tokyo Central Five Wards)(%)

Retail Sales Volume by Store Type (12-month moving average)

10.00

24,0009.43

12523,0008.00

19/2
21,01021,0004.00

11019,000

105

105
100
95
90

18,000

85

100

80

17,0002.00

95

16,000

2.49
19/2
1.78

0

16,207

15,000

75
70

90

’14

14,000’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19

Source: Prepared by NREAM based on data from Miki Shoji Co., Ltd.

Food & beverages
Housing goods (daily necessities, home appliances, etc.)
Clothing

110

115

20,000Retail Sales Volume by Product Type (12-month moving average)
End of 2013=100

120

22,901

22,000

6.00

Supermarkets and food section of department stores
Chain stores (Supermarkets including GMS)
Department stores (Tokyo Area)

End of 2013=100(Yen/tsubo)

Source: Prepared by NREAM based on data from Miki Shoji Co., Ltd.

’15

’16

’17

’18

’19

’14

Source: Prepared by NREAM based on data from the Ministry of Economy, Trade andIndustry, Japan Chain Store Association, and Japan Department Stores
Association

’15

’16

’17

’18

’19

Source: Prepared by NREAM based on data from Japan Chain Store Association

Logistics
Supply of Office Buildings (Tokyo Central Five Wards)(Thousands of tsubo)

700

Rent and Vacancy Rate Matrix (Tokyo Central Five Wards)■ New supply’08.Q2
3.49

23,000

Forecast(Tsubo)700,000

22,000600‘18.Q4
1.88

21,000500

600,000'01.Q3
3.21

20,000400’18.Q22.57

19,000500,000’17.Q43.17

300
18,000200'05.Q2
5.03

16,0000

15,000

’14

’15

’16

’17

’18

’19

’20

’21

2

3

4

5

6

‘12.Q2
9.43
7

8

9

10

Source: Prepared by NREAM based on data from Miki Shoji Co., Ltd.

Residential
Tokyo

Osaka (Right axis)

800

6,000

600

4,000

400

09Q1=100112■ Online retail sales revenue
Forecast

16
14

25
20
15

15.4

16.6 17.6

19.3

20.5

21.7

23.0

24.3

25.7

27.2

8

4.8%

100,000

2.4%

6
4

0

’15

’16

’17

’18

5

2

0

’14

10

0

’19

Source: Prepared by NREAM based on data from CBRE
*Vacancy rate shows figures as of the end of every December

’15

’16

’17

’18

’19

’20

’21

’22

’23

’24

Source: Prepared by NREAM based on data from Nomura Research Institute, Ltd.
* Years show fiscal years

Foreign Visitor Arrivals

2

3,500
3,000

2,000

200

2,000

0

-2,000

-200
-400

’16

’17

’18

Source: Prepared by Ministry of Internal Affairs and Communications’19■ Japanese overnight travelers■ International overnight travelers

3,119
500

2,404

480

1,974
460

1,500

98

440

1,000

96

420

500

94
-4,000

520

102
100

0

(Millions of people)

2,869

2,500

106

Total Number of Overnight Guests■ Foreign visitor arrivals

108

104

23

30

12

(Millions of people)

Single Type 18 m – 30 m
Compact Type 30 m2 – 60 m2
2

110

’15

(Trillions of yen)20
18

200,000

Rental Condominium Rent Index (Tokyo’s 23 Wards)(People)

8,000

’14

(%)

HotelsNet Population Inflow (12-month moving average)(People)Japanese Ecommerce (B2C) Market

10

Vacancy Rate(%)

1

Forecast

300,000'14.Q2
6.45’22

Source: Prepared by NREAM based on data from Miki Shoji Co., Ltd.

■ New supply■ New demand
Vacancy rate (overall) (right axis)
Vacancy rate
(a year or more after completion)(right axis)

400,000‘03.Q2
8.57

17,000100

Large-Scale Rental Logistics Facility Supply and Demandin the Tokyo Metropolitan Area (as of the end of 2018)

Previous peak

Rent (Yen)

92

400

0

’14

’15

’16

’17

’18

Source: Prepared by NREAM based on data from At Home Co., Ltd. and
Sumitomo Mitsui Trust Research Institute Co., Ltd.

’19

’15

’16

’17

Source: Prepared by NREAM based on data from JNTO

’18

’14

’15

’16

’17

’18

Source: Prepared by NREAM based on data from Tourism Agency

24

Message from the Management

TopicsManagement Strategy

ESG Initiatives

Financial Strategy

Investor Information

Portfolio

Financial Section

Portfolio Analysis (as of Feb. 28, 2019)
Portfolio Distribution (property locations in Japan, millions of yen)
NUMBER OF PROPERTIES

278

propertiesASSET SIZEOCCUPANCY RATE

¥960,345

million

99.3%
1 Property

0.4%

0.5%

18.2%

81.8%

20.1%

(based on acquisition price)

Logistics Facilities

10,390 10,2671 Property
3,600

Diversification byuse■ Office

Retail Facilities

Retail Facilities(near stations)

5.9%

75.6

%
268 Properties

Diversification byproperty type

Others

Other

11.1%

Other

Top Ten Properties
as a Percentage
of Portfolio

71.7%

24.4%

28.3%

Diversification bytenant(based on acquisition price)

Other Areas

47 Properties■ Retail
35 Properties■ Logistics
18 Properties■ Residential 121 Properties■ Other
1 Property(based on acquisition price)(Residential areas)

Top Ten Properties
as a Percentage
of Portfolio

Logistics

Tokyo Area

16.8%

Other

Hotels45.2%

Residential
Facilities

Diversification by
location

Retail

2 Properties 12 Properties

Office Buildings

Tokyo Area

Other Area

Residential

8,500

Other

Hotels

Office3 Properties

7,400

222 Properties

Total

■ Hotels

14 Properties
10 Properties
1 Property
30 Properties
1 Property

Total

56 Properties■ Office■ Retail■ Logistics
■ Residential

5 Properties
1 Property

3,942

2,030

44 Properties

346,710(based on leased area)

1 Property

2,320

105 Properties

7 Properties

141,281

48,31022 Properties

59,377

1 Property

4 Properties

18,3005,830

1 Property

1,580

3 Properties

33,1903 Properties
2 Properties

6,580

1 Property

2,280

4 Properties

40,436

4 Properties

25,65038,1005 Properties

2 Properties
7,645
1 Property 4,520

3,460

5 Properties
8 Properties 37,990

3 Properties

8,997

2 Properties

7 Properties

4,632

32,1403 Properties

15,910

1 Property
8 Properties

3,080

12,081

1 Property

4,900

Others6,440 5 Properties
2,477

For a detailed list of properties in our portfolio, visit the website below.
* In the diversification by tenant, the leased areas of properties under pass-through master lease agreements are calculated based on the leased areas of end tenants.

25

https://www.nre-mf.co.jp/en/portfolio/index.html

26

Message from the Management

TopicsManagement Strategy

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Financial Section

External Growth -Strong Sponsor PipelinesThe sponsor has launched new brands for income-generating real estate targeting residential, logistics,
office and retail use and has promoted their development and operations, starting with PROUD FLAT in 2005,

Nomura Real Estate’s Core Office Brand

Name
PMO Nihonbashi Edo-dori *2

PMO Uchi-Kanda

PMO KandaManseibashi Project

PMO Shibuya II Project

PMO Hamamatsucho
Daimonmae Project

PMO is a new category of office building that is midsized yet
offers the functionality and grade of a large-sized building tomeet the needs of increasingly diverse businesses.
Strategy1Strategy

3

Office buildings where
people will be proud towork, strengthening hiringand retention
Buildings with one tenant
per floor to ensure
efficiency, independence
and safety

Strategy2Strategy

4

Offices that enhance
corporate image andreputation, helping to
attract customers
Places that stimulate
employee motivation andcommunication, fosteringenhanced productivity

Location

Completion(planned)

StatusChuo Ward,Tokyo

Jun. 2016

Operating

Chiyoda Ward, Tokyo

May 2017

Operating

GEMS Kawasaki Project

GEMS retail facilities are located mainly in urban areas andcomprised primarily house a rich variety of select restaurants.
Facilities offer new lifestyle ideas to brighten and enrich theeveryday lives of nearby office workers and residents.

27

Name

Location

Completion(planned)

StatusPlanning

Landport Shinonome Project

Koto Ward, Tokyo(May 2020)

Landport Narashino Project

Narashino City, Chiba(Jan. 2020) Under construction

Landport Kawaguchi Project

Kawaguchi City, Saitama (Jun. 2019) Under construction

PMO Shibuya

Shibuya Ward, Tokyo

Jun. 2017

Operating

Chiyoda Ward, Tokyo

Jun. 2017

Operating

PMO Shinjuku-Gyoen Project(Entrusted)

Shinjuku Ward, Tokyo(May 2019) Under construction

Landport Higashi-Narashino Project Narashino City, Chiba(Jul. 2019) Under construction

PMO Higashi Shinbashi

Minato Ward, Tokyo

Apr. 2018

Operating

Landport Ome II Project

Ome City, Tokyo(Feb. 2020) Under construction

PMO Hamamatsucho

Minato Ward, Tokyo

Nov. 2018

Operating

Landport Ome III Project

Ome City, Tokyo(Nov. 2020)

PMO Kanda-Manseibashi Project

Chiyoda Ward,Tokyo(Jan. 2020)

Planning

PMO Akihabara Kita

Taito Ward,Tokyo

Dec. 2018

Operating

Landport Koshigaya Project

Koshigaya City, Saitama(Mar. 2021) Under construction

Landport Kasukabe II Project

Kasukabe City, Saitama(May 2021)

Landport Atsugi-Aikawacho
Project *2

Atsugi City, Kanagawa(Mar. 2020) Under construction

Landport Tama Project

Hachioji City, Tokyo(Mar. 2021)

Planning

Landport Ageo Project

Ageo City, Saitama(Jan. 2022)

Planning

Total
Completion
Number(planned)of Units

StatusPMO Nishi-Shinjuku Project

Shinjuku Ward, Tokyo(Jun. 2019) Under construction

PMO Shibuya II Project

Shibuya Ward, Tokyo(Aug. 2020)

PMO Gotanda Project

Shinagawa Ward, Tokyo(Jul. 2019) Under construction

PMO Hamamatsucho Daimonmae
Project

Minato Ward, Tokyo(Jul. 2020)

Planning

Planning

Landport Ome II Project

Landport logistics facilities offer advanced functionality tomeet the needs of the changing logistics environment anddiverse tenants.
Designed for optimized, efficient logistics to enhance tenantsatisfaction.

Planning

Planning

Chiyoda Ward Project

Chiyoda Ward,Tokyo(Mar. 2021)

Planning

Minato Ward Project

Minato Ward, Tokyo(Sep. 2022)

Planning

PMO Kanda-Iwamotocho
2-chome Project

Chiyoda Ward,Tokyo(Jan. 2021) Under construction

Chuo Ward Project

Chuo Ward,Tokyo(Mar. 2020) Under construction

Chiyoda Ward Project

Chiyoda Ward,Tokyo(Jan. 2021) Under construction

Shibuya Ward Project

Shibuya Ward, Tokyo(Oct. 2020) Under construction

PROUD FLAT Mitsukoshimae

Chuo Ward,Tokyo

40

Jul. 2015

OperatingOsaka City Project

Osaka City, Osaka(Jun. 2021)

Planning

PROUD FLAT Miyazakidai

82

Feb. 2018

Operating

Chiyoda Ward Project

Chiyoda Ward, Tokyo(Dec. 2020)

Planning

Kawasaki City,
Kanagawa

Chuo Ward Project

Chiyoda Ward,Tokyo(Nov. 2021)

Planning

PROUD FLAT Togoshi-Koen

Shinagawa Ward,
Tokyo

99

Dec. 2018

Operating

PROUD FLAT Asakusabashi II

Taito Ward, Tokyo

87(Mar. 2019) Under construction

Other offices

Name

Location

Completion(planned)

StatusOperating

GEMS Jingu-mae

Shibuya Ward, Tokyo

Apr. 2018

GEMS Tamachi Project

Minato Ward, Tokyo(Feb. 2019) Under construction

GEMS Nishi-Shinjuku Project

Shinjuku Ward, Tokyo

TBD

Planning

GEMS Sangenjaya

Setagaya Ward, Tokyo

May 2018

GEMS Sakae Project

Nagoya City, Aichi(Oct. 2019) Under construction

GEMS Yokohama Project

Yokohama City,
Kanagawa(Sep. 2019) Under construction

GEMS Kawasaki Project

Kawasaki City, Kanagawa (Oct. 2020)

Operating

Planning

Mitato Ward Project

Minato Ward, Tokyo(Apr. 2021)

Planning

Meguro Ward ProjectMeguro Ward, Tokyo(Jan. 2021)

Planning

Other urban-type retail facilities

GEMS Sangenjaya

Nomura Real Estate’s Core Logistics Facility Brand

PMO Hanzomon (Entrusted)

Nomura Real Estate’s Core Retail Facility Brand

GEMS Jingu-mae

Landport in 2007, PMO in 2008 and GEMS in 2012.

Jinbo-cho Project

Chiyoda Ward, Tokyo(Jan. 2020)

Hiroo Project

Shibuya Ward, Tokyo(Feb. 2020) Under construction

Planning

Katase-Kaigan ProjectFujisawa City, Kanagawa (Sep. 2019) Under construction

Chayamachi Project

Osaka City, Osaka(Mar. 2020) Under construction

Jingumae Project

Shibuya Ward, Tokyo(Aug. 2020)

Planning

Hankyu Tsukaguchi
Station-Front Rebuilding Project

Amagasaki City, Hyogo(Mar. 2022)

Planning

Tokorozawa City Project

Tokorozawa City, Saitama (Feb. 2024)

Planning

Saitama City Project

Saitama City, Saitama(Jul. 2020)

Planning

Urayasu City Project

Urayasu City, Chiba(Mar. 2022)

Planning

Setagaya Ward Project

Setagaya Ward, Tokyo(Feb. 2021)

Planning

Minato Ward Project

Minato Ward, Tokyo(Nov. 2022)

Planning

Nomura Real Estate’s Core Residential Facility Brand

PROUD FLAT
Higashi-Nihonbashi

PROUD FLAT
Miyazakidai

PROUD FLAT
Asakusabashi III

PROUD FLAT properties are developed on locations optimallysuited for urban rental housing selected by leveraging the
Nomura Real Estate Group’s information network and knowhow related to housing development and sales.
Quality control and proper operations and management are
ensured using Nomura Real Estate’s proprietary rental housing complex design standards and quality control inspection
guidelines.

Name

Location

PROUD FLAT Higashi-Nihonbashi Chuo Ward,Tokyo

43

Oct. 2018

Operating

PROUD FLAT Asakusabashi III

Taito Ward, Tokyo

41

Aug. 2018

Operating

PROUD FLAT
Asakusa-Kaminarimon

Taito Ward, Tokyo

49(Feb. 2019) Under construction

PROUD FLAT Ryougoku

Sumida Ward, Tokyo

90(Oct. 2019) Under construction

PROUD FLAT Shibuya Tomigaya

Shibuya Ward, Tokyo109(Feb. 2019) Under construction

PROUD FLAT Kiba II

Koto Ward, Tokyo

136(Apr. 2020) Under construction

PROUD FLAT Minami-Shinagawa

Shinagawa Ward,
Tokyo

129

(May 2019) Under construction

PROUD FLAT Kinshicho II

Sumida Ward, Tokyo

62(Jan. 2020) Under construction

PROUD FLAT Ryogoku II

Sumida Ward, Tokyo

35(Dec. 2019) Under construction

Kameido 6-chome Project

Koto Ward, Tokyo99(Dec. 2022)

PROUD FLAT Togoshi-Ginza

Shinagawa Ward,
Tokyo

89

(Feb. 2020) Under construction

Planning

Taito Ward Project I

Taito Ward, Tokyo

72(Jun. 2020)

Planning

Taito Ward Project II

Taito Ward, Tokyo

40(May 2020)

Planning

Shinjuku Ward Project

Shinjuku Ward,
Tokyo

114

(Jan. 2021)

Planning

Sumida Ward Project I

Sumida Ward, Tokyo

99(Oct. 2021)

Planning

Taito Ward Project III

Taito Ward, Tokyo

54(Sep. 2020)

Planning

Koto Ward Project

Koto Ward, Tokyo

49(Nov. 2020)

Planning

Sumida Ward Project II

Sumida Ward, Tokyo86(Sep. 2020)

Planning

Sumida Ward Project III

Sumida Ward, Tokyo

212(Jan. 2022)

Planning

Properties developed through property replacement with Sponsor*1 Based on NREHD Presentation Materials for the Consolidated Financial Results for the First Three Quarters, FY2019. Properties sold as of April 1, 2019 are excluded.
*2 Joint venture project*3 As of the date of these materials, NMF does not intend to acquire properties listed above.

28

Message from the Management

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Financial Section

Portfolio Gallery
OfficeRetailTOP 3 Properties (acquisition price)1

29

NEC Head Office Building
Location: Minato Ward, Tokyo
Acquisition price: ¥44,100 million
Total floor area: 144,476.05 m2

2

Shinjuku Nomura Building
Location: Shinjuku Ward, Tokyo
Acquisition price: ¥43,900 million
Total floor area: 117,258.88 m2

TOP 3 Properties (acquisition price)

3

Kojimachi Millennium Garden
Location: Chiyoda Ward, Tokyo
Acquisition price: ¥26,700 million
Total floor area: 16,050.53 m2

1

Universal CityWalk Osaka
Location: Osaka City, Osaka
Acquisition price: ¥15,500 million
Total floor area: 86,888.64 m2

2

Yokosuka More’s City
Location: Yokosuka City, Kanagawa
Acquisition price: ¥13,640 million
Total floor area: 43,890.82 m2

3

Nakaza Cui-daore Building
Location: Osaka City, Osaka
Acquisition price: ¥11,600 million
Total floor area: 8,280.08 m2

NMF Shiba Building

PMO Tamachi

Harumi Island Triton Square
Office Tower Y

EQUINIA Shinjuku

covirna machida

GEMS Shibuya

Location: Minato Ward, Tokyo
Total floor area: 11,425.20 m2

Location: Minato Ward, Tokyo
Total floor area: 5,171.17 m2

Location: Chuo Ward, Tokyo
Total floor area: 24,000.76 m2

Location: Shinjuku Ward, Tokyo
Total floor area: 5,221.88 m2

Location: Machida City, Tokyo
Total floor area: 4,209.06 m2

Location: Shibuya Ward, Tokyo
Total floor area: 2,000.70 m2

PMO Shinnihonbashi

NMF Nagoya Fushimi Building

SORA Shin-Osaka 21

NRE Kichijoji Building

Musashiurawa Shopping SquarenORBESA

Location: Chuo Ward, Tokyo
Total floor area: 3,721.63 m2

Location: Nagoya City, Aichi
Total floor area: 4,954.83 m2

Location: Osaka City, Osaka
Total floor area: 38,252.92 m2

Location: Musashino City, Tokyo
Total floor area: 5,550.35 m2

Location: Saitama City, Saitama
Total floor area: 28,930.36 m2

Location: Sapporo City, Hokkaido
Total floor area: 21,564.42 m2

30

Message from the Management

TopicsManagement Strategy

ESG Initiatives

Financial Strategy

Investor Information

Portfolio

Financial Section

Portfolio Gallery
Logistics

Residential

TOP 3 Properties (acquisition price)

1

31

Landport Urayasu
Location: Urayasu City, Chiba
Acquisition price: ¥17,400 million
Total floor area: 71,570.64 m2

2

Landport Itabashi
Location: Itabashi Ward, Tokyo
Acquisition price: ¥15,710 million
Total floor area: 53,561.44 m2

TOP 3 Properties (acquisition price)3

Landport Kawagoe
Location: Kawagoe City, Saitama
Acquisition price: ¥13,700 million
Total floor area: 72,352.88 m2

1

Fukasawa House Towers H&I
Location: Setagaya Ward, Tokyo
Acquisition price: ¥7,140 million
Total floor area: 12,135.36 m2

2

PRIME URBAN Toyosu
Location: Koto Ward, Tokyo
Acquisition price: ¥5,290 million
Total floor area: 9,630.96 m2

3

PRIME URBAN Sapporo
Riverfront
Location: Sapporo City, Hokkaido
Acquisition price: ¥4,480 million
Total floor area: 21,239.84 m2

Landport Atsugi

Sagamihara Onodai Logistics Center

Landport Hachioji

PROUD FLAT Kamata II

PRIME URBAN Shibaura LOFTPRIME URBAN Ebisu

Location: Atsugi City, Kanagawa
Total floor area: 49,504.38 m2

Location: Sagamihara City, Kanagawa
Total floor area: 49,927.89 m2

Location: Hachioji City, Tokyo
Total floor area: 35,948.63 m2

Location: Ota Ward, Tokyo
Total floor area: 5,315.83 m2

Location: Minato Ward, Tokyo
Total floor area: 2,429.98 m2

Location: Meguro Ward, Tokyo
Total floor area: 1,710.35 m2

Kawaguchi Logistics Center A Tower

Kawaguchi Logistics Center B Tower

Landport Kashiwa Shonan I

PRIME URBAN Kagurazaka

PRIME URBAN Musashi
Kosugi comodo

Serenite Shinsaibashi Grande

Location: Kawaguchi City, Saitama
Total floor area: 11,580.06 m2

Location: Kawaguchi City, Saitama
Total floor area: 13,186.31 m2

Location: Kashiwa City, Chiba
Total floor area: 49,394.87 m2

Location: Shinjuku Ward, Tokyo
Total floor area: 4,079.83 m2

Location: Kawasaki City, Kanagawa
Total floor area: 4,233.62 m2

Location: Osaka City, Osaka
Total floor area: 7,794.23 m2

NEW

32

Message from the Management

TopicsManagement Strategy

ESG Initiatives

Distribution Policy

Financial Strategy

Portfolio

Financial Section

Investor Information

Structure and Organization

Basic Distribution Policy

Distribution Policy for Periods with Gain on Sales

Distribute net earnings + amortization of goodwill

Structure of NMF

Distributions in excess of earnings may be adjusted to retain cash of anamount equivalent to gain on sale of real estate to promote stable mediumto long-term management.

Specified Related Party

Investment Corporation

Custodian

Parent Company of the Asset Management Company

Sumitomo Mitsui Trust Bank, Ltd.

Nomura Real Estate Development Co., Ltd.
Gain onsales

Internal reserves
equivalent to gainon sale10

Nomura Real Estate Holdings, Inc.

10

Distribution inexcess of earnings
Distributions inexcess of earnings

Amortizationof goodwill
Gain onsales

10

Information Provision
Agreement

20
10 Gain on sales is distributed,
and a corresponding
amount is deducted from
distributions in excess ofearnings

Gain onsales

10

Nomura Real Estate
Asset Management Co., Ltd.

Information Provider
Nomura Real Estate Development Co., Ltd.
Basic Agreement with respect toLeasing Value Chain

Net
incomeNet
incomeexcl.
gain onsales

Distribution of
net income

Net
income80

Net
incomeexcl.
gain on
sales

80

Net
incomeexcl.
gain onsales

80(Statement of income)Net income

Total
distribution(Statement of income)

Total
distribution

General Administrator (Financial Agent)

Board of Directors

MUFG Bank, Ltd.

Executive Director

Sumitomo Mitsui Banking Corporation

Shuhei Yoshida

Nomura Securities Co., Ltd.

Supervisory Directors

Mizuho Securities Co., Ltd.

Auditor

Nomura Real Estate Partners Co., Ltd.

Ernst & Young Shin Nihon LLC

Breakdown ofdistributions

Financial Agent Agreement (related to Former NMF's 1st series bonds,
NOF's 7th series bonds, NOF's 10th series bonds, NMF's 2nd series bonds and 3rd series bonds) /Principal Payment Entrustment Agreement (NOF's 2nd series bonds) /Registration Entrustment Agreement (NOF's 2nd series bonds) / Investment
Corporation Bond Management Agreement (related to NOF's 2nd series bonds)

Investment Corporation BondManagement Agreement(related to NOF's 2nd series bonds)

General administrator of investment
corporation bonds
General Administrator (Short-Term
Investment Corporation Bonds)

Agreement on Entrustment of Issuance, Redemption and Settlement of
Short-Term Investment Corporation Bonds / Private Placement Handling Agreement

MUFG Bank, Ltd.

<About distribution in excess of earnings>

Internal reserves equivalent togain on sales (¥662 million) *1

Distribution of allowance for temporary difference adjustments

Reserved

Organization of NREAM

Other distributions in excess of earnings

662

622

Gain onsales

Transfer Agency Agreement, General Administration Agreement
Agreement on Special Account Management

Unitholders' Meeting

Nomura Real Estate
Development Co., Ltd.

Internal Reserves Equivalent to Gain on Sales in the 7th Fiscal Period

2,622

Mitsubishi UFJ Trust and Banking Corporation

Mineo Uchiyama
Koichi Owada* Figures shown above are for illustrative purposes only

(Millions of yen)

AssetManagement
Agreement

Leasing Value Chain

GEO AKAMATSU CO., LTD.
Net income

General Administrator(Institutional Administration /Accounting)Transfer Agent andSpecial Account Administrator

Asset Management Company

Reserve

Amortizationof goodwill

Asset Custody Agreement

Amountequivalent toamortizationof goodwill

Loss on valuationof interest
rate swaps

2,182

225

Distributions inexcess of
earnings¥2,182 million

2,182
1,560*

2

1,560

Other
distributions inexcess of
earnings(Income tax notwithheld)¥622 million

General Meeting of Shareholders
Investment Committee
Statutory Auditors

Board of Directors

Compliance Committee

President & CEO

Risk Management Committee
NPR Valuation Committee

662

662

Project Screening Committee
Total distribution¥13,518 million
Net
incomeexcl.
gain onsales

10,898

10,898

10,898

11,336

11,336

Distributions ofearnings¥11,336 million

11,336

Distributions ofearnings, etc.
(Income tax
withheld)¥12,896 million

Corporate Planning
International Business Planning

Product Development

Legal & Compliance

Research & Analysis

Internal Audit

Investment Management Planning

Finance & Accounting

Net income Distribution
policy(Statement ofincome)Total distribution(incl. distribution inexcess of earnings)

Total distribution
Earnings
defined(incl. distribution inexcess ofby the Investment
earnings)
Trusts Act

Allowance for Distributions in
temporaryexcess ofdifference
earnings
adjustments(breakdown)*1	When there is a gain on sales, NMF’s policy is, in principle, to set aside an amount equivalent to the gain that is not more than the amount of amortization of
goodwill as retained earnings within the scope that will not be subject to income tax. For the 7th fiscal period, NMF will retain earnings under the amount of
distributions in excess of earnings (distribution reducing unitholders’ capital for tax purposes), and therefore it does not expect the internal reserves equivalent togain on sales to be taxed.
*2 The amount is obtained by deducting under depreciation, etc. (provision deduction items) attributable to the difference between depreciation in tax and accounting
treatments from amortization of goodwill, etc. (provision addition items).

33

Chief Strategy Officer

NMF Investment Management Group

Client Relations & Marketing

Fund Management

Investment Management

Asset Management I

Acquisitions

Asset Management II
NPR Investment Management

34

Message from the Management

TopicsManagement Strategy

ESG Initiatives

Financial Strategy

Portfolio

Financial Section

Investor Information

Investor Information
Composition of Unitholders

WEBSITE

Foreign Corporations

525 1.6%

NMF strives to ensure accurate, timely disclosure through its website. For convenience, the website also offers a variety of

Financial Institutions(including financial
instrument businesses)

Other Domestic
Corporations

Individuals and Others

336,280 7.8%

212 0.7%502 1.6%

Other Domestic
Corporations

Financial Institutions(including financial
instrument businesses)

other information, including the following.

2,381,288 55.1%■ A portfolio summary; property overviews (with photos, maps, etc.); occupancy rate data

320,212 7.4%

■ Press releases, disclosure materials, and information on distributions and financial results

Unitholder
composition
Total

We will continue to enhance the website’s content and use it to provide timely information.

Number ofinvestment units
Total

32,1194,321,800

Individuals
and Others■ An overview of NMF and its features; information about the Asset Management Company

https://www.nre-mf.co.jp/en/

The contents of the ESG pages havebeen enhanced.

Foreign Corporations

30,880 96.1%

1,284,020 29.7%

ESG Initiatives
Policies and Management Structure

IR Calendar
Fiscal period

Announcement of financial results

End of February
January

February

Nomura Master FundFiscal period

Mid-April
March

April

End of August
May

June

July

AugustMateriality

Announcement of financial results

Stakeholder Engagement

Mid-October
September

OctoberGRI Standards
International Initiatives and Certifications

November December

Environmental Measures

Mid-May

Mid-November

Commencement of payment of distributions
Release of Asset Management Report

Commencement of payment of distributions
Release of Asset Management ReportSocial Responsibility
Governance
ESG Disclosure Policy and Reporting Framework
NMF will continuously update relevant
information going forward.

Unitholder Information
The process for changing your address and other information
To change your address, name, seal, or other information, please contact the securities firm where your account wasestablished.
The latest news is aggregated on the home page.
(An RSS feed is available.)

Distributions
Stockholders can collect distributions at a Japan Post Bank or post office. If the receipt date has passed, please refer to instructions on the back of the distribution receipt and either send it to the Corporate Agency Division of Mitsubishi UFJ Trust andBanking Corporation or present it at the counter of one of the bank’s branches. In addition, regarding distributions going forward, if you wish distributions to be paid in the form of bank deposits or other, please contact your securities firm.
Important Reminders for Unitholders
Closing dates

The last days of February and August of every year

General meeting of unitholders

At least once every two years in principle

Unitholder record date for voting eligibility

The last day of February 2017 and then the last day of February every two years or a day
announced in advanceDistribution payment record dates

The last days of February and August of every year

Stock exchange listings

Tokyo Securities Exchange (securities code: 3462)

Newspaper for announcements

Nihon Keizai Shimbun

Share transfer agent

Mitsubishi UFJ Trust and Banking Corporation

Contact information
for the share transfer agent

Corporate Agency Division, Mitsubishi UFJ Trust and Banking Corporation
1-1, Nikko-cho, Fuchu, Tokyo, Japan
TEL. 0120-232-711 (toll free) in Japan only
Mailing address: P.O. Box #29 Shin-Tokyo Post Office, Tokyo, Japan 137-8081
Corporate Agency Division, Mitsubishi UFJ Trust and Banking Corporation

35

Excel files with detailed data are available for download.

36

Message from the Management

TopicsManagement Strategy

ESG Initiatives

Financial Strategy

Portfolio

Investor Information

Financial Section

BALANCE SHEETThousands of Yen

As of February 28, 2019



As of February 28, 2019

As of August 31, 2018ASSETSLIABILITIESCurrent Assets:
Cash and bank deposits
Rental receivables
Consumption taxes receivable
Other current assets
Total current assets

Current Liabilities:
Trade accounts payable
Short-term debt
Current portion of long-term debt
Lease obligations
Other accounts payable
Accrued expenses
Accrued income taxes
Accrued consumption taxes
Rent received in advance
Unearned revenue
Provision for loss on disaster
Derivatives liabilities
Other current liabilities
Total current liabilities

Property and Equipment:
Land
Buildings and structures
Machinery and equipment
Tools, furniture and fixtures
Leased assets
Construction in progress		Subtotal
Less accumulated depreciation
Net property and equipment
Investments and Other Assets:
Goodwill
Leasehold rights
Intangible assets
Long-term prepaid expenses
Long-term deposits
Security deposits
Derivatives Assets
Deferred investment corporation bond issuance costs
Total investments and other assets
Total Assets
The accompanying notes to financial statements are an integral part of these statements.

¥

74,212,743
659,719—
1,408,074
76,280,538¥

74,556,830
719,156
206,657
1,280,252
76,762,897

658,380,029
316,625,764
1,258,692
971,411
10,1078,186
977,254,192(36,346,296)
940,907,896

654,095,186
314,219,167
1,080,099
837,179
10,1077,228
970,248,969(31,759,037)
938,489,931

88,209,223
8,959,307
43,192
1,947,644
492,905
946,367
4,384
59,999100,663,023¥1,117,851,458

90,831,465
8,959,693
45,9501,908,481
527,786
946,367
109,110
63,159103,392,015¥1,118,644,844

Thousands of Yen¥

1,957,136
500,000
64,685,600
1,591
2,672,988
316,253
870
990,633
5,036,231
187,784
43,48052,90722,71876,468,194

As of August 31, 2018¥

2,558,715
500,000
63,160,600
2,728
2,370,672
322,498
2,120—
5,069,434
228,281
17,92262,643
7,603
74,303,221

Long-term Liabilities:
Investment corporation bonds
Long-term debt
Lease obligations
Long-term advanced received
Security deposits from tenants
Derivatives liabilities
Total long-term liabilities

22,000,000
409,927,200—
261,893
38,401,734
948,957
471,539,785

22,000,000
411,495,000
227
346,546
37,844,909
818,237
472,504,921

Total Liabilities

548,007,980

546,808,142

182,051,777

181,730,086

394,012,959(8,879,447)(8,678,670)(17,558,118)
376,454,840
12,334,340
388,789,181
570,840,958

394,012,959(7,878,667)(7,060,439)(14,939,107)
379,073,851
11,804,535
390,878,386
572,608,472(997,480)(997,480)(771,769)(771,769)

569,843,478

571,836,702¥1,117,851,458¥1,118,644,844

NET ASSETS
Unitholders’ Equity:
Unitholders’ capital
Surplus		Capital surplus
		 Allowance for temporary difference adjustment
		 Other deductions from capital surplus
		 Total deductions from capital surplus
		 Net capital surplus
		Retained earnings
		Total surplus
Total unitholders’ equity
Valuation and Translation Adjustments:
Deferred gains or losses on hedges
Total valuation and translation adjustments
Total Net Assets
Total Liabilities and Net Assets
The accompanying notes to financial statements are an integral part of these statements.

37

38

Message from the Management

TopicsManagement Strategy

ESG Initiatives

STATEMENT OF INCOME AND RETAINED EARNINGS

Portfolio

Investor Information

For the period from September 1, 2018 to February 28, 2019Thousands of Yen

For the period
from March 1, 2018
to August 31, 2018

Unitholders’ Equity

OPERATING REVENUES AND EXPENSES
Operating Revenues:
Real estate rental revenues
Gain on sales of real estate
Operating Expenses:
Real estate rental expenses
Loss on sales of real estate
Asset management fees
Asset custody fees
Administrative service fees
Amortization of goodwill
Other operating expenses
Operating Income¥34,742,917
685,596
35,428,514¥34,731,869—
34,731,869

14,977,514
23,2193,124,065
57,154
167,475
2,622,242
400,763
21,372,436
14,056,078

15,158,332—
3,074,928
55,871
165,937
2,622,242
368,580
21,445,892
13,285,976

NON-OPERATING REVENUES AND EXPENSES
Non-Operating Revenues:
Interest income
Reversal of dividends payable
Interest on refund
Other non-operating revenues
Non-Operating Expenses:
Interest expense
Interest expenses on investment corporation bonds
Amortization of investment corporation bonds issuance costs
Loan arrangement fees
Investment units issuance expenses
Other non-operating expenses

Ordinary Income
Extraordinary Income:Insurance income
Extraordinary Losses:
Loss on disaster		 Income before Income Taxes
Income Taxes:
		Current		Net Income
		 Retained earnings brought forward
		 Retained Earnings at End of Period
The accompanying notes to financial statements are an integral part of these statements.

39

Financial Section

STATEMENT OF CHANGES IN NET ASSETS
Thousands of Yen

For the period
from September 1, 2018
to February 28, 2019

Financial Strategy

378
5,674
1,213
11
7,278

571
5,198
132
103
6,006

1,871,984
183,376
3,160
407,627
75,2875,280
2,546,715

1,908,070
182,048
2,951
418,730
19,231
5,319
2,536,351

11,516,640

10,755,631

53,29753,297

—
—

8,097
8,097
11,561,841

43,651
43,651
10,711,980

Balance as of September 1, 2018
Distributions of retained earnings
Reversal of allowance for temporary difference
adjustments
Distributions in excess of net earnings fromallowance for temporary difference
adjustments
Other distributions in excess of net earnings
Net income
Net changes of items other than unitholders'equityBalance as of February 28, 2019

SurplusCapital surplus
Deductions from capital surplus
Allowance fortemporary
Other
Total
difference
deductions from deductions fromadjustment
capital surplus capital surplus(¥7,878,667)(¥7,060,439)(¥14,939,107)
—
—
—

Units
4,321,800—

Unitholders’capital¥181,730,086—

Capitalsurplus¥394,012,959——

321,691—

321,691(321,691)

—

—

—
—
—

—
—
—

—
—
—

(1,322,470)———(1,296,540)—(1,322,470)(1,296,540)—(1,322,470)(1,296,540)——
4,321,800—¥182,051,777—¥394,012,959—(¥8,879,447)—(¥8,678,670)—(¥17,558,118)—¥376,454,840

Thousands of Yen

Unitholders’ Equity
Surplus
Balance as of September 1, 2018
Distributions of retained earnings
Reversal of allowance for temporary difference
adjustments
Distributions in excess of net earnings fromallowance for temporary difference
adjustments
Other distributions in excess of net earnings
Net income
Net changes of items other than unitholders'equityBalance as of February 28, 2019

Valuation and Translation Adjustments
Total valuation andDeferred gains ortranslation
losses on hedges
adjustments(¥771,769)(¥771,769)——

Retained earnings¥11,804,535(10,709,420)

Total surplus¥390,878,386(10,709,420)

Total
unitholders’equity¥572,608,472(10,709,420)(321,691)(321,691)

—

—

—

—

—
—
11,560,917(1,322,470)(1,296,540)
11,560,917(1,322,470)(1,296,540)
11,560,917

—
—
—

—
—
—

(1,322,470)(1,296,540)
11,560,917—¥12,334,340—¥388,789,181—¥570,840,958(225,710)(¥997,480)(225,710)(¥997,480)(225,710)¥569,843,478

2,175
2,175
10,709,804

773,423

1,094,730¥12,334,340¥11,804,535

Total net assets¥571,836,702(10,709,420)

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

For the period from March 1, 2018 to August 31, 2018

923
923
11,560,917

Net capitalsurplus¥379,073,851—

Thousands of Yen

Unitholders’ Equity

Balance as of March 1, 2018
Issuance of new investment units
Distributions of retained earnings
Reversal of allowance for temporary difference
adjustments
Distributions in excess of net earnings fromallowance for temporary difference
adjustments
Other distributions in excess of net earnings
Net income
Net changes of items other than unitholders'equityBalance as of August 31, 2018

SurplusCapital surplus
Deductions from capital surplus
Allowance fortemporary
Other
Total
difference
deductions from deductions fromadjustment
capital surplus capital surplus(¥7,169,175)(¥6,000,467)(¥13,169,643)
—
—
—
—
—
—

Units
4,183,130
138,670—

Unitholders’capital¥162,791,125
18,460,443—

Capitalsurplus¥394,012,959———

478,516—

478,516(478,516)

—

—

—
—
—

—
—
—

—
—
—

(1,188,008)———(581,455)—(1,188,008)(581,455)—(1,188,008)(581,455)——
4,321,800—¥181,730,086—¥394,012,959—(¥7,878,667)—(¥7,060,439)—(¥14,939,107)—¥379,073,851

Thousands of Yen

Unitholders’ Equity
Surplus
Balance as of March 1, 2018
Issuance of new investment units
Distributions of retained earnings
Reversal of allowance for temporary difference
adjustments
Distributions in excess of net earnings fromallowance for temporary difference
adjustments
Other distributions in excess of net earnings
Net income
Net changes of items other than unitholders'equityBalance as of August 31, 2018

Net capitalsurplus¥380,843,315——

Valuation and Translation Adjustments
Total valuation andDeferred gains ortranslation
losses on hedges
adjustments(¥1,093,460)(¥1,093,460)————

Retained earnings¥12,549,780—(10,976,533)

Total surplus¥393,393,095—(10,976,533)

Total
unitholders’equity¥556,184,220
18,460,443(10,976,533)(478,516)(478,516)

—

—

—

—

—
—
10,709,804(1,188,008)(581,455)
10,709,804(1,188,008)(581,455)
10,709,804

—
—
—

—
—
—

(1,188,008)(581,455)
10,709,804—¥11,804,535—¥390,878,386—¥572,608,472

321,691(¥ 771,769)

321,691(¥ 771,769)

321,691¥571,836,702

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

Total net assets¥555,090,759
18,460,443(10,976,533)

40

Message from the Management

TopicsManagement Strategy

ESG Initiatives

STATEMENT OF CASH FLOWS

Financial Strategy

Portfolio

Investor Information

Financial Section

NOTES TO FINANCIAL STATEMENTS

Thousands of Yen

For the period
from September 1, 2018
to February 28, 2019

For the period
from March 1, 2018
to August 31, 2018

CASH FLOWSCash Flows from Operating Activities
Income before income taxes
Depreciation
Amortization of goodwill
Investment units issuance expenses
Amortization of investment corporation bonds issuance costs
Increase (Decrease) in provision for loss on disaster
Interest income
Interest expense
Loss on disposal of property and equipment
Decrease (Increase) in rental receivables
Decrease (Increase) in long-term prepaid expenses
Decrease (Increase) in long-term deposits
Increase (Decrease) in trade accounts payable
Increase (Decrease) in other accounts payable
Decrease (Increase) in consumption taxes receivables
Increase (Decrease) in accrued consumption taxes
Increase (Decrease) in accrued expenses
Increase (Decrease) in rent received in advance
Decrease in property and equipment due to sales
Other		Subtotal
Interest received
Interest paid
Income taxes paid
		Net cash provided by (used in) operating activities¥11,561,841
4,913,913
2,622,242
75,287
3,160
25,557(378)
2,055,360
2,352
59,436(39,163)
34,880(601,578)
52,250206,657
990,633
55,198(33,203)4,574,369(114,659)
26,444,158
378(2,186,260)(2,174)24,256,101¥10,711,980
4,904,202
2,622,242
19,231
2,951
17,922(571)
2,090,118
11,491(162,508)(182,905)
9,460
335,536(5,783)(206,657)(223,118)(830)
172,716—(348,376)
19,767,104571(2,196,550)(605)
17,570,519

Cash Flows from Investing Activities
Payments for purchases of property and equipment
Payments for purchases of leasehold rights and intangible assets
Reimbursement of security deposits to tenants
Proceeds from security deposits from tenants
Payments of security deposits
Proceeds from security deposits
		Net cash provided by (used in) investing activities(11,768,260)(5,698)(1,133,099)
1,690,034——(11,217,024)(37,442,038)(6,913)(867,342)
2,186,960(648)
210(36,129,771)

Cash Flows from Financing Activities
Proceeds from short-term debt
Repayments of short-term debt
Proceeds from long-term debt
Repayments of long-term debt
Proceeds from issuance of investment corporation bonds
Payments of investment corporation bonds issuance costs
Proceeds from issuance of investment units
Payment of investment units issuance expenses
Distributions to unitholders
Distributions in excess of net earnings from allowance fortemporary difference adjustments
Other distributions in excess of net earnings
		Net cash provided by (used in) financing activities——
28,375,000(28,417,800)———(7,400)(10,715,350)

2,500,000(2,000,000)
38,855,000(29,897,800)
1,500,000(25,147)
18,460,443(61,693)(10,982,284)(1,322,360)(1,295,252)(13,383,164)(1,188,092)(581,282)
16,579,143

Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Period
Cash and Cash Equivalents at End of Period(344,086)
74,556,830¥74,212,743(1,980,108)
76,536,938¥74,556,830

1. ORGANIZATION
Nomura Real Estate Master Fund, Inc. (NMF) is a real estate investment corporation formed to own and invest primarily in
office buildings, retail facilities, logistics and residential facilities. NMF is externally managed by a licensed asset managementcompany, Nomura Real Estate Asset Management Co., Ltd. (“NREAM”). NREAM is a wholly-owned subsidiary of Nomura Real
Estate Holdings, Inc. NMF was established on October 1, 2015 through the consolidation type merger involving the former
Nomura Real Estate Master Fund, Inc. (hereinafter the “former NMF”), Nomura Real Estate Office Fund, Inc. (hereinafter“NOF”) and Nomura Real Estate Residential Fund, Inc. (hereinafter “NRF”), and listed its investment securities (TSE code:3462) on the Real Estate Investment Trust Section of the Tokyo Stock Exchange on October 2 of the same year.
NMF adopts the basic policy of investing primarily in real estate and other assets to secure stable income and steady growth ofassets under management over the medium to long term. In order to realize this basic policy, NMF adopts an investment
strategy that centers on the Greater Tokyo area (Tokyo, Kanagawa, Chiba and Saitama prefectures), which has strong tenant
demand, while also considering regional diversification through the three major metropolitan areas and cabinet-order designated cities, etc. By combining the “diversified type strategy” in which investments are made in facilities of a variety of sectors
such as office buildings, retail facilities, logistics and residential facilities with the “large-scale REIT strategy,” which pursues theeffects of diversifying properties and tenants, to make the portfolio more stable as well as with the utilization of the “leasing
value chain” with the Nomura Real Estate Group, the sponsor, NMF will aim to increase unitholder value by securing stable
income and steady growth of assets under management over the medium to long term.

2. BASIS OF PRESENTATION
NMF maintains its accounting records and prepares its financial statements in accordance with accounting principles generally
accepted in Japan (“Japanese GAAP”), including provisions set forth in the Investment Trust Act of Japan, the Companies Act ofJapan, the Financial Instruments and Exchange Act of Japan and related regulations, which are different in certain respects as tothe application and disclosure requirements of International Financial Reporting Standards.
The accompanying financial statements are a translation of the audited financial statements of NMF, which were prepared inaccordance with Japanese GAAP and were presented in NMF’s Securities Report filed with the Kanto Local Finance Bureau. In
preparing the accompanying financial statements, certain reclassifications and modifications have been made to the financial
statements issued domestically in order to present them in a format that is more familiar to readers outside Japan. In addition,
the notes to financial statements include certain information that might not be required under Japanese GAAP but is presented
herein as additional information. Amounts have been rounded to the nearest thousand yen in the accompanying financial statements and the notes thereto, whereas amounts were truncated in the Japanese financial statements prepared in accordancewith Japanese GAAP.
NMF’s fiscal period is a six-month period which ends at the end of February or August. NMF does not prepare consolidated
financial statements because it has no subsidiaries.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESCash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits placed with banks and short-term investments that are highly
liquid, readily convertible to cash, with an insignificant risk of market value fluctuation, and with a maturity of three months orless when purchased.
Property and equipment
Property and equipment are stated at cost, which includes the purchase price and related costs for acquisition, less accumulated depreciation.
Depreciation is calculated by the straight-line method over the estimated useful lives of the fixed assets outlined below:
Buildings 		
Structures		
Machinery and equipment
Tools, furniture and fixtures

3 - 70 years
2 - 45 years
2 - 15 years
2 - 20 years

Intangible assets
Intangible assets are amortized by the straight-line method.
Goodwill is amortized using the straight-line method over 20 years.

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

41

42

Message from the Management

TopicsManagement Strategy

ESG Initiatives

Financial Strategy

Portfolio

Investor Information

Financial Section

NOTES TO FINANCIAL STATEMENTS
Long-term prepaid expenses
Long-term prepaid expenses are amortized by the straight-line method.

4. CASH AND CASH EQUIVALENTS

Impairment of fixed assets
NMF reviews fixed assets for impairment whenever events or changes in circumstances indicate that the carrying value of its
fixed assets may not be recoverable. An impairment loss is recognized if the carrying value of an asset exceeds the aggregate
estimated future cash flows. If a fixed asset is determined to be impaired, it is written down to its recoverable amount and thewrite-down is recorded as an impairment loss during the period in which it occurs.

Deferred investment corporation bond issuance costs
Deferred investment corporation bond issuance costs are amortized by the straight-line method over the respective terms of
the bonds.
Investment units issuance expenses
The entire amount is expensed as incurred.
Allowances and provisions(1) Allowance for doubtful accounts
For allowance for doubtful accounts against possible losses arising from default on receivables, the uncollectable amount isestimated and recorded by investigating collectability based on historical loan loss ratios for general receivables and on a caseby-case examination for doubtful and other specific receivables.
(2) Provision for loss on disaster
The amount that is reasonably estimated at the end of the fiscal period under review is recorded to cover expenditures forrestoration etc. following Typhoon Trami in 2018.
Accounting treatment of beneficial interests in real estate
All assets and liabilities held in trust, for which the real estate in possession of NMF was entrusted, and all related earnings andexpenses incurred are reflected in the accompanying balance sheet and statement of income and retained earnings,
respectively.
Revenue recognition
Operating revenues consist of rental revenues including base rents and common area charges, and other operating revenues
including utility charge reimbursements, parking space rental revenues and other income. Rental revenues are generally recognized on an accrual basis over the life of each lease. Utility charge reimbursements are recognized when earned and theiramounts are reasonably estimated.
Property related taxes
Property in Japan is subject to property taxes, urban planning taxes and depreciable property taxes on a calendar year basis. The
taxes related to property are generally imposed based on the value of the relevant property and incurred for the fiscal period.
The seller of a property is liable for property related taxes for the period from the purchase date through the end of that calendar year because taxes are imposed on the owner registered in the record as of January 1 for the entire year based on theassessment made by the local government. The amount applicable to the buyer of a property is usually settled between eachparty and capitalized as part of the acquisition cost of the property. The capitalized property related taxes amounted to ¥116,332
thousand for the fiscal period ended August 31, 2018, and ¥2,052 thousand for the fiscal period ended February 28, 2019.
Income taxes
Deferred tax assets and liabilities are computed based on the differences between the financial statements and income tax
bases of assets and liabilities using the applicable statutory tax rates.
Consumption taxes
Consumption taxes received and paid are not included in the accompanying statement of income and retained earnings.
Derivative financial instruments
NMF utilizes interest-rate swap contracts as derivative financial instruments only for the purpose of hedging its exposure tochanges in interest rates. NMF defers recognition of gains or losses resulting from changes in the fair value of interest rate
swap contracts which meet the criteria for deferral hedge accounting.
Although deferral hedge accounting is generally applied, NMF applies the special treatment to those interest-rate swap contracts that meet the criteria for such special treatment. Under the special treatment, interest-rate swaps are not remeasured atfair value; instead, the net amount paid or received under the interest rate swap contract is recognized and included in interest
expense or income.

43

Cash and cash equivalents as of February 28, 2019 and August 31, 2018 consist of the following:Thousands of Yen

As of February 28, 2019

As of August 31, 2018¥74,212,743¥74,212,743¥74,556,830¥74,556,830

Cash and bank deposits
Cash and cash equivalents
Important contents of the non-cash transactions:Not applicable.

5. ASSETS PLEDGED AS COLLATERAL AND SECURED LIABILITIESThe assets pledged as collateral are as follows:

Thousands of Yen

As of February 28, 2019

As of August 31, 2018

¥3,324,031
6,096,368
2,634
164¥9,423,198¥3,294,755
6,096,368—
185¥9,391,308

Buildings in trust
Land in trust
Structures in trust
Tools, furniture and fixtures in trust
Total
The secured liabilities are as follows:

Thousands of Yen

As of February 28, 2019

As of August 31, 2018

¥726,648¥726,648¥726,648¥726,648

Tenant leasehold and security deposits in trust
Total

6. SCHEDULE OF PROPERTY AND EQUIPMENT
Property and equipment as of February 28, 2019 and August 31, 2018 consist of the following:

Thousands of Yen

As of February 28, 2019Land
Buildings and structures
Accumulated depreciation
Machinery and equipment
Accumulated depreciation
Tools, furniture and fixtures
Accumulated depreciation
Land in trust
Buildings and structures in trust
Accumulated depreciation
Machinery and equipment in trust
Accumulated depreciation
Tools, furniture and fixtures in trust
Accumulated depreciation
Lease assets in trust
Accumulated depreciation
Construction in progress
Total

Acquisition costs¥248,639,023
132,378,523(12,165,774)
699,374(405,602)
275,363(77,742)409,741,005
184,247,241(23,416,164)
559,318(77,583)
696,047(194,795)
10,107(8,633)8,186¥940,907,896

Book value¥248,639,023
120,212,749
293,771
197,620
409,741,005
160,831,076
481,735
501,2521,473
8,186¥940,907,896

As of August 31, 2018
Acquisition costs¥247,417,363
132,128,821(10,463,686)
650,784(363,337)
237,337(56,101)
406,677,823
182,090,345(20,673,871)
429,315(53,443)599,842(141,226)
10,107(7,369)7,228¥938,489,931

Book value¥247,417,363
121,665,135
287,446
181,235
406,677,823
161,416,473
375,871458,6152,737
7,228¥938,489,931

44

Message from the Management

TopicsManagement Strategy

ESG Initiatives

Financial Strategy

Portfolio

Investor Information

Financial Section

NOTES TO FINANCIAL STATEMENTS
7. SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT

8. LONG-TERM DEBT

Short-term debt and current portion of long-term debt as of February 28, 2019 and August 31, 2018 and consist of the following:

Long-term debts as of February 28, 2019 and August 31, 2018 consist of the following:

As of February 28, 2019
Amount(Thousands of Yen)

Unsecured loans from banks due on April 2, 2019
Unsecured loans from banks due on November 26, 2018
Unsecured loans from banks due on November 26, 2018
Unsecured loans from banks due on November 26, 2018
Unsecured loans from a bank due on November 26, 2018
Unsecured loans from banks due on November 26, 2018
Unsecured loans from banks due on December 26, 2018
Unsecured loans from banks due on February 26, 2019
Unsecured loans from a bank due on February 26, 2019
Unsecured loans from banks due on February 26, 2019
Unsecured loans from banks due on March 29, 2019
Unsecured loans from banks due on March 29, 2019
Unsecured loans from banks due on May 27, 2019
Unsecured loans from a bank due on May 27, 2019
Unsecured loans from a bank due on May 27, 2019
Unsecured loans from banks due on August 26, 2019
Unsecured loans from a bank due on August 26, 2019
Unsecured loans from banks due on August 26, 2019
Unsecured loans from banks due on August 26, 2019
Unsecured loans from banks due on October 28,2019Unsecured loans from banks due on October 28,2019Unsecured loans from banks due on November 26,2019Unsecured loans from banks due on November 26,2019Unsecured loans from banks due on November 26,2019Unsecured loans from banks due on November 26,2019Unsecured loans from banks due on February 26,2020Unsecured loans from banks due on February 26,2020Unsecured loans from a bank due on May 26, 2025 (Note 2)
Unsecured loans from a bank due on May 26, 2025 (Note 2)
Total

¥

500,000
—
—
—
—
—
—
—
—
—
4,500,000
4,000,000
9,000,000
1,000,000
1,100,000
5,700,000
2,200,000
2,500,000
4,700,000
3,000,000
4,000,000
1,600,000
4,000,000
5,600,000
3,450,000
5,750,000
2,500,000
42,80042,800¥65,185,600

Weightedaverage interest
rate (Note 1)
0.46091%
—
—
—
—
—
—
—
—
—
0.81625%
0.89635%
1.11750%
1.04875%
0.69894%
1.25200%
1.22000%
1.27625%0.81080%0.23091%
0.20091%
1.16500%
0.72650%0.54065%0.37420%
1.01150%
0.64685%
2.17000%
2.21812%

As of August 31, 2018
Amount(Thousands of Yen)¥

500,000
2,000,000
4,000,000
3,000,000
1,000,000
1,700,000
6,375,000
3,000,000
2,000,000
5,300,000
4,500,000
4,000,000
9,000,000
1,000,000
1,100,000
5,700,000
2,200,000
2,500,000
4,700,000
—
—
—
—
—
—
—
—
42,80042,800¥63,660,600

Weightedaverage interest
rate (Note 1)
0.45545%0.93600%
0.72500%
0.77650%
0.48250%
0.50250%
0.16545%1.44450%0.90759%0.87695%
0.81625%
0.89635%
1.11750%
1.04875%
0.69894%
1.25200%
1.22000%
1.27625%0.81080%
—
—
—
—
—
—
—
—
2.17000%
2.21812%Note 1: The weighted-average interest rate is weighted by the balance of each borrowing at the end of the period and rounded to the nearest fifth decimal place. As forthe borrowings, which were hedged by interest-rate swaps for the purpose of avoiding interest rate fluctuation risk, the swapped interest rates are used to
calculate the weighted average of interest.
Note 2: Installments of ¥10.7 million will be made on the 26th day of every third month starting on August 26, 2013, with the remaining payment of ¥497.1 million to be
repaid on May 26, 2025.

(1) The Company entered into ¥10,000 million credit facilities in the form of commitment lines with two financial institutions forthe fiscal period ended February 28, 2019. The total unused amounts of such credit facilities were ¥10,000 million as ofFebruary 28, 2019.
(2) The Company entered into ¥40,000 million credit facilities in the form of commitment lines with four financial institutions forthe fiscal period ended February 28, 2019. The total unused amounts of such credit facilities were ¥39,500 million as ofFebruary 28, 2019.
(3) The Company entered into ¥10,000 million credit facilities in the form of commitment lines with two financial institutions forthe fiscal period ended August 31, 2018. The total unused amounts of such credit facilities were ¥10,000 million as of August
31, 2018.
(4) The Company entered into ¥40,000 million credit facilities in the form of commitment lines with five financial institutions forthe fiscal period ended August 31, 2018. The total unused amounts of such credit facilities were ¥39,500 million as of August
31, 2018.

45

As of February 28, 2019
Amount(Thousands of Yen)

Unsecured loans from banks due on October 28, 2019
Unsecured loans from banks due on October 28, 2019
Unsecured loans from banks due on November 26, 2019
Unsecured loans from banks due on November 26, 2019
Unsecured loans from banks due on November 26, 2019
Unsecured loans from banks due on November 26, 2019
Unsecured loans from banks due on February 26, 2020
Unsecured loans from banks due on February 26, 2020
Unsecured loans from banks due on May 26, 2020
Unsecured loans from a bank due on May 26, 2020
Unsecured loans from a bank due on May 27, 2020
Unsecured loans from banks due on May 29, 2020
Unsecured loans from a bank due on August 26, 2020
Unsecured loans from a bank due on August 26, 2020
Unsecured loans from banks due on August 26, 2020
Unsecured loans from a bank due on August 26, 2020
Unsecured loans from banks due on August 26, 2020
Unsecured loans from a bank due on August 26, 2020
Unsecured loans from banks due on September 28, 2020
Unsecured loans from banks due on November 26, 2020
Unsecured loans from banks due on November 26, 2020
Unsecured loans from a bank due on November 26, 2020
Unsecured loans from banks due on November 26, 2020
Unsecured loans from banks due on February 26, 2021
Unsecured loans from a bank due on February 26, 2021
Unsecured loans from banks due on February 26, 2021
Unsecured loans from banks due on February 26, 2021
Unsecured loans from a bank due on February 26, 2021
Unsecured loans from banks due on February 26, 2021
Unsecured loans from a bank due on February 26, 2021
Unsecured loans from a bank due on February 26, 2021
Unsecured loans from banks due on February 26, 2021
Unsecured loans from a bank due on February 26, 2021
Unsecured loans from banks due on March 26, 2021
Unsecured loans from banks due on May 26, 2021
Unsecured loans from a bank due on May 26, 2021
Unsecured loans from a bank due on May 27, 2021
Unsecured loans from a bank due on May 27, 2021
Unsecured loans from banks due on July 26, 2021
Unsecured loans from a bank due on August 26, 2021
Unsecured loans from banks due on August 26, 2021
Unsecured loans from a bank due on November 26, 2021
Unsecured loans from banks due on November 26, 2021
Unsecured loans from banks due on November 26, 2021
Unsecured loans from banks due on December 27, 2021
Unsecured loans from a bank due on January 26, 2022
Unsecured loans from banks due on February 28, 2022

—
—
—
—
—
—
—
—
¥ 10,000,000
800,000
1,000,000
4,000,000
1,100,000
800,000
4,700,000
500,000
4,500,000
1,000,000
3,000,000
3,500,000
2,350,000
500,000
1,230,000
5,000,000
2,000,000
2,000,000
2,000,000
3,000,000
2,120,000
500,000
2,000,000
2,800,000
400,000
4,670,000
8,000,000
1,000,000
1,000,000
3,500,000
4,180,000
2,700,000
3,600,000
2,000,000
2,000,000
4,900,000
6,375,000
3,500,000
4,500,000

Weightedaverage interest
rate (Note 1)
—
—
—
—
—
—
—
—
1.33750%
1.25875%
1.48625%0.43000%
1.53674%
1.28277%
1.18000%
1.15566%
1.08100%
0.72000%
0.23091%0.46075%
0.46190%0.47375%0.20091%
1.35250%
1.17750%
1.19211%0.80832%
0.86350%0.85050%0.46725%0.22560%
0.14700%
0.21810%0.23091%
1.56250%
1.46375%
1.68200%
1.62500%
1.23920%
1.24100%
0.81585%
1.30289%
1.11662%0.97410%0.23091%
1.48300%
1.31850%

As of August 31, 2018
Amount(Thousands of Yen)¥

3,000,000
4,000,000
1,600,000
4,000,000
5,600,000
3,450,000
5,750,000
2,500,000
10,000,000
800,000
1,000,000
4,000,000
1,100,000
800,000
4,700,000
500,000
4,500,000
1,000,000
3,000,000
3,500,000
2,350,000
500,000
1,230,000
5,000,000
2,000,000
2,000,000
2,000,000
3,000,000
2,120,000
500,000
2,000,000
2,800,000
400,000
4,670,000
8,000,000
1,000,000
1,000,000
3,500,000
4,180,000
2,700,000
3,600,000
2,000,000
2,000,000
4,900,000—
3,500,000
4,500,000

Weightedaverage interest
rate (Note 1)
0.22545%
0.19545%
1.16500%
0.72650%0.54065%0.37420%
1.01150%
0.64685%
1.33750%
1.25875%
1.48625%0.43000%
1.53674%
1.28277%
1.18000%
1.15566%
1.08100%
0.72000%
0.22545%0.46075%
0.46190%0.47375%
0.19545%
1.35250%
1.17750%
1.19211%0.80832%
0.86350%0.85050%0.46725%0.22560%
0.14700%
0.21810%0.22545%
1.56250%
1.46375%
1.68200%
1.62500%
1.23920%
1.24100%
0.81585%
1.30289%
1.11662%0.97410%—1.48300%
1.31850%

46

Message from the Management

TopicsManagement Strategy

ESG Initiatives

Financial Strategy

Portfolio

Investor Information

Financial Section

As of February 28, 2019

As of August 31, 2018

NOTES TO FINANCIAL STATEMENTS
As of February 28, 2019
Amount(Thousands of Yen)

Unsecured loans from a bank due on February 28, 2022
Unsecured loans from banks due on February 28, 2022
Unsecured loans from banks due on May 26, 2022
Unsecured loans from banks due on May 31, 2022
Unsecured loans from banks due on August 26, 2022
Unsecured loans from a bank due on August 26, 2022
Unsecured loans from banks due on August 26, 2022
Unsecured loans from a bank due on August 26, 2022
Unsecured loans from banks due on September 30, 2022
Unsecured loans from banks due on November 28, 2022
Unsecured loans from banks due on November 28, 2022
Unsecured loans from a bank due on November 28, 2022
Unsecured loans from banks due on November 28, 2022
Unsecured loans from a bank due on November 28, 2022
Unsecured loans from banks due on November 28, 2022
Unsecured loans from a bank due on February 27, 2023
Unsecured loans from banks due on February 27, 2023
Unsecured loans from banks due on February 28, 2023
Unsecured loans from a bank due on May 26, 2023
Unsecured loans from a bank due on May 26, 2023
Unsecured loans from a bank due on May 26, 2023
Unsecured loans from a bank due on May 26, 2023
Unsecured loans from a bank due on May 26, 2023
Unsecured loans from a bank due on August 28, 2023
Unsecured loans from a bank due on August 28, 2023
Unsecured loans from a bank due on August 28, 2023
Unsecured loans from a bank due on August 28, 2023
Unsecured loans from banks due on August 28, 2023
Unsecured loans from a bank due on August 28, 2023
Unsecured loans from a bank due on August 28, 2023
Unsecured loans from a bank due on August 28, 2023
Unsecured loans from banks due on August 31, 2023
Unsecured loans from banks due on November 27, 2023
Unsecured loans from banks due on November 27, 2023
Unsecured loans from banks due on November 27, 2023
Unsecured loans from banks due on November 27, 2023
Unsecured loans from a bank due on February 26, 2024
Unsecured loans from banks due on February 26, 2024
Unsecured loans from a bank due on February 26, 2024
Unsecured loans from banks due on May 27, 2024
Unsecured loans from a bank due on May 27, 2024
Unsecured loans from a bank due on May 27, 2024
Unsecured loans from a bank due on June 26, 2024
Unsecured loans from a bank due on June 26, 2024
Unsecured loans from a bank due on August 26, 2024
Unsecured loans from a bank due on August 26, 2024
Unsecured loans from banks due on August 26, 2024
Unsecured loans from a bank due on November 26, 2024
Unsecured loans from banks due on November 26, 2024
Unsecured loans from a bank due on November 26, 202447

2,750,000
4,000,000
5,500,000
4,500,000
2,980,000
3,000,000
4,000,000
1,000,000
4,000,000
2,100,000
4,550,000
1,800,000
1,500,000
1,000,000
1,500,000
1,300,000
2,800,000
10,000,000
2,000,000
2,000,000
1,000,000
1,000,000
2,500,000
1,000,000
1,000,000
1,000,000
4,000,000
6,100,000
1,000,000
1,000,000
500,000
6,700,000
2,000,000
2,600,000
4,000,000
1,500,000
2,750,000
1,300,000
500,000
1,100,000
2,700,000
2,000,000
2,700,000
2,700,000
3,000,000
2,430,000
5,670,000
2,250,000
3,000,000
1,800,000

Weightedaverage interest
rate (Note 1)
1.29600%
1.16000%
1.25900%
0.82500%
1.19700%
1.09133%
1.08034%
0.32886%
0.76250%
0.92280%
1.11000%
1.05000%
0.98624%0.71221%0.69250%
1.13250%0.40740%0.48700%
1.86500%
1.89500%
1.83875%
0.41250%0.43408%
1.14850%
1.15850%
1.18032%
1.20772%
1.08510%0.43466%
0.41000%
0.41435%
0.55700%
1.75900%
0.82800%
0.49380%0.47483%
1.59400%
0.53630%0.24000%
0.51000%
0.46376%
0.53676%
0.85925%
0.49533%
0.58175%
0.49971%0.49485%0.50825%0.58000%
0.55979%

As of August 31, 2018
Amount(Thousands of Yen)

2,750,000
4,000,000
5,500,000
4,500,000
2,980,000
3,000,000
4,000,000
1,000,000
4,000,000
2,100,000
4,550,000
1,800,000
1,500,000
1,000,000
1,500,000
1,300,000
2,800,000
10,000,000
2,000,000
2,000,000
1,000,000
1,000,000
2,500,000
1,000,000
1,000,000
1,000,000
4,000,000
6,100,000
1,000,000
1,000,000
500,000
6,700,000
2,000,000
2,600,000
4,000,000
1,500,000
2,750,000
1,300,000—
1,100,000
2,700,000
2,000,000
2,700,000
2,700,000
3,000,000
2,430,000
5,670,000
2,250,000
3,000,000
1,800,000

Weightedaverage interest
rate (Note 1)
1.29600%
1.16000%
1.25900%
0.82500%
1.19700%
1.09133%
1.08034%
0.32886%
0.76250%
0.92280%
1.11000%
1.05000%
0.98624%0.71221%0.69250%
1.13250%0.40740%0.48700%
1.86500%
1.89500%
1.83875%
0.41250%0.43408%
1.14850%
1.15850%
1.18032%
1.20772%
1.08510%0.43466%
0.41000%
0.41435%
0.55700%
1.75900%
0.82800%
0.49380%0.47483%
1.59400%
0.53630%—0.51000%
0.46376%
0.53676%
0.85925%
0.49533%
0.58175%
0.49971%0.49485%0.50825%0.58000%
0.55979%

Amount(Thousands of Yen)

Unsecured loans from a bank due on November 26, 2024
Unsecured loans from banks due on November 26, 2024
Unsecured loans from banks due on February 26, 2025
Unsecured loans from a bank due on February 26, 2025
Unsecured loans from banks due on February 26, 2025
Unsecured loans from banks due on February 26, 2025
Unsecured loans from banks due on February 26, 2025
Unsecured loans from a bank due on May 26, 2025
Unsecured loans from a bank due on May 26, 2025
Unsecured loans from banks due on May 26, 2025
Unsecured loans from a bank due on May 26, 2025
Unsecured loans from a bank due on May 26, 2025
Unsecured loans from banks due on May 26, 2025
Unsecured loans from banks due on August 26, 2025
Unsecured loans from banks due on August 26, 2025
Unsecured loans from banks due on August 26, 2025
Unsecured loans from banks due on August 26, 2025
Unsecured loans from banks due on August 26, 2025
Unsecured loans from a bank due on November 26, 2025
Unsecured loans from a bank due on November 26, 2025
Unsecured loans from a bank due on November 26, 2025
Unsecured loans from a bank due on November 26, 2025
Unsecured loans from a bank due on November 26, 2025
Unsecured loans from banks due on November 26, 2025
Unsecured loans from a bank due on November 26, 2025
Unsecured loans from a bank due on November 26, 2025
Unsecured loans from a bank due on November 26, 2025
Unsecured loans from a bank due on November 26, 2025
Unsecured loans from banks due on February 26, 2026
Unsecured loans from banks due on February 26, 2026
Unsecured loans from banks due on February 26, 2026
Unsecured loans from a bank due on May 26, 2026
Unsecured loans from a bank due on May 26, 2026
Unsecured loans from banks due on May 26, 2026
Unsecured loans from a bank due on May 26, 2026
Unsecured loans from a bank due on August 26, 2026
Unsecured loans from a bank due on August 26, 2026
Unsecured loans from banks due on August 26, 2026
Unsecured loans from a bank due on August 26, 2026
Unsecured loans from banks due on August 26, 2026
Unsecured loans from a bank due on August 26, 2026
Unsecured loans from a bank due on August 26, 2026
Unsecured loans from a bank due on November 26, 2026
Unsecured loans from a bank due on November 26, 2026
Unsecured loans from banks due on November 26, 2026
Unsecured loans from banks due on November 26, 2026
Unsecured loans from banks due on November 26, 2026
Unsecured loans from banks due on November 26, 2026
Unsecured loans from banks due on February 26, 2027
Unsecured loans from banks due on February 26, 2027

500,000
2,000,000
4,200,000
1,000,000
3,000,000
1,500,000
1,000,000
2,000,000
2,000,000
2,800,000
1,000,000
1,000,000
2,000,000
3,000,000
4,050,000
1,850,000
2,600,000
3,000,000
1,100,000
1,100,000
2,000,000
2,000,000
2,000,000
4,200,000
900,000
1,300,000
1,000,000
500,000
4,000,000
2,500,000
800,000
2,500,000
1,100,000
3,600,000
1,000,000
2,700,000
2,700,000
3,000,000
1,000,000
3,000,000
1,000,000
1,000,000
2,000,000
2,000,000
4,165,000
4,000,000
1,500,000
2,000,000
2,320,000
1,500,000

Weightedaverage interest
rate (Note 1)
0.52384%
0.42630%
0.62675%
0.52140%0.53936%0.53880%
0.50604%
0.60286%
0.60286%
0.60286%
0.61434%
0.50506%
0.46301%
0.56380%0.58727%
0.67915%0.60489%
0.58380%
1.09830%
1.06250%
1.03955%
0.59639%0.60448%0.64616%0.65123%
0.64278%0.59499%
0.56311%0.74080%0.59592%
0.37630%
0.63995%
0.65267%
0.60880%0.59614%0.67591%
0.67591%
0.77669%
0.70414%0.67483%0.64500%
0.42118%0.76000%
0.74229%0.73506%
0.69956%
0.64999%0.60750%
0.71500%
0.46630%

Amount(Thousands of Yen)

500,000—
4,200,000
1,000,000
3,000,000
1,500,000
1,000,000
2,000,000
2,000,000
2,800,000
1,000,000
1,000,000—
3,000,000
4,050,000
1,850,000
2,600,000
3,000,000
1,100,000
1,100,000
2,000,000
2,000,000
2,000,000
4,200,000
900,000
1,300,000
1,000,000
500,000
4,000,000
2,500,000—
2,500,000
1,100,000
3,600,000
1,000,000
2,700,000
2,700,000
3,000,000
1,000,000
3,000,000
1,000,000—
2,000,000
2,000,000
4,165,000
4,000,000
1,500,000—
2,320,000—

Weightedaverage interest
rate (Note 1)
0.52384%—
0.62675%
0.52140%0.53936%0.53880%
0.50604%
0.60286%
0.60286%
0.60286%
0.61434%
0.50506%—
0.56380%0.58727%
0.67915%0.60489%
0.58380%
1.09830%
1.06250%
1.03955%
0.59639%0.60448%0.64616%0.65123%
0.64278%0.59499%
0.56311%0.74080%0.59592%—
0.63995%
0.65267%
0.60880%0.59614%0.67591%
0.67591%
0.77669%
0.70414%0.67483%0.64500%—
0.76000%
0.74229%0.73506%
0.69956%
0.64999%—
0.71500%—

48

Message from the Management

TopicsManagement Strategy

ESG Initiatives

Financial Strategy

Portfolio

Investor Information

Financial Section

NOTES TO FINANCIAL STATEMENTS
As of February 28, 2019
Amount(Thousands of Yen)

Unsecured loans from banks due on March 26, 2027
Unsecured loans from banks due on May 26, 2027
Unsecured loans from banks due on May 26, 2027
Unsecured loans from a bank due on May 26, 2027
Unsecured loans from banks due on August 26, 2027
Unsecured loans from banks due on August 26, 2027
Unsecured loans from a bank due on August 26, 2027
Unsecured loans from a bank due on August 26, 2027
Unsecured loans from a bank due on November 26, 2027
Unsecured loans from banks due on November 26, 2027
Unsecured loans from a bank due on November 26, 2027
Unsecured loans from banks due on November 26, 2027
Unsecured loans from banks due on November 26, 2027
Unsecured loans from a bank due on February 28, 2028
Unsecured loans from a bank due on February 28, 2028
Unsecured loans from banks due on February 28, 2028
Unsecured loans from a bank due on February 28, 2028
Unsecured loans from banks due on May 26, 2028
Unsecured loans from a bank due on May 26, 2028
Unsecured loans from banks due on August 28, 2028
Unsecured loans from a bank due on August 28, 2028
Unsecured loans from banks due on November 27, 2028
Unsecured loans from banks due on February 26, 2029
Unsecured loans from a bank due on November 26, 2029
Unsecured loans from a bank due on November 26, 2029
Unsecured loans from a bank due on October 28, 2030
Unsecured loans from a bank due on October 28, 2030
Unsecured loans from a bank due on May 26, 2025 (Note 2)
Unsecured loans from a bank due on May 26, 2025 (Note 2)
Total

1,500,000
3,060,000
2,300,000
1,800,000
4,000,000
2,600,000
1,000,000
1,000,000
2,000,000
5,000,000
1,800,000
1,700,000
2,500,000
1,000,000
2,355,000
1,500,000
1,800,000
5,000,000
2,000,000
3,600,000
500,000
2,000,000
2,500,000
2,000,000
2,000,000
1,100,000
1,100,000
711,100
711,100¥409,927,200

As of August 31, 2018

Weightedaverage interest
rate (Note 1)
0.69068%
0.78177%
0.74736%0.70250%
0.76843%0.76290%0.74500%
0.51356%
0.89209%
0.79571%0.75050%0.70750%
0.52234%
0.82130%
0.76241%0.78296%
0.79642%0.79880%0.75922%0.84750%0.61005%
0.81130%
0.65880%
1.12506%
1.12506%
1.92250%
1.91700%
2.17000%
2.21812%Amount(Thousands of Yen)

1,500,000
3,060,000
2,300,000
1,800,000
4,000,000
2,600,000
1,000,000—
2,000,000
5,000,000
1,800,000——
1,000,000
2,355,000
1,500,000
1,800,000
5,000,000—
3,600,000———
2,000,000
2,000,000
1,100,000
1,100,000
732,500
732,500¥411,495,000

Weightedaverage interest
rate (Note 1)
0.69068%
0.78177%
0.74736%0.70250%
0.76843%0.76290%0.74500%—
0.89209%
0.79571%0.75050%——
0.82130%
0.76241%0.78296%
0.79642%0.79880%—0.84750%———
1.12506%
1.12506%
1.92250%
1.91700%
2.17000%
2.21812%Note 1: The weighted-average interest rate is weighted by the balance of each borrowing at the end of the period and rounded to the nearest fifth decimal place. As forthe borrowings, hedged by interest-rate swaps for the purpose of avoiding interest rate fluctuation risk, the swapped interest rates are used to calculate theweighted-average interest rate.
Note 2: Installments of ¥10.7 million will be made on the 26th day of every third month starting on August 26, 2013, with the remaining payment of ¥497.1 million to be
repaid on May 26, 2025.

9. INVESTMENT CORPORATION BONDS
Details of investment corporation bonds outstanding are summarized as follows.
As of February 28, 2019

Amount(Note 1)(Thousands of Yen)

NOF’s 2nd series of unsecured investment corporation
bonds due on March 16, 2020
NOF’s 7th series of unsecured investment corporation
bonds due on March 17, 2028
Former NMF’s 1st series of unsecured investment
corporation bonds due on October 30, 2024
NOF’s 10th series of unsecured investment corporation
bonds due on November 25, 2024
NMF’s 2nd series of unsecured investment corporation
bonds due on November 16, 2027
NMF’s 3rd series of unsecured investment corporation
bonds due on May 21, 2038
Total

As of August 31, 2018

Interest rate

Amount(Thousands of Yen)

Thousands of Yen

As of August 31, 2018
As of February 28, 201949

1-2 years¥58,385,600¥60,885,600

2-3 years¥61,135,600¥58,760,600

3-4 years¥44,715,600¥51,615,600

4-5 years¥61,435,600¥45,535,600(Note 1)

¥ 5,000,000

2.47%¥ 5,000,000

2.47%

4,500,000

2.90%

4,500,000

2.90%

3,000,000

0.87%

3,000,000

0.87%

6,000,000

1.02%

6,000,000

1.02%

2,000,000

0.59%

2,000,000

0.59%

1,500,000

1.03%

1,500,000

1.03%¥22,000,000¥22,000,000

Note 1: The interest rate is rounded to the nearest second decimal place.

The scheduled redemption amounts of investment corporation bonds for each of the five years after the balance sheet date areas follows.


Thousands of Yen

As of August 31, 2018
As of February 28, 2019

Within a year——

1-2 years¥5,000,000¥5,000,000

2-3 years——

3-4 years——

4-5 years——

10. UNITHOLDERS’ EQUITY
NMF issues only non-par value investment units in accordance with the Investment Trust Act. The entire amount of the issue
price of new units is designated as stated capital. NMF is required to maintain net assets of at least ¥50,000 thousand as set
forth in the Investment Trust Act.

11. ALLOWANCE FOR TEMPORARY DIFFERENCE ADJUSTMENTS
The movement in the allowance for temporary difference adjustments on the Balance Sheet was as follows:
For the period from September 1, 2018 to February 28, 2019
1. Reason, related assets and amounts
The scheduled repayment amounts of long-term debt for each of the five years after the balance sheet date (excluding thecurrent portion of long-term debt) are as follows.

Interest rate

Thousands of Yen

Related assets, etc.

ReasonInitialamountAmortization of¥9,489,126
goodwill
Land, buildings, etc. Merger expenses 4,029,135
Loss on interest-rate swaps
Deferred gains or
recognized at the ¥2,867,594
losses on hedges
end of the fiscal
periodIncrease - subtotal
—
Total
—
Goodwill

Balance atAllowance
the end of
set aside
previous
during period
periodReversalduringperiodBalance atthe end ofcurrent
periodReason forreversal¥5,432,649¥1,328,225—¥6,760,875—

1,352,557(5,754)—

1,346,802—

1,093,460—(¥321,691)

7,878,667¥7,878,667

1,322,470¥1,322,470

Changes in fair
771,769 value of derivative transactions(321,691) 8,879,447(¥321,691) ¥8,879,447

—
—

50

Message from the Management

TopicsManagement Strategy

ESG Initiatives

Financial Strategy

Portfolio

Investor Information

Financial Section

NOTES TO FINANCIAL STATEMENTS
12. PER UNIT INFORMATION

2. Method of reversal(1) Amortization of goodwill
In principle, amortization of goodwill is not reversed.

The net asset values per unit and the net income per unit as of February 28, 2019 and August 31, 2018 were as follows:
For the period
from September 1, 2018
to February 28, 2019(2) Merger expenses
Item
Buildings, etc.
Land
Buildings in trust, etc.
Land in trust
Leasehold rights
Leasehold rights in trust

Method of reversal
Upon depreciation and sale, etc., the corresponding amount is scheduled to be reversed.
Upon sale, etc., the corresponding amount is scheduled to be reversed.
Upon depreciation or sale, etc., the corresponding amount is scheduled to be reversed.

Net assets per unit
Net income per unit

For the period
from March 1, 2018
to August 31, 2018

¥131,853¥ 2,675¥132,314¥ 2,478

Note 1: The net income per unit is calculated by dividing net income by the weighted-average number of units outstanding.
Note 2: The basis for calculating net income per unit is as follows.

Upon sale, etc., the corresponding amount is scheduled to be reversed.

(3) Deferred gains or losses on hedges
Based on changes in the fair value of derivatives used as hedging instruments, the corresponding amount is scheduled to bereversed.
For the period from March 1, 2018 to August 31, 2018
1. Reason, related assets and amounts

For the period
from September 1, 2018
to February 28, 2019
Net income (Thousands of Yen)
Amount not available to ordinary unitholders (Thousands of Yen)
Net income available to ordinary unitholders (Thousands of Yen)
Average number of units during the period (Units)

For the period
from March 1, 2018
to August 31, 2018

¥11,560,917—¥11,560,917
4,321,800¥10,709,804—¥10,709,804
4,321,111

Thousands of Yen

Related assets, etc.

Goodwill

ReasonAmortization of
goodwill

Land, buildings, etc. Merger expenses

Deferred gains orlosses on hedges

Loss on interest-rate swaps
recognized at theend of the fiscal
periodIncrease - subtotal
Total

Initialamount¥6,866,883

4,029,135¥2,867,594——

Balance atAllowance
the end of
set aside
previous
during period
period¥4,244,640

1,399,852

1,524,682

7,169,175¥7,169,175¥1,188,008——

1,188,008¥1,188,008

ReversalduringperiodBalance atthe end ofcurrent
periodReason forreversal—¥5,432,649—(¥47,295)

Sale and depreciation of proper1,352,557 ties for whichmerger expenses
were recorded(431,221)

Changes in fair
1,093,460 value of derivative transactions(478,516) 7,878,667(¥478,516) ¥7,878,667——

2. Method of reversal(1) Amortization of goodwill
In principle, amortization of goodwill is not reversed.
(2) Merger expenses
Item
Buildings, etc.
Land
Buildings in trust, etc.
Land in trust
Leasehold rights
Leasehold rights in trust

Method of reversal
Upon depreciation and sale, etc., the corresponding amount is scheduled to be reversed.
Upon sale, etc., the corresponding amount is scheduled to be reversed.
Upon depreciation or sale, etc., the corresponding amount is scheduled to be reversed.

13. RELATED PARTY TRANSACTIONS
For the periods from September 1, 2018 to February 28, 2019 and from March 1, 2018 to August 31, 2018
Parent Company and major corporate unitholders
Not applicable
Subsidiaries and affiliates
Not applicable
Fellow subsidiary companies
Not applicable
Directors and major individual unitholders
Not applicable

14. INCOME TAXESThe Company, as an investment corporation, is subject to corporate income taxes at a statutory tax rate of approximately
31.51% for the fiscal period ended February 28, 2019. However, the Company may deduct dividend distributions paid to its
unitholders from its taxable income amounts, provided such distributions meet the requirements under the Act on Special
Measures Concerning Taxation of Japan. Under this act, an investment corporation must meet a number of tax requirements,
including a requirement to distribute in excess of 90% of its distributable income for the fiscal period, in order to deduct suchamounts. If the investment corporation does not satisfy all of the requirements, the entire taxable income of the investment
corporation will be subject to regular corporate income taxes.
Since the Company distributed in excess of 90% of its distributable income in the form of cash distributions totaling¥13,518,590 thousand for the fiscal period ended February 28, 2019, such distributions were treated as deductible distributions
for purposes of corporate income taxes.

Upon sale, etc., the corresponding amount is scheduled to be reversed.

(3) Deferred gains or losses on hedges
Based on changes in the fair value of derivatives used as hedging instruments, the corresponding amount is scheduled to bereversed.

51

52

Message from the Management

TopicsManagement Strategy

ESG Initiatives

Financial Strategy

Portfolio

Investor Information

Financial Section

NOTES TO FINANCIAL STATEMENTS
The following summarizes breakdown of deferred tax assets and liabilities:

Thousands of Yen

For the period
from September 1, 2018
to February 28, 2019
Deferred tax asset:
Valuation difference on other assets acquired by merger
Deferred gains or losses on hedges
Unearned revenue
Write-offs for long-term prepaid expenses
Depreciation costs of trust leasehold rights
Non-deductible accrued enterprise tax
		Subtotal		Valuation allowance
		 Total non-current deferred tax assets
Total deferred tax assets
Net deferred tax assets

For the period
from March 1, 2018
to August 31, 2018

¥20,840,495
315,141
141,505
15,456
1,221
15
21,313,836(¥21,313,836)———¥21,204,411
243,830
180,889
18,753
1,099
95
21,649,079(¥21,649,079)———(3) Supplementary Explanation on Estimated Fair Value of Financial Instruments
The fair value of financial instruments is based on the quoted market price, if applicable. When there is no quoted market
price available, fair value is reasonably estimated. Certain assumptions are used for the estimation of fair value. Accordingly,
the result of such estimation may change if different assumptions are used. Furthermore, the contractual amounts of derivative transactions stated in “22. Derivatives and Hedge Accounting” below do not represent the market risk involved in thesederivative transactions.
Fair Value of Financial Instruments
For the period from September 1, 2018 to February 28, 2019
The following table summarizes the carrying value and the estimated fair values of financial instruments as of February 28, 2019.


Statutory tax rate
Deductible cash distributions
Valuation of allowance
Amortization of goodwill
Other
Effective tax rate

31.51%(35.14%)(3.51%)
7.15%
0.01%
0.01%

For the period
from March 1, 2018
to August 31, 201831.74%(35.65%)(3.84%)
7.77%
0.01%
0.02%

15. FINANCIAL INSTRUMENTS
Overview(1) Policy for Financial Instruments
Upon acquisition of property-related assets, the Company may raise funds through certain financing methods including
borrowings, issuance of investment corporation bonds and issuance of investment units. In financing through interest-bearing debt, to secure stable financing capability and reduce future risks of rising interest rates, the Company’s investment
policy is to secure longer-term, fixed-rate borrowings with well-diversified maturities.
The Company enters into derivative transactions only for the purpose of reducing risk of future interest rate fluctuations anddoes not engage in speculative transactions.
(2) Type and Risk of Financial Instruments and Related Risk Management
Borrowings and investment corporation bonds are primarily used to fund the acquisition of property-related assets as well as
the repayment of debts and redemption of investment corporation bonds. The Company is exposed to liquidity risk of being
unable to meet its obligations on scheduled due dates. The Company controls and limits such risk by diversifying not only thefinancial institutions, but also the type of financing to include the effective use of surplus funds and direct financing from thecapital markets such as issuance of investment units. In addition, the Company is exposed to the market risk arising fromfluctuations in interest rates on its floating-rate debt. However, the effect of such risk on the operation of the Company islimited by maintaining the LTV ratio at low levels and the ratio of long-term fixed-rate debt to total debt at high levels.
Furthermore, the Company may utilize derivative transactions (interest-rate swap transactions) as a hedging instrument to
reduce the market risk under floating-rate debt by swapping such floating-rate interest payments for fixed-rate interest
payments.
Bank deposits are held as a means of investing surplus funds, and the Company is exposed to the credit risk that financial
institutions may default. However, the effect of such risk is limited by diversifying the financial institutions with which surplus
funds are deposited.

53

Carrying value¥ 74,212,743(500,000)(64,685,600)(22,000,000)(409,927,200)(¥ 1,001,597)(i) Cash and bank deposits(ii) Short-term debt(iii) Current portion of long-term debt(iv) Investment corporation bonds(v) Long-term debt(vi) Derivative transactions

The following summarizes the significant differences between the statutory tax rate and the effective tax rate.
For the period
from September 1, 2018
to February 28, 2019

Thousands of Yen(Note 1)

Fair value¥ 74,212,743(500,000)(64,808,960)(23,298,479)(416,632,574)(¥ 1,001,597)

Difference(Note 2)——¥ 123,360
1,298,479¥6,705,374—

For the period from March 1, 2018 to August 31, 2018
The following table summarizes the carrying value and the estimated fair values of financial instruments as of August 31, 2018.


Thousands of Yen

Carrying value¥ 74,556,830(500,000)(63,160,600)(22,000,000)(411,495,000)(¥
778,253)(Note 1)(i) Cash and bank deposits(ii) Short-term debt(iii) Current portion of long-term debt(iv) Investment corporation bonds(v) Long-term debt(vi) Derivative transactions

Fair value¥ 74,556,830(500,000)(63,349,094)(23,221,767)(415,825,820)(¥
778,253)

Difference(Note 2)——
¥ 188,494
1,221,767¥4,330,820—

Note 1: The numbers in parenthesis indicate liabilities.
Note 2: Method for determining the fair value of financial instruments and derivative transactions(i) Cash and bank deposits and (ii) Short-term debt
As these items are settled within a short-term period, their fair value is nearly equal to the carrying value. Therefore, for these items, the carrying value isreported as the fair value.
(iv) Investment corporation bonds
The fair value of investment corporation bonds issued by the Company is determined based on their market prices.
(iii) Current portion of long-term debt and (v) Long-term debt
For floating-rate long-term debt, the carrying value is reported as it is considered to be approximately equal to the fair value because such debt reflects themarket interest rates within a short-term period. (However, the fair value of certain floating-rate long-term debt that qualifies for the special treatment ofinterest-rate swaps (see “22. Derivatives and Hedge Accounting”) is determined by discounting the sum of its principal and interest payments net of any
cash flows from the interest-rate swap at a rate reasonably estimated to be applicable to similar fixed-rate debt.) The fair value of fixed-rate long-term debt isdetermined by discounting the sum of its principal and interest payments at a rate reasonably estimated to be applicable to similar fixed-rate debt.
(vi) Derivative transactions
See “22. Derivatives and Hedge Accounting.”
Note 3: Redemption schedule for cash and bank deposits as of February 28, 2019.

Thousands of Yen

After two years,
Due within one After one year,
After three years, After four years,
within three
After five years
year
within two years
within four years within five years
years
Cash and bank deposits
Total¥74,212,743

—

—

—

—

—

¥74,212,743

—

—

—

—

—

Redemption schedule for cash and bank deposits as of August 31, 2018

Thousands of Yen

Due within one After one year,
year
within two years
Cash and bank deposits
Total

After two years,
After three years, After four years,
within three
After five years
within four years within five years
years¥74,556,830

—

—

—

—

—

¥74,556,830

—

—

—

—

—

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Message from the Management

TopicsManagement Strategy

ESG Initiatives

Financial Strategy

Portfolio

Investor Information

Financial Section

NOTES TO FINANCIAL STATEMENTS
Note 4: Redemption schedule for debt as of February 28, 2019Thousands of Yen

Due within one After one year,
year
within two years
Short-term debt¥

500,000

—

—

—

—

—

—

¥ 5,000,000

—

—

—

¥ 17,000,000

64,685,600

60,885,600¥58,760,600¥51,615,600¥45,535,600

193,129,800¥65,185,600¥65,885,600¥58,760,600¥51,615,600¥45,535,600¥210,129,800

Investment corporation bonds
Long-term debt
Total

After two years,
After three years, After four years,
within three
After five years
within four years within five years
years

Redemption schedule for debt as of August 31, 2018



2. Information about geographical areas(1) Revenues
Since more than 90 percent of the total operating revenues were generated from external customers in Japan, geographicalbreakdown of revenues has been omitted.
(2) Property and equipment
Since more than 90 percent of the total property and equipment on the balance sheet are located in Japan, geographicalbreakdown of property and equipment has been omitted.
3. Information about major clients

Thousands of Yen

For the period from September 1, 2018 to February 28, 2019

After two years,
Due within one After one year,
After three years, After four years,
within three
After five years
year
within two years
within four years within five years
years
Short-term debt¥

500,000

—

—

—

—

—

—

¥ 5,000,000

—

—

—

¥ 17,000,000

63,160,600

58,385,600¥61,135,600¥44,715,600¥61,435,600

185,822,600¥63,660,600¥63,385,600¥61,135,600¥44,715,600¥61,435,600¥202,822,600

Investment corporation bonds
Long-term debt
Total

16. INVESTMENT AND RENTAL PROPERTIESThe Company owns leasable office, leasable retail facilities, leasable logistics facilities, leasable residential (including land) inGreater Tokyo area and other areas for the purpose of earning revenue from leasing. The following table summarizes the carrying value and the estimated fair value of these properties.


Thousands of Yen

For the period
from September 1, 2018
to February 28, 2019
Carrying value
Balance at beginning of the period
Amount of increase (decrease) during the period
Balance at end of the period
Fair value at end of the period

Customer name
Nomura Real Estate Partners Co., Ltd.

¥ 914,834,180
32,615,444
947,449,625¥1,041,183,000

Note 1: The carrying value represents the acquisition cost less accumulated depreciation.
Note 2: O f the change in investment and rental properties, the increase during the previous period is mainly attributable to the acquisition of Landport Hachioji II(¥9,365,947 thousand), Landport Iwatsuki (¥6,176,597 thousand), Hotel Vista Sapporo Odori (¥3,784,521 thousand), PMO Nihonbashi Mitsukoshi-mae(¥4,374,216 thousand), PMO Shibadaimon (¥2,160,398 thousand), PROUD FLAT Sangenjaya II (¥2,836,531 thousand), PROUD FLAT Sotokanda (¥2,384,706
thousand), PROUD FLAT Noborito (¥1,278,507 thousand), PROUD FLAT Yoyogi Hachiman (¥1,005,747 thousand) and PROUD FLAT Nakaochiai (¥880,458
thousand). The decrease during the previous period is mainly attributable to the depreciation (¥4,897,379 thousand). The increase during the current period ismainly attributable to the acquisition of NMF Kobe Myodani Building (¥3,604,747 thousand), Serenite Shinsaibashi Grande (¥5,832,185 thousand). The decreaseduring the current period is mainly attributable to the sale of PRIME URBAN Esaka I (¥612,553 thousand), PRIME URBAN Esaka II (¥743,930 thousand), PRIMEURBAN Esaka III (¥1,095,159 thousand), PRIME URBAN Tamatsukuri (¥955,449 thousand) and PRIME URBAN Chikusa (¥1,167,276 thousand) as well as
depreciation (¥4,906,599 thousand).
Note 3: Fair value at the end of the period is the appraisal value or survey price determined by an outside real estate appraiser.

The real estate rental revenues and expenses for the fiscal period ended February 28, 2019 are presented in “18. Breakdown ofReal Estate Rental Revenues and Expenses.”

17. SEGMENT INFORMATION
For the periods from September 1, 2018 to February 28, 2019 and March 1, 2018 to August 31, 2018
Segment Information

Related segment nameRental real estate business

Revenues (Thousands of Yen)
¥5,056,661

Related segment nameRental real estate business

For the period from March 1, 2018 to August 31, 2018
Customer name
Nomura Real Estate Partners Co., Ltd.

18. BREAKDOWN OF REAL ESTATE RENTAL REVENUES AND EXPENSES
Real estate rental revenues and expenses for the fiscal period ended February 28, 2019 and August 31, 2018 consist of thefollowing:

Thousands of Yen

For the period
from September 1, 2018
to February 28, 2019

For the period
from March 1, 2018
to August 31, 2018

¥ 947,449,625
2,417,578
949,867,203¥1,056,994,000

Revenues (Thousands of Yen)
¥5,086,866

Real estate rental revenues
Rental revenues
		Rental revenues
		 Common area charges
Other rental revenues
		Parking revenues
		Incidental income
		 Other miscellaneous revenues
Real estate rental expenses
		 Property management costs
		 Property management fees
		 Property and other taxes
		Utility expenses
		Casualty insurance		 Repairs and maintenance		Land rents
		Depreciation
		 Other rental expenses
Real estate rental profits¥34,742,917
31,885,544
29,453,615
2,431,928
2,857,373
595,154
2,189,215
73,003
14,977,514
1,626,785
904,698
2,831,124
1,774,192
41,641
1,515,609
217,806
4,911,636
1,154,020¥19,765,403

For the period
from March 1, 2018
to August 31, 2018¥34,731,869
31,695,901
29,254,971
2,440,930
3,035,967
588,545
2,376,113
71,30815,158,332
1,604,399
980,132
2,846,279
1,882,466
43,614
1,555,208
215,680
4,901,925
1,128,627¥19,573,536

Since the Company has been engaged in the real estate leasing business as a single segment, segment information has been
omitted.
Related Information
1. Information about products and services
Since revenues from external customers of products and services within a single segment are more than 90 percent of total
operating revenues, information about products and services has been omitted.

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ESG Initiatives

Financial Strategy

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Financial Section

NOTES TO FINANCIAL STATEMENTS
19. BREAKDOWN OF GAIN AND LOSS ON SALES OF REAL ESTATE

Derivative transactions as of August 31, 2018

Thousands of Yen

For the period
from March 1, 2018
to August 31, 2018

For the period
from September 1, 2018
to February 28, 2019
Gain on sale of real estate
Proceeds from sale of real estate
Cost of real estate
Other related sales expense
Gain on sale of real estate
Loss on sale of real estate
Proceeds from sale of real estate
Cost of real estate
Other related sales expense
Loss on sale of real estate(1) There were no derivative financial instruments not subject to hedge accounting.
(2) Derivative financial instruments subject to hedge accounting were as follows:¥4,179,000
3,407,092
86,310685,596————

1,168,000
1,167,276
23,942¥ 23,219————

20. BREAKDOWN OF EXTRAORDINARY INCOME

Thousands of Yen

Hedge accounting
methodPrincipal treatment
methodSpecial treatment ofinterest-rate swaps

Type of derivative
instruments
Interest-rate swaps:
Received/floating andpaid/fixedInterest-rate swaps:
Received/floating andpaid/fixed

Main hedged
itemLong-term debt

¥129,380,000¥101,180,000

Fair value (Note 2)(¥ 778,253)(Note 3)Long-term debt

Total

89,475,300

74,732,500(745,750)(Note 4)¥218,855,300¥175,912,500(¥1,524,003)

Note 1: Contract amount is based on notional amount.
Note 2: Fair value is measured by swap counterparty, based on the actual market interest rate, etc.
Note 3: Out of the fair value, (¥6,483 thousand) is booked as “accrued expenses” on the Balance Sheet.
Note 4: Out of the fair value, (¥745,750 thousand) is not marked to market on the Balance Sheet, since adopting special treatment for interest-rate swaps.

23. CASH DISTRIBUTIONS

For the period from September 1, 2018 to February 28, 2019

For the period
from September 1, 2018
to February 28, 2019

For the period
from March 1, 2018
to August 31, 2018¥12,334,340,732¥11,804,535,046

2,182,509,000
1,560,169,800
622,339,200

2,619,010,800
1,322,470,800
1,296,540,000

3. Incorporation into unitholders’ capital		 Of which, reversal of allowance for temporary difference adjustments——

321,691,082
321,691,082

4. Distributions
		 [Distributions (per unit)]		 Of which, distributions of earnings
		 [Of which, distributions of earnings (per unit)]		 Of which, allowance for temporary difference adjustments		 [Of which, allowance for temporary difference adjustments (per unit)]		 Of which, other distributions in excess of net income
		 [Of which, other distributions in excess of net income (per unit)]

13,518,590,400(3,128)
11,336,081,400(2,623)
1,560,169,800(361)
622,339,200(144)

13,328,431,200(3,084)
10,709,420,400(2,478)1,322,470,800(306)
1,296,540,000(300)¥998,259,332¥773,423,564

The insurance amount of ¥139,976 thousand related to the assets damaged by the Typhoons Jebi and Trami in 2018 was offset
by the loss amount of ¥86,678 thousand. Therefore, the amount of ¥53,297 thousand is recorded as insurance income.
1. Retained earnings at end of period

For the period from March 1, 2018 to August 31, 2018
Not applicable

2. Distributions in excess of retained earnings
		 Of which, allowance for temporary difference adjustment
		 Of which, other distributions in excess of net income

21. LEASESThe future minimum rental revenues from tenants under non-cancelable operating lease of properties as of February 28, 2019and August 31, 2018 are summarized as follows:

Thousands of Yen

As of February 28, 2019

As of August 31, 2018¥31,590,571
68,152,899¥99,743,470¥29,708,567
69,224,703¥98,933,271

Due within one year
Due after one year
Total

22. DERIVATIVES AND HEDGE ACCOUNTING
Derivative transactions as of February 28, 2019(1) There were no derivative financial instruments not subject to hedge accounting.
(2) Derivative financial instruments subject to hedge accounting were as follows:

5. Retained earnings carried forwardThousands of Yen

Hedge accounting
methodPrincipal treatment
methodSpecial treatment ofinterest-rate swaps
Total

Type of derivative
instruments
Interest-rate swaps:
Received/floating andpaid/fixedInterest-rate swaps:
Received/floating andpaid/fixed

Main hedged
itemLong-term debt

Notional amountDue after one year

(Note 1)

¥116,080,000¥ 91,330,000

Fair value (Note 2)(¥1,001,597)(Note 3)Long-term debt

83,753,900

61,661,100(974,332)(Note 4)

¥199,833,900¥152,991,100(¥1,975,930)

Note 1: Contract amount is based on notional amount.
Note 2: Fair value is measured by swap counterparty, based on the actual market interest rate, etc.
Note 3: Out of the fair value, (¥4,117 thousand) is booked as “accrued expenses” on the Balance Sheet.
Note 4: Out of the fair value, (¥974,332 thousand) is not marked to market on the Balance Sheet, since adopting special treatment for interest-rate swaps.

57

Notional amountDue after one year

(Note 1)

Calculation method of distribution amount
NMF calculates distributions in accordance with the cash distribution policies as specified in Article 36, Paragraphs 1 and 2 of
NMF’s Articles of Incorporation.
For the fiscal period under review, NMF decided to implement a total of ¥13,518,590,400 in distributions (¥3,128 per investment unit). This figure was arrived at by excluding the portion for which per-unit distribution comprising the types of dividends
laid out below would be less than ¥1 from ¥13,520,782,822, the amount calculated by adding to ¥11,560,917,168 in net income
after taxes ¥2,622,242,820 in amortization of goodwill, subtracting ¥685,596,431 in gain on sales of real estate, and adding¥23,219,265 in loss on sales of real estate.
Total distributions comprise distribution of earnings and distribution in excess of net income. Distribution of earnings as stipulated in Article 136, Paragraph 1 of the Investment Trust Act came to ¥11,336,081,400 (¥2,623 per investment unit). Distribution
in excess of net income comprises a distribution of ¥1,560,169,800 (¥361 per investment unit) as allowance for temporary
difference adjustment and ¥622,339,200 (¥144 per investment unit) in other distribution in excess of net income.

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Message from the Management

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Portfolio

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Financial Section

NOTES TO FINANCIAL STATEMENTS
24. INFORMATION ON ALLOWANCE FOR TEMPORARY DIFFERENCE ADJUSTMENTS

For the period from March 1, 2018 to August 31, 2018

For the period from September 1, 2018 to February 28, 2019

1. Reason for provision, related assets and amounts


1. Reason for provision, related assets and amountsThousands of Yen

Related assets, etc.

Reason for provision

Goodwill
Long-term deposits

Amortization of goodwill
Shortfall of reserve for repairs
Loss on interest-rate swaps recognized at the end of theDeferred gains or losses on hedges
fiscal period
Increase-subtotal
Buildings, facilities, etc.
Depreciation deficiency equivalent
Unearned revenue
Write-down of loss on interest rate swap due to merger
Land
Cost of sales of land
Others—Decrease-subtotal
Total

Provision of allowance fortemporary difference
adjustments¥2,622,242
8,015
225,7102,855,968(657,016)(124,655)(494,720)(19,406)(1,295,799)¥1,560,169

2. Reason for reversal, related assets and amountsThousands of Yen

Related assets, etc.
Land, buildings, etc.

Reason for reversal
Sale and depreciation of properties for which merger
expenses were recorded

Provision of allowance fortemporary difference
adjustments—(Note 1)—

Total
Note 1: The amount of reversal during the current fiscal period (¥12,910 thousand) is included in “Depreciation deficiency equivalent” on “1. Reasons for provision,
related assets and amounts.”

3. Method of reversal(1) Amortization of goodwill
In principle, amortization of goodwill is not reversed.
(2) Merger expenses
Item
Buildings, etc.
Land
Buildings in trust, etc.
Land in trust, etc.
Leasehold
Leasehold in trust

Method of reversal
Upon depreciation or sale, the corresponding amount is scheduled to be reversed.
Upon sale, the corresponding amount is scheduled to be reversed.
Upon depreciation or sale, the corresponding amount is scheduled to be reversed.
Upon sale, the corresponding amount is scheduled to be reversed.

(3) Long-term deposits
In principle, long-term deposits are not reserved.

Thousands of Yen

Related assets, etc.
Goodwill
Long-term deposits
Increase-subtotal
Buildings, facilities, etc.
Unearned revenue
OthersDecrease-subtotal
Total

Reason for provision
Amortization of goodwill
Shortfall of reserve for repairs
Depreciation deficiency equivalent
Write-down of loss on interest rate swap due to merger-

Provision of allowance fortemporary difference
adjustments¥2,622,242
1,613
2,623,856(1,142,482)(137,860)(21,042)(1,301,385)¥1,322,470

2. Reason for reversal, related assets and amountsThousands of Yen

Related assets, etc.

Reason for reversal

Sale and depreciation of properties for which merger
expenses were recorded
Deferred gains or losses on hedges Changes in fair value of derivatives
Total
Land, Buildings, etc.

Provision of allowance fortemporary difference
adjustments—(Note 1)(¥321,691)(¥321,691)

Note 1: The amount of reversal during the current fiscal period (¥5,754 thousand) is included in “Depreciation deficiency equivalent” on “1. Reasons for provision,
related assets and amounts.”

3. Method of reversal(1) Amortization of goodwill
In principle, amortization of goodwill is not reversed.
(2) Merger expenses
Item
Buildings, etc.
Land
Buildings in trust, etc.
Land in trust, etc.
Leasehold
Leasehold in trust

Method of reversal
Upon depreciation or sale, the corresponding amount is scheduled to be reversed.
Upon sale, the corresponding amount is scheduled to be reversed.
Upon depreciation or sale, the corresponding amount is scheduled to be reversed.
Upon sale, the corresponding amount is scheduled to be reversed(3) Long-term deposits
In principle, long-term deposits are not reserved.
(4) Deferred gains or losses on hedges
The amount corresponding to changes in the fair value of derivatives used as hedging instruments is scheduled to be reversed.

(4) Deferred gains or losses on hedges
The amount corresponding to changes in the fair value of derivatives used as hedging instruments is scheduled to be reversed.

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NOTES TO FINANCIAL STATEMENTS

Financial Strategy

Portfolio

Investor Information

Financial Section

INDEPENDENT AUDITOR’S REPORT

25. SIGNIFICANT SUBSEQUENT EVENTS
1. Issuance of New Investment Units
At the Board of Directors meetings held on February 7, 2019 and February 18, 2019, NMF resolved to issue new investment
units, as shown below. Payments for new investment units issued via a public offering concluded on March 1, 2019, and payments for new investment units issued via third-party allocation concluded on March 26, 2019. As a result, unitholders’ capital
stands at ¥214,855,487 thousand, and the total number of investment units issued and outstanding is 4,547,300 as of March
26, 2019.
Issuance of New Investment Units through Public Offering (Primary Offering)Number of units offered
Issue price (offer price)
Total issue price (total offer price)Amount to be paid (issue value)
Total amount to be paid (total issue value)
Payment date

214,760 units¥150,223 per unit
¥32,261,891,480¥145,471 per unit
¥31,241,351,960
March 1, 2019

Issuance of New Investment Units through Third-Party Allotment (Third-Party Allotment)
Number of investment units offered
Amount to be paid (issue value)
Total amount to be paid (total issue value)
Payment date
Allottee

10,740 units¥145,471 per unit
¥1,562,358,540
March 26, 2019
Nomura Securities Co., Ltd.

Use of proceeds
The proceeds obtained from the Primary Offering were used as partial funds for the acquisition of the 10 properties acquired on
March 1, 2019 and April 1, 2019; and the proceeds obtained from the Third-party Allotment were used to repay loans taken out
to fund part of the acquisition of the 10 properties.

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