Semi-Annual Report

First Half of 2015
including AIFMD
Article 23 Information(28th Period – January to June 2015)

NBF Report
Nippon Building Fund Inc.
http://www.nbf-m.com/nbf_e/

ProﬁleOn September 10, 2001, Nippon Building Fund Inc. (NBF) became the first Japanese real estate
investment trust (J-REIT) to list on the J-REIT section of the Tokyo Stock Exchange. Today, NBF has thelargest market capitalization and assets under management among J-REITs.
NBF employs funds raised through unitholder subscriptions and borrowings to invest in real estate, realestate-backed securities, trust beneficiary rights and other assets with the objective of sustainable growthin portfolio value and stable profits on a medium-to-long-term basis. NBF primarily invests in officebuildings in the central business districts of Tokyo, other Greater Tokyo and other cities in Japan.
Going forward, NBF will continue its steady management for the high quality and growth befitting thenumber one J-REIT.

NBF Report January – June 2015

Contents
Introduction..............................................................2

Investment and Distribution Policies ......................22

A Track Record of Steady Growth ............................4Management’s Discussion and Analysis ................29

To Our Unitholders ...................................................6

Financial Statements ..............................................42

Strategies .................................................................8

Notes to Financial Statements ...............................46

Performance Highlights ..........................................10

Independent Auditor’s Report ................................61

Sustainability Initiatives ..........................................11
Portfolio Overview ..................................................12

Response to Article 23 of the European Alternative
Investment Fund Managers Directive .................62

Location of Office Properties .................................13

Corporate Data ......................................................81

Major Assets ..........................................................14

Investors’ Information ............................................82

Management Team and Management Structure .....16

Note regarding the European Alternative Investment Fund Managers Directive (European Directive 2011/61/EU)
This report, which has been prepared to comply with Article 22 of the European Alternative Investment Fund Managers Directive (European Directive 2011/61/EU), or the AIFMD, also includes certain
information required under Article 23 of the AIFMD. Such information required under Article 23 of the AIFMD is included in the Article 23 portion of this report starting on page 62 of this report.

NBF Report January – June 20151

Introduction

NBF is an office-specialized J-REIT, sponsored by Mitsui Fudosan Co., Ltd.

NBF Policies
STRATEGIES
Portfolio Strategy• Make aggressive acquisitions andflexible dispositions• Focus on highly competitive officebuildings, primarily in Tokyo central
business districts (CBDs)• Expand assets

Financial Strategy• Maintain a conservative loan-to-value(LTV) ratio of 36-46% and a long-term
fixed-rate debt ratio of 90% or higher
to enable flexible financing
and acquisitions• Diversify debt to reduce financial risk

• Use the Mitsui Fudosan Grouppipeline

Leasing Strategy• Use the sales capabilities of the
Mitsui Fudosan Group for leasing
and tenant retention• Maintain a high occupancy rate

Property Management Strategy• Use the comprehensive capabilitiesof the Mitsui Fudosan Group• Maintain and increase asset value
through strategic investment• Use NBF’s exclusive property
management (PM) company
to deliver high-quality management

2

NBF Report January – June 2015

Increase Unitholder Value• Stable medium-to-long-term growth in distribution per unit (DPU)• Expansion of net asset value (NAV) per unit

FEATURES
Portfolio Quality

Financial Fundamentals

Focused investment in highly competitive
prime office buildings
Ratio of investment in 5 wardsof central Tokyo

Sound LTV control
LTV (Interest-bearing debt to asset* ratio)

51.7%(Share of investment in 23 wards of Tokyo

78.1%)(Acquisition price basis)

High occupancy rate
Average occupancy rateduring the period*

97.9%

Unrealized gain ratio

Long-term fixed-rate
debt ratio

96.5%
4.02 years(Long-term interest-bearing debt)

Maintain high credit ratings

10.5%*Average occupancy rate during the period: weighted average of month-end occupancy rate on a floor space basis

Size

41.9%

Diversified long-term fixed-rate debt

Average maturity(1H/2015 (28th Period))

Appraisal value(As of June 30, 2015 )JCR

AA+ R&I AA S&P A+*Book value basis

Sponsor

The largest J-REIT¥1,022.4 billion
Market cap¥756.8 billion
Properties
74
Total rentable area 1.079 million m
Total assets*

Property acquisition pipeline from the
Mitsui Fudosan Group
Leverage the comprehensive strengthsof the Mitsui Fudosan Group
Leasing capabilities
Property management capabilities

2*Book value basis

NBF Report January – June 20153

A Track Record of Steady Growth(Yen)

Historical Unit Price and Distribution per Unit (Adjusted retroactively for the two-for-one investment unit split effective January 1, 2014)

1,000,000

Unit price

750,000

Distribution per unit
500,000
250,000〜
12,000

9,513

10,000

8,126

8,000

8,645
7,683

8,001

9,695

9,612

9,904

10,064

Jun. 30,
2006

Dec. 31,2006

Jun. 30,
2007

Dec. 31,
2007

98.7

98.4

674.4

674.4

8,446

7,291

8,523
7,592

6,000
May 23,2001

Dec. 31,2001

Jun. 30,
2002

Dec. 31,2002

Jun. 30,
2003

Dec. 31,2003

Jun. 30,
2004

Dec. 31,2004

Jun. 30,
2005

Dec. 31,
2005(Investmentcommencement
date)

Asset Scale ( Total Acquisition Price ) and Average Occupancy Rate during the Period 1
97.1(Yen in billions)

97.3
95.5

1,200

96.9

97.0

97.2

97.9

98.3

98.3

624.8

624.8

95.1
92.4

1,100
1,000
900

Average occupancy rate during
the period (right scale)

800

Managed Assets by Region
700(left scale)

23 wards of Tokyo600

5 wards of central Tokyo (incl. in above)

539.4

Other Greater Tokyo
500

Other cities

393.8

400

414.2

336.2
300
200
100
0

192.1

226.6

246.1

260.2

276.1

285.7

22

24

26

28

29

33

43

43

47

52

55

55

56

56

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

May 23,2001

Dec. 31,2001

Jun. 30,
2002

Dec. 31,2002

Jun. 30,
2003

Dec. 31,2003

Jun. 30,
2004

Dec. 31,2004

Jun. 30,
2005

Dec. 31,2005

Jun. 30,
2006

Dec. 31,2006

Jun. 30,
2007

Dec. 31,
2007(Investmentcommencement
date)
Notes:
1. Average occupancy rate during the period: weighted average of month-end occupancy rate on a floor space basis
2. Data uses the new geographical categories introduced on June 30, 2014.

4

NBF Report January – June 2015

11,274

11,126 10,887
9,836
8,562

Jun. 30,
2008

Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

Jun. 30,
2010

8,427
7,747

7,569

7,600

7,740

7,877

Dec. 31,2010

Jun. 30,
2011

Dec. 31,2011

Jun. 30,
2012

Dec. 31,2012

Jun. 30,
2013

8,645

Dec. 31,
2013

8,152

Jun. 30,
2014

7,681

7,787

Dec. 31,2014

Jun. 30,
2015

(%)

97.3

96.8

95.5

95.4
93.4

93.3

96.7

96.8

97.5

97.8

97.1

97.0

97.6

97.9

93.9

100

95

1,080.3
1,066.5 1,050.8 1,074.4 1,074.4

870.2

892.8

90

921.6

837.1
762.3

783.2

783.2

779.6

779.6

725.2

58

60

61

61

59

59

64

64

67

68

74

71

73

73

74

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Jun. 30,
2008

Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

Jun. 30,
2010

Dec. 31,2010

Jun. 30,
2011

Dec. 31,2011

Jun. 30,
2012

Dec. 31,2012

Jun. 30,
2013

Dec. 31,2013

Jun. 30,
2014

Dec. 31,2014

Jun. 30,
2015

NBF Report January – June 2015

5

To Our Unitholders

Kenichi Tanaka
President and CEO of Nippon Building Fund Management Ltd.

Operating Environment and Resultsin the income and employment environment and the effectDuring the six months ended June 30, 2015 (the “28thof various government policies. At the same time, thePeriod”), the Japanese economy continued to recoverdeceleration of the Chinese economy, the reemergence ofmoderately backed by government economic policies andthe sovereign debt problem in Greece, and the impact ofthe monetary policies of the Bank of Japan. Corporate

U.S. moves to normalize its financial policies are among

earnings improved and capital investment increased, andissues that require our attention.
In the office building leasing market, the improvement insupported by a better income and employment
environment consumer spending appeared to have

corporate earnings is leading tenants to add space, andrebounded after contracting following the surge in demand

movement to new offices is brisk. As a result, the vacancy

prior to the increase in the consumption tax.

rate in Tokyo central business districts has continued todecrease. In addition, asking rents at existing buildings

The Japanese economy is expected to continue
recovering moderately supported by ongoing improvement

continue to rise incrementally in Tokyo central business

Average Vacancy Rates for Tokyo, Osaka and Nagoya CBDs

Average Asking Rents for Tokyo CBDs(%)

(Yen per tsubo*)o40,00015
Nagoya CBDs

35,000

Osaka CBDs
10

8.29

New buildings

30,00027,72225,000

6.62
5Tokyo CBDs

4.72

Average asking rent
20,00017,490Existing buildings

15,0000Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Aug.
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Miki Shoji Co., Ltd.
Tokyo CBDs: Chiyoda-ku, Chuo-ku, Minato-ku, Shinjuku-ku, Shibuya-ku
Osaka CBDs: Umeda area, Minamimorimachi area, Yodoyabashi & Honmachi areas,
Funaba area, Shinsaibashi & Nanba areas, Shin Osaka area
Nagoya CBDs: Nagoya Station area, Fushimi area, Sakae area, Marunouchi area

6

NBF Report January – June 2015

0

17,306

Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Aug.
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
*tsuboo = 3.3m2
Source: Miki Shoji Co., Ltd.
New buildings: 18 buildings
Existing buildings: 2,592 buildings
Average: 2,610 buildingsdistricts with the tightening of supply and demand.

conducts property management, renovations and new

New supply is expected to increase slightly over theconstruction to further raise tenant satisfaction. NBF also

medium term, but vacancy rates are expected to decrease

works to secure stable revenues from property leasing by

while rents continue to rise moderately, driven by

setting appropriate rents for new tenants and revisingcontinued firm demand for office space resulting fromrents for tenants renewing their lease contracts while

improved corporate results.

keeping abreast of market trends.

In the office building transaction market, given the

NBF’s real estate portfolio as of June 30, 2015

favorable fund procurement environment, deal flow is

consisted of 74 properties. Total investment on anstrong among real estate market participants including

acquisition price basis was ¥1,080.3 billion. Total rentable

J-REITs, private equity funds and overseas investors,

area was 1,079 thousand m 2. The average occupancy rate

backed by rising property prices in anticipation ofduring the period was 97.9 percent, a 0.3 percentage

expected improvement in the office leasing market overpoint increase from December 31, 2014, and the total

the medium term. As a result of these conditions,

number of tenants was 1,579.

competition to acquire properties is intensifying andOverview of Performancepurchase and sale prices are rising.

During the 28th Period, operating income was on parReal estate prices are expected to rise because deal
flow among investors in Japan and overseas is forecast towith the previous period because interest expense

remain brisk given the continued favorable funddecreased. Operating revenues decreased ¥213 million,

procurement environment.

or 0.6 percent, to ¥34,593 million, and operating income

Under these conditions, NBF is conducting investment

from property leasing activities decreased ¥34 million, or

activities in accordance with its basic policy of investing in

0.2 percent, to ¥15,022 million. Operating income after

high-quality office buildings that are highly competitive indeduction of expenses including asset management,

terms of location, size and facilities, and are expected tocustody and agent fees decreased ¥51 million, or 0.4

generate stable cash flow from rents. During the 28th

percent to ¥13,573 million. Ordinary income increased

Period, NBF acquired the NBF Kandasudacho Building in¥149 million, or 1.4 percent, to ¥10,996 million, and net

June 2015 (acquisition price of ¥5,960 million).

income increased ¥149 million, or 1.4 percent, to

For properties already in its portfolio, NBF systematically¥10,995 million. Distribution per unit was ¥7,787.

New Supply of Large-Scale Office Buildings in the 23 Wards of Tokyo(10,000 m2)

Forecast

250

200

Average of 1.12 million m2/year(gross floor space basis)from 2015 onward

Historical average (1986-2014)
1.03 million m2/year(gross floor space basis)

150

100

50

0

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Source: Prepared by asset manager using data from Mori Building Co., Ltd. as of April 22, 2015.

NBF Report January – June 20157

Strategies

For further information, click here to jump
to the relevant page on NBF’s website.

Portfolio• Make aggressive acquisitions and flexible dispositions• Focus on highly competitive office buildings, primarily in Tokyo CBDs
• Expand assets• Use the Mitsui Fudosan Group pipeline

Investment by Region

NBF’s J-REIT Market Share(As of June 30, 2015)(As of June 30, 2015) (Total Aquisition Price)

23 Wards of Tokyo¥844.1 billion(78.1%)

Other Cities¥133.1 billion(12.3%)

Total Acquisitions by Seller(Yen in billions)

Other(infrastructure, seniors)(4.1%)
Hotels (3.3%)

1,080.3

1,200

362.7

8.0%

800

219.6

Logistics (10.2%)
Total
acquisition
price

Housing(17.0%)¥1,080.3 billion
74 properties
Other
Greater Tokyo¥103.1 billion(9.5%)

400

Office47.1%¥13,458.6
billion0

Retail facilities(18.4%)

5 Wards of Central Tokyo¥558.8 billion (51.7%)

Approx.
60%*

2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
Period2H/’1427th
Period1H/’1528th
PeriodAcquired from Mitsui Fudosan and funds that it manages
Acquired through Mitsui Fudosan brokerage

Source: Asset management companies, compiled from publicly
available information

Acquisition from other (external) sources
Properties acquired when NBF began managing properties*Ratio to total acquisitions since the initial public offering in September 2001

Leasing• Use the sales capabilities of the Mitsui Fudosan Group for leasing andtenant retention• Maintain a high occupancy rate

Average Occupancy Rate and Total Rentable Area
(10,000m2 )

(%)
100

96.8

96.7
95.5

95

97.5

97.8

97.1

93.3

97.9

94.3

94.7

107.4

107.9

93.3

90

91.2

91.0

91.0

NBF’s average occupancy rate (left scale)Market average occupancy rate (Tokyo business districts; left scale)
NBF’s total rentable floor area (right scale)
77.0

76.3

76.3

Dec.
Jun.
2008
2009
Source: Miki Shoji Co., Ltd.

Dec.
2009

Jun.
2010

Dec.
2010

90.8

91.1

91.5
105.6

82.8
77.0

91.2

86.1

89.3

91.4

Jun.
2012

Dec.
2012

92.2
103.8

120
107.4

90

60

80

8

180

150

92.2

76.4

97.6

93.9

93.7

85

97.0

95.4
93.4

95.8

96.8

NBF Report January – June 2015

Jun.
2011

Dec.
2011

Jun.
2013

Dec.
2013

Jun.
2014

Dec.
2014

Jun.
2015

Property
Management• Use the comprehensive capabilities of the Mitsui Fudosan Group• Maintain and increase asset value through strategic investment• Use NBF’s exclusive PM company to deliver high-quality management

Property Management Structure• Formulate and execute management and operation plans• Formulate and execute large-scale repair plans• Approval
for majorpp
j issues

Nippon Building Fund Management[Asset management (AM)exclusive to NBF]

Cooperation
C
Co
ti n
NBF Ofﬁce Management[Property management (PM)exclusive to NBF]

• New tenant leasingg• Provides management and operation expertise and operating systems• Overall management of subleased properties

Financial• Overallll property management (excluding subleased properties)
proper• Responds to existing tenants• Uniﬁed administration of management information for all operating properties• Maintain a conservative LTV of 36-46% and a long-term fixed-rateinterest-bearing debt ratio of 90% or higher to enable flexible financing
and acquisitions• Diversify debt to reduce financial risk

LTV and Long-Term Fixed-Rate Interest-Bearing Debt Ratio

Debt Maturity Schedule(%)(Yen in billions)70

Long-term fixed-rate interest-bearing debt ratio: 90% or higher

100
80

94.2

92.2

95.0

94.7

99.6

96.4

97.7

96.5

50

60

40

LTV: 36-46%
40

60

Long-term debt
Investment corporation bonds
Short-term debt
Funds procured in 1H/2015 (28th Period)

44.2

42.9

44.4

45.2

43.8

30
43.1

41.9

41.9

20

20
10

0
2H/’11
21st
Period1H/’1222nd
Period2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
Period2H/’1427th
Period1H/’1528th
Period02015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
(Calendar years)(As of June 30, 2015)

NBF Report January – June 20159

Performance Highlights

Total Operating Revenues

NOI from Property Leasing Activities1 and NOI(Yen in millions)(Yen in millions)

Profits from dispositions included in total operating revenues.
Figures in parentheses are total operating revenues excluding
profits from dispositions.

40,00035,00035,720(33,622)

37,135(34,845)

25,00020,00036,562(34,659)

34,806

34,593

NOI from property leasing activities (left scale)
NOI yield (right scale)
22,86422,03622,482

22,22022,167

8

20,1076
4.68

15,000

4.60

4.67

4.51

4.47

4.48

31,53030,000(%)

4
10,00025,00002H/’13
2H/’12
1H/’13
1H/’14
2H/’14
1H/’1523rd Period 24th Period 25th Period 26th Period 27th Period 28th Period

Total Assets(Yen in millions)

Profits from dispositions included in net income.
Figures in parentheses are net income excluding profits
from dispositions.

16,000(Yen in billions)
1,100
1,048.0
1,022.8

14,00012,941

12,000(10,844)

13,277(11,273)(10,869)

1,040.6

1,023.0

1,022.4

Dec. 31,2014

Jun. 30,
2015

1,000

12,771
10,846

10,995

900

899.1

9,657

800

8,000
0

0

2H/’12
1H/’13
2H/’13
1H/’14
2H/’14
1H/’1523rd Period 24th Period 25th Period 26th Period 27th Period 28th Period

Net Income

10,000

2

5,000

0

2H/’12
1H/’13
2H/’13
1H/’14
2H/’14
1H/’1523rd Period 24th Period 25th Period 26th Period 27th Period 28th Period

DPU3

Dec. 31,2012

Jun. 30,
2013

Dec. 31,2013

Jun. 30,
2014

NAV per Unit3
Profits from dispositions included in DPU (after provision to the reserve foradvanced depreciation).
Figures in parentheses are DPU excluding profits from
dispositions (after provision to the reserve for advanced depreciation).

(Yen)
10,000
9,000
8,000

7,877

8,427
(7,835)

8,645(8,145)

8,152(7,697)

7,681

7,787

7,000

(Yen)
444,360

450,000
421,123400,000

389,663

400,890

430,707407,432

350,000

6,000
300,000

5,000
0

2H/’12
1H/’13
2H/’13
1H/’14
2H/’14
1H/’1523rd Period 24th Period 25th Period 26th Period 27th Period 28th Period0Dec. 31,2012

Jun. 30,
2013

Dec. 31,2013

Notes: 1. NOI from property leasing activities does not include such items as gain or loss on sale of investment properties.
2. NOI yield = NOI from properties held at beginning of period/Period-end book value of properties held at beginning of period
3. Figures for Periods 23 through 25 are adjusted for the two-for-one investment unit split. Figures are rounded down to the nearest yen.

10

NBF Report January – June 2015

Jun. 30,
2014

Dec. 31,2014

Jun. 30,
20150Sustainability Initiatives

NBF Receives the Top “Green Star” Evaluation in the Global Real Estate
Sustainability Benchmark (GRESB) Survey
Nippon Building Fund Management Ltd. (NBFM) has been concentrating on sustainability and environmental
initiatives, including the establishment of its “Policy for Environmental Considerations” in March 2015.
In the 2015 GRESB Survey, the following NBF initiatives were highly evaluated as sustainability efforts in terms of“Management and Policy” and “Implementation and Measurement,” and NBF received the top “Green Star” rating.
Establishment of targets for and creation of a management system for sustainability
Monitoring and analysis of energy consumption to improve efficiency, and the implementation of relevant measures therefor● Visualization of value of buildings, including active acquisition of Green Building Certifications● Collaboration and cooperation with stakeholders such as tenants and local communities●●

GRESB Overview
Established in 2009 primarily by major European pension fund groups, the GRESB Survey is an annual benchmark survey
for evaluating environmental, social and governance (ESG) considerations in the real estate sector. The key feature of the
GRESB Survey is that it evaluates the sustainability efforts of real estate companies and REITs, not of individual properties.
Currently, 51 major institutional investors with total assets under management of approximately ¥732 trillion (approximately
U.S. $6.1 trillion at ¥120 to the U.S. dollar) are GRESB members and use GRESB in selecting investment targets and in
discussions with entities in which they invest.

Twin Perspectives of Reduced Environmental Loading and Tenant Comfort
Common Area Repairs

Retrofit of HVAC System(Installation of LED Lighting)(Installation of High-Efficiency Air Conditioning)

NBF Platinum Tower

NBF Shinkawa Bldg.

Celestine Shiba Mitsui Bldg.

NBF Ikebukuro East

Engagement with Tenants and Communities
Disaster Prevention andBusiness Continuity Plan (BCP) Measures
Disaster impact evaluation
system introduced

Installation of more emergency
power generators

Aqua Dojima NBF Tower

Gate City Ohsaki

Well-Being for Tenants and Communities

NBF Concerts

Photo contest

NBF Report January – June 201511

Portfolio Overview (As of June 30, 2015)
Property Name
1 NBF Osaki Bldg.
●
2 NBF Hibiya Bldg.
●
3 Gate City Ohsaki●
4 Nishi-Shinjuku Mitsui Bldg.
●
5 Nakanosakaue Sunbright Twin●
6 Mitsubishi Heavy Industries Head Office Bldg.
●
7 NBF Toyosu Canal Front●
8 Shiba NBF Tower●
9 NBF Platinum Tower●
10 NBF Minami-Aoyama Bldg.
●
11 NBF COMODIO Shiodome●
12 NBF Toyosu Garden Front●
13 Toranomon Kotohira Tower●
14 Nakameguro GT Tower●
15 Celestine Shiba Mitsui Bldg.
●
16 NBF Ochanomizu Bldg.
●
17 NBF Shibuya Garden Front●
18 NBF Ginza Street Bldg.
●
19 Shinjuku Mitsui Bldg. No. 2●
20 GSK Bldg.
●
21 River City M-SQUARE●
22 NBF Toranomon Bldg.
●
23 Kowa Nishi-Shinbashi Bldg. B●
24 NBF Shinkawa Bldg.
●
25 Shinbashi M-SQUARE●
26 NBF Ueno Bldg.
●
27 NBF ALLIANCE●
28 Yotsuya Medical Bldg.
●
29 NBF Ikebukuro East●
30 Higashi Gotanda Square●
31 NBF Shibuya East●
32 NBF Shibakouen Bldg.
●
33 NBF Takanawa Bldg.
●
34 NBF Akasaka Sanno Square●
35 NBF Shibakouen Daimon Street Bldg.
●
36 NBF Kandasudacho Bldg.
●
37 Sumitomo Densetsu Bldg.
●
38 NBF Higashi-Ginza Square●
39 Panasonic Tokyo Shiodome Bldg.
●
40 NBF Ogawamachi Bldg.
●
41 Nihonbashi Kabuto-cho M-SQUARE●
42 NBF Ikebukuro Tower●
43 NBF Ikebukuro City Bldg.
●
44 Ryukakusan Bldg.
●
45 Jingumae M-SQUARE●

23 Wards of Tokyo Total
46 Chofu South Gate Bldg.
●
47 Shin-Kawasaki Mitsui Bldg.
●
48 Yokohama ST Bldg.
●
49 Parale Mitsui Bldg.
●
50 NBF Atsugi Bldg.
●
51 Tsukuba Mitsui Bldg.
●
52 NBF Utsunomiya Bldg.
●
53 S-ino Omiya North Wing●
54 NBF Urawa Bldg.
●
55 NBF Shin-Urayasu Tower●
56 NBF Matsudo Bldg.
●
Other Greater Tokyo Total
57 Sapporo L-Plaza●
58 NBF Sapporo Minami Nijo Bldg.
●
59 NBF Sendai Honcho Bldg.
●
60 NBF Unix Bldg.
●
61 NBF Niigata Telecom Bldg.
●
62 Sumitomo Mitsui Banking Nagoya Bldg.
●
63 NBF Nagoya Hirokoji Bldg.
●
64 Aqua Dojima NBF Tower●
65 Nakanoshima Central Tower●
66 Shinanobashi Mitsui Bldg.
●
67 Sakaisuji-Honmachi Center Bldg.
●
68 Sun Mullion NBF Tower●
69 Aqua Dojima East●
70 NBF Hiroshima Tatemachi Bldg.
●
71 Hiroshima Fukuromachi Bldg.
●
72 NBF Matsuyama Nichigin-mae Bldg.
●
73 Hakata Gion M-SQUARE●
74 NBF Kumamoto Bldg.
●
Other Cities Total
Total

12

NBF Report January – June 2015

For further information, click here to jump
to the relevant page on NBF’s website.

Acquisition Price(Yen in millions)Book Value(Yen in millions)Appraisal Value(Yen in millions)

Total Rentable Area(m2)

Total Leased Area(m2)

66,66063,50057,28145,14540,75036,30035,20032,00031,00031,00028,80025,01824,54323,85622,50020,84020,26917,00016,285
14,434
13,35013,337
13,217
12,614
11,90010,400
9,126
8,800
8,630
8,350
8,000
6,770
6,667
6,250
6,100
5,960
5,365
5,200
5,075
4,940
4,850
4,695
4,428
4,050
3,700
844,156
9,320
25,82013,529
3,800
2,300
8,875
2,435
16,8162,000
15,7002,455
103,051
4,404
1,870
3,566
4,028
3,957
14,9007,232
17,81014,90014,40012,70010,500
1,914
2,930
2,215
3,310
8,000
4,500
133,138
1,080,346

67,41864,08549,48833,78036,71736,24630,28627,48827,12731,55528,202
23,253
18,97618,32622,521
20,39419,082
17,542
16,164
11,966
12,566
13,108
11,186
11,52911,865
9,666
9,380
7,897
8,878
8,002
8,093
6,244
6,424
6,255
6,246
6,035
4,814
4,516
5,055
5,107
4,648
4,361
4,164
4,427
3,610
784,712
8,561
22,726
12,525
3,158
2,167
7,010
2,203
14,037
1,842
15,556
2,325
92,114
3,336
1,627
3,374
2,942
3,453
14,6996,478
16,104
14,875
10,744
12,176
7,426
1,689
2,727
1,932
3,225
7,278
4,063
118,156
994,984

77,90053,30061,90041,40030,40045,50033,50028,20057,60017,60031,70028,00032,00020,60024,60012,50027,10015,60016,60017,00015,200
16,10013,90013,69013,2008,790
11,400
7,350
9,520
7,890
6,420
7,600
6,990
6,220
4,180
7,350
5,590
6,980
5,700
5,580
5,180
5,250
4,910
4,360
3,740
876,090
9,840
21,40014,500
3,680
2,110
7,390
2,050
18,900
2,020
9,960
2,240
94,090
6,760
1,310
2,840
3,370
2,950
15,9006,950
16,800
16,10014,00012,600
6,930
1,420
2,360
2,270
3,600
8,920
3,850
128,930
1,099,110

74,42527,572
41,86033,33832,02135,641
36,63824,73033,503
9,631
20,53828,28916,84821,423
16,915
6,627
16,516
3,440
14,82820,426
16,232
10,067
10,08817,307
5,392
8,504
4,033
7,481
11,073
6,166
4,999
7,084
10,458
5,258
3,432
4,470
5,991
4,871
4,577
4,805
3,298
5,631
5,127
5,332
7,232
694,116
13,762
39,83720,047
12,545
5,242
16,720
6,160
20,6983,455
22,791
4,770
166,026
11,396
5,351
7,514
13,267
10,20817,658
9,873
21,917
17,36725,31423,23014,954
3,245
5,567
3,927
5,997
14,3287,931
219,043
1,079,185

74,42527,327
38,67833,32032,02135,64136,29024,73033,503
9,102
20,53828,28916,471
21,42315,065
6,296
16,516
3,440
14,617
20,426
16,232
10,032
9,977
17,178
5,392
8,504
2,930
5,372
11,073
5,550
4,999
7,084
10,047
5,258
3,432
4,470
5,991
4,871
4,577
4,805
3,298
5,631
5,127
5,332
7,232
682,512
13,76238,36919,842
12,545
5,119
16,3196,160
19,753
3,455
22,0394,677
162,038
11,396
5,351
7,514
13,084
9,793
17,3409,873
21,332
17,09323,53023,23014,954
3,021
5,567
3,927
5,533
14,328
7,931
214,799
1,059,348

Occupancy Rate(%)

Total Numberof Tenants

100.0
99.1
92.4
99.9
100.0
100.0
99.0
100.0
100.0
94.5
100.0
100.0
97.8
100.0
89.1
95.0
100.0
100.0
98.6
100.0
100.0
99.7
98.9
99.3
100.0
100.0
72.6
71.8
100.0
90.0
100.0
100.0
96.1
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
98.3
100.0
96.3
99.0
100.0
97.7
97.6
100.0
95.4
100.0
96.7
98.0
97.6
100.0
100.0
100.0
98.6
95.9
98.2
100.0
97.3
98.4
93.0
100.0
100.0
93.1
100.0
100.0
92.3
100.0
100.0
98.1
98.2

1
96
78
36
17
11
9
33
6
12
15
5
23
19
6
5
1
1
47
1
8
15
19
35
7
6
6
36
20
9
4
19
12
6
8
9
1
7
1
15
2
17
11
9
9
713
1
19
96
34
18
64
40
42
12
50
24
400
13
3
10
52
32
11
23
43
20
58
53
29
20
33
12
20
16
18
466
1,579

Location of Ofﬁce Properties (As of June 30, 2015)

For further information, click here to jump
to the relevant page on NBF’s website.

Kita-ku
43

Toshima-ku

Investment by Region
Arakawa-ku

42
29

Other Cities

12.3%

Taito-ku

Bunkyo-ku

Nakano-ku

Other Greater Tokyo

26
5

Shinjuku-ku

19

16

Imperial
Palace1027

Meguro-ku

18
38

24
21

11
8
32 35

9

33

51.7%

41

Chuo-ku

Minato-ku

14

5 Wards ofCentral Tokyo

36 44

Koto-ku

2
34
22 25
13
23 39

45

17 31

Setagaya-ku

40

Chiyoda-ku

28
20

Shibuya-ku

9.5%

Sumida-ku

4

23 Wards of Tokyo

12 7

78.1%

15
37

30

57
58

Tokyo Bay

6
3

1

Shinagawa-ku

23 Wards of Tokyo

45 Properties : ¥844.1 billion
59
61

60

70 71

73

72

72

Tochigi

74
64 65 66 67 68 69

62
63

Utsunomiya

51

Ibaraki

52

Saitama53
To Omiya

54

Other Cities

18 Properties: ¥133.1 billion

56

Tokyo

Chiba
46

55

Kanagawa
50

Tokyo Bay

47

49

48

Other Greater Tokyo

11 Properties: ¥103.1 billion
NBF Report January – June 201513

Major Assets (As of June 30, 2015) (Building numbers correspond to those on pages 14 and 15.)

23 Wards of Tokyo
3 Gate City Ohsaki

12 NBF Toyosu Garden Front

CASBEE Certification
DBJ Green Building Certification
CASBEE Certification
DBJ Green Building Certification

7 NBF Toyosu Canal Front

Tokyo Metropolitan
Top-Level-Facility Certification

21 River City M-SQUAREDBJ Green Building Certification

6 Mitsubishi Heavy Industries Head Office Bldg.
DBJ Green Building Certification

36 NBF Kandasudacho Bldg.

DBJ Green Building Certification

14

NBF Report January – June 2015

39 Panasonic Tokyo Shiodome Bldg.

Tokyo Metropolitan
Top-Level-Facility Certification

Tokyo Metropolitan
Top-Level-Facility Certification

Other Greater Tokyo
47 Shin-Kawasaki Mitsui Bldg.

53 S-ino Omiya North Wing

46 Chofu South Gate Bldg.

65 Nakanoshima Central Tower

73 Hakata Gion M-SQUAREOther Cities
62

Sumitomo Mitsui Banking Nagoya Bldg.

DBJ Green Building Certification

NBF Report January – June 201515

Management Team and Management Structure (As of June 30, 2015)

Nippon Building Fund Inc. (NBF) is an investment corporation that takes a medium-to-long-term
perspective with the aim of generating steady asset growth and stable profits. NBF continues to do
its utmost for investors.

Nippon Building Fund Inc.
Nippon Building Fund Inc. is an investment corporation

The General Meeting of Unitholders adopts or vetoes

established with the objective of investing in assets, primarily

resolutions on the basis of a simple majority of the voting

Designated Assets as defined by the Investment Trust Law ofrights of unitholders in attendance, unless otherwise stipu-

Japan. NBF entrusts the management of its assets tolated by laws, regulations or NBF’s Articles of Incorporation.

Nippon Building Fund Management Ltd., which is an asset

Decisions on substantive matters such as changes in the

management company.

Articles of Incorporation require the attendance of

NBF’s primary investment objective is to achieve sustain-

unitholders that control a simple majority of total units issued

able growth in portfolio value and stable profits on aand outstanding, and a two-thirds majority of the voting

medium-to-long-term basis. NBF achieves this objective by

rights of such unitholders. In addition, any change in theinvesting in real estate consisting of buildings primarily used

asset management policies and standards, which are stipu-

for offices with their underlying land located in the central

lated by NBF’s Articles of Incorporation, requires an extraor-

business districts (CBDs) of Tokyo, other Greater Tokyo anddinary resolution of unitholders as outlined above.

other cities in Japan. NBF also invests in securities, beneficiary certificates representing beneficial interests in trusts
and other assets backed by office properties.

Executive Directors, Supervisory Directors andthe Board of Directors
NBF’s Articles of Incorporation stipulate that NBF must

General Meeting of Unitholders

have one or more executive directors and four or fewer

Specific matters pertaining to NBF that are subject to thesupervisory directors, but the number of supervisory direc-

Investment Trust Law of Japan or the Company’s Articles oftors must always be at least one greater than the number ofIncorporation are decided by resolution of the General

executive directors. As of March 12, 2015, NBF had one

Meeting of Unitholders, which convenes at least once every

executive director and three supervisory directors.

two years, in principle. The ninth General Meeting of

NBF’s executive director is responsible for business

Unitholders convened on March 12, 2015. The date of theexecution and has authority for all judicial and extrajudicial

next General Meeting of Unitholders has not been set.

proceedings related to the operations of NBF. Supervisory
directors are responsible for supervising execution by the
executive director.

Asset Management Company
Nippon Building FundManagement Ltd.
Mitsui Fudosan Co., Ltd.

Entrusting AssetManagement Services

Entrusting Asset
Custody Services
Entrusting
Accounting Services

Entrusting Ofﬁce
Management Services
Nippon Building Fund Inc.

Entrusting Tax
Services

Subcontracting
Accounting Auditor

NBF Ofﬁce Management Co., Ltd.

General Meeting of Unitholders

Providing Ofﬁce
Management
Services

Principal and Interest
Payment
Investment
Rent, etc.

Real Estate, etc.

16

NBF Report January – June 2015

Borrowings/Issue ofBonds and Notes

Board of Directors

Investment
Distribution

Sumitomo Mitsui Trust Bank, Ltd.
Heiseikaikeisha Tax Co.
PricewaterhouseCoopers Co., Ltd.
KPMG AZSA LLC
Qualified Institutional Investors / Bondholders
Securities Markets
Investors
Trading

Investors

Management Team

From left: Yutaka Fukaya, Yoshiki Kageyama, Tetsuro Tsugawa, Hakaru Goto

Executive Director
Supervisory Directors

Name

Career Summary

Yoshiki Kageyama
Tetsuro Tsugawa
Yutaka Fukaya
Hakaru Goto

Appointed Executive Director of NBF in March 2015 after serving as a standing auditor of Mitsui Fudosan Realty Co., Ltd.
Reappointed Supervisory Director of NBF in March 2015. Attorney.
Reappointed Supervisory Director of NBF in March 2015. Certified Public Accountant and Certified Public Tax Accountant.
Appointed Supervisory Director of NBF in March 2015. Real Estate Appraiser.

The Board of Directors consists of the executive and

The terms of office of the executive director and supervi-

supervisory directors. Its responsibilities include authorizingsory directors are two years from the time they assume

business execution and supervising the performance of theoffice. The terms of executive directors and supervisory

executive director. Resolutions by the Board of Directors

directors selected to fill a vacancy or to increase the number

require a simple majority with more than half of the membersof directors expire at the same time as the remaining terms ofof the Board in attendance.

their predecessors or the current directors.

The bylaws of NBF’s Board of Directors stipulate that

A new executive director was elected with the consent ofexecutive and supervisory directors may not participate inunitholders at the General Meeting of Unitholders held on

decisions in which they have a vested interest. Executive andMarch 12, 2015. Two of the three supervisory directors weresupervisory directors with such financial interest shall not bereelected and one new supervisory director was elected at theincluded in the number of executive and supervisory directors

same time, and assumed office on March 17, 2015.

in attendance for such decisions.

NBF Report January – June 201517

Nippon Building Fund Management Ltd.
NBF entrusts asset management to Nippon Building Fund Management Ltd. under an asset management agreement.

Matters Entrusted to Nippon Building Fund Management Ltd.
As the asset management company required by the

Nippon Building Fund Management Ltd. as the institutional

Investment Trust Law of Japan, Nippon Building Fundmanager of NBF’s assets, Nippon Building Fund Management

Management Ltd. manages NBF’s assets in accordance with

Ltd. executes certain responsibilities in connection with thethe asset management objectives and policies stipulated byoperation of the General Meeting of Shareholders and the

NBF’s Articles of Incorporation. In addition, in accordance with

Board of Directors as manager of general administration.

the manager of general administration contract designating

History of NBFM
NBFM is an Asset Management Company which is alimited liability company duly established under the laws ofJapan. Major events in the history of NBFM are as follows.
September 19, 2000

Established

November 17, 2000

Obtained license as a building lots and building transactions agent under the Building Lots and Building Transactions Law

January 29, 2001

Obtained approval as a discretionary transaction agent under the Building Lots and Building Transactions Law

February 15, 2001

Registered as a general real estate investment advisor under the Real Estate Investment Advisor Registration Regulations

March 7, 2001

Obtained approval as an Asset Management Company under the Investment Trust Law of Japan

March 22, 2001

Increased capital from ¥100 million to ¥198 million

May 23, 2001

Changed name (from “MF Asset Management Co., Ltd.” to “Office Building Fund Management Japan Limited”)

June 16, 2001

Increased capital from ¥198 million to ¥495 million

March 14, 2003

Changed name (from “Office Building Fund Management Japan Limited” to “Nippon Building Fund Management Ltd.”)

September 30, 2007

Registered as a financial instruments firm with the Kanto Local Finance Bureau Chief (Financial Instruments) No. 371

List of Shareholders (As of June 30, 2015)
Name

Percent

An outline of the financial condition of NBFM is as follows.

Mitsui Fudosan Co., Ltd.

4,257

43.0%

Outline of principal assets and liabilities for the most recent

Sumitomo Life Insurance Company

3,465

35.0

fiscal year:

Sumitomo Mitsui Trust Bank, Limited

495

5.0

As of March 31, 2015

Sumitomo Mitsui Banking Corporation

495

5.0

Total Assets¥2,183

Daido Life Insurance Company

297

3.0

Total Liabilities

362

Mitsui Sumitomo Insurance Co., Ltd.

297

3.0

Total Net Assets

1,821

Mitsui Life Insurance Company Limited

297

3.0

Britel Fund Trustees Limited

297

3.0

9,900

100.0%

Total

18

Numberof Shares Owned

Outline of Financial Condition

NBF Report January – June 2015

(Yen in millions)

Management Team and Management StructureManagement Structure
General Meeting of Shareholders
AuditorBoard of Directors

Compliance Committee

Executive Board
Risk Management Meeting
CEO

Investment
Review Meeting

Accounting Auditor

ComplianceOfﬁcerReal EstateManagement
Team

Investment & FinanceGroup

Real Estate
Investment
Team

Research
Team

Management Structure of
Nippon Building Fund Management Ltd.

Corporate Operation
Group

FinancialTeam

Corporate
Planning &Administration
Team

Risk
Management& ComplianceTeam& Finance Group and the Corporate Operation Group also
serve as directors, and oversee their respective divisions under

The Board of Directors makes decisions on the basic

the direction and oversight of the president. Corporate auditors

management policies of Nippon Building Fund Management

conduct accounting audits and operational audits of Nippon

Ltd. and oversees execution of the duties of the representa-

Building Fund Management Ltd. The Compliance Officer

tive director. The president, who is the representative direc-

oversees compliance for the asset management company andtor, supervises and executes the operations of Nippon

is responsible for internal administration in connection with

Building Fund Management Ltd. The heads of the Investment

internal audits at the asset management company.

Directors and Staff
As of June 30, 2015, the directors and corporate auditors
of NBFM are as follows. The staff other than directors andauditors of NBFM is comprised of 23 persons.
Name of Directors and Auditors

Title

Kenichi Tanaka

President & CEO (standing)

Koji Matsufuji

Director, Head of Investment & Finance Group (standing)Masahiko Misao

Director, Head of Administration Group (standing)

Hiromu Yamanaka

Director

Hiroshi Yabuki

Director

Yoichi Kunikane

Corporate Auditor

Kenshi Ueda

Corporate Auditor

NBF Report January – June 201519

Compliance Initiatives
The management of NBF and Nippon Building FundManagement Ltd. conduct honest and appropriate businessactivities while maintaining rigorous compliance by adhering to
all relevant laws and regulations, based on a high level of corporate ethics.
The bylaws of NBF’s Board of Directors stipulate that Boardof Directors’ meetings are to be held at least once every threemonths. In practice, NBF holds such meetings once a month.
At Board meetings, the executive director reports on the execution of his duties and supervisory directors ensure that oversightand check-and-balance systems are functioning properly.
Nippon Building Fund Management Ltd. views complianceas a management strategy, with a fundamental compliancepolicy of conducting operations honestly and fairly while
maintaining a rigorous compliance system based on a high levelof corporate ethics. Specifically, Nippon Building FundManagement Ltd. has established a Compliance Committee,
consisting of the Compliance Officer, the president, the head of
the Investment & Finance Group, the head of the Corporate
Operation Group and an outside committee member. Initiatives
to enhance awareness of and adherence to compliance include
the establishment of Compliance Rules and a Compliance
Manual. In addition, a Compliance Program is formulated eachyear to verify the progress of the execution plan for that year
and identify any problem areas.

Risk Management System
NBF and Nippon Building Fund Management Ltd. haveestablished the following risk management system to avoid
and minimize risks related to investments.

NBF
NBF’s Risk Management Regulations define risk management policies and procedures. The Risk Management Meeting
convenes once every three months and undertakes deliberation, monitoring and other initiatives to ensure that theentrusted asset managers are conducting their duties with due
care in good faith in a manner consistent with its fiduciary duty
to the conservation and maintenance of entrusted assets.

Nippon Building Fund Management Ltd.
Nippon Building Fund Management Ltd. formulates aManagement Policy, a Medium-to-Long-Term AssetManagement Policy and an Annual Management Plan tofollow in managing NBF’s assets. In addition, Nippon Building
Fund Management Ltd. has set Asset Management
Guidelines as a set of standards to follow.

20

NBF Report January – June 2015

Policy and Management System for
Dealing with Conflict of Interest Transactions
Fundamental Policy on Conflict of Interest Transactions
Nippon Building Fund Management Ltd. is constantly
aware of its accountability to NBF and NBF’s unitholders withregard to any transactions in which the interests of NBF andthe interests of Nippon Building Fund Management Ltd. andits related corporations or customers may conflict. Nippon
Building Fund Management Ltd. follows voluntary rules stipulated in laws and internal bylaws to proactively prevent
conflicts of interest.
All decisions made in executing the management of NBF’s
assets are subject to the approval of the president, and aremade after going through discussions by the Investment
Review Meeting and Executive Board of Nippon Building FundManagement Ltd. Sponsor companies are not permitted tointervene in the decision-making process.

Voluntary Rules for Conflict of Interest Transactions Stipulated inInternal Bylaws
Nippon Building Fund Management Ltd. has set voluntaryrules in its internal bylaws to address transactions withparties, including sponsor companies that have interests in
Nippon Building Fund Management Ltd.
The voluntary rules require the Investment Division, which
initiates the transaction, as well as the Compliance Department,
the Investment Review Meeting and other units to protect
NBF’s managed assets and profits by fully examining thetransaction contents according to the voluntary rules set in
the internal bylaws in the event of a transaction in which theinterests of Nippon Building Fund Management Ltd. andparties that have interests in Nippon Building FundManagement Ltd. may conflict with the interests of NBF.
These rules are designed from the standpoint of accountability
to NBF and its unitholders.
In examining the transaction contents, Nippon Building
Fund Management Ltd. solicits the opinions of attorneys,
certified tax accountants and other third-party experts asneeded. In addition, when purchasing real estate or otherassets from parties that have interests in Nippon Building
Fund Management Ltd., the purchase price is strictly set, inprinciple no higher than the appraised value according to areal estate appraiser with no vested interest.

Sustainability Initiatives
Policy for Initiatives
Nippon Building Fund Management Ltd. (“NBFM”), to which
Nippon Building Fund Inc. (“NBF”) entrusts asset management
services, established a “Policy for Environmental Considerations”
in March 2015.

Management Team and Management Structure

Basic Policy

Asset Management Fee Structure

NBFM, in recognition of the importance of environmental considerations, etc. for carrying out real property investment and management activities, strives to achieve asset management activities
giving consideration to reduction of environmental load, enhancement of safety, security and comfort, as well as diversified affiliations
and collaborations with various entities, in line with the “Group
Environmental Policy” established by the Mitsui Fudosan Group.

Operation

Initiatives for Environmental Considerations(1) Reduction of environmental load
• Promoting energy saving and reduction of CO 2 emissions
By promoting efficient use of energy in real property
investment and management activities and pursuing introductionof energy-saving facilities, etc., NBFM endeavors to reduce CO 2
emissions through energy saving.
• Preserving the water environment and promoting resourcesaving and waste reduction
NBFM aims to preserve the water environment by initiatives
for saving water and introduction of water-saving devices. NBFM
also makes an effort to promote the 3Rs (reduce, reuse andrecycle) for resource saving and waste reduction.

(2) Enhancement of safety, security and comfort• Enhancement of safety and security
NBFM promotes improvement of response times during
emergencies and strengthens preparedness during normal
times, and strives to implement disaster prevention and BCP
measures in office buildings, the major assets for which it
manages investments.
• Enhancement of comfort
NBFM aims to improve customer satisfaction (CS) of tenants
of office buildings, the major assets for NBFM’s management ofinvestment, by enhancing the level of comfort.

Diversified Affiliations and Collaborations with
Various Entities(1) Coordination with outside related parties
To implement this Policy, NBFM strives to collaborate andcooperate with outside related parties such as property management companies, tenants and local communities, etc.

(2) Training of officers and employees
NBFM aims to improve awareness of environmental considerations by training its officers and employees through continuous
implementation of education and encouragement of activities
relating thereto.

Information Disclosure to Related Parties such as
Investors, and Utilization of Environmental
Certification and Evaluation

Nippon Building Fund Management Ltd. undertakes asset
management of NBF pursuant to an Asset Management
Entrustment Agreement based on an entrustment from NBF inaccordance with the Articles of Incorporation of NBF and theInvestment Objects and Policies set forth therein. In addition,
Nippon Building Fund Management Ltd. undertakes managementof the general affairs of the general meeting of unitholders andthe Board of Directors as Administrative Agent regarding theManagement of Institutions based on an entrustment from
NBF and pursuant to an Agreement for General Administration
Regarding the Management of Institutions.

Fees for the Asset Management Operation
Management Fees 1
The amount equivalent to 2.5% effective from July 1, 2003 of
the amount of the revenue arising from Real Estate, etc. as
calculated on each closing date (provided, however, thatrevenues from the sale of Real Estate, etc. and other Managed
Assets will be excluded) will be payable.
Management Fees 2
The amount equivalent to 3% of income before income tax(provided, however, that in the event a loss is carried forward,
then the amount of income before income taxes remaining after
such loss has been covered) prior to deduction of Management
Fees 2 as calculated on each closing date will be payable.
Management Fees 3
In the event that Real Estate, etc. is newly acquired (in theevent of merger, succession of status by merger), compensationequivalent to the total amount of the acquisition price of said
Real Estate, etc. (meaning the acquisition price of both land andbuildings, in the event of the simultaneous acquisition of multiple
units of Real Estate, etc., the acquisition price of each item, andin the event of merger, the appraised value of Real Estate, etc.
succeeded by NBF at the time of the merger, provided, however,that national consumption tax, regional consumption tax andmiscellaneous costs of acquisition are excluded) multiplied by
the following percentage rates will, in principle, be payable,
provided, however, that with the approval of the directors of NBF,
compensation may be calculated using different rates notexceeding the following rates.
●

The portion up to and including ¥10,000 million .............................

0.5%

●

The portion exceeding ¥10,000 million up to andincluding ¥30,000 million ..........................................................

0.2%

●

The portion exceeding ¥30,000 million up to andincluding ¥50,000 million .......................................................... 0.05%●

The portion exceeding ¥50,000 million .......................................... nothing

NBFM endeavors to actively disclose this Policy and its compliance herewith, etc. to related parties such as investors andtenants. In addition, NBFM will consider the use of environmental
certification and evaluation to achieve goals based on this Policy.

NBF Report January – June 201521

Investment and Distribution Policies

Investment Policies of NBF
A. Basic Policies
NBF’s primary investment objective is to achieve sustainable growth inportfolio value and stable profits on a medium-to-long-term basis. NBF

The following table sets forth above said area diversification strategy.
Area and Allocation Ratio

Area Analysis

Tokyo CBDs■

Relatively high rent levels and low vacancy
rates compared to Other Cities; also, relatively large market scale (both leasing andpurchase/sale) with high growth rates.

■

Relatively low yearly NOI yields.

■

Relatively high liquidity at the time of sale.

■

Basic special characteristics are between
those of Tokyo CBDs and Other Cities.

23 wards of Tokyo with a focus
on the 5 central wards of
Chiyoda, Chuo, Minato,
Shinjuku and Shibuya

achieves this objective by investing in real estate consisting of buildings
primarily used for offices with their underlying land located in the Tokyo

Other Greater Tokyo

central business districts (hereinafter “CBDs”), Other Greater Tokyo and

Neighboring cities (see Note 1
below) such as Musashino,
Tachikawa, Yokohama, Kawasaki,
Chiba, Kashiwa, Saitama, etc.

Other Cities in Japan as well as securities, beneficiary certificates
representing beneficial interests in trusts (hereinafter “beneficiary
certificates”) and other assets backed by office properties (collectively

Total of above two areas: 70% or morehereinafter “Real Estate, etc.”) (“Investment Objectives and Policies,”
Articles of Incorporation). (Reference to laws, legal documents, etc. usedas the basis or sources hereof are set forth in parenthesis herein.)

B. Investment Strategy
Nippon Building Fund Management Ltd. (“NBFM”), based on theinvestment strategy of NBF set forth below, invests and manages theassets of NBF. NBFM has established asset management guidelines
based on the Articles of Incorporation of NBF and in accordance with theinvestment strategy of NBF.

(1) Strategy for Creation of the Portfolio

Other Cities
Principal regional cities such as
Sapporo, Sendai, Niigata,
Shizuoka, Hamamatsu, Nagoya,
Kyoto, Osaka, Kobe, Okayama,
Hiroshima, Takamatsu, Fukuoka,
Kumamoto, etc.

■

Rent levels relatively low and vacancy rates
relatively high compared to Tokyo CBDs, withsome variance by each area’s characteristics;
also, relatively small market scale and low
growth rates.

■

Relatively high yearly NOI yields.

■

Relatively low liquidity at the time of sales.

Total of above area: 30% or less
Notes: 1. “Neighboring cities” refers to the metropolis of Tokyo excluding its 23 wards, andthe 6 prefectures of Kanagawa, Chiba, Saitama, Ibaraki, Gunma and Tochigi.
2. Due to unforeseeable events, such as extreme fluctuations in macroeconomic
trends, financial trends, real estate market trends and so forth, it may not always be
possible to operate in accordance with each of the above criteria (“Investment
Objectives and Policies,” Articles of Incorporation).

The goal of the portfolio is to generate steady growth and stableprofits on a medium-to-long-term basis. The selection criteria of(2) Acquisition Strategy

investment assets is based on the composition of investment assets in thea) Ratio of Real Estate Assets

portfolio and on consideration of a quantitative proportion of the officestock located in the various regions of Japan.

NBF will maintain a ratio of 75% or more with respect to the“Designated Real Estate Ratio” (“Investment Objectives and Policies,”
Articles of Incorporation). As of June 30, 2015, NBF satisfied the criteria.

Area Diversification
The investment strategy of NBF divides the investment area into threeareas consisting of Tokyo CBDs, Other Greater Tokyo and Other Cities insuch manner that 70% or more of total investment assets (Real Estate,etc.) are allocated to Tokyo CBDs and Other Greater Tokyo and 30% orless to Other Cities. The purpose of this area diversification is to mitigate
cash flow risks such as earthquakes, risk of vacancies and so forth(“Investment Objectives and Policies,” Articles of Incorporation).

The “Designated Real Estate Ratio” means the ratio of the total
amount of Designated Real Estate to the total amount of Designated
Assets owned by NBF.
Note: Designated Real Estate includes real estate, real estate leasehold rights, superficies
and beneficiary certificates backed by real estate, land leasehold rights and superficies(as designated under Article 83.4.3.1 of the Special Taxation Measures Law of Japan).

b) Due Diligence
When investing in office properties, selections will be made throughcomprehensive research and analysis based on the forecast investment
yields resulting from the acquisition costs and their anticipated profits,
future prospects and stability of the area of location, availability ofmeasures responding to risks of deterioration and obsolescence,
insurability and so forth of the relevant office properties (or Beneficiary
Certificates backed by such office properties) (“Investment Objectives andPolicies,” Articles of Incorporation). The details of the relevant criteria are

22

NBF Report January – June 2015

NBF. For this purpose, “leased/leasable assets” shall mean property with

set forth in the following table.
Though such consideration will involve the study of the criteria included

respect to which the construction of the building has been completed

in the following table, it is possible that when NBF acquires or intends toand such building is leased or leasable. Properties which are owned byacquire operating assets, not all of the following criteria will be satisfied.

NBF and have become operational at some point shall be deemed

Item

Points to be reviewed“leasable” thereafter (including such cases as reconstruction or large-

Scale of building■

Net rentable area, including net rentable areaof entire building and standard net rentablearea per floor.

■

Desired total net rentable area is 1,650m2(approximately 500 tsubo) or more.

■

Desired standard net rentable area per floor
is 330m2 (approximately 100 tsubo) or more.

Construction type andspecifications of facilities■

Earthquake resistance■

Measures regarding
status of legal title

■

●

●

Tenancy characteristics

Environmental:
condition of land, etc.

■■

scale renovation of a building) (“Investment Objectives and Policies,”
Articles of Incorporation).

(3) Management and Disposition Policies
Regarding acquired Real Estate, etc., the goal is to obtain steady

Building design and floor plan suitable
for leasing, with divisibility, adequate
ceiling height, electrical service, HVAC
equipment, etc.

growth of operating profits on a medium-to-long-term basis by planning

Ensure that construction quality exceeds
earthquake standards (meaning thoserequired pursuant to the Building Standards
Law as amended in 1981) or standards
equivalent thereto (obtain structural appraisal/assessment (appraisal/assessment of thebuilding structure pursuant to the BuildingStandards Law conducted by The Building
Center of Japan), etc.).

increasing occupancy rates, extending the term of leases and rendering

In cases such as co-ownership, divided
condominium ownership, a building erected
on leased land, etc. where NBF will not
obtain complete ownership of a building, thefollowing matters are appropriately treated.

monies may be received and said monies will be managed in accordance

Measures to protect security deposits, policies and measures regarding cash reserves
for long-term renovation plans.

NBF is entitled to establish reserves for long-term renovations required

Appropriate measures regarding demands fordivision of co-owned interests or the sale ofa co-owner’s interest, etc.

to maintain and improve asset value and competitive ability throughinvestment in facilities and by expanding income (increasing rents, etc.,
them more stable, etc.) and reducing property-related expenses.
NBF will, in principle, for the purpose of assuring stable income on a
medium-to-long-term basis, lease out all Real Estate, etc. included inoperating assets (including installation of parking lots, billboards, etc.).
When conducting such leasing, security deposits, etc. and other similar
with the requirements of the Articles of Incorporation (“Investment
Objectives and Policies,” Articles of Incorporation).
to maintain and enhance the value of operating properties, reserves forpayables, reserves for cash distributions and any other similar reserves,etc. (Article 14.1 (2) of the Articles of Incorporation).

Acceptable creditworthiness of tenants, purposes of use by tenants, configuration, andcondition of collectibility of rents, etc.

a) Reserves for Long-Term Renovations

Absence of harmful substances suchas asbestos (or countermeasures can be
implemented for any such substances), nonexistence of soil pollution, etc.

renovations, repairs and tenant improvements will be determined based on

From the reserves set forth above, a portion corresponding torenovation plans for each building.

b) Measures to Avoid Reductions and Fluctuations inc) Uncompleted or Unleasable Properties
In principle, NBF acquires Real Estate, etc. which are leased/leasable

Operating Income
In order to avoid large-scale reductions and fluctuations in operating

assets at the time of closing. NBF may acquire a property which is notincome due to fire damage, withdrawal of tenants and so forth, efforts,

yet leasable at the time of closing based on consideration of the impact

such as area diversification and obtaining adequate fire and casualty

on NBF’s asset management activities after taking into account theinsurance, etc., will be exerted.

investment amount, the date of completion or of becoming leasable,
estimated revenue and so forth, provided, however, that the contract
amount of any such unleasable asset combined with the total contractc) Disposition
In disposing of individual operating properties, selections will be madeamount of previously acquired unleasable assets (but excluding

through comprehensive research and analysis based on the forecasted

unleasable assets which thereafter become operational) will not exceed

income, actual and predicted fluctuations in asset value, future prospects

10% of the total assets indicated on the most recent balance sheet ofand stability of the area of location, risks of deterioration and

NBF Report January – June 201523

obsolescence of real estate and predicted costs thereof as well as thedisseminate fair and unbiased information to all its investors without

composition of the portfolio, etc. Sell/hold studies will be periodicallydelay. In addition to conducting disclosure in the style required by theundertaken with respect to all operating properties (“Investment

Investment Trust and Investment Corporation Law of Japan, the Financial

Objectives and Policies,” Articles of Incorporation).

Instruments and Exchange Law of Japan, the Tokyo Stock Exchange, theInvestment Trusts Association and other laws and organizations, NBF also

(4) Financial Policies

voluntarily discloses information it deems necessary for investora) Issuance of Unitsdecision-making.

NBF may issue units in order to undertake acquisition and renovation andso forth of assets and to provide allowance for funds required for working
capital as well as for the repayment of debt (including security deposits, borrowings and repayment of obligations regarding NBF bonds, etc.).

a) Appraisal Value, etc.
In the event that NBF undertakes asset valuation for the purpose of
disclosure in Performance Information Reports, etc. using methods andstandards different from those it has set forth, (a) the disclosure valueb) Debt Financing
NBF may raise capital (including use of the call loan market) and issue

to be used for real estate, real estate leasehold rights and superficies
will, in principle, be the appraised valuation provided by a certified real

bonds in order to undertake acquisition and renovation and so forth of

estate appraiser, and (b) the disclosure value to be used for beneficiary

assets and to provide allowance for funds required for working capital as

certificates, equity interests of tokumei kumiai and equity interests ofwell as for the repayment of debt (including security deposits, borrowings

partnerships for which respective assets are real estate, real estate

and repayment of obligations regarding NBF bonds, etc.) (“Investment

leasehold rights or superficies will be the calculated value of equity

Objectives and Policies,” Articles of Incorporation).

interests of each based on the value of their respective assets as

Borrowings are limited to those from Qualified Institutional Investors as

determined in (a) plus the fair value of any financial assets as

specified in the Financial Instruments and Exchange Law of Japan, in

determined in conformity with generally accepted accounting principles,case capital is borrowed. Further, the total limit on all such borrowings

less trust and total tokumei kumiai liabilities (Articles of Incorporation).

and issues of NBF bonds will be ¥1,000,000 million. When undertaking

The appraisal value of property with respect to the periodborrowings or when issuing NBF bonds, NBF may provide operating

commencing on the acquisition thereof and ending on the date ofassets as collateral (Article 15 of the Articles of Incorporation).

disclosure of such value with respect to the next following closure of
NBF’s accounting term shall be the acquisition price of the said propertyc) Loan-to-Value Ratio
The ratio of the total amount of borrowings and issues of NBF bonds
to the total amount of assets of NBF (loan-to-value ratio) is envisioned to(excluding miscellaneous acquisition costs, fixed assets tax, cityplanning tax and consumption tax) as stated in the sale and purchase
contract, etc. for the said property.

be limited to 56%, but may temporarily exceed 56% when acquiringcertain assets, etc. (medium-to-long-term operating asset management
policy and annual management plan established by the AssetManagement Company).

Investment Objectives of NBFd) Derivative Transactions
NBF purchases rights in derivatives transactions solely to hedge
against risks, including risks of fluctuation in interest rates for debt, as set
out in Article 2.20 of the Financial Instruments and Exchange Law ofJapan (“Investment Objectives and Policies,” Articles of Incorporation).

Investment Restrictions in Articles ofIncorporation
The Investment Objectives of NBF specified in the Articles ofIncorporation are as follows. Please also refer to “B. Investment Strategy”
of “Investment Policies of NBF” herein.

(5) Disclosure Policy
NBF’s policy on disclosure is to earn recognition from society byshowing itself to be an open and transparent investment company. It also
works at all times to engender an environment in which it can

24

NBF Report January – June 2015

A. Principal Investment Objectives among
Designated Assets
NBF will principally invest in the below-listed Designated Assets with

Investment and Distribution Policies

the objective of assuring steady growth and stable profits from theManaged Assets.
(1) Real estate, real estate leasehold interests and superficies(2) Beneficiary Certificates backed by real estate, real estate leasehold
rights and superficies, including inclusive trusts consisting of funds
appurtenant to real estate(3) Tokumei kumiai ownership interests as defined by Article 535 of theCommercial Code of Japan (provided, however, that this is limited toB. Other Investment Objectives among
Designated Assets
NBF may, in the course of efficiently managing funds or in other cases
as necessary, invest in the following Designated Assets.
(1) Bank deposits(2) Certificates of deposit issued by Japanese legal entities(3) Call loans(4) Japanese government bonds, notes and bills (meaning those

those the assets of which are primarily invested and Managed Assets

specified in Article 2.1.1 of the Financial Instruments and Exchange

principally referred to in paragraphs (1) and (2) above)

Law of Japan)(4) Equity interests in partnerships as defined by Article 667 of the Civil
Code of Japan (limited to leased, operating and managed partnershipassets primarily referred to in paragraphs (1) and (2) above that are
specified in Article 2.2.5 of the Financial Instruments and Exchange
Law of Japan)(5) Preferred Investment Certificates of Special Purpose Companies(meaning those specified in Article 2.1.8 of the Financial Instruments
and Exchange Law of Japan, provided, however, that this is limited tothose the assets of which are primarily invested and Managed Assets
principally referred to in paragraphs (1) and (2) above)(6) Special Purpose Beneficiary Certificates (meaning those specified in
Article 2.1.13 of the Financial Instruments and Exchange Law ofJapan, provided, however, that this is limited to those the assets ofwhich are primarily invested and Managed Assets principally referred
to in paragraphs (1) and (2) above)(7) Beneficiary Certificates of investment trusts (meaning those specified
in Article 2.1.10 of the Financial Instruments and Exchange Law ofJapan, provided, however, that this is limited to those the assets of(5) Regional treasury bonds, notes and bills (meaning those specified in
Article 2.1.2 of the Financial Instruments and Exchange Law of Japan)(6) Commercial paper (meaning that specified in Article 2.1.15 of the
Financial Instruments and Exchange Law of Japan)(7) Designated bonds of Special Purpose Companies (meaning thosespecified in Article 2.1.4 of the Financial Instruments and Exchange
Law of Japan, provided, however, that this is limited to asset-backed
securities principally referred to in paragraphs (1) and (2) of section
A above)(8) Monetary claims (limited to those claims that are deemed
Designated Assets under the Investment Trust Law of Japan otherthan those referred to in section A and above)(9) Securities (other than those listed in section A and above)(10) Rights to financial derivative transactions (limited to those specified in
Article 2.20 of the Financial Instruments and Exchange Law of Japan)(11) Renewable energy power generation facilities (meaning those specified
in Article 3.11 of the Order for Enforcement of the Investment Trust Act(Cabinet Order No. 480 of 2000, including amendments thereto)which are primarily invested and Managed Assets principally referred
to in paragraphs (1) and (2) above)(8) Investment Securities (meaning those specified in Article 2.1.11 of the
Financial Instruments and Exchange Law of Japan, provided, however,that this is limited to those the assets of which are primarily invested
and Managed Assets principally referred to in paragraphs (1) and (2)above)(9) Beneficiary Certificates of Money Trust (limited to those the trust
assets of which are primarily invested and Managed Assets referred to

C. Assets Other than Designated Assets
NBF may, in the course of efficiently managing funds or in other cases
as necessary, invest in the following assets.
(1) Equity interests of partnerships, excluding assets in section A,
paragraph (4)(2) Easements(3) Trademark rights(4) Copyrights

in paragraph (1), (3) or (4) above, provided, however, that those that

(5) Chattels

are deemed securities are excluded)(6) Emission credits (including emission credits for greenhouse gases) orother similar carbon dioxide equivalent quotas based on the Act on
Promotion of Global Warming Countermeasures of Japan (Act No. 117
of 1998, including subsequent revisions)(7) Requisite ancillary rights to Designated Assets referred to in
section A

NBF Report January – June 201525

D. In the event that securities with “rights to
be indicated on securities” as specified
in Article 2.2 of the Financial Instruments
and Exchange Law of Japan are notissued, such rights shall be deemed
securities to which sections A through C
above are applicable.

B. Distribution in Excess of Earnings
A registered investment corporation is allowed to distribute cash to its
unitholders in excess of the Distributable Amount under the Financial
Instruments and Exchange Law of Japan, although the Investment Trusts
Association of Japan has established rules such that a corporate-style
J-REIT may pay out the excess of retained earnings for the period up to a
maximum of 60% of depreciation for the period. NBF is entitled to makecash distributions of the amounts described below in excess of theDistributable Amount in the following cases, provided, however, that the
maximum amount of such distributions will be the amount set forth in theDistribution Policies of NBF

rules of the Investment Trusts Association of Japan (Article 14.2 of the
Articles of Incorporation).

A. Distributions of Profits
A registered investment corporation may deduct its cash dividends of(1) Amount determined by NBF as being eligible for the requirements ofprofits from taxable income under Japanese tax regulations if it distributes to

Article 39.32.3 of the Special Taxation Treatment for Investment

its unitholders in excess of 90% of its taxable income and complies with

Corporations, in case of the Distributable Amount being less than theother organizational and operational requirements. NBF intends to make divi-

Taxable Income Available for Dividends.

dend distributions that ensure that NBF satisfies those requirements.
NBF will, in principle, effect distributions in accordance with the following policies (Article 14.1 of the Articles of Incorporation).

(2) Amount determined by NBF not in excess of the amount of depreciation
for the current term less the amount of appropriate reserves for the current
term, if NBF determines it appropriate considering trends in macroeconomic(1) NBF’s earnings available for distributions are based on accounting ofenvironments, real estate markets and leasing markets.

profits prepared in accordance with the Investment Trust Law and in conformity with generally accepted accounting principles in Japan.
The distributable amount which results from operation of managed(3) Amount determined by NBF if NBF determines it appropriate for reducing its tax burden.

assets of NBF (hereinafter, “Distributable Amount”) shall be the amount of
profit (the amount of net assets on the balance sheet less the amount of

As for cash distributions in excess of profits, as long as the current

total expenses, capital surplus reserves and estimated or equivalent vari-

Japanese taxation treatment applicable to NBF’s unitholders in Japan toances) calculated on each closing date.

whom such distributions are paid requires them to calculate capital gainor loss at the time of each distribution, NBF will not make distributions in(2) The amount of cash distributions will be determined by NBF, suchexcess of profits.

amount being in excess of 90% of earnings available for dividends of NBF

Notwithstanding the above, NBF may make distributions in excess of

set forth in Article 67.15 of the Special Taxation Measures Law of Japanprofits in accordance with the distribution policies stated above in order to(hereinafter “Distributable Earnings”), provided, however, that the maxi-

meet “Requirement for Deduction from Taxable Income of Dividends of

mum amount of distributions will be the Distributable Amount. NBF has

Profit, etc.,” and if such distributions in excess of profits are deemed

the right to allow for long-term reserve for renovations, reserve for pay-necessary by the Board of Directors of NBF.

ables, reserve for cash distributions and other reserves and allowances
similar thereto which are deemed necessary for maintaining or enhancing
the assets of NBF.

C. Method of Distributions
Distributions will be made in cash, in principle, within three months
from the closing date, to such unitholders or registered pledgees as are(3) Earnings retained and not allocated to cash distributions or other-

listed or recorded in the latest Unitholder Registry as of the closing date,wise available for distribution as of the closing date will be managed inin proportion to the number of units owned by or pledged to them (Article

accordance with “Investment Objectives and Policies” in the Articles

14.3 of the Articles of Incorporation).

of Incorporation.
26

NBF Report January – June 2015

Investment and Distribution Policies

D. Prescription for Cash Distributions, etc.
NBF will be discharged from the obligation to pay distributions ofprofits three calendar years from the date of commencing payment.

Objectives among Designated Assets,” paragraphs (1) and (2).
The real estate held by such funds may not include any real estate
located outside of Japan (Articles of Incorporation).

Interest will not accrue on unpaid distributions (Article 14.4 of the
Articles of Incorporation).

(5) Compliance with Laws and Regulations
The Managed Assets of NBF will be managed in compliance with the
Financial Instruments and Exchange Law of Japan and related regulations, the rules stipulated by the Investment Trusts Association (asInvestment Restrictions

amended), as well as “Investment Objectives and Policies” of the Articles
of Incorporation.

A. Investment Restrictions in Articles
of Incorporation
The investment restrictions specified in the Articles of Incorporationand the asset management guidelines applicable to NBF. Please also refer
to “Investment Policies of NBF, B. Investment Strategy” herein.

B. Compliance with the Financial
Instruments and Exchange Law and theInvestment Trust Law of Japan
NBF is subject to restrictions on investment under the Financial
Instruments and Exchange Law and the investment Trust Law of Japan.

(1) Investment Location and Currencies

Main restrictions are as follows.

NBF will invest neither in real estate located outside of Japan nor in
assets denominated in non-Japanese currencies (“Investment Objectives(1) Pursuant to Article 198.1 of the Investment Trust Law of Japan, aand Policies,” Articles of Incorporation).

registered investment corporation must entrust business related toasset management to an asset management company registered as a(2) Borrowing
See “Investment Policies of NBF, B. Investment Strategy, (4) Financial
Policies.”

financial instrument firm, but an asset management company isprohibited from performing certain acts related to the business ofmanaging the assets of said investment corporation. As a result, aninvestment corporation is subject to certain investment restrictions (all(3) Concentration of Investment
There is no limitation on concentration of investment. See “Investment

references in parentheses below are to the provisions of the Financial
Instruments and Exchange Law of Japan, except where stated other-

Policies of NBF, B. Investment Strategy, (1) Strategy for Creation of thewise) besides restrictions applied to a registered investment

Portfolio.”

corporation. NBF will naturally comply with such investment restrictions,a general overview of which follows.

(4) Investment Objectives
NBF does not invest aggressively in the Monetary Claims andSecurities referred to in “Investment Objectives, B. Other Investment
Objectives among Designated Assets.” Rather, NBF takes into accounttheir stability and liquidity based on the extent of their relationship with
Designated Assets referred to in “Investment Objectives, A. Principal
Investment Objectives among Designated Assets.” NBF invests in rights tofinancial derivatives transactions solely to hedge against risks, including
risks of fluctuation in interest rates for debt (“Investment Objectives andPolicies,” Articles of Incorporation).
Moreover, investment in other funds (investment securities orBeneficiary Certificates) is limited mainly to those the assets of which arereferred to in “Investment Objectives of NBF, A. Principal Investmenta) Internal Transactions (§ 42.2.1)

Transactions between an asset management company and its directors or officers are prohibited except for certain cases specified in Article
128 of the government ordinance regarding the Financial Instruments andExchange Law that are considered unlikely to result in failure to protect
the interests of unitholders, damage fair transactions or discredit thefinancial instruments business.
b) Reciprocal Transactions with Managed Assets (§ 42.2.2)

Transactions between asset management companies of investment
corporation assets are prohibited except for certain cases specified in theprovisions of the government ordinance regarding the Financial

NBF Report January – June 201527

Investment and Distribution Policies

Instruments and Exchange Law of Japan that are considered unlikely to(b) entities that hold more than 50/100 of the total amount of invest-

result in failure to protect the interests of unitholders, damage fair trans-

ment securities representing underlying managed assets issued inactions or discredit the financial instruments business.

the two most recent fiscal years, as defined by §2.8.1-3, §2.8.8
and §2.8.9 of the Financial Instruments and Exchange Law (limited
to investment securities that give holders rights in the said managedc) Transactions for the Benefit of Third Parties (§ 42.2.3)

assets and such rights)

An asset management company may not undertake transactions in(viii) Other activities prohibited by Cabinet Office Ordinance 130

certain financial instruments, indices or options based on fluctuations in theprice, index, value, or amount of consideration related to transactions in theassets of an investment corporation, without a legally valid reason, with theobjective of benefiting a third party other than NBF or said investment.
d) Transactions Harmful to the Interests of NBF (§ 42.2.4)

An asset management company may not undertake transactions that

(2) Limitation on Acquisition of the Same Issueof Units (§ 194 of the Investment Trust Law)
An investment corporation may not acquire the same units issued by acorporation in excess of 50/100 of total number of said issued and outstanding units.

are other than upon normal terms and conditions for such transactions,and further, such transactions upon said conditions would be harmful tothe interests of the investment.

(3) Restriction on Acquisition of Own Units andAcceptance of Pledge (§ 80.1 of the Investment
Trust Law)
An investment corporation may not acquire units issued by itself, ore) Other Transactions Defined by Cabinet
Office Ordinances

accept them for the purpose of pledge, unless it acquires units issued by

In addition to the above, the following activities are prohibited

itself in the following cases:(§42.2.7 of the Financial Instruments and Exchange Law, Cabinet Office●when acquired from another investment corporation as the surviving
entity of a merger;●

when purchasing units pursuant to the provisions of the Investment
Trust Law of Japan; or●when purchasing units pursuant to a government ordinance regarding
the Investment Trust Law of Japan.

Ordinance §130).
(i)

Transactions among the auditors, officers and employees of an asset
management company(ii)

Transactions for the benefit of the investment management company
or third parties that would be harmful to the interests of theinvestment corporation(iii)

Transactions for the benefit of third parties that are not necessary
according to investment management policies, the financial condition ofassets under management, or market conditions

(iv)
(v)

(4) Restriction on Acquisition of Parent
Corporation’s Units by Subsidiary Corporation(§ 81.1.2)
An investment corporation (subsidiary), a majority of the units of which

Asset management that introduces unfair restrictions or other limitations
from external entities

is owned by another investment corporation (parent), may not acquire the

The sale or purchase of investment securities, or similar transactions,units of such parent investment corporation except in the following cases:

with the objective of unfairly inflating transaction amounts or artificially●when acquired from another investment corporation as the surviving
entity of a merger; or●

when purchasing units pursuant to a government ordinance regarding
the Investment Trust Law of Japan.

inflating prices(vi)Transactions between third parties and their agents (excluding specifictransactions to which rights holders have agreed pursuant to advance
explanation of the rationale for the transaction)(vii) When entities as specified below engage in underwriting investment
securities or other transactions, requested tenders or acquisitions ofinvestment securities when the subject investment securities to beacquired by or the amount subscribed under the tender agreement by
the said underwriter differ from the planned amounts(a) foreign entities including corporations for their own account (asstipulated by Cabinet Office Ordinance §126.3)
28

NBF Report January – June 2015

C. Other Restrictions
Subscription and Margin Trading of Securities
Pursuant to the guidelines set by its asset management company, NBF
may not subscribe to, or conduct margin trading of, securities.

Management’s Discussion and Analysis

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30

NBF Report January – June 2015

Management’s Discussion and Analysis

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32

NBF Report January – June 2015

Management’s Discussion and Analysis

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NBF Report January – June 201533

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NBF Report January – June 2015

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NBF Report January – June 201543

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5HWDLQHG(DUQLQJVNBF Report January – June 2015

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NBF Report January – June 201545

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46

NBF Report January – June 2015

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NBF Report January – June 2015

47

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48

NBF Report January – June 2015

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52

NBF Report January – June 2015

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NBF Report January – June 2015

53

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NBF Report January – June 2015

Notes to Financial Statements

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NBF Report January – June 2015

55

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NBF Report January – June 2015

Notes to Financial Statements

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NBF Report January – June 2015

57

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NBF Report January – June 2015

Notes to Financial Statements

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NBF Report January – June 201559

Notes to Financial Statements

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WRWDORSHUDWLQJUHYHQXHV  ,QYHVWPHQWSURSHUWLHV'LVFORVXUHRIWKLVLQIRUPDWLRQKDVEHHQRPLWWHGDVWRWDOGRPHVWLFLQYHVWPHQWSURSHUWLHVDFFRXQWIRUPRUHWKDQRIWKHERRNYDOXHRIWRWDOLQYHVWPHQWSURSHUWLHV ,QIRUPDWLRQRQ0DMRU7HQDQWV
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1RWH±6LJQLILFDQW6XEVHTXHQW(YHQWV  1RQHDSSOLFDEOH

60

NBF Report January – June 2015

Independent Auditor’s Report

NBF Report January – June 201561

Response to Article 23 of the European Alternative
Investment Fund Managers Directive
DISCLAIMER
This document has been prepared solely for the purpose of providing U.K. and Dutch
investors with certain information under Article 23 of the European Alternative Investment
Fund Managers Directive (European Directive 2011/61/EU) as implemented in theirrespective jurisdictions, and does not constitute an offer to sell or a solicitation of any offer
to buy the units of Nippon Building Fund Inc. (“NBF” or the “AIF”). Accordingly, you should
not use this document for any other purpose.
Netherlands
The units of NBF are being marketed in the Netherlands under Section 1:13b of the Dutch
Financial Supervision Act (Wet op het financieel toezicht, or the “Wft”). In accordance withthis provision, Nippon Building Fund Management Ltd. (the “AIFM”) has notified the Dutch
Authority for the Financial Markets certain matters in accordance with the AIFMD. The units
of NBF will not, directly or indirectly, be offered, sold, transferred or delivered in the
Netherlands, except to or by individuals or entities that are qualified investors(gekwalificeerde beleggers) within the meaning of Article 1:1 of the Wft, and as aconsequence neither the AIFM nor NBF is subject to the license requirement pursuant to
the Wft. The AIFM is therefore solely subject to limited ongoing regulatory requirements as
referred to in Article 42 of the AIFMD.
United Kingdom
Units of NBF are being marketed in the United Kingdom pursuant to Article 59 of the United
Kingdom Alternative Investment Fund Managers Regulations 2013. In accordance with thisprovision, the AIFM has notified the Financial Conduct Authority (the “FCA”) certain mattersin accordance with the AIFMD.
For the purposes of the United Kingdom Financial Services and Markets Act 2000 (“FSMA”)
NBF is an unregulated collective investment scheme which has not been authorized by the
FCA.
Accordingly, any communication of an invitation or inducement to invest in NBF may bemade to persons in the United Kingdom only if the communication falls within one or moreof the categories of exempt financial promotions under the Financial Services and Markets
Act (Financial Promotion) Order 2005 (the “Order”), such as financial promotions
communicated to:(1) persons who are investment professionals, as defined in article 19 of the Order;(2) persons who are certified high net worth individuals, as defined in article 48 of theOrder;

62

NBF Report January – June 2015

(3) persons who are high net worth companies, unincorporated associations, or otherentities listed in article 49 of the Order; or(4) persons who are certified sophisticated investors, as defined in article 50 of theOrder,
or if the communication is made to persons to whom such an invitation or inducement mayotherwise lawfully be communicated. The distribution of this document to any person in the
United Kingdom in circumstances not falling within one of the above categories is not
permitted and may contravene FSMA. No person falling outside those categories should
treat this document as constituting a promotion to him, or act on it for any purposes
whatever.
In relation to each Member State of the European Economic Area which has implemented
the Prospectus Directive (each, a Relevant Member State), with effect from and including
the date on which the Prospectus Directive is implemented in that Relevant Member State(the Relevant Implementation Date) no offer of units of NBF may be made to the public inthat Relevant Member State except in circumstances falling within Article 3(2) of theProspectus Directive, provided that no such offer of units shall require the publication of aprospectus pursuant to Article 3 of the Prospectus Directive, or a supplement to aprospectus pursuant to Article 16 of the Prospectus Directive.
For the purposes of this provision, the expression “an offer of units to the public” in relation
to any units in any Relevant Member State means the communication in any form and by
any means of sufficient information on the terms of the offer and the units to be offered so
as to enable an investor to decide to purchase or subscribe the units, as the same may bevaried in that Member State by any measure implementing the Prospectus Directive in that
Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (andamendments thereto, including the 2010 PD Amending Directive, to the extent
implemented in the Relevant Member State), and includes any relevant implementing
measure in the Relevant Member State and the expression “2010 PD Amending Directive”
means Directive 2010/73/EU.
Japan
This document is not an offer to sell or a solicitation of any offer to buy the units of NBF in
Japan.

NBF Report January – June 2015

63

Article 23 (1)(a)Objectives of the

Nippon Building Fund Inc. (“NBF” or the “AIF”) invests in office buildings in the Tokyo Central

AIF.

Business Districts (“CBDs”, which comprises the 23 wards of Tokyo), Other Greater Tokyo
Areas (neighboring cities within Tokyo other than the 23 wards, such as Musashino andTachikawa cities, as well as cities within the neighboring prefectures of Kanagawa, Chiba,
Saitama, Ibaraki, Gunma and Tochigi prefectures, including the cities of Yokohama, Kawasaki,
Chiba, Kashiwa and Saitama) and Other Cities (principal regional cities, including Sapporo,
Sendai, Niigata, Shizuoka, Hamamatsu, Nagoya, Kyoto, Osaka, Kobe, Okayama, Hiroshima,
Takamatsu, Fukuoka and Kumamoto).
The basic policy of NBF is to operate assets with the objective of assuring steady growth andstable profits for the mid to long term.

Investment

The investment strategy of NBF aims to assure steady growth of and stable profits from NBF’s

strategy.

portfolio for the mid to long term by considering the proportion of Japan’s office stock byregion. Specifically, the strategy divides the investment area into three areas consisting ofTokyo CBDs, Other Greater Tokyo Areas and Other Cities in such manner that 70% or more of
total investment assets is allocated to Tokyo CBDs and Other Greater Tokyo Areas and 30% orless to Other Cities. The purpose of this area diversification is to minimize cash flow risks suchas those due to earthquakes and risk of vacancies. In general, NBF fully exploits its uniquecharacteristics when conducting investment activities. It is one of the largest listed J-REITs on
the Tokyo Stock Exchange in terms of total assets, and is able to take advantage of Mitsui
Fudosan Group’s powerful information network, as well as the industry knowledge andfamiliarity that it has cultivated itself. NBF investment strategy focuses on expanding its asset
portfolio by making aggressive acquisitions and flexible dispositions mainly of highly
competitive office buildings, primarily in Tokyo CBDs while conducting appropriate risk
management.

Types of assets theReal estate, trust beneficiary interests in real estate, real estate securities, specified assets

AIF may invest in.

and other assets.

Techniques it may

NBF achieves its objective by investing in real estate consisting of buildings primarily used for

employ and all

offices with their underlying land located in the Tokyo CBDs, Other Greater Tokyo Areas andassociated risks.

Other Cities. NBF also invests in securities, beneficiary certificates representing beneficial
interests in trusts and other assets backed by office properties.
The principal risks with respect to investment in NBF are as follows:(1) General Risks(a) Risks concerning NBF’s ability to make cash distributions(b) Risks concerning resale or redemption of investment units or investment
corporation bonds

64

NBF Report January – June 2015

Response to Article 23 of the European Alternative
Investment Fund Managers Directive(c) Risks concerning market price fluctuations of the investment units orinvestment corporation bonds(d) Risks concerning changes to treatment of investment corporations under legal,
taxation and other systems(e) Risks concerning dilution of per-unit value through the issuance of new
investment units(f) Risks concerning merger of investment corporations(2) Risks Related to Product Structure and Affiliates of NBF(a) Risks concerning investment units or investment corporation bonds as financial
products(b) Risks concerning fluctuations in revenues, expenditures and cash flow(c) Risks concerning loan-to-value ratio(d) Risks concerning borrowings and investment corporation bonds(e) Risks concerning insider trading(f) Risks concerning the asset manager(g) Risks concerning office management service providers(h) Risks concerning dependency on NBF’s affiliates(i) Risks concerning conflict of interests between NBF and other corporations
involved with the management of NBF(j) Risks concerning changes to NBF’s investment policy(k) Risks concerning tenant leasehold deposits and security deposits(l) Risks of NBF going bankrupt or its registration being cancelled(m) Risks arising from bankruptcy of the seller of properties(3) Risks Related to Real Estate(a) Risks concerning illiquidity in the real estate market and transactional costs(b) Risks concerning the defective title, design, construction or other defects or
problems in the properties(c) Risks concerning competition in acquisition of properties(d) Risks concerning competition in seeking tenants(e) Risks concerning co-owned properties(f) Risks concerning compartmentalized ownership of buildings(g) Risks concerning properties on leased lands(h) Risks concerning leased properties(i) Risks concerning properties not in operation (including properties underdevelopment)(j) Risks concerning hazardous materials and radioactive contamination

NBF Report January – June 201565

(k) Risks concerning strict environmental liabilities for the properties(l) Risks concerning reliance on expert appraisals and engineering, environmental
and seismic reports as well as industry and market data(m) Risks concerning lease contracts in Japan(n) Risks concerning building damage and loss due to fire, explosion, lightning, wind,
hail, snow, floods, electrical and mechanical hazards and other unexpected
accidents(o) Risks concerning building damage and loss due to fire, explosion and collapse
caused by earthquakes and other disasters such as eruptions, tsunami andliquefaction(p) Risks concerning the concentration of properties in the portfolio in certain areas(q) Risks concerning tenants’ financial status and insolvency(r) Risks concerning fluctuation of profits due to a limited number of tenants(s) Risks concerning subleases(t) Risks concerning ownership liabilities related to real estate(u) Risks concerning repair and maintenance costs related to real estate(v) Risks concerning liability as the seller of properties(w) Risks related to holding partnership interests(x) Risks concerning complexity of ownership and other interests of properties andinaccuracy of real estate registration(y) Risks concerning administrative rules and regulations and prefectural or municipal
ordinances for real estate(z) Risks concerning establishment of new or revisions of existing laws andregulations(aa)Risks concerning conclusion of post-dated sale agreements (forward
commitment contracts)(4) Risks Related to Trust Beneficiary Rights(a) Risks concerning investments in trust beneficiary interests(b) Risks concerning liquidity of beneficiary interests(c) Risks concerning insolvency of the trustee(5) Risks Related to Taxation(a) Risks of failure to satisfy pass-through requirements due to inability to pay
dividends and other reasons(b) Risks of failure to satisfy pass-through requirements due to excessive amount oftax burden(c) Risk of additional tax liability as a result of a tax audit, which could, among other66

NBF Report January – June 2015

Response to Article 23 of the European Alternative
Investment Fund Managers Directive

things, retroactively cause us to fail to satisfy pass-through requirements(d) Risks that preferential tax measures associated with real estate acquisitions
cannot be applied(e) Risks of failure to satisfy pass-through requirements due to treatment of NBF as afamily corporation under Japanese tax law.
(f) Risks of failure to satisfy pass-through requirements due to borrowings fromcompanies or individuals other than institutional investors(g) Risks of failure to satisfy pass-through requirements due to the composition of
investors(h) Risks concerning revisions of the general taxation system(i) Risks that tax burdens will increase due to discrepancies between accounting
treatment and tax treatment
Any applicable

NBF is subject to investment restrictions under Japanese laws and regulations (e.g., the Act on

investment

Investment Trusts and Investment Corporations (the “ITA”), the Financial Instruments andrestrictions.

Exchange Act (the “FIEA”)) as well as its articles of incorporation.

NBF must invest primarily in specified assets as defined in the ITA. Specified assets include,
but are not limited to, securities, real estate, leaseholds of real estate, surface rights(ĐŚŝũƃͲŬĞŶ) (i.e., right to use land for the purpose of having a structure on it) or trust
beneficiary interests for securities or real estate, leaseholds of real estate or surface rights. A
listed J-REIT must invest substantially all of its assets in real estate, real estate-related assets
and liquid assets as provided by the listing requirements. Real estate in this context includes,
but is not limited to, real estate, leaseholds of real estate, surface rights, and trust beneficiaryinterests for these assets, and real estate-related assets in this context include, but are notlimited to, anonymous association (tokumei kumiai) interests for investment in real estate.
Pursuant to the ITA, investment corporations may not independently develop land for housing
or to construct buildings, but must outsource such activities.
Circumstances in

NBF may take out loans or issue long-term or short-term corporate bonds for the purpose ofwhich the AIF may

investing in properties, conducting repairs and related work, paying cash distributions,use leverage.

operating capital, repaying obligations (including repayment of tenant leasehold or security
deposits, and obligations related to loans or long-term or short-term corporate bonds) andother activities.

The types andLoans or investment corporation bonds. Currently, all of NBF’s outstanding long- andsources of leverage

short-term loans as well as outstanding bonds are unsecured and unguaranteed.

permitted andassociated risks.

Loans or investment corporation bonds in which NBF enters or NBF issues may be subject torestrictive covenants in connection with any future indebtedness that may restrict operations
and limit its ability to make cash distributions to unitholders, to dispose of properties or to

NBF Report January – June 201567

acquire additional properties. Furthermore, if NBF were to violate such restrictive covenants,
such as with regard to debt service coverage or loan-to-value ratios, lenders may be entitled
to require NBF to collateralize portfolio properties or demand that the entire outstandingbalance be paid.
In the event of an increase in interest rates, to the extent that NBF has any debt withunhedged floating rates of interest or NBF incurs new debt, interest payments may increase,which in turn could reduce the amount of cash available for distributions to unitholders.
Higher interest rates may also limit the capacity for short- and long-term borrowings, which
would in turn limit NBF’s ability to acquire properties, and could cause the market price of theunits to decline.
Any restrictions on

The maximum amount of each loan and corporate bond issuance will be 1 trillion yen, and theleverage.

aggregate amount of all such debt will not exceed 1 trillion yen.

Any restrictions on

No applicable arrangements.

collateral and asset
reusearrangements.
Maximum level of

NBF has set an upper limit of 56% as a general rule for its loan-to-value, or LTV, ratio, which isleverage which thethe ratio of (x) the aggregate principal amount of borrowings and investment corporation

AIFM is entitled tobonds to (y) the total assets of NBF’s portfolio, in order to operate with a stable financial

employ on behalf

condition. NBF may, however, temporarily exceed such levels as a result of propertyof the AIF.

acquisitions or other events.

Article 23(1) (b)Procedure by

Amendment of the articles of incorporation. Amendment requires a quorum of a majority ofwhich the AIF may

the total issued units and at least a two-thirds vote of the voting rights represented at thechange its

meeting. Unitholders should note, however, that under the ITA and our articles ofinvestment

incorporation, unitholders who do not attend and exercise their voting rights at a general

strategy /meeting of unitholders are deemed to be in agreement with proposals submitted at theinvestment policy.

meeting, except in cases where contrary proposals are also being submitted. Additionally, theguidelines of the AIFM, which provide more detailed policies within NBF’s overall investment
strategy and policy, can be modified without such formal amendment of the articles ofincorporation.

Article 23(1) (c)Description of themain legalx

Master lease agreement under which NBF leases properties to Mitsui Fudosan Co.,

implications of theLtd. under a master lease agreement, and Mitsui Fudosan Co., Ltd. subleases suchcontractual

properties to subtenants;

relationship68

NBF has entered into the following agreements with Mitsui Fudosan Co., Ltd.:x

NBF Report January – June 2015

Direct lease agreements with Mitsui Fudosan Co., Ltd. as tenant;Response to Article 23 of the European Alternative
Investment Fund Managers Directive

entered into forx

Fudosan Co., Ltd., and management contracts with regard to such assets; andthe purpose ofinvestment,
including

Purchase and sale agreements regarding certain NBF assets originally held by Mitsuix

Agreements for the development of certain properties.

NBF has entered into the following agreements with Sumitomo Mitsui Trust Bank, Limited:jurisdiction,x

A custody agreement regarding NBF’s assets;

applicable law, andx

A transfer agent agreement regarding the units;

the existence orxLoan agreements over certain of our short- and long-term loans;

not of any legalx

Agreements establishing Sumitomo Mitsui Trust Bank, Limited as the trustee forcertain trust beneficiary rights held by NBF; andinstruments
providing for therecognition andx

Various agreements related to our corporate bond offerings.

NBF has entered into the following agreements with Sumitomo Life Insurance Company:

enforcement ofx

Loan agreements over certain of our long-term loans;judgments in thex

Lease agreements for certain properties with Sumitomo Life Insurance Company astenant; andterritory where the
AIF is established.

x

Purchase and sale agreements regarding certain NBF assets originally held by
Sumitomo Life Insurance Company.

All of the above agreements are governed by Japanese law.
NBF is not involved in or threatened by any legal arbitration, administrative or otherproceedings, the results of which might, individually or in the aggregate, be material.
Article 23(1) (d)The identity of thex AIFM (Asset Manager): Nippon Building Fund Management Ltd.

AIFM, AIF's

x Auditor: KPMG AZSA LLC

depository, auditor

x Custodian and Transfer Agent: Sumitomo Mitsui Trust Bank, Ltd.

and any otherService providers owe contractual obligations under their respective agreements with the AIF

service providers

or AIFM, as the case may be. In addition, the FIEA provides that an asset manager owes a

and a description

J-REIT a fiduciary duty and must conduct its activities as the asset manager in good faith. Theof their duties and

FIEA also prohibits an asset manager from engaging in certain specified conduct, including

the investors' rights entering into transactions outside the ordinary course of business or with related parties ofthereto.

the asset manager that are contrary to or violate the J-REIT’s interests. Pursuant to the ITA,
the unitholders have the right to approve the execution or termination of the asset
management agreement at a general meeting of unitholders.

Article 23(1) (e)NBF Report January – June 201569

Description of how

Not applicable.

the AIFM complies
with therequirements tocover professional
liability risks (ownfunds /
professional
indemnity
insurance).
Article 23(1) (f)Description of any

Not applicable. There is no delegation of such functions beyond the AIFM, which isdelegated

responsible for portfolio and risk management, and the Custodian, which is responsible formanagement

safekeeping activities.

function such as
portfolio
management orrisk management
and of any
safekeeping
function delegatedby the depositary,
the identificationof the delegate andany conflicts ofinterest that may
arise from suchdelegations.
Article 23(1) (g)70

Description of the

NBF makes investment decisions based on its investment strategies and in accordance with its

AIF’s valuation

articles of incorporation and based on the results of due diligence, including the valuation ofprocedure andproperties and consideration of the property appraisal value. The methods and standards thatpricing

NBF uses for the evaluation of assets are based on the Regulations Concerning themethodology,

Calculations of Investment Corporations, as well as the Regulations Concerning Real Estateincluding theInvestment Trusts and Real Estate Investment Corporations and other regulations stipulated

methods used inby ITA, in addition to Japanese GAAP. J-REITs may only use the valuation methods prescribedvaluingin the rules of the Investment Trusts Association, Japan, which emphasize market pricehard-to-value

valuation.

NBF Report January – June 2015

Response to Article 23 of the European Alternative
Investment Fund Managers Directive

assets.
Regarding hard to value assets, such assets comprise tenant security deposits including trust
accounts. Security deposits from tenants are not subject to fair value disclosure because they
are not marketable, and actual deposit period is not estimable as leases may be cancelled,
renewed or re-signed even if a lease term is set in the lease contract. This makes a reasonableestimate of future cash flows difficult. Valuation of such hard to value assets is included in thenotes to our financial statements.
If asset valuation methods other than those mentioned in the paragraphs above are to be
used in order to determine values for asset management reports, etc., valuation shall be
conducted in the following manner.
(1) Real estate, real estate leasehold rights and surface rights
In principle, valuation shall be based on the appraisal by a real estate appraiser.
(2) Trust beneficiary interests and equity interests in anonymous associations and voluntary
associations
Valuation shall be made by calculating the value of the equity interests in anonymous
associations or voluntary associations in relation to real estate, real estate leasehold rights or
surface rights, or the value of the trust beneficiary interests obtained by subtracting theamount of liabilities from the aggregate value of assets after (i) determining valuation as
described in (1) above with respect to trust assets or the assets of anonymous associations
composed of real estate, real estate leasehold rights or surface rights and (ii) determining
valuation in accordance with general accepted accounting principles in Japan with respect totrust assets or the assets of anonymous associations or voluntary associations composed offinancial assets.
Article 23(1) (h)Description of the

NBF seeks to manage the capital resources and liquidity sources to provide adequate funds

AIF’s liquidity risk

for current and future financial obligations and other cash needs and acquisitions. NBF hasmanagement,

entered into credit lines in the amount of 60 billion yen as of June 30, 2015, and has entered

includinginto loans and has issued investment corporation bonds in the past. While loans and bonds

redemption rights

are exposed to liquidity risk, such risk is managed in ways such as by diversifying the means ofin normal andfunding and lending institutions, dispersing repayment dates, establishing committed credit

exceptionallines, and keeping sufficient liquidity in hand.

circumstances andexisting

NBF is a closed-end investment corporation, and unitholders are not entitled to request theredemption

redemption of their investment.

arrangements withinvestors.

NBF Report January – June 201571

Article 23(1) (i)Description of allxCompensation: The articles of incorporation provide that the AIF may pay its

fees, charges andexecutive and supervisory officers up to 700,000 yen per month. The board of officers

expenses and ais responsible for determining a reasonable compensation amount for the executive

maximum amountofficer and each of the supervisory officers.

which is directly /indirectly borne byx

Asset Management Fee: The AIF will pay the Asset Manager an asset management fee
as follows:

the investors.

Management Fees 1 – The amount equivalent to 2.5% of theamount of the revenue arising from real estate, real estate-related and real estate-backed
assets (“Real Estate”) as calculated on each closing date (provided, however, that revenues
from the sale of Real Estate and other managed assets will be excluded) will be payable.
Management Fees 2 – The amount equivalent to 3% of income before income tax(provided, however, that in the event a loss is carried forward, then the amount of income
before income taxes remaining after such loss has been covered) prior to deduction ofManagement Fees 2 as calculated on each closing date will be payable.
Management Fees 3 – In the event that Real Estate is newly acquired (or acquired inconnection with a merger executed by NBF), compensation equivalent to the total amount of
the acquisition price of said Real Estate (meaning the acquisition price of both land andbuildings, and in the event of the simultaneous acquisition of multiple units of Real Estate, theacquisition price of each item, provided, however, that national consumption tax, regional
consumption tax and miscellaneous costs of acquisition are excluded) multiplied by thefollowing percentage rates will, in principle, be payable, provided, however, that with theapproval of the officers of NBF, compensation may be calculated using different rates notexceeding the following rates.
The portion up to and including ¥10,000 million .........................

0.5%

The portion exceeding ¥10,000 million up to andincluding ¥30,000 million ............................................................

0.2%

The portion exceeding ¥30,000 million up to andincluding ¥50,000 million ............................................................

0.05%

The portion exceeding ¥50,000 million.........................................

nothing

In addition to the above, NBF will pay the Asset Manager a management agent fee as follows:
3,000,000 yen per year for services related to the meetings of the board of officers and72

NBF Report January – June 2015

Response to Article 23 of the European Alternative
Investment Fund Managers Directive

5,000,000 yen per meeting for services related to the meeting of unitholders.
xCustodian Fee: The AIF will pay the Custodian as follows:

A yearly fee calculated as follows:
The amount of total assets as indicated at the beginning of the period trial balance x 0.01%
xTransfer Agent Fee (Standard Fee):

Standard transfer agent fees are for services such as the preparation, maintenance andstorage of NBF’s unitholder register; and preparation of materials concerning end-of-period
unitholder statistical data (number of unitholders, total units held, distribution per geographicarea). Monthly standard fees are determined by calculating one sixth of the total number ofunitholders falling under each section as shown below. There is a minimum monthly fee of¥200,000.
Up to 5,000....................................................

480 yen5,001 to 10,000..............................................

420 yen

10,001 to 30,000............................................

360 yen30,001 to 50,000............................................

300 yen50,001 to 100,000..........................................

260 yenMore than 100,001.........................................

225 yen

NBF also pays certain de minimis fees in addition to the standard fee in connection with theadministration and handling of distributions (minimum of 350,000 yen per distribution) andother shareholder related functions.
x

Auditor Fee:

NBF may pay the accounting auditor up to ¥20 million per fiscal period. The board of officers
is responsible for determining the compensation amount for the accounting auditor.
x

Accounting Service Feeth

One 12 of the following in either (1) or (2) below each month:(1) A fixed amount of 10,900,000 yen.
(2) A variable amount calculated at April 1 and October 1 of each year in accordance withthe following:
Fewer than 30
properties.........................................

800,000 yen per property

Between 30 and 60
properties.........................................

600,000 yen per property

More than 60
properties.........................................

400,000 yen per property

NBF Report January – June 201573

x

Miscellaneous

NBF also pays fees to certain service providers in connection with:oAdministration of special accounts;o

Office management;oProperty control;oProperty transfer;oReferral of tenants;oProperty development;oTax administration; andoAdministration for corporate bonds governance

Article 23(1) (j)Description of theUnder Article 77 paragraph 4 of the ITA, which applies the requirements of Article 109

AIFM's procedureparagraph 1 of the Companies Act to investment corporations, investment corporations are

to ensure fairrequired to treat unitholders equally depending on the number and content of units held. In

treatment ofaddition, upon liquidation, the allotment of residual assets to unitholders is required to beinvestors andmade equally depending on the number units held under Article 77 paragraph 2 item 2 anddetails of any

Article 158 of the ITA.

preferential
treatment received
by investors,
including detailingthe type ofinvestors and theirlegal or economic
links with the AIF
or AIFM.
Article 23(1) (k)The latest annual

Not applicable. (The semiannual reports of the AIF are, however, available atreport referred tohttp://www.nbf-m.com/nbf_e/)

in Article 22(1).
Article 23(1) (l)The procedure and

NBF is authorized under the articles of incorporation to issue up to 4 million units. Its units

conditions for thehave been listed on the Tokyo Stock Exchange since September 10, 2001. Secondary market

issue and sale ofsales and transfers of units will be conducted in accordance with the rules of the Tokyo Stockthe units.

Exchange. Unit prices on the Tokyo Stock Exchange are determined on a real-time basis by theequilibrium between bids and offers. The Tokyo Stock Exchange sets daily price limits, which

74

NBF Report January – June 2015

Response to Article 23 of the European Alternative
Investment Fund Managers Directive

limit the maximum range of fluctuation within a single trading day. Daily price limits are set
according to the previous day’s closing price or special quote.
Article 23(1) (m)Latest net asset

NBF’s unit’s latest market price is publicly available at the Tokyo Stock Exchange or fromvalue of the AIF or

financial information vendors at

latest market price

http://www.reuters.com/finance/stocks/overview?symbol=8951.Tof the unit or shareof the AIF.
Article 23(1) (n)Details of the

The units of NBF were listed on the Tokyo Stock Exchange on September 10, 2001.

historical

The most recent five fiscal period performance of the units is as follows.

performance of the

Fiscal period (six months

Total Assets

Total Net Assets

Net Assets per unit

AIF, whereended)(JPY million)(JPY million)(base value) (JPY)available.

June 30, 2015

1,022,385

534,306

378,403

December 31, 2014

1,022,952

534,156

378,297

June 30, 2014

1,040,572

534,821378,768

December 31, 2013

1,022,812

519,198

375,143

June 30, 2013

1,047,992

517,584

373,977

Article 23(1) (o)Identity of theNo applicable prime broker.

prime broker, anymaterial
arrangements of
the AIF with its
prime brokers, howconflicts of interest
are managed withthe prime broker
and the provisionin the contract withthe depositary on
the possibility oftransfer and reuseof AIF assets, andinformation about
any transfer of

NBF Report January – June 201575

liability to theprime broker that
may exist.
Article 23(1) (p)Description of how

The AIFM will disclose the matters described in Articles 23(4) and 23(5) periodically throughand when periodic

its Internet website and semi-annual report.

disclosures will bemade in relation toleverage, liquidity
and risk profile of
the assets,pursuant to Articles
23(4) and 23(5).
Article 23(2)The AIFM shallNot applicable.

inform theinvestors before
they invest in the
AIF of any
arrangement madeby the depository
to contractuallydischarge itself ofliability inaccordance with
Article 21(13).
The AIFM shall also

Not applicable.

inform investors of
any changes withrespect todepositary liability
without delay.
Article 23(4)(a)Percentage of the AIF's assets which

There are no assets that are subject to special arrangements arising fromare subject to special arrangements

their illiquid nature.

arising from their illiquid nature. The
percentage shall be calculated as the
net value of those assets subject to76

NBF Report January – June 2015

Response to Article 23 of the European Alternative
Investment Fund Managers Directive

special arrangements divided by the
net asset value of the AIF concerned.
Overview of any special

There are no such special arrangements.

arrangements, including whether
they relate to side pockets, gates orother arrangements.
Valuation methodology applied to

There are no such special arrangements.

assets which are subject to sucharrangements.
How management and performance

There are no such special arrangements.

fees apply to such assets.
Article 23(4)(b)Any new arrangements for managing

Any new arrangements or change in applicable arrangements will be

the liquidity of the AIF.

disclosed at an appropriate time.

For each AIF that the AIFM manages

Any new arrangements or change in applicable arrangements will bethat is not an unleveraged closed-end

disclosed at an appropriate time.

AIF, notify to investors whenever they
make changes to its liquidity
management systems (which enable
an AIFM to monitor the liquidity riskof the AIF and to ensure the liquidity
profile of the investments of the AIF
complies with its underlying
obligations) that are material inaccordance with Article 106(1) ofRegulation (EU) No 231/2013 (ie.
there is a substantial likelihood that areasonable investor, becoming awareof such information, would reconsider
its investment in the AIF, including
because such information could
impact an investor’s ability to
exercise its rights in relation to its
investment, or otherwise prejudice
the interests of one or more investors
in the AIF).

NBF Report January – June 201577

Immediately notify investors where

Any new arrangements or change in applicable arrangements will bethey activate gates, side pockets ordisclosed at an appropriate time.

similar special arrangements or
where they decide to suspend
redemptions.
Overview of changes to liquidity

Any new arrangements or change in applicable arrangements will bearrangements, even if not special

disclosed at an appropriate time.

arrangements.
Terms of redemption and

NBF is a closed-end investment corporation, and unitholders are notcircumstances where management

entitled to request the redemption of their investment.

discretion applies, where relevant.
Also any voting or other restrictions

There are no voting or other restrictions on the rights attaching to units.

exercisable, the length of any lock-up
or any provision concerning ‘first inline’ or ‘pro-rating’ on gates andsuspensions shall be included.
Article 23(4)(c)
The current risk profile of the AIF and

The appropriateness and effectiveness of the risk management structure

the risk management systems

are regularly evaluated and enhanced by the AIFM.

employed by the AIFM to manage
those risks.

Deposits are exposed to risks of failure of the financial institution holding
the deposit and other credit risks, but such risks are controlled by striving todiversify the financial institutions holding the deposits.
Funds from debts and investment corporation bonds are mainly used for
asset acquisition or debt repayment, etc. While loans and bonds are
exposed to liquidity risk, such risk is managed in ways such as bydiversifying the means of funding and lending institutions, dispersing
repayment dates, establishing committed credit lines, and keeping
sufficient liquidity in hand. Our credit line is in the amount of 60 billion yen;no amount has been drawn down as of June 30, 2015.
Debt with a floating interest rate is exposed to interest rate fluctuation
risks, but the impact that interest rate rises have on the operations islimited by maintaining the proportion of debt that is long-term fixed-rate
debt at high levels, and setting a procurement limit depending on theeconomic and financial environment, terms of lease agreements withtenants, asset holding period and other factors.

78

NBF Report January – June 2015

Response to Article 23 of the European Alternative
Investment Fund Managers Directive

Furthermore, derivative transactions (interest rate swap transactions) areavailable as hedging instruments to mitigate the risks of rises in floatinginterest rates.
Tenant security deposits are exposed to liquidity risk arising from vacatingof properties by tenants due to the termination of contract.
NBF manages this risk by monitoring forecasted cash flows on a monthly
basis to ensure it has sufficient funds.
Measures to assess the sensitivity of

No such measures have been implemented.

the AIF’s portfolio to the most
relevant risks to which the AIF is or
could be exposed.
If risk limits set by the AIFM have

No such situation has occurred.

been or are likely to be exceeded andwhere these risk limits have been
exceeded a description of thecircumstances and the remedial
measures taken.
Article 23(5)(a)Any changes to the maximum amountAny new arrangements or change in applicable arrangements will beof leverage which the AIFM may

disclosed at an appropriate time.

employ on behalf of the AIF,
calculated in accordance with thegross and commitment methods. This
shall include the original and revised
maximum level of leverage calculated
in accordance with Articles 7 and 8 ofRegulation (EU) No 231/2013,
whereby the level of leverage shall becalculated as the relevant exposure
divided by the net asset value of theAIF.

NBF Report January – June 201579

Response to Article 23 of the European Alternative
Investment Fund Managers Directive

Any right of the reuse of collateral or

No such right or guarantee exists.

any guarantee granted under theleveraging agreement, including thenature of the rights granted for thereuse of collateral and the nature of
the guarantees granted.
Details of any change in service

Any new arrangements or change in applicable arrangements will be

providers relating to the above.

disclosed at an appropriate time.

Article 23(5)(b)Information on the total amount of

The aggregate amount of debt with interest is JPY 428,750 million as ofleverage employed by the AIF

June 30, 2015.

calculated in accordance with thegross and commitment methods.

80

NBF Report January – June 2015

Corporate Data (As of June 30, 2015)

Corporate Office38th Floor, GranTokyo North Tower, 9-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-6738, Japan+81-3-6259-8681
http://www.nbf-m.com/nbf_e/

Date of Inception

March 16, 2001

CapitalContributed capital and units issued and outstanding:¥519,124 million
1,412,000 units

Unitholders

16,242

Transfer Agent

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

Business Office of the Transfer Agent

Stock Transfer Agency Department of Sumitomo Mitsui Trust Bank, Ltd.
8-4, Izumi 2-chome, Suginami-ku, Tokyo 168-0063, Japan+81-3-3323-7111

Independent Auditors

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

Investor Relations

For further information, please contact our asset management company:
Investor Relations of Financial Department
Nippon Building Fund Management Ltd.
38th Floor, GranTokyo North Tower, 9-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-6738, Japan+81-3-6259-8681

This document contains translations of selected information described in thetranslations or the selection of the portions of any documents translated into English. No

Securities Report (Yuka shoken hokokusho) filed on September 29, 2015 pursuant to theperson has been authorized to give any information or make any representations other

Securities Exchange Law of Japan, and the Financial Statements and the Performance

than as contained in this document in relation to the matters set out in this document,

Information Report for the period from January 1, 2015 to June 30, 2015, of Nippon

and if given or made, such information or representation must not be relied upon as

Building Fund Inc. prepared pursuant to the Investment Trust Law of Japan.

having been authorized by Nippon Building Fund Inc., Nippon Building FundThis English-language document was prepared solely for the convenience of andreference by overseas investors. It neither corresponds to the original JapaneseManagement Ltd. or any of their respective directors, officers, employees, partners,
unitholders/shareholders, agents or affiliates.

documents nor is intended to constitute a disclosure document. The Japanese-

The financial statements of Nippon Building Fund Inc. have been prepared in accor-

language Securities Report and the Financial Statements and the Performancedance with generally accepted accounting principles in Japan (Japanese GAAP), which

Information Report for the aforementioned period should always be referred to as

may materially differ in certain respects from generally accepted accounting principles inoriginals of this document.

other jurisdictions.

English terms for Japanese legal, accounting, tax and business concepts used

Many provisions of this document contain forward-looking statements and informa-

herein may not be precisely identical to the concept of the equivalent Japanese terms.

tion. We base these statements on our beliefs as well as our assumptions based solelyWith respect to any and all terms herein, including without limitation, financial state-on certain limited information currently available to us. Because these statements reflect

ments, if there exist any discrepancies in the meaning or interpretation thereof between

our current views concerning future events, these statements involve known andthe original Japanese documents and English statements contained herein, the original

unknown risks, uncertainties and assumptions. Our future performance could materiallyJapanese documents will always govern the meaning and interpretation. None of Nippon

differ from those set out in these forward-looking statements. We do not undertake andBuilding Fund Inc., Nippon Building Fund Management Ltd. or any of their respective

will not undertake to release revisions of forward-looking statements to reflect future

directors, officers, employees, partners, unitholders/shareholders, agents or affiliates will

events or circumstances or of any other statements or information contained herein.

be responsible or liable for the completeness, appropriateness or accuracy of English

NBF Report January – June 201581

Investors’ Information (As of June 30, 2015)

Fiscal Periods

Unitholders

Six months ending June 30 and December 31

Financial institutions
204 (1.3%)

Total Number of Units Issued
28th Period (From January 1, 2015 to June 30, 2015)

1,412,000 units

27th Period (From July 1, 2014 to December 31, 2014)

1,412,000 units

Other domestic corporations 401 (2.5%)
Overseas investors 452 (2.8%)
Securities companies 30 (0.2%)

Total numberof unitholders:

Individuals and others
15,155 (93.3%)

16,242

Securities companies
49,483 (3.5%)

Distribution per Unit

Overseas investors
376,310 (26.7%)

Confirmed distribution for the 28th Period
For the operating period from January 1, 2015 to June 30, 2015 (6 months)¥7,787 per unit

Expected distribution for the 29th Period
For the operating period from July 1, 2015 to December 31, 2015 (6 months)

Other domestic corporations
97,641 (6.9%)¥7,840 per unit

Individuals and others
70,533 (5.0%)

Total numberof units:

1,412,000

Financial institutions
818,033 (57.9%)

Top 10 Unitholders
NameJapan Trustee Services Bank, Ltd.
Trust & Custody Services Bank, Ltd.
The Master Trust Bank of Japan, Ltd.
The Nomura Trust and Banking Co., Ltd.
Mitsui Fudosan Co., Ltd.
State Street Bank West Client - Treaty 505234
Sumitomo Life Insurance Company
State Street Bank-West Pension Fund Clients - Exempt 505233
Nomura Bank (Luxembourg) S.A.
Nomura Securities Co., Ltd.

Number of Units Held

Percentage of Total

273,550
125,237
107,303
56,91647,63026,67924,512
22,98422,96816,800

19.4%
8.9
7.6
4.0
3.4
1.9
1.7
1.6
1.6
1.2

Historical Unit Price(Yen)
1,000,000

NBF unit price (left scale)
TSE REIT Index (right scale)
TOPIX (right scale)(Points)
3,000

2,500

800,000
2,000
600,000

1,500

1,000
400,000
500
200,000
Sep. 10, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30,
2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015

Adjusted retroactively for the two-for-one investment unit split effective as of January 1, 2014.

82

NBF Report January – June 20150

Nippon Building Fund Inc.
38th Floor, GranTokyo North Tower,
9-1, Marunouchi 1-chome, Chiyoda-ku,
Tokyo 100-6738, Japan

http://www.nbf-m.com/nbf_e/