23 rd Period
NBF Report
July – December 2012

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

Profile
On 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 the largest market capitalization and assets
under management among J-REITs.
NBF employs funds raised through unitholder
subscriptions and borrowings to invest in realestate, real estate-backed securities, trust
beneficiary rights and other assets with theobjective of sustainable growth in portfolio value
and stable profits on a medium-to-long-term basis.
NBF primarily invests in office buildings in thecentral business districts of Tokyo, other Greater
Tokyo and other cities in Japan.
Going forward, NBF will continue its steadymanagement for the high quality and growth
befitting the number one J-REIT.

Contents
Building on Our Strengths ................................................2
Financial Highlights ..........................................................3
To Our Unitholders ...........................................................4
Market Conditions ............................................................5
NBF’s Condition ...............................................................6
A Track Record of Steady Growth ...................................10
Planned Acquisitions in the 24th Period .........................12
Acquisitions in the 23rd Period ......................................15
Location of Office Properties .........................................16
Portfolio Overview ..........................................................18
Management Team and Management Structure ...............20
Management’s Discussion and Analysis ........................24
Financial Statements ......................................................34
Independent Auditor’s Report ........................................48
Appendix........................................................................49
Investment and Distribution Policies ..............................51
Corporate Data ..............................................................58
Investors’ Information ....................................................59

NBF Report July – December 2012 1

Building on Our Strengths
Steady asset growth has given NBF a solid position in the J-REIT market. We willcontinue to use our strengths and competitive advantages to the fullest to maximize value
for our unitholders.
Japan’s Largest J-REIT
Scale of Managed Assets(Total acquisition price)¥921.6 billion *¥1,066.4

billion¥899.6billion(Including acquisitions but excluding sales in the 24th Period, as of March 31, 2013)

Total Market Capitalization(As of March 31, 2013)

Strong Portfolio
Occupancy Rate (End-tenant basis)

97.6%

NBF owns office buildings in Tokyo’s central business districts(CBDs). We have also diversified our investment into Greater Tokyoand regional cities, and maintain a high occupancy rate.

*

Sound Finances
R&I

Standard &Poor’sAA*(Issuer rating)

Moody’sA+*(Long-term corporate)

A2*(Issuer rating)Stable Returns (As of February 28, 2013)
Distribution per Unit for the 23rd Period
Over the 23 periods since our listing, we have steadily
distributed profits to unitholders.

Outlook for the
24th Period¥16,000

Outlook for the
25th Period

Strategic Partnership with Mitsui Fudosan Co., Ltd.
NBF achieves steady growth using the office building management and property information collection capabilities of Mitsui
Fudosan, Japan’s leading real estate company, and by acquiring
the properties it has developed.

* As of December 31, 2012

2 NBF Report July – December 2012¥15,754¥16,200

Financial Highlights

23rd Period
from July 1, 2012 to
December 31, 2012

22nd Period
from January 1, 2012 toJune 30, 2012

21st Period
from July 1, 2011 to
December 31, 2011

20th Period
from January 1, 2011 toJune 30, 2011

U.S. dollars in thousands
except per unit data (Note 1)

Yen in millions, except per unit data or where otherwise indicatedOperating revenues

Note 223rd Period
from July 1, 2012 to
December 31, 2012

¥ 31,530¥ 30,244¥ 29,773¥ 28,081$

363,917

Income before income taxes

9,658

9,490

9,128

8,758

111,478

Net income

9,657

9,489

9,127

8,757

111,466

Funds from operations

Note 315,85015,62815,226

14,291

182,936

Net operating income
from property leasing activities

Note 3

20,107

19,857

19,53018,664232,075

Total amount of cash distribution

(a)

9,657

9,489

8,793

8,757

111,464

Total assets

899,123

871,140

852,855

823,705

10,377,693

Interest-bearing debt

399,625

374,000

377,375

350,750

4,612,477

446,004

445,836424,242423,872

5,147,792

Net assets(b)Loan to value (LTV)

Note 3

Total number ofunits issued (units)(c)613,000

613,000

578,500

578,500

Net assets per unit (Yen/$)(b) / (c)727,577

727,302733,348732,7098,398

Distribution per unit (Yen/$)(a) / (c)15,754

15,48015,20015,138

182

Funds from operations
per unit (Yen/$)Note 315,75425,713

26,32024,937

182

44.4%

42.9%

44.2%

42.6%

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥86.64 = U.S.$1.00, the approximate exchange rate on December 31, 2012.
2. Operating revenues do not include consumption tax.
3. Funds from operations: Net income (excluding Gain and Loss on sale of investment properties) + Depreciation and amortization
Net operating income from property leasing activities: (Revenue from property leasing – Rental expenses) + Depreciation and amortization
LTV: Interest-bearing debt / Total assets
Funds from operations per unit: (Net income (excluding Gain and Loss on sale of investment properties) + Depreciation and amortization) /Weighted average number of units issued and outstanding during the period

Operating Revenues

Net Income(Yen in millions)(Yen in millions)(Yen)

35,00010,00018,00030,000Distribution per Unit

15,0007,500

25,00012,00020,000
5,000

9,000

15,000
6,000

10,000

2,500
3,000

5,000
0

19th 20th 21st 22nd 23rd
Period Period Period Period Period

019th 20th 21st 22nd 23rd
Period Period Period Period Period

019th 20th 21st 22nd 23rd
Period Period Period Period Period

NBF Report July – December 2012 3

To Our Unitholders

At the beginning of 2013, we acquired eightproperties valued at ¥156.7 billion on an
acquisition price basis.
Kenichi Tanaka
President and CEO of Nippon Building Fundnd Management Ltd
Ltd.

From the second half of 2012, after the general election of2012 the Japanese economy benefited from higher stock prices
and a weaker yen. Business confidence also began to improve.
The J-REIT market, particularly the equity market, has
attracted additional domestic and overseas investors because of
expectations about the future recovery of the real estate market.
Under these circumstances, for the six months ended
December 31, 2012 (the “23rd Period”), revenues from existing
properties decreased. However, as a result of factors including
the July 2012 acquisition of NBF COMODIO Shiodome (acquisition price of ¥28,800 million) and the November 2012 acquisition of the Nishi-Shinjuku Mitsui Building (additional acquisitionof ¥8 million), operating revenues increased ¥1,286 million, or
4.3 percent, compared with the previous period to ¥31,530
million. Operating income increased ¥175 million, or 1.4 percent,to ¥12,621 million. Net income increased ¥168 million, or 1.8
percent, to ¥9,657 million. Distribution per unit was ¥15,754, anincrease of ¥274 compared with the previous fiscal period.
In the real estate leasing market, the vacancy rate rose to 9.4
percent in June 2012 (Miki Shoji Co., Ltd. survey) because of
the large volume of office building supply in 2012 in Tokyo andelsewhere. Subsequent recovery, however, suggested that thevacancy rate had peaked and was recovering, falling back to the
8 percent level (Miki Shoji Co., Ltd. survey) as supply decreased
and demand recovered.
Overall asking rents, on the other hand, remained at low
levels. However, asking rents began rising at some of the newearthquake-resistant properties that are near train stations andhave large floor plates.
NBF has successfully increased asking rents at some of its
properties, and it expects the market to recover in the future.
Less information is available for the real estate acquisition
market. However, in line with the expected recovery in the realestate leasing market discussed above, NBF has decided to
4 NBF Report July – December 2012

focus on the central business districts (CBDs) of Tokyo inacquiring properties for which rents have declined substantially.
NBF raised ¥68.2 billion through a public offering in January
2013 to acquire four properties valued at ¥64.8 billion on an
acquisition price basis from the Mitsui Fudosan Group. NBF
also disposed of a 50 percent interest in the NBF Nihonbashi
Muromachi Center Building to Mitsui Fudosan Co., Ltd.
At the start of 2013, NBF decided to acquire eight properties,
including the four properties mentioned above, valued at ¥156.7
billion on an acquisition price basis. As part of this decision, fromFebruary 2013 NBF deployed an additional ¥100 billion, madeavailable because the equity financing lowered the loan-to-value(LTV) ratio, to acquire four properties valued at ¥91.9 billion on
an acquisition price basis, including Sony City Osaki (NBF share,60%). Consequently, including the acquisitions made in January
2013 and Sony City Osaki but excluding the properties
purchased after February 28, 2013, NBF has upwardly revised
the projections of distribution per unit for the 24th and 25th
Periods to ¥16,000 and ¥16,200, respectively, even though NBF
expects revenues from existing properties to decrease slightly.
NBF maintains a medium-to-long-term perspective in targeting steady growth in assets under management and stablerevenues and intends to expand the scale of its assets.

Distribution per Unit
(Yen)

16,50016,00016,00016,20015,754
15,48015,50015,13815,20020th Period

21st Period

15,00014,5000

22nd Period

23rd Period(As of February 28, 2013)

24th Period(Proj.)

25th Period(Proj.)

MarketConditions
Vacancy rates in the central
business districts (CBDs) ofTokyo have peaked, andasking rents are expected torise in 2013.

Market Vacancy Rates in CBDs (Three Cities)(%)

16

Nagoya

12

10.99
10.48
8.57

Osaka
8

Tokyo

4
0

Dec.
2005

Dec.
2006

Dec.
2007

Dec.
2008

Dec.
2009

Dec.
2010

Tokyo CBDs: Chiyoda, Chuo, Minato, Shinjuku, Shibuya
Osaka CBDs: Umeda, Minami-Morimachi, Yodoyabashi/Honcho, Senba,
Shinsaibashi/Namba, Shin-Osaka
Nagoya CBDs: Meieki, Fushimi, Sakae, Marunouchi

Dec.
2011

Dec. Feb.
2012 2013

Source: Miki Shoji Co., Ltd.

Average Asking Rents in Tokyo CBDs
(Yen per tsubo*o)40,000From the second half of 2012 to early 2013, the electionof a new administration served as the backdrop for improvement in the financial environment driven by factors such as
rising stock prices and a weaker yen. In the J-REIT market,
initial public offerings and other forms of equity financing
have been trending upward since 2012.
In the real estate leasing market, the impact of a large
volume of office building supply in the first half of 2012
caused the vacancy rate to rise to 9.4 percent (Miki Shoji
Co., Ltd. survey) in June 2012. Subsequently, the vacancy
rate improved to the 8 percent level (Miki Shoji Co., Ltd.
survey) as supply decreased and demand recovered.
The overall asking rent market, on the other hand, hasremained at a low level, but asking rents have started to riseat new earthquake-resistant properties that have large floor
plates and are located near train stations. NBF has successfully increased asking rents at some of its properties, and it
expects the market to recover in the future.
The overall real estate acquisition market is regaining its
vitality, evidenced by increasing transaction volume centeredon J-REITs. However, transactions have centered onsponsors for IPOs or public offerings for logistics, retail andother properties. The number of transactions for large-scale
office buildings has been particularly limited. Moreover, thenumber of players that can actively engage in this market isalso limited.

35,000
New buildings
30,00025,50025,000

Average asking rent
16,547
16,32720,000Existing buildings
15,000

Dec.
2002

Dec.
2003

Dec.
2004

Dec.
2005

Dec.
2006

Dec.
2007

Dec.
2008

Dec.
2009

Dec.
2010

Dec. Dec. Feb.
2011 2012 2013

Source: Miki Shoji Co., Ltd.

*1 tsuboo = 3.3m2

NBF Occupancy and Cancellation Rates
(%)

100

16
95.0

95

90

93.5

93.2

5.8

5.7

95.6

96.9

97.0

97.6

97.1

97.5
12

Occupancy Rate (left scale)

8
Cancellation Rate (right scale)
2.3

0

2.6

2.1

2.6

1.8

Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31,
2009
2010
2010
2011
2011
2012
2012

4
3.2

2.5

Jun. 30, Dec. 31,
2013
2013
(Proj.)(Proj.)

0

Office Floor Space Supply and Demand in the 23 Wards of Tokyo(Thousand tsubo)
o

600
400
200
0
-200
-400

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(Proj.) (Proj.) (Proj.)
Source: Sanko Estate Co., Ltd.
SupplyDemandNBF Report July – December 2012 5

NBF’sCondition
NBF is accelerating external
growth after conducting apublic offering.

NBF expects the real estate leasing market to recover. Therefore,in January 2013 NBF raised ¥68.2 billion through a public offeringand decided to acquire the Celestine Shiba Mitsui Building from the
Mitsui Fudosan Group and other properties with a total value of¥64.8 billion on an acquisition price basis.
Additionally, NBF expects torecognize a profit of ¥2,062
million on the disposal of a 50
percent interest in the NBF
Nihonbashi Muromachi Center
Building to Mitsui Fudosan Co.,
Ltd. (NBF plans to allocate¥1,230 million of this profit
to the reserve for advanced
depreciation.)
As a result of this equity
financing, NBF reduced its LTV
ratio to the 40 percent level andmade ¥100 billion available foracquisitions.
Celestine Shiba Mitsui Building

Additional Equity Offering
Number ofunits offered

Primary units offered

74,000 units

Third-party allocation

5,000 units

Total

79,000 units

Total offering size

¥68,296 million

Launch date

January 7, 2013

Pricing date

January 16, 2013

Closing date

January 23 /January 31, 2013
Sony City Osaki

6 NBF Report July – December 2012

New Acquisitions and Disposals(Yen in millions)

New Acquisitions

PeriodAcquisition Price

NBF COMODIO Shiodome

28,800

23rd
Nishi-Shinjuku Mitsui Building (Additional acquisition)

8

Celestine Shiba Mitsui Building

22,500Gate City Ohsaki (Additional acquisition)

15,550Shinbashi M-SQUARE

11,900Sumitomo Mitsui Banking Nagoya Building

14,900Sony City Osaki

66,660

Shibuya Garden Front (Additional acquisition)

11,569Ikebukuro East

8,630

Panasonic Tokyo Shiodome Building

5,075

24th

Total
Period24th

185,592
Disposal of Property

NBF Nihonbashi Muromachi
Center Building(Yen in millions)

Transfer price

14,100

Profits from transfer

2,062Internally retained amount(1,230)From February 2013, NBF acquired four properties valued at ¥91.9 billion, including Sony City Osaki(NBF share, 60%). NBF has therefore acquired eightproperties valued at ¥156.7 billion since the start of2013, with total acquisitions on an acquisition pricebasis of ¥1,066.4 billion.

Panasonic Tokyo Shiodome Building

NBF Report July – December 2012 7

Scale of Managed Assets(Yen in billions)

1,200¥1,066.4
billion*¥156.71,000

billion*

800

200

0

May 23, 2001
1st Period(Investment(Dec. 2001)
commencement date)

20th Period(Jun. 2011)

21st Period(Dec. 2011)

23rd Period(Dec. 2012)* Including acquisitions but excluding sales in the 24th Period,
as of March 31, 2013

Sumitomo Mitsui Banking Nagoya Building

NBF is strengthening tenant
relations and building
competitiveness.

In the 23rd Period, rents trended downward at NBF’s existing
properties. Moreover, the performance forecast for 2013
projects a similar decrease in revenues from existing properties.
The decrease in revenues occurred in a market environment
with a large supply of newly constructed buildings during thefirst half of 2012. NBF took steps such as downward rent
revisions for existing tenants to maintain occupancy rates athigh levels.
However, NBF forecasts a higher level of performance in2013 than in 2012 due to factors including expansion in portfolio
assets through the acquisition of new properties to offset thedecrease in revenues at existing buildings.
NBF continues to strengthen relations with existing tenants tomaintain occupancy rates at high levels in a challenging market
environment and is also raising building competitiveness by
responding to tangible and intangible tenant business continuity
plan needs in ways such as stockpiling food and water for
tenant employee use at existing buildings.
Shinbashi M-SQUARE

8 NBF Report July – December 2012

22nd Period(Jun. 2012)

NBF’s Condition

Gate City Ohsaki

Financial Track Record

Under our policy of upholding
a strong financial base, wewill continue to manage stablefinances.

(%)

100

Over 90%95.0

80Long-term fixed-rate debt ratio

60

44.4
Target 36-46%

40
LTV (loan-to-value ratio)
20

NBF will continue to manage its finances for stability
under a fundamental policy of maintaining a strong financialbase that enables flexible response to changes in the fundraising environment and property acquisition opportunities.
NBF has an LTV ratio target of 36 to 46 percent (to amaximum of 56 percent) and a target for the long-term
fixed-rate debt ratio of over 90 percent.
As of the end of the 23rd Period, the LTV ratio was 44.4
percent and the long-term fixed-rate debt ratio was 95.0
percent. Both ratios meet the targets discussed above. NBF
is moving to diversify the repayment periods of interestbearing debt so that repayment is not concentrated in any
given period. Consequently, rating agencies have praised
NBF’s efforts and continue to assign high credit ratings for
its obligations.

0

1st Period(Dec. 2001)

5th Period(Dec. 2003)

9th Period(Dec. 2005)

13th Period(Dec. 2007)

17th Period(Dec. 2009)

21st Period 23rd Period(Dec. 2011) (Dec. 2012)

Diversified Maturities of Interest-Bearing Debt
(Yen in billions)

80

60

40

20

0

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

(As of February 28, 2013)
Short-term debt

Bonds

Long-term debt

NBF Report July – December 2012 9

A Track Record of Steady GrowthDistribution per Unit
(Yen)

25,00019,391

19,02620,00016,003

16,253

17,291
15,367

15,00014,582

15,185

16,893

17,04698.0

97.9

10,000

Historical Unit Price(Yen)

2,000,000
1,500,000

Start of TSE
REIT Index

Listing on the Tokyo Stock
Exchange (J-REIT section)

1,000,000

Removal of ban on J-REIT
holdings by investment trusts

500,000
0

Occupancy Rate and Scale of Managed Assets by Area
(Yen in billions)

1,200

97.5

96.9

97.6

97.4
95.0

1,100

97.4

98.7

94.7
92.2

1,000
900

Resolution of NBF’s “2003
Problem” (departure of tenantsfrom Shiba NBF Tower and otherbuildings)

Occupancy Rate (End-tenant basis)(right scale)

800

Equity financing
Equity financing

Managed Assets by Area

Target of ¥500
billion in assets
achieved(left scale)

700

Other Cities

Exchange of JFE
Building for 5
buildings

Other Greater Tokyo
600

Tokyo CBDs

539.3
Equity financing

500

393.88393

400

Equity financing
300
200
100
0

265
192.1
122,265

2,265
2
2,2
2
226
226.5
2,265
2
2

2,265
2,265

22

2,265

24

246.0
2,460
2,460

2,460

26

260.2
2,602
2,602

2,602

28

336.1

3,938
3,938

276.0

285.6

3,361

2,760
2,760

2,856

3,361

2,856

5,393

414.1

29

2,856

33

3,361

43

3,938

43

6,248

6,248

5,393

4,141
4,141

5,393
2,760

624.8

6,248

4,141

47

52

55

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(Investmentcommencement date)

10 NBF Report July – December 2012

19,224

19,80920,12922,54922,252

21,775
19,672
17,125
15,495J-REIT market value exceeds¥6 trillion; TSE REIT Index at
2,636.23 points

Subprime loan
problem surfaces

Public-private fundestablished; collateralizationof eligible investment
corporation bonds by Bankof Japan

15,13815,200

15,48015,754

D
Decisionby Bank of Japan topurchaseunits and bonds ofpinvestment corporations

Great East Japan
Earthquake

Bankruptcy ofLehman Brothers

(%)

97.4

98.8

98.5

96.9

96.4

94.7

93.5

93.2

95.0

95.6

96.9

97.0

97.6

100

95

1,066.4*
90

Equity financing
Equity financing

837.1

Equity financing

725.22
725
624.8

674.3

674.3

6,743

6,743

783.1

783.1

779.5

7,831

7,831

7,795

7,831

7,831

7,795

7,623

7,831

7,831

7,795

60

61

61

59

762.3
7,623

870.22
870

892.8
89

921.6

779.5

7,252
8,431

6,248

7,623
7,252
6,743

6,743

6,248

6,248

6,743

6,743

7,252

55

56

56

58

8,431

59

64

64

67

68
(74*)

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Dec. 31,2006

Jun. 30,
2007

Dec. 31,2007

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* Including acquisitions but excluding sales in the 24th Period,
as of March 31, 2013

NBF Report July – December 2012 11

Planned Acquisitions in the 24th Period

69 Sony City Osaki●

Location:
Completion date:
Acquisition date:
Acquisition price:
NBF share:

Shinagawa-ku, Tokyo
February 24, 2011
February 28, 2013
¥66,660 million
60%

12 NBF Report July – December 2012

73 Panasonic Tokyo Shiodome Building●

Location:
Completion date:
Acquisition date:
Acquisition price:
NBF share:

Minato-ku, Tokyo
January 9, 2003
March 12, 2013
¥5,075 million
10%

3 Gate City Ohsaki (Additional Acquisition)●

Location:
Completion date:
Acquisition date:
Acquisition price:
NBF share:

Shinagawa-ku, Tokyo
January 6, 1999
March 22, 2013¥15,550 million
7.59% (additional acquisition)
25.98% (total)

NBF Report July – December 2012 13

70 Celestine Shiba Mitsui Building●

Location:
Completion date:
Acquisition date:
Acquisition price:
NBF share:

Minato-ku, Tokyo
April 1, 2002
May 31, 2013
¥22,500 million
60% (offices and stores)

71 Shinbashi M-SQUARE●

Location:
Completion date:
Acquisition date:
Acquisition price:
NBF share:

Minato-ku, Tokyo
October 31, 2011
February 1, 2013¥11,900 million
100%

72 Ikebukuro East●

Location:
Completion date:
Acquisition date:
Acquisition price:
NBF share:

14 NBF Report July – December 2012

Toshima-ku, Tokyo
February 16, 1993
March 25, 2013
¥8,630 million
100%Planned Acquisitions in the 24th Period
74 Sumitomo Mitsui Banking Nagoya Building●

Location:
Completion date:
Acquisition date:
Acquisition price:
NBF share:Naka-ku, Nagoya, Aichi
April 27, 2001
February 1, 2013¥14,900 million
100%

22 Shibuya Garden Front (Additional Acquisition)●

Location:
Completion date:
Acquisition date:
Acquisition price:
NBF share:

Shibuya-ku, Tokyo
September 30, 2003
March 29, 2013
¥11,569 million
50% (additional acquisition)
100% (total)

Acquisitions in the 23rd Period
2 Nishi-Shinjuku Mitsui Building●(Additional Acquisition)

Location:
Completion date:
Acquisition date:
Acquisition price:
NBF share:

Shinjuku-ku, Tokyo
April 28, 1999
November 1, 2012
¥8 million
0.03% (additional acquisition)
85.43% (total)

8 NBF COMODIO Shiodome●

Location:
Completion date:
Acquisition date:
Acquisition price:
NBF share:

Minato-ku, Tokyo
July 10, 2006
July 2, 2012
¥28,800 million
100%

NBF Report July – December 2012 15

Location of Office Properties(As of March 31, 2013)

Tokyo Central Business Districts (CBDs)
1 NBF Hibiya Building
2 Nishi-Shinjuku Mitsui Building(Additional acquisition in November 2012)
3 Gate City Ohsaki(Additional acquisition in March 2013)
4 Mitsubishi Heavy Industries Head Office Building
5 Shiba NBF Tower
6 NBF Platinum Tower
7 NBF Minami-Aoyama Building
8 NBF COMODIO Shiodome(Acquired in July 2012)
9 Toranomon Kotohira Tower
10 NBF Nihonbashi Muromachi Center Building
11 Nakameguro GT Tower
12 Mitsuiseimei Ochanomizu Building
13 NBF Ginza Street Building
14 Shinjuku Mitsui Building No. 2
15 GSK Building
16 River City M-SQUARE
17 NBF Toranomon Building
18 Kowa Nishi-Shinbashi Building B
19 NBF Shinkawa Building
20 NBF Alliance
21 Yotsuya Medical Building
22 Shibuya Garden Front(Additional acquisition in March 2013)
23 Higashi Gotanda Square
24 NBF Shibuya East
25 NBF Shibakouen Building
26 NBF Takanawa Building
27 NBF Akasaka Sanno Square
28 NBF Shibakouen Daimon Street Building
29 Sumitomo Densetsu Building
30 NBF Higashi-Ginza Square
31 NBF Ogawamachi Building
32 Nihonbashi Kabuto-cho M-SQUARE
33 NBF Ikebukuro Tower
34 NBF Ikebukuro City Building
35 Ryukakusan Building
69 Sony City Osaki(Acquired in March 2013)
70 Celestine Shiba Mitsui Building(Scheduled acquisition in May 2013)
71 Shinbashi M-SQUARE(Acquired in February 2013)
72 Ikebukuro East
(Acquired in March 2013)
73 Panasonic Tokyo Shiodome Building(Acquired in March 2013)

1 NBF Hibiya Building●

3 Gate City Ohsaki●

16 NBF Report July – December 2012

¥736.1billion

Total
Acquisition Price:*(42 properties)

Kita-ku

Arakawa-ku

34 33
72

Toshima-ku

Taito-ku

Bunkyo-ku

Nakano-ku

39
36

Sumida-ku
12

Shinjuku-ku

2
14

Imperial
Palace

15

9 17
18

7
20
22 24

Minato-ku

8
5

25

28

Setagaya-ku
11

6

10
32

Chuo-ku

Koto-ku

1

27

Shibuya-ku

Meguro-ku

31

Chiyoda-ku

21

35

71 13
73 30

19
16
38 37

70
26

23

29

Tokyo Bay

4
3

69

Shinagawa-ku

5 Shiba NBF Tower●

6 NBF Platinum Tower●

7 NBF Minami-Aoyama Building●Other Greater Tokyo
36 Nakanosakaue Sunbright Twin
37 NBF Toyosu Canal Front
38 NBF Toyosu Garden Front
39 NBF Ueno Building
40 Chofu South Gate Building
41 Shin-Kawasaki Mitsui Building
42 Yokohama ST Building
43 Parale Mitsui Building
44 NBF Atsugi Building
45 Tsukuba Mitsui Building
46 NBF Utsunomiya Building
47 S-ino Omiya North Wing
48 NBF Urawa Building
49 NBF Shin-Urayasu Tower
50 NBF Matsudo Building¥214.4 billion

Total
Acquisition Price:*(15 properties)

TOCHIGI45

UTSUNOMIYA

46

IBARAKITo Omiya47

SAITAMA

Other Cities

48

TOKYO

50

36

38 37

40

41

Total
Acquisition Price:*

CHIBA

39
49

(19 properties)

51 Sapporo L-Plaza
52 NBF Sapporo Minami Nijo Building

Tokyo Bay

43

53 NBF Sendai Honcho Building
54 NBF Unix Building

51 52

42

44

¥115.9 billion

55 NBF Niigata Telecom Building
56 NBF Nagoya Hirokoji Building
57 Aqua Dojima NBF Tower
58 Shinanobashi Mitsui Building

KANAGAWA55

59 Sun Mullion NBF Tower
60 Sakaisuji-Honmachi Center Building

53
54

61 NBF Sakai-Higashi Building
62 Aqua Dojima East
67
68

36 Nakanosakaue●

Sunbright Twin

37 NBF Toyosu Canal Front
●

65 64
66

63

63 NBF Shijo Karasuma Building
64 NBF Hiroshima Tatemachi Building

56
74
57 58 59 60

65 Hiroshima Fukuromachi Building
66 NBF Matsuyama Nichigin-mae Building
67 Hakata Gion M-SQUARE
68 NBF Kumamoto Building
74 Sumitomo Mitsui Banking Nagoya Building(Acquired in February 2013)

61 62

38 NBF Toyosu Garden Front●

57 Aqua Dojima NBF Tower●
62 Aqua Dojima East●

58 Shinanobashi Mitsui Building●* Including acquisitions but excluding sales in the 24th Period

NBF Report July – December 2012 17

Portfolio Overview
NBF’s properties as of December 31, 2012 are as follows:
Name of Building

Investment
ent
Type

Type of Ownership

Percentageof OwnershipYear Built

Acquisition
ion
Price

(%)

Tokyo Central Business Districts (CBDs)

1 NBF Hibiya Building●
2 Nishi-Shinjuku Mitsui Building●
3 Gate City Ohsaki●
4 Mitsubishi Heavy Industries Head Office Building●
5 Shiba NBF Tower●
6 NBF Platinum Tower●
7 NBF Minami-Aoyama Building●
8 NBF COMODIO Shiodome●
9 Toranomon Kotohira Tower●
10 NBF Nihonbashi Muromachi Center Building●
11 Nakameguro GT Tower●
12 Mitsuiseimei Ochanomizu Building●
13 NBF Ginza Street Building●
14 Shinjuku Mitsui Building No. 2●
15 GSK Building●
16 River City M-SQUARE●
17 NBF Toranomon Building●
18 Kowa Nishi-Shinbashi Building B●
19 NBF Shinkawa Building●
20 NBF Alliance●
21 Yotsuya Medical Building●
22 Shibuya Garden Front●
23 Higashi Gotanda Square●
24 NBF Shibuya East●
25 NBF Shibakouen Building●
26 NBF Takanawa Building●
27 NBF Akasaka Sanno Square●
28 NBF Shibakouen Daimon Street Building●
29 Sumitomo Densetsu Building●
30 NBF Higashi-Ginza Square●
31 NBF Ogawamachi Building●
32 Nihonbashi Kabuto-cho M-SQUARE●
33 NBF Ikebukuro Tower●
34 NBF Ikebukuro City Building●
35 Ryukakusan Building●

Book Value(Yen in millions)

Trust
Ownership
Ownership
Trust
Trust
Trust
Ownership
Trust
Ownership
Trust
Ownership
Ownership
Trust
Trust
Trust
Ownership
Trust
Trust
Ownership
Trust
Trust
Ownership
Ownership
Ownership
Ownership
Trust
Trust
Trust
Trust
Trust
Ownership
Ownership
Trust
Trust
Ownership

Fee simple
Comparted ownership
Comparted ownership
Comparted ownershipFee simple
Fee simple
Fee simple
Simple Fee
Comparted ownershipFee simple
Comparted ownershipFee simple
Fee simple
Fee simple
Fee simple
Fee simple
Fee simple
Co-ownership of comparted ownershipFee simple
Fee simple
Fee simple
Co-ownership
Comparted ownershipFee simple
Fee simple
Fee simple
Fee simple
Co-ownership of comparted ownershipFee simple
Fee simple
Comparted ownershipFee simple
Fee simple
Fee simple
Comparted ownership

100.0
85.4
18.6
18.1
100.0
100.0
100.0
100.0
100.0
100.0
93.1
100.0
100.0
100.0
100.0
100.0
100.0
83.0
100.0
100.0
100.0
50.0
38.4
100.0
100.0
100.0
100.0
87.0
100.0
100.0
83.8
100.0
100.0
100.0
89.0

1984
1999
1999
2003
1986
2005
1995
2006
2004
1986
2002
2009
1990
1983
1990
2010
1963
1994
1989
1989
2004
2003
2009
1992
1990
1987
1989
1991
1991
2005
1986
2009
1993
1993
1991

63,50045,01041,73136,30032,00031,00031,00028,80024,54323,94523,856
20,84017,00016,285
15,616
13,35013,337
13,217
12,614
9,126
8,800
8,700
8,350
8,000
6,770
6,667
6,250
6,100
5,365
5,200
4,940
4,850
4,695
4,428
4,050

64,49434,51834,84937,132
28,59528,32731,48528,815
19,73424,064
19,56920,914
17,571
16,502
13,534
13,17813,253
11,53010,868
9,441
8,192
7,845
8,332
8,087
6,426
6,574
6,336
6,313
4,943
4,684
5,164
4,811
4,530
4,262
4,377

Ownership/Trust
Trust
Ownership
Ownership
Ownership
Ownership
Trust
Ownership
Ownership
Trust
Ownership
Ownership
Ownership
Ownership
Ownership

Co-ownership of comparted ownershipFee simple
Fee simple
Comparted
Comparted
Co-ownership
Co-ownership
Co-ownership of comparted ownershipFee simple
Fee simple
Fee simple
Fee simple
Fee simple
Fee simple
Fee simple

81.0
100.0
100.0
78.1
84.4
35.0
75.0
97.5
100.0
100.0
100.0
100.0
100.0
100.0
100.0

1996
2004
2007
2010
2007
1989
1987
1990
1991
1990
1996
2004
1990
1990
1992

40,75035,20025,018
10,4009,320
25,82013,529
3,800
2,300
8,876
2,435
16,8162,000
15,7002,455

37,25931,461
24,018
10,186
9,101
23,71012,218
3,186
2,221
6,801
2,338
14,570
1,902
15,8442,179

Ownership
Trust
Trust
Trust
Trust
Ownership
Trust
Ownership
Trust
Ownership
Trust
Trust
Trust
Ownership
Ownership
Ownership
Ownership
OwnershipComparted ownershipFee simple
Fee simple
Fee simple
Fee simple
Fee simple
Fee simple
Co-ownershipFee simple
Co-ownership of comparted ownershipFee simple
Co-ownership of comparted ownershipFee simple
Fee simple
Co-ownership of comparted ownershipFee simple
Fee simple
Fee simple

46.2
100.0
100.0
100.0
100.0
100.0
100.0
99.0
100.0
49.3
100.0
23.7
100.0
100.0
10.4
100.0
100.0
100.0

2003
1990
1987
1994
1989
2000
1996
1982
1996
1991
1991
1993
1991
1991
2002
2009
2009
2008

4,404
1,870
3,566
4,029
3,958
7,232
17,81014,40010,500
6,500
2,227
1,914
1,627
2,930
2,215
3,310
8,000
4,500

3,593
1,711
3,522
3,060
3,592
6,819
16,297
11,140
7,837
6,065
1,961
1,711
1,384
2,842
2,057
3,414
7,782
4,328

921,648855,360

Other Greater Tokyo

36 Nakanosakaue Sunbright Twin●
37 NBF Toyosu Canal Front●
38 NBF Toyosu Garden Front●
39 NBF Ueno Building●
40 Chofu South Gate Building●
41 Shin-Kawasaki Mitsui Building●
42 Yokohama ST Building●
43 Parale Mitsui Building●
44 NBF Atsugi Building●
45 Tsukuba Mitsui Building●
46 NBF Utsunomiya Building●
47 S-ino Omiya North Wing●
48 NBF Urawa Building●
49 NBF Shin-Urayasu Tower●
50 NBF Matsudo Building●

Other Cities

51 Sapporo L-Plaza●
52 NBF Sapporo Minami Nijo Building●
53 NBF Sendai Honcho Building●
54 NBF Unix Building●
55 NBF Niigata Telecom Building●
56 NBF Nagoya Hirokoji Building●
57 Aqua Dojima NBF Tower●
58 Shinanobashi Mitsui Building●
59 Sun Mullion NBF Tower●
60 Sakaisuji-Honmachi Center Building●
61 NBF Sakai-Higashi Building●
62 Aqua Dojima East●
63 NBF Shijo Karasuma Building●
64 NBF Hiroshima Tatemachi Building●
65 Hiroshima Fukuromachi Building●
66 NBF Matsusyama Nichigin-mae Building●
67 Hakata Gion M-SQUARE●
68 NBF Kumamoto Building
●

Total

Notes: 1. Percentage of total revenues is the ratio of revenue from each office property to total revenues from all office properties.
2. Consent for disclosure was not obtained from tenants from whom rent revenue accounts for more than 80% of total rent revenue for the property. However, relevant figures are included in the total.
3. Figures stated above are based on NBF’s ownership interest.

18 NBF Report July – December 2012

Revenue

Percentage ofTotal Revenues

Probable
Maximum Loss

(Yen in millions)(Note 1)
(%)

(PML)
(%)

90
31
74
12
31
6
7
11
22
14
19
1
1
48
1
8
15
16
37
7
38
1
6
5
17
6
6
6
1
8
14
2
14
10
8

1,300
1,121
1,177
Note 2
1,012
1,555
371
917
942
830
820
Note 2
Note 2561
Note 2620
477
Note 2
Note 2258
255
Note 2
301
198
286
308
150
99
Note 2
233
175
Note 2
181
169
206

4.1
3.6
3.7
Note 2
3.2
4.9
1.2
2.9
3.0
2.6
2.6
Note 2
Note 2
1.8
Note 22.0
1.5
Note 2
Note 20.8
0.8
Note 2
1.0
0.6
0.9
1.0
0.5
0.3
Note 20.7
0.6
Note 2
0.6
0.5
0.7

1.6
1.8
1.5
1.7
2.3
1.5
4.7
7.3
1.6
4.8
1.2
5.8
8.2
1.6
0.8
4.0
8.4
2.0
3.5
7.3
5.6
3.4
2.0
4.4
5.9
5.3
9.9
2.8
5.2
3.1
4.2
6.4
3.9
9.9
4.4

97.7
100.0
98.9
100.0
100.0
98.3
99.0
92.8
95.3
96.0
100.0
98.3
100.0
94.9
92.7

9
9
4
6
1
17
99
33
18
61
40
39
13
40
23

1,064
1,094
938
301
Note 2
1,266
639
288
115
445
137
706
103
565
123

3.4
3.5
3.0
1.0
Note 2
4.0
2.0
0.9
0.4
1.4
0.4
2.2
0.3
1.8
0.4

1.4
4.2
3.5
1.9
4.3
2.1
1.7
2.8
16.9
0.5
0.5
1.8
10.2
2.6
7.8

11,396
5,351
7,514
13,267
10,134
9,876
21,00324,327
13,546
9,259
5,071
3,129
2,987
5,330
3,623
6,012
14,328
7,859

100.0
100.0
99.7
99.5
99.3
100.0
95.8
96.1
90.6
80.9
96.5
96.5
76.0
95.7
92.2
100.0
100.0
99.1

12
3
11
49
33
24
46
57
28
41
22
19
15
31
15
17
16
16

320
106
170
277
205
261
665
588
357
246
110
84
75
134
109
170
411
191

1.0
0.3
0.5
0.9
0.6
0.8
2.1
1.9
1.1
0.8
0.4
0.3
0.2
0.4
0.3
0.5
1.3
0.6

0.3
1.0
2.1
2.9
4.9
6.7
3.3
4.9
1.6
3.6
6.6
3.4
1.6
3.9
3.1
3.6
Less than 0.1
3.0

891,508

97.6

1,460

31,530100.0%

1.6

Appraisal Value

Rentable
Area

Leased Area at
End of Period

Occupancy Ratee at
End of Period(Yen in millions)

(m2)

(m2)

(%)

54,60042,90039,10040,40025,80052,30017,00031,30030,70026,60018,80012,30014,50014,90021,30014,00016,20015,50013,54010,3007,720
11,700
8,440
6,490
8,190
7,460
6,400
4,320
5,050
6,990
5,540
4,700
4,990
4,940
4,130

27,576
33,10529,92435,641
24,72833,503
9,631
20,538
16,84816,30821,4236,627
3,440
14,874
20,426
16,232
10,067
10,08817,307
4,033
7,481
8,258
6,166
4,993
7,087
10,458
5,258
3,428
5,991
4,871
4,805
3,298
5,642
5,127
5,332

25,96032,07729,56135,641
24,56233,503
7,586
20,53815,341
16,30821,4236,627
3,440
14,567
20,426
16,232
9,968
10,061
17,307
4,033
7,295
8,258
6,166
4,993
7,087
10,458
5,258
2,446
5,991
4,871
4,805
3,298
5,205
4,758
5,332

94.1
96.9
98.8
100.0
99.3
100.0
78.8
100.0
91.1
100.0
100.0
100.0
100.0
97.9
100.0
100.0
99.0
99.7
100.0
100.0
97.5
100.0
100.0
100.0
100.0
100.0
100.0
71.3
100.0
100.0
100.0
100.0
92.3
92.8
100.0

30,30035,70028,0008,430
9,300
20,70013,300
3,540
2,110
7,040
2,120
17,9001,780
11,5002,060

32,082
36,63828,3108,504
13,762
39,83720,047
12,545
5,242
16,833
6,160
20,6983,455
22,832
4,770

31,35836,62528,008
8,504
13,762
39,161
19,854
11,640
4,997
16,154
6,160
20,344
3,455
21,675
4,420

6,610
1,290
2,990
3,210
2,800
7,230
18,20013,400
7,350
6,170
1,540
1,770
1,190
2,420
2,310
3,460
8,210
3,710

11,396
5,351
7,539
13,32910,208
9,876
21,91725,314
14,954
11,440
5,255
3,243
3,932
5,567
3,927
6,012
14,328
7,931

896,740

913,747

Total Number ofTenants at
End of Period

NBF Report July – December 2012 19

Management Team and Management Structure(As of April 1, 2013)

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.

The General Meeting of Unitholders adopts or vetoes resolutions

Nippon Building Fund Inc.

on the basis of a simple majority of the voting rights of unitholders in
Nippon Building Fund Inc. is an investment corporation estab-attendance, unless otherwise stipulated by laws, regulations or NBF’slished with the objective of investing in assets, primarily Designatedarticles of incorporation. Decisions on substantive matters such as

Assets as defined by the Investment Trust Law of Japan. NBF

changes in the articles of incorporation require the attendance of

entrusts the management of its assets to Nippon Building Fundunitholders that control a simple majority of total units issued andManagement Ltd., which is an asset management company.

outstanding, and a two-thirds majority of the voting rights of such

NBF’s primary investment objective is to achieve sustainable

unitholders. In addition, any change in the asset management

growth in portfolio value and stable profits on a medium-to-long-term

policies and standards, which are stipulated by NBF’s articles ofbasis. NBF achieves this objective by investing in real estate consist-

incorporation, requires an extraordinary resolution of unitholders as

ing of buildings primarily used for offices with their underlying land

outlined above.

located in the central business districts (CBDs) of Tokyo, other
Greater Tokyo and other cities in Japan. NBF also invests in securities, beneficiary certificates representing beneficial interests in trusts

Executive Directors, Supervisory Directors andthe Board of Directors
NBF’s articles of incorporation stipulate that NBF must have one

and other assets backed by office properties.

or more executive directors and three or fewer supervisory directors,

General Meeting of Unitholders

but the number of supervisory directors must always be at least one
greater than the number of executive directors. As of June 30, 2012,

Specific matters pertaining to NBF that are subject to the

NBF had one executive director and three supervisory directors.

Investment Trust Law of Japan or the Company’s articles ofincorporation are decided by resolution of the General Meeting of

NBF’s executive directors are responsible for business execution

Unitholders, which convenes at least once every two years, inand have authority for all judicial and extrajudicial proceedings related

principle. The eighth General Meeting of Unitholders convened on

to the operations of NBF. Supervisory directors are responsible forMarch 14, 2013. The date of the next General Meeting of Unitholders

supervising execution by the executive directors.

has not been set.

General Meeting ofUnitholders

Sumitomo Mitsui
Trust Bank, Ltd.

Asset Custody
Entrustment

Asset Custody

NIPPON BUILDING FUND Inc. (NBF)

Mitsui Fudosan Co., Ltd.

Office Management
Entrustment

Board of Directors

NBF Office Management Co., Ltd.

Borrowings /Bonds and Notes
Debt Service

Qualified Institutional
Investors / Bondholders
Independent Auditors
KPMG AZSA LLC

AssetsInvestment

20 NBF Report July – December 2012NIPPON BUILDINGFUND MANAGEMENT Ltd. (NBFM)

Liabilities

Office Management

Real Estate, etc.

Asset Management
Entrustment

Rent, etc.

Unitholders’EquityInvestment

Unitholder

Distribution

Unitholder

TradingManagement Team

From left: Tetsuro Tsugawa, Tsutomu Nishikawa, Yoshiyuki Hirai, Yutaka Fukaya

Name

Career Summary

Executive Director

Tsutomu Nishikawa

Supervisory Directors

Yoshiyuki Hirai
Tetsuro Tsugawa
Yutaka FukayaAppointed Executive Director of NBF in March 2011 after serving as an executive officer of
Mitsui Fudosan Co., Ltd.
Appointed Supervisory Director of NBF in March 2009 and reappointed in March 2013. Real Estate Appraiser.
Appointed Supervisory Director of NBF in March 2013. Attorney.
Appointed Supervisory Director of NBF in March 2013. Certified Public Accountant and Certified Public Tax Accountant.

The Board of Directors consists of the executive and supervisory

The terms of office of executive directors and supervisory directors

directors. Its responsibilities include authorizing business execution

are two years from the time they assume office. The terms of execu-

and supervising the performance of the executive directors.

tive directors and supervisory directors selected to fill a vacancy or

Resolutions by the Board of Directors require a simple majority withto increase the number of directors expire at the same time as themore than half of the members of the Board in attendance.

remaining terms of their predecessors or the current directors.

The bylaws of NBF’s Board of Directors stipulate that executive

The executive director serving as of April 1, 2013 was elected

and supervisory directors may not participate in decisions in whichwith the consent of all unitholders on March 14, 2013. The threethey have a vested interest. Executive and supervisory directors withsupervisory directors and the substitute supervisory director weresuch financial interest shall not be included in the number of execu-

elected at the General Meeting of Unitholders held on March 14,

tive and supervisory directors in attendance for such decisions.

2013, and assumed office on March 17, 2013.

NBF Report July – December 2012 21

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

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

Management Structure
General Meeting of Shareholders
AuditorCompliance Committee

Board of Directors
Executive Board

Risk Management Board
CEOInvestment
Review Board

Accounting Auditor

Trust Law of Japan, Nippon Building Fund Management Ltd.
manages NBF’s assets in accordance with the asset management
objectives and policies stipulated by NBF’s articles of incorporation.

Compliance
Officer

Investment & FinanceGroup

Corporate OperationGroup

In addition, in accordance with the manager of general administration
contract designating Nippon Building Fund Management Ltd. as
the institutional manager of NBF’s assets, Nippon Building Fund

Real EstateManagement
Team

Real Estate
Investment
Team

Research
Team

Financial
Team

Fund
Operation
Team

Corporate
Risk
Planning &Management
Administration & Compliance
Team
Team

Management Ltd. executes certain responsibilities in connection withthe operation of the General Meeting of Unitholders and the Board ofoperations of Nippon Building Fund Management Ltd. The heads of

Directors as manager of general administration.

the Investment & Finance Group and the Corporate Operation Groupalso serve as directors, and oversee their respective divisions underManagement Structure of
Nippon Building Fund Management Ltd.
The Board of Directors makes decisions on the basic management

the direction and oversight of the president. Corporate auditors
conduct accounting audits and operational audits of Nippon Building
Fund Management Ltd. The Compliance Officer oversees compliancepolicies of Nippon Building Fund Management Ltd. and oversees

for the asset management company and is responsible for internal

execution of the duties of the representative director. The president,

administration in connection with internal audits at the asset manage-

who is the representative director, supervises and executes thement company.

Nippon Building Fund Management Ltd. Management Team
Name

Title

Career Summary

Kenichi Tanaka

President and CEO

Apr. 1982
Apr. 2007
Apr. 2010
Apr. 2012

Joined Mitsui Fudosan Co., Ltd.
Business Administration Manager of Mitsui Fudosan Co., Ltd.
Rental Housing Business Manager, Accommodation Business Department of Mitsui Fudosan Co., Ltd.
Appointed President and CEO of Nippon Building Fund Management Ltd. (current position)

Koji Matsufuji

Director, Chief
Investment Officer

Apr. 1987
Apr. 2005
Apr. 2006
Apr. 2007

Joined Mitsui Fudosan Co., Ltd.
Chief of PM-II, Kansai Branch of Mitsui Fudosan Building Management Co., Ltd.
Assistant Manager, Kansai Branch of Mitsui Fudosan Building Management Co., Ltd.
Chief of Business Promotion Group, Regional Division, Commercial Facilities Department of
Mitsui Fudosan Co., Ltd.
Manager of Business Promotion Department of NBF Office Management Co., Ltd.
Appointed Chief Investment Officer of Nippon Building Fund Management Ltd. (current position)

Apr. 2010
Apr. 2013
Masahiko Misao

Director, Head ofCorporate Operation
Group

Apr. 1980
Apr. 2003
Mar. 2008
Mar. 2012

Joined Sumitomo Life Insurance Company
Manager of Real Property Department, Sumitomo Life Insurance Company
Director and General Manager, Commercial Operation Department, Shinagawa Intercity Management Co., Ltd.
Appointed Director and Head of Corporate Operation Group of Nippon Building Fund Management Ltd.
(current position)

Hiromu Yamanaka

Director (Part-time)

Apr. 2013

Became Director of Nippon Building Fund Management Ltd. (current position)

Hiroshi Yabuki

Director (Part-time)

Apr. 2013

Became Director of Nippon Building Fund Management Ltd. (current position)

Yasushi Akimoto

Auditor (Part-time)

Apr. 2013

Became Auditor of Nippon Building Fund Management Ltd. (current position)

Kenshi Ueda

Auditor (Part-time)

Apr. 2013

Became Auditor of Nippon Building Fund Management Ltd. (current position)

22 NBF Report July – December 2012

Management Team and Management Structure

Compliance Initiatives

The Asset Management Guidelines consist of management guidelines for management, acquisition and sale of assets; financial guide-The management of NBF and Nippon Building Fund Management

lines for fund procurement and management policies; accounting

Ltd. conduct honest and appropriate business activities while maintain-

guidelines for tax accounting and dividend distribution policies; anding rigorous compliance by adhering to all relevant laws and regula-

guidelines on transactions with potential conflicts of interest.

tions, based on a high level of corporate ethics.
The bylaws of NBF’s Board of Directors stipulate that Board of
Directors’ meetings are to be held at least once every three months. In
practice, NBF holds such meetings once a month. At Board meetings,
executive directors report on the execution of their duties and supervisory directors ensure that oversight and check-and-balance systems
are functioning properly.
Nippon Building Fund Management Ltd. views compliance as amanagement strategy, with a fundamental compliance policy of
conducting operations honestly and fairly while maintaining a rigorouscompliance system based on a high level of corporate ethics.
Specifically, Nippon Building Fund Management Ltd. has establisheda Compliance Committee, consisting of the Compliance Officer, thepresident, 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 complianceinclude the establishment of Compliance Rules and a Compliance
Manual. In addition, a Compliance Program is formulated each year toverify the progress of the execution plan for that year and identify any
problem areas.

Risk Management System
NBF and Nippon Building Fund Management Ltd. have established

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 with regard to any transactions in which the interests of NBF and the interests of Nippon
Building Fund Management Ltd. and its 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 are made after going
through discussions by the Investment Review Board and Executive
Board of Nippon Building Fund Management Ltd. Sponsor companies
are not permitted to intervene in the decision-making process.

Voluntary Rules for Conflict of Interest
Transactions Stipulated in Internal Bylaws
Nippon Building Fund Management Ltd. has set voluntary rules in its
internal bylaws to address transactions with parties, including sponsor
companies that have interests in Nippon Building Fund Management Ltd.
The voluntary rules require the Investment Division, which initiates thethe following risk management system to avoid and minimize risks

transaction, as well as the Compliance Department, the Asset

related to investments.

Management Examination Meeting and other units to protect NBF’s

NBF

managed assets and profits by fully examining the transaction contents

NBF’s Risk Management Regulations define risk management policies

according to the voluntary rules set in the internal bylaws in the event of aand procedures. The Risk Management Board convenes once everytransaction in which the interests of Nippon Building Fund Management

three months and undertakes deliberation, monitoring and other initiatives

Ltd. and parties that have interests in Nippon Building Fund Management

to ensure that the entrusted asset managers are conducting their duties

Ltd. may conflict with the interests of NBF. These rules are designed fromwith due care in good faith in a manner consistent with its fiduciary duty

the standpoint of accountability to NBF and its unitholders.

to the conservation and maintenance of entrusted assets.

In examining the transaction contents, Nippon Building Fund

Nippon Building Fund Management Ltd.

Management Ltd. solicits the opinions of attorneys, certified tax

Nippon Building Fund Management Ltd. formulates a Management

accountants and other third-party experts as needed. In addition, when

Policy, a Medium-to-Long-Term Asset Management Policy and anpurchasing real estate or other assets from parties that have interests

Annual Management Plan to follow in managing NBF’s assets. In

in Nippon Building Fund Management Ltd., the purchase price isaddition, Nippon Building Fund Management Ltd. has set Assetstrictly set, in principle no higher than the appraised value according toManagement Guidelines as a set of standards to follow.

a real estate appraiser with no vested interest.

NBF Report July – December 2012 23

Management’s Discussion and Analysis
Summary of Selected Financial Data

23rd Period
from July 1, 2012 to
December 31, 2012

22nd Period
from January 1, 2012 toJune 30, 2012

21st Period
from July 1, 2011 to
December 31, 2011

Yen in millions, except per unit data or where otherwise indicatedOperating revenues
Note 2
Revenue from property leasing activities
Operating expenses
Rental expenses
Loss on sale of investment property
Income before income taxes
Net income(a)Funds from operations
Note 3
Net operating income from property leasing activities Note 3
Total amount of cash distribution(b)
Depreciation and amortization
Capital expenditures
Total assets(c)Interest-bearing debt
Net assets(d)Total number of units issued (units)(e)
Net assets per unit (Yen/$)(d) / (e)Distribution per unit (Yen/$)(b) / (e)Funds from operations per unit (Yen/$)Note 3
ROA
Note 3(Annual rate)
ROE
Note 3(Annual rate)
Loan to value (LTV)
Note 3
Capital ratio(d) / (c)Payout ratio(b) / (a), Note 4
Number of days
Number of investment properties
Note 5
Number of tenants
Note 5
Total rentable area (m2)Occupancy rate (End-tenant basis)
Note 5¥ 31,530
31,53018,90917,614
—
9,658
9,657
15,85020,107
9,657
6,191
2,269
899,123
399,625
446,004
613,000
727,577
15,75425,854
1.1%
2.2%
2.2%
4.3%
44.4%
49.6%
100.0%
184
68
1,460
913,747
97.6%¥ 30,244
30,244
17,798
16,525
—
9,490
9,489
15,62819,857
9,489
6,139
2,137
871,140
374,000
445,836
613,000
727,302
15,48025,713
1.1%(2.2%)
2.2%(4.4%)
42.9%
51.2%
100.0%
182
67
1,080
893,203
97.0%¥ 29,773
29,773
17,587
16,145
197
9,128
9,127
15,226
19,530
8,793
5,902
1,975
852,855
377,375
424,242
578,500
733,348
15,20026,3201.1%(2.2%)
2.2%(4.3%)
44.2%
49.7%
96.3%
184
64
1,042
861,153
96.9%

23rd Period
from July 1, 2012 to
December 31, 2012
U.S. dollars in thousands
except per unit data (Note 1)$

363,917363,917
218,250
203,300—
111,478
111,466
182,936
232,075
111,464
71,45826,177
10,377,693
4,612,477
5,147,792
8,398
182
298

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥86.64 = U.S.$1.00, the approximate exchange rate on December 31, 2012.
2. Operating revenues do not include consumption tax.
3. All valuations are calculated through the following formulas. The figures in parentheses after ROA and ROE are annualized based on the six-month figures for the period.
Funds from operations: Net income (excluding Gain and Loss on sale of investment properties) + Depreciation and amortization
Net operating income from property leasing activities: (Revenue from property leasing – Rental expenses) + Depreciation and amortization
Funds from operations per unit: (Net income (excluding Gain and Loss on sale of investment properties) + Depreciation and amortization) / Weighted average number of units issued
and outstanding during the period
ROA: Income before income taxes / (Initial total assets + Total assets at end of period) ÷ 2
ROE: Net income / (Initial net assets + Net assets at end of period) ÷ 2
LTV: Interest-bearing debt / Total assets
4. Payout ratio figures are calculated to one decimal place only.
5. Number of investment properties means units generally perceived to be one office building. Number of tenants means gross number of tenants by building. Occupancy rate, end-tenant basis,is the ratio of gross leased area to total rentable area at the end of the period.

24 NBF Report July – December 2012

Operating Environment and Results
During the six months ended December 31, 2012 (the “23rd Period”), exports from Japan decreased against a background that included
decelerating overseas economies. The continued strength of the yen caused corporate earnings to deteriorate, particularly in manufacturingindustries. Moreover, while the restoration of facilities damaged by the Great East Japan Earthquake of March 2011 supported domestic demand,factors such as the end of subsidies for purchases of eco-cars constricted previously firm personal consumption.
In the office building leasing market, vacancy rates improved moderately because of the increasing need for more office space among existing
tenants that had cut back on office space for reasons such as restructuring following the global financial crisis. In addition, the supply of newbuildings in the central business districts (CBDs) of Tokyo temporarily leveled off from the second half of 2012.
In the real estate acquisition market, real estate transaction volume recovered moderately with the support of factors including a strong fundprocurement environment. In particular, J-REITs were major buyers that drove vigorous building acquisition transactions overall. However, the value
of office building acquisitions by J-REITs was on par with the previous year because sales of large-scale, high-quality office buildings remained few
in number.
Under these conditions, NBF continued to manage its assets in accordance with its basic policy of investing in high-quality office buildings thatare highly competitive in terms of their location, size and facilities, and are expected to have stable cash flow from rents. During the 23rd Period, NBF
acquired NBF COMODIO Shiodome (acquisition price of ¥28,800 million) in July 2012 and the Nishi-Shinjuku Mitsui Building (additional acquisition of¥8 million).
For existing properties, NBF systematically conducted property management, renovations and new construction to further increase tenantsatisfaction. NBF also worked to secure stable rental revenue by maintaining an appropriate understanding of its market, setting appropriate rents
for new tenants and revising rents for tenants renewing their lease contracts.
NBF’s real estate portfolio as of December 31, 2012 totaled 68 properties. Total investment on an acquisition price basis was ¥921,648 million.
Total rentable area was 913,747m2. The occupancy rate increased 0.6 percentage points from June 30, 2012 to 97.6 percent. The number oftenants totaled 1,099.

Occupancy Rate

Total Investment(Yen in billions)

(%)

1,000

100
98

800

96
600

94

400

92
90

200
0

0
Dec. 31,2010

Jun. 30,
2011

Dec. 31,2011

Jun. 30,
2012

Dec. 31,2012

Dec. 31,2010

Jun. 30,
2011

Dec. 31,2011

Jun. 30,
2012

Dec. 31,2012

NBF Report July – December 2012 25

Overview of Performance
New operation of the two properties acquired during the six months ended December 31, 2012 (including additional acquisitions) and full-period
operation of properties acquired in the previous period were major factors that increased earnings. As a result, operating revenues for the six months
ended December 31, 2012 increased ¥1,286 million, or 4.3 percent, to ¥31,530 million. Operating income increased ¥175 million, or 1.4 percent, to¥12,621 million. Net income increased ¥168 million, or 1.8 percent, to ¥9,657 million. Distribution per unit was ¥15,754.

(Yen in millions)Operating Income From Property
Leasing Activities

35,000(Yen in millions)Operating Revenues

20,00030,00025,00015,00020,00010,00015,00010,000

5,000

5,000
0

19th
Period20th
Period21stPeriod22nd
Period0

23rd
Period19th
Period20th
Period21st

22nd
PeriodPeriod23rd
PeriodDistribution for the Current Period
Distribution per unit for the current period was ¥15,754. NBF expects to distribute almost all retained earnings at the current period end to beeligible for special tax treatment (Special Taxation Measures Law of Japan Article 67-15) that allows NBF to deduct its cash dividends of profits fromtaxable income.
For the six months ended
December 31, 2012

For the six months ended
June 30, 2012

For the six months ended
December 31, 2011

(Yen in thousands, except per unit amounts)

Retained earnings
Undistributed earnings
Reserve for advanced depreciation
Total cash distribution(Cash distribution per unit)
Distribution of accumulated earnings(Distribution of accumulated earnings per unit)
Cash distribution in excess of accumulated earnings(Per unit)¥9,657,486
284—
9,657,202
15,754
9,657,202
15,754——¥9,489,337
97—
9,489,240
15,4809,489,240
15,480——¥9,127,289—
334,089
8,793,200
15,2008,793,200
15,200——Note: Above cash distributions were paid after the period end.

Total Amount of Cash Distribution

Distribution per Unit
(Yen)

(Yen in millions)

25,00012,50020,00010,00015,0007,500
10,000
5,000

5,000
0

19th

Period20th

Period21stPeriod26 NBF Report July – December 2012

22nd

Period23rd

Period019thPeriod20th
Period21stPeriod22nd
Period23rd
PeriodManagement’s Discussion and Analysis

Changes in Assets, Liabilities and Net Assets
Assets
As of December 31, 2012, total assets increased by ¥27,983 million to ¥899,123 million compared with June 30, 2012. Return on average total
assets (ROA) for the six months ended December 31, 2012 decreased to 1.09 percent from 1.10 percent for the previous six-month period.
Current assets increased by ¥2,888 million to ¥38,188 million compared with June 30, 2012. Investment properties increased by ¥25,135
million to ¥855,337 million compared with June 30, 2012.

Liabilities
Current liabilities increased by ¥7,050 million to ¥73,160 million compared with June 30, 2012, primarily because of an increase in long-term
debt due within one year compared with June 30, 2012.
Long-term debt increased by ¥19,625 million to ¥336,875 million compared with June 30, 2012.
As a result, total interest-bearing liabilities increased by ¥25,625 million to ¥399,625 million compared with June 30, 2012. However, the ratio of
long-term fixed-rate debt (less amounts due within one year) to total interest-bearing liabilities decreased to 84.3 percent as of December 31, 2012
from 84.8 percent as of June 30, 2012.
The loan-to-value ratio, calculated as the ratio of interest-bearing liabilities plus deposits under management to total assets, increased to 48.3
percent as of December 31, 2012 from 46.8 percent as of June 30, 2012.
In addition, NBF worked to diversify funding sources. In January 2011, NBF updated a shelf registration to publicly offer up to ¥200 billion inbonds.

Net assets
Net assets increased by ¥168 million to ¥446,004 million compared with June 30, 2012.

Net Assets

Total Assets(Yen in millions)(Yen in millions)

1,000,000

500,000
400,000

800,000

300,000

600,000

200,000
400,000
100,000
0Dec. 31,2010

Jun. 30,
2011

Dec. 31,2011

Jun. 30,
2012

Dec. 31,2012

0Dec. 31,2010

Jun. 30,
2011

Dec. 31,2011

Jun. 30,
2012

Dec. 31,2012

Funding
Balance of Paid-in Capital
NBF was established on March 16, 2001 with initial paid-in capital of ¥100 million. NBF began investing activities in May 2001 after ¥98,800
million was raised through private placements. As of December 31, 2012, NBF had issued 613,000 units out of 2,000,000 total authorized units.
NBF’s units were listed on the J-REIT section of the Tokyo Stock Exchange in September 2001 upon the completion of a public offering. As theInvestment Trust Law of Japan does not contain any provision for the issue of more than one class of units, NBF’s units comprise the sole class ofunits authorized and issued by NBF.

NBF Report July – December 2012 27

Issue date

Units issued and outstanding
Increase
Balance(Units)Remarks

Initial capital(private)
May 23, 2001
Private placement
September 8, 2001 Public offering
July 14, 2004
Public offering
August 11, 2004 Third party
allocation
August 10, 2005 Public offering
March 16, 2006
Public offering
Third
party
March 29, 2006
allocation
February 4, 2008 Public offering
Third party
March 4, 2008
allocation
January 26, 2011 Public offering
February 22, 2011 Third party
allocation
January 25, 2012 Public offering
February 21, 2012 Third party
allocation
March 16, 2001

200

200

197,600
82,90080,000197,800
280,700
360,700

4,000

Paid-in capital
Increase

Balance

Notes(Yen in millions)

¥

100

¥

100

Note 1

98,80049,99958,83898,900148,899
207,737

Note 2
Note 3Note 4

364,700

2,942

210,679

Note 558,00080,000422,700
502,700

51,491
79,040262,170
341,210Note 6Note 75,300

508,000

5,236

346,446

Note 831,800539,800

37,159383,605

Note 92,200

542,000

2,571

386,176

Note 1034,000576,000

26,957413,133

Note 112,500

578,500

1,982

415,115

Note 1230,000608,500

18,172433,287

Note 134,500

613,000

2,726

436,013

Note 14

Notes: 1. NBF was established with initial capital of ¥500,000 per unit.
2. Follow-on private offering at ¥500,000 per unit to raise funds for acquisition of 22 properties.
3. Public offering of new units for ¥625,000 per unit (excluding underwriting fee: ¥603,125) to repay debt and to fund property acquisition.
4. Public offering of new units for ¥759,500 per unit (excluding underwriting fee: ¥735,475) to repay debt, etc.
5. Additional issue of new units (third party allocation) for ¥735,475 per unit undertaken pursuant to the public offering in Note 4.
6. Public offering of new units for ¥916,300 per unit (excluding underwriting fee: ¥887,782) to repay debt and to fund property acquisition.
7. Public offering of new units for ¥1,019,200 per unit (excluding underwriting fee: ¥988,000) to repay debt and to fund property acquisition.
8. Additional issue of new units (third party allocation) for ¥988,000 per unit undertaken pursuant to the public offering in Note 7.
9. Public offering of new units for ¥1,205,400 per unit (excluding underwriting fee: ¥1,168,500) to repay debt and to fund property acquisition.
10. Additional issue of new units (third party allocation) for ¥1,168,500 per unit undertaken pursuant to the public offering in Note 9.
11. Public offering of new units for ¥818,025 per unit (excluding underwriting fee: ¥792,855) to repay debt and to fund property acquisition.
12. Additional issue of new units (third party allocation) for ¥792,855 per unit undertaken pursuant to the public offering in Note 11.
13. Public offering of new units for ¥624,975 per unit (excluding underwriting fee: ¥605,745) to repay debt and to fund property acquisition.
14. Additional issue of new units (third party allocation) for ¥605,745 per unit undertaken pursuant to the public offering in Note 13.

Market Price of Units
High/Low (closing price) of units on the TSE:
For the six months ended
December 31, 2012

For the six months ended
June 30, 2012
(Yen)

For the six months ended
December 31, 2011

¥904,000
737,000¥809,000
629,000¥830,000
620,000

High
Low

Borrowings
Borrowings from financial institutions as of December 31, 2012 are shown below.
Short-term loans
LenderBalance

Averageinterest rate (%)

Due on(Note 1)

Repayment
method

0.3%
0.3%
0.3%
0.4%
0.5%
0.4%

January 31, 2013
January 31, 2013
January 31, 2013
February 28, 2013
January 31, 2013
February 28, 2013

Bulletpayment

Use of
funds

Notes

(Note 4)

Unsecured/unguaranteed/pari passu,
See (Note 5)(Yen in millions)

Sumitomo Mitsui Trust Bank, Limited.
¥ 7,000
Mitsubishi UFJ Trust and Banking Corporation
5,000
Shinkin Central Bank
3,000
The 77 Bank, Ltd.
2,000
The Gunma Bank, Ltd.
2,000
The Joyo Bank, Ltd.
1,000
Total short-term loans

28 NBF Report July – December 2012

¥20,000

Management’s Discussion and Analysis

Long-term loans
LenderBalance

Averageinterest rate (%)

Due on(Note 1)

1.8%
1.5%
1.8%
2.0%
2.4%
2.2%
2.2%
1.3%
1.8%
1.8%
1.5%
1.1%
0.8%
1.6%
1.2%
1.1%
1.2%
2.1%
1.9%
1.7%
1.8%
1.0%
1.5%
1.8%
1.9%
1.8%
1.1%
1.6%
1.8%
1.0%
0.8%
1.5%
2.3%
1.7%
1.2%
0.7%
1.6%
2.0%
1.9%
1.1%
0.9%
1.2%
1.0%
1.8%
1.0%
0.7%
1.0%
0.6%
0.5%
2.0%
1.0%
1.0%
1.4%
1.3%
2.0%
1.4%
1.6%
0.9%
1.7%
2.1%
2.0%
1.0%
1.4%
1.8%
1.8%

November 28, 2014
September 11, 2015
September 27, 2017
February 15, 2016
May 30, 2018
April 28, 2019
August 30, 2019
June 30, 2023
July 31, 2014
September 30, 2014
March 4, 2016
March 1, 2019
July 31, 2020
September 30, 2013
June 1, 2018
December 30, 2019
March 5, 2021
May 23, 2018
May 23, 2016
July 16, 2014
February 3, 2016
July 19, 2017
April 30, 2013
June 27, 2013
April 28, 2014
June 30, 2014
December 30, 2022
September 30, 2013
September 30, 2014
June 1, 2017
July 2, 2019
September 11, 2015
May 30, 2016
July 31, 2013
November 30, 2018
February 7, 2017
December 13, 2013
May 30, 2013
May 29, 2014
February 13, 2020
March 29, 2019
March 30, 2021
November 1, 2022
June 27, 2013
June 1, 2017
December 30, 2016
June 1, 2017
June 30, 2017
July 12, 2017
October 30, 2015
June 1, 2017
March 8, 2019
April 1, 2015
October 19, 2018
October 31, 2014
October 4, 2013
February 3, 2015
March 29, 2019
December 15, 2014
July 11, 2014
August 31, 2015
July 2, 2021
December 2, 2013
June 26, 2014
March 30, 2015

Repayment
methodUse of
funds

Notes

(Note 4)

Unsecured/unguaranteed/pari passu,
See (Note 5)
Fixed rate

(Yen in millions)

Development Bank of Japan Inc.

¥ 4,000
10,00010,00010,00010,000
4,125
8,500
10,000Mitsubishi UFJ Trust and Banking Corporation 3,000
1,000
7,000
15,00015,000Sumitomo Mitsui Trust Bank, Limited.
5,000
10,00010,0005,000
Sumitomo Life Insurance Company
7,000
5,000
5,000
3,000
5,000
Sumitomo Mitsui Banking Corporation
5,000
5,000
6,000
1,000
4,000
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
8,000
4,000
4,000
5,000
Zenkyoren (The National Mutual Insurance 10,000
Federation of Agricultural Cooperatives)
10,000Mizuho Corporate Bank, Ltd.
8,000
7,000
2,000
MITSUI LIFE INSURANCE COMPANY, LIMITED 3,000
2,000
3,000
2,000
2,000
2,000
2,000
Shinkin Central Bank
4,000
3,000
3,000
THE BANK OF FUKUOKA, Ltd.
2,000
2,000
4,000
Resona Bank,Limited.
3,000
1,000
3,000
Nippon Life Insurance Company
2,000
2,000
DAIDO LIFE INSURANCE COMPANY
1,000
1,000
2,000
1,000
TAIYO LIFE INSURANCE COMPANY
1,000
2,000
1,000
1,000
The Hachijuni Bank, Ltd.
1,000
2,000
1,000

(Note 2)
(Note 3)

Bulletpayment

NBF Report July – December 2012 29

Lender

Balance

Averageinterest rate (%)

Due on(Note 1)

Repayment
method

1.7%
1.0%
0.7%
0.6%
0.9%
1.1%
1.1%
1.3%
0.7%
0.4%
1.9%

May 29, 2014
February 25, 2016
March 3, 2017
June 30, 2017
January 4, 2017
May 1, 2019
September 4, 2020
April 27, 2022
March 3, 2017
December 28, 2015
April 30, 2014

Bulletpayment

Use of
funds

Notes

(Note 4)

Unsecured/unguaranteed/pari passu,
See (Note 5)
Fixed rate

(Yen in millions)

The Chugoku Bank, Limited

2,000
2,000
2,000
2,000
1,000
1,000
1,000
3,000
1,000
1,000
1,000

The Daishi Bank, Ltd.
The Yamaguchi Bank, Ltd.
Meiji Yasuda Life Insurance Company
The Joyo Bank, Ltd.
The Yamanashi Chuo Bank, Ltd.
The Iyo Bank, LTD.

Total long-term loans
Total borrowings (Note 6)¥319,625¥339,625

Notes: 1. With respect to the date of repayment in case of more than one short-term loan from the same lender, the earliest date of repayment for all such loans coming due is given.
2. Scheduled for repayment of ¥125 million at six-month intervals and ¥2,625 million at the final maturity date.
3. Scheduled for repayment of ¥250 million at six-month intervals and ¥5,250 million at the final maturity date.
4. Use of funds for the above includes acquisition of real estate or beneficiary interests, repayment of borrowings and working capital.
5. A special agreement attached to “Loan Agreement” entered into between NBF and each financial institution provides that the above borrowings from all financial institutions
rank pari passu to each other.
6. The total amount of long-term loans (i.e. excluding those expected to be repaid within one year) repayable within 5 years of the date of the balance sheet and expected tobe repaid by specific year(s) is as follows.
(Yen in millions)Long-term loans

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥36,750¥30,750¥40,750¥39,750

NBF Bonds
Issue

No. 3 Unsecured Bonds
No. 7 Unsecured Bonds
No. 9 Unsecured Bonds
No. 10 Unsecured Bonds
No. 11 Unsecured Bonds
No. 12 Unsecured Bonds
Total (Note 6)

Balance as ofDecember 31, 2012
(Yen in millions)Issue dateJune 12, 2003
November 9, 2005
May 24, 2007
May 24, 2007
January 28, 2010
September 15, 2011

¥10,000
10,00010,00010,00010,00010,000¥60,000

CouponMaturitydate

Redemption

Use ofproceeds

Notes

2.00%
1.85%
1.74%
2.04%
1.23%
0.64%

June 12, 2018
November 9, 2015
May 23, 2014
May 24, 2017
January 28, 2015
September 15, 2016

Bullet payment
Bullet payment
Bullet payment
Bullet payment
Bullet payment
Bullet payment

Note 1
Note 1
Note 1
Note 1
Note 1
Note 1

Notes 2 and 4
Notes 3 and 5
Notes 3 and 5
Notes 3 and 5
Notes 3 and 5
Notes 3 and 5

Notes: 1. Use of funds includes acquisition of real estate, etc., repayment of borrowings and working capital.
2. These bonds are only issued to qualified institutional investors.
3. Rank pari passu with all other publicly and privately issued bonds.
4. Subject to provision of collateral and financial restrictions pursuant to material decline in credit rating.
5. Subject to provision of collateral restrictions.
6. The total amount of bonds repayable within 5 years of the date of the balance sheet and expected to be repaid by specific year(s) is as follows.
(Yen in millions)

Investment
corporation bonds

Within 1 year

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years—¥10,000¥20,000¥10,000¥10,000

Others
NBF has security deposits totaling ¥43,005 million as of December 31, 2012.

Capital Expenditures
1. Planning
As of December 31, 2012, NBF is planning the following capital expenditures for the renovation of its properties. The amounts
below include repairs and maintenance costs that will be expensed as incurred. Moreover, in addition to a steady program of
expenditures for construction, repair and renovation of facilities, a program of renewal construction is being implemented in order
to increase competitive power in the market as well as to increase the level of tenant satisfaction based on the results of tenantsatisfaction surveys and neighboring competitive building specification surveys, etc.

30 NBF Report July – December 2012

Management’s Discussion and Analysis

Name of property

Estimated
durationObjective

Shinjuku Mitsui Bldg. No. 2 Renovation of elevator
From July 2013 to December 2013
NBF Shinkawa Bldg.
Renovation of air conditioning
From July 2013 to December 2013
(West Building)
NBF Shinkawa Bldg.
Renovation of power generation facilities From July 2013 to December 2013
(West Building)
NBF Shinkawa Bldg.
Renovation of power generation facilities From July 2013 to December 2013
(East Building)
NBF Shinkawa Bldg.
Renovation of air conditioning
From July 2013 to December 2013
(East Building)
Ryukakusan Bldg.
Renovation of air conditioning
From September 2013 to November 2013
NBF Shinkawa Bldg.
Renovation of air conditioning
From January 2013 to June 2013
(East Building)
Aqua Dojima NBF Tower
Renovation of air conditioning
From January 2013 to April 2013
GSK Bldg.
Renovation of air conditioning
From January 2013 to June 2013
GSK Bldg.
Renovation of air conditioning
From July 2013 to December 2013
GSK Bldg.
Renovation of hot and chilled
From October 2013 to November 2013
water generator
NBF Shin-Urayasu Tower
Renovation of elevator
From January 2013 to June 2013
Tsukuba Mitsui Bldg.
Renovation of automatic fire information From August 2013 to October 2013
facilities
NBF Matsudo Bldg.
Renovation of air conditioning
From September 2013 to November 2013
Shibuya Garden Front
Renovation of air conditioning
From September 2013 to November 2013
Ryukakusan Bldg.
Renovation of air conditioning
From March 2013 to May 2013
Sumitomo Densetsu Bldg. Renovation of restroom
From August 2013 to November 2013
NBF Sakai-Higashi Bldg.
Renovation of air conditioning
From March 2013 to June 2013
NBF Sakai-Higashi Bldg.
Renovation of air conditioning
From September 2013 to December 2013
Parale Mitsui Bldg.
Renovation of air conditioning
From September 2013 to September 2013
NBF Utsunomiya Bldg.
Renovation of exterior
From July 2013 to August 2013
NBF Sapporo Minami Nijo Bldg. Renovation of restroom
From October 2013 to December 2013
NBF Sakai-Higashi Bldg.
Renovation of exterior
From March 2013 to May 2013
NBF Atsugi Bldg.
Renovation of access control system
From February 2013 to May 2013
NBF Shijo Karasuma Bldg. Renovation of all heat exchangers
From April 2013 to May 2013

Total
amounts

Estimated amounts
Payment for thecurrent period(from July 1, 2012 to
December 31, 2012)(Yen in millions)

Cumulative
amount paid

¥269
195

¥—
—

¥—
—

194

—

—

188

—

—

185

—

—

172
139

—
—

—
—

126
117
117
112

—
—
—
—

—
—
—
—

109
92

—
—

—
—

87
83
69
64
58
54
53
43
34
25
23
18

—
—
—
—
—
—
—
—
—
—
—
—

—
—
—
—
—
—
—
—
—
—
—
—

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NBF posted ¥2,269 million in capital expenditures
together with ¥1,046 million for repairs and maintenance expenses.
Name of property

Ryukakusan Bldg.

Objective

Expenditure(Yen in millions)

PeriodRenovation of air conditioning, installation of rooftop equipment foundation, measuresagainst harmonic for electric equipment, etc.
Nakanosakaue Sunbright Twin Renovation of automatic control, renovation of air circuit breaker, renovation of water
heater, etc.
Shinjuku Mitsui Bldg. No. 2 Renovation of air conditioning, renovation of restroom, renovation of air supply andexhaust fan, etc.
Aqua Dojima NBF Tower
Renovation of air conditioning, measures against earthquakes for elevator, renovationof surveillance camera facilities, etc.
Sumitomo Densetsu Bldg.
Renovation of air conditioning, renovation of disaster prevention equipment,
improvement of scaffolding in a sanitary pump room, etc.
From July 2012
NBF Hibiya Bldg.
Renovation of gas flue equipment, renovation of lighting equipment in restroom,
to December 2012
renovation of cooling tower, etc.
NBF Takanawa Bldg.
Renovation of air conditioning, renovation of common area entrance, renovation ofwater supply equipment, etc.
Shin-Kawasaki Mitsui Bldg. Renovation of heating equipment, renovation of restroom, renovation of electronic water
heater, etc.
NBF Shin-Urayasu Tower
Renovation of fire alarm system, renovation of water tank, renovation of stairs handrail, etc.
NBF Unix Bldg.
Renovation of air conditioning, renovation of electric meter equipment, construction ofplanting equipment, etc.
Other buildings
Asset preservation construction and other renewal construction to improve tenantsatisfaction.
Total

¥ 205
188
178
152
140
133
125
122
119
34
873
¥2,269NBF Report July – December 2012 31

3. Cash Reserve for Capital Improvements
NBF accumulates cash reserves from cash flows to prepare for large-scale mid-term to long-term capital improvements andrepairs and maintenance that will be conducted in accordance with NBF’s business plan for each property.
As of December 31, 2012

As of June 30, 2012
(Yen in millions)

Reserve balance at the beginning of the period
Amount accumulated in the current period
Withdrawal from reserves in the current period
Amount carried forward¥1,1772,907
2,374¥1,710¥1,6302,884
3,337¥1,177

Notes: 1. The reserve figures represent only the amount of reserves attributable to NBF’s ownership interest; the amount of reserves attributable to other owners has been excluded.
2. In addition to the above reserves, there are other reserves set up, based on maintenance needs and contracts with organizations responsible for management of properties,
for the purpose of retaining funds to be used for future repair and maintenance. This reserve is not included in the above reserves and accumulated to ¥4,984 million as ofDecember 31, 2012.

Expenses regarding Entrustment, etc.
The following table sets forth the breakdown of entrustment fees, etc. paid by NBF.
For the six months ended
December 31, 2012

For the six months ended
June 30, 2012
(Yen in millions)

For the six months ended
December 31, 2011

¥1,087
42
47
12
14
93
¥1,295¥1,050
40
47
14
14
108
¥1,273¥1,027
39
46
16
13
104
¥1,245Item

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

Trading Activities during the Current Period
1. Trading of Real Estate and Real Estate Held in Trust
The following table shows a summary of real estate and real estate held in trust, acquired by NBF in the current period.

(Yen in millions)

Acquisitions
Name of building

COMODIO Shiodome (Note 2)
Nishi-Shinjuku Mitsui Bldg. (additional acquisition)
Total

Date

Acquisition price (Note 1)

July 2, 2012
November 1, 2012

¥28,800
8¥28,808

Note: 1. “Acquisition price” does not include national consumption tax, local consumption tax and miscellaneous costs of acquisition.
2. “COMODIO Shiodome” has been renamed “NBF COMODIO Shiodome ” after the acquisition.

2. Trading of Other Assets Including Total Amount and Transactions
Other major assets besides real estate and real estate held in trust stated above consist mostly of bank deposits or bankdeposits included in assets held in trust.

32 NBF Report July – December 2012

Management’s Discussion and Analysis

3. Transactions with Related Parties and Transactions with Major Shareholders ofAsset Management Company(1) Ongoing Transactions
None. (No purchases, or sales or other transactions involving interested parties.)(2) Fees Paid for the Period from July 1, 2012 to December 31, 2012
Description of transactions with related parties (Note 1)
Category

Total fees paid(A)
(Yen in millions)

Office management fees, etc.
(Note 4)
Property maintenance fees

¥1,325

Leasing related service fees

50

3,225

Amount ofpayment (B)(Yen in millions)

Paid toMitsui Fudosan Co., Ltd.
NBF Office Management Co., Ltd.
First Facilities Co., Ltd.
Mitsui Fudosan Co., Ltd.
Mitsui Fudosan Building Management Co., Ltd.
First Facilities West Co., Ltd.
First Facilities Yokohama Co., Ltd.
Mitsui Fudosan Housing Lease Co., Ltd.
Mitsui Fudosan Co., Ltd.
NBF Office Management Co., Ltd.
Mitsui Fudosan Realty Co., Ltd.

¥1,286
35
516
388
192
123
13
1
13
10
3

B/A

97.0%
2.6%
16.0%
12.0%
5.9%
3.8%
0.4%
0.0%
26.6%
19.5%
5.4%

Notes: 1. “Related parties” are defined as related parties of asset management companies under asset management agreement with NBF as defined in Article 123 of Order for
Enforcement of the Law Concerning Investment Trusts and Investment Corporations, and Article 26, Section 27 of the Regulations regarding management report of theInvestment trusts and Investment corporations set by the Investment Trusts Association, Japan. “Major shareholders” are the major shareholders of asset managementcompanies as defined in Article 29, Section 4, Paragraph 2 of the Financial Instruments and Exchange Law. During the period from July 1, 2012 to December 31, 2012,transactions with and fees paid to, Mitsui Fudosan Co., Ltd., NBF Office Management Co., Ltd., First Facilities Co., Ltd., Mitsui Fudosan Building Management Co., Ltd.,First Facilities West Co., Ltd., First Facilities Yokohama Co., Ltd., Mitsui Fudosan Housing Lease Co., Ltd. and Mitsui Fudosan Realty Co., Ltd. which meet either of thesaid definitions, are as described above.
2. Figures indicate contractual sales prices.
3. Figures indicate percentages of total prices.
4. Properties that have not entrusted office management businesses through such means as master leasing by Mitsui Fudosan Co., Ltd. (11 properties: Nishi-Shinjuku Mitsui
Bldg., Gate City Ohsaki, Nakameguro GT Tower, Toranomon Kotohira Tower, Higashi Gotanda Square, NBF Ogawamachi Bldg., Shin-Kawasaki Mitsui Bldg., Parale Mitsui
Bldg., Shinanobashi Mitsui Bldg., Sakaisuji-Honmachi Center Bldg. and Yotsuya Medical Bldg.) have entrusted them to NBF Office Management Co., Ltd. as business
representative of the property owners or lessors.
5. In addition to the above fees paid, the following have been paid to related parties for repair and maintenance work.

(Yen in millions)First Facilities Co., Ltd.
Mitsui Fudosan Building Management Co., Ltd.
Mitsui Fudosan Co., Ltd.
First Facilities West Co., Ltd.
Mitsui Designtec Co., Ltd.
Mitsui Fudosan Housing Lease Co., Ltd.
Mitsui Fudosan Realty Co., Ltd.
LaLaport Management Co., Ltd.
Mitsui Home Linkage Co., Ltd.
Uniliving Co., Ltd.

¥597
406
292
250
12
6
0
0
0
0

NBF Report July – December 2012 33

Balance Sheets
NIPPON BUILDING FUND INC.
As of December 31, 2012 and June 30, 2012

As of
December 31, 2012

As ofJune 30, 2012
(Yen in millions)

AssetsCurrent Assets:
Cash and cash equivalents (Note 3)
Tenant receivables
Other current assets
Total current assets
Investment Properties:
Land including trust accounts (Notes 4, 13)
Buildings and improvements including trust accounts (Notes 4, 13)
Other tangible assets (Notes 4, 13)
Less: accumulated depreciation (Notes 4, 13)
Leasehold rights in trust accounts and other intangible assets (Note 13)
Total investment properties, net
Other Assets
Total Assets
Liabilities
Current Liabilities:
Short-term loans (Notes 3, 6)
Long-term debt due within one year (Notes 3, 6)
Accounts payable
Rents received in advanceAccrued expenses and other liabilities
Total current liabilities
Long-term Debt (Notes 3, 6)
Tenant Security Deposits Including Trust Accounts (Note 3)
Other Liabilities
Total Liabilities
Net Assets (Note 5)
Unitholders’ Equity
Unitholders’ capital
Units authorized: 2,000,000 units
Units issued and outstanding: 613,000 units
Retained earnings
Total Net Assets
Total Liabilities and Net Assets
The accompanying notes to financial statements are an integral part of these statements.

34 NBF Report July – December 2012

¥ 37,265
321
602
38,188¥ 34,484296
520
35,300564,252
338,515
10,839(93,917)35,648855,337
5,598¥899,123

542,002329,703
10,578(87,730)
35,649830,2025,638¥871,140¥ 20,000
42,750
4,691
3,950
1,769
73,160336,875
43,00579453,119¥ 29,000
27,750
4,195
3,830
1,335
66,110317,250
41,86480
425,304

436,013436,0139,991
446,004¥899,123

9,823
445,836¥871,140

Statements of Income
NIPPON BUILDING FUND INC.
For the six months ended December 31, 2012, June 30, 2012 and December 31, 2011

For the six months ended
December 31, 2012

For the six months ended
June 30, 2012
(Yen in millions)

For the six months ended
December 31, 2011

Operating Revenues:
Rental (Note 7)
Other revenues related to property leasing (Note 7)¥28,516
3,014¥27,7102,534¥27,041
2,732

Total Operating Revenues

31,53030,24429,773Operating Expenses:
Property management fees (Note 7)
Real estate taxes (Note 7)
Repairs and maintenance (Note 7)
Insurance (Note 7)
Other rental expenses (Note 7)
Depreciation and amortization (Note 7)
Loss on sale of investment property (Note 8)
Asset management fees
Other operating expenses
Total Operating Expenses
Operating Income

4,518
2,738
1,046
35
3,086
6,191
—
1,087
208
18,90912,621

4,346
2,785
732
34
2,489
6,139
—
1,050
223
17,79812,446

4,217
2,645
836
34
2,511
5,902
197
1,027
218
17,587
12,1863

4

4

Non-Operating Expenses:
Interest expense
Amortization of bond issuance costs
New investment units issuance costs
Other non-operating expenses, net(2,917)
(11)
—
(38)

(2,863)
(11)
(47)
(39)

(3,006)(9)—(47)

Ordinary Income

9,658

9,490

9,128

Income before Income Taxes
Current and deferred income taxes (Note 9)

9,658
(1)

9,490
(1)

9,128
(1)

¥ 9,657¥ 9,489¥ 9,127

Operating Revenues and Expenses

Non-Operating Revenues and Expenses
Non-Operating Revenues:
Interest income

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

NBF Report July – December 2012 35

Statements of Changes in Net Assets
NIPPON BUILDING FUND INC.
For the six months ended December 31, 2012, June 30, 2012 and December 31, 2011

(Yen in millions)
Number of
Units

Unitholders’CapitalRetained
Earnings

Total

578,500¥415,115¥ 8,757¥423,872————(8,757)9,127(8,757)
9,127

Balance as of December 31, 2011

578,500

415,1159,127

424,242

Cash dividends declaredIssuance of new units through public offering as of January 25, 2012
Issuance of new units through allocation to a third party as ofFebruary 21, 2012
Net income—
30,000—18,172(8,793)—(8,793)
18,172

4,500
—

2,726
—

—
9,489

2,726
9,489

Balance as of June 30, 2012

613,000

436,0139,823

445,836————(9,489)9,657(9,489)9,657

613,000¥436,013¥ 9,991¥446,004

Balance as of June 30, 2011
Cash dividends declared
Net income

Cash dividends declared
Net income
Balance as of December 31, 2012
The accompanying notes to financial statements are an integral part of these statements.

36 NBF Report July – December 2012

Statements of Cash FlowsNIPPON BUILDING FUND INC.
For the six months ended December 31, 2012, June 30, 2012 and December 31, 2011

For the six months ended
December 31, 2012

For the six months ended
June 30, 2012
(Yen in millions)

For the six months ended
December 31, 2011

¥ 9,658
6,191
11
—
2,917
(24)
554
119
—
(2,887)¥ 9,490
6,139
11
—
2,863
(2)
304
35
—
(2,937)¥ 9,128
5,902
9
(43)
3,006
(8)
272
147
3,319
(3,004)—329
16,868—(381)
15,522

1,102
690
20,520(31,095)
2,362(1,221)(9)(260)(30,223)(25,276)
2,113(1,759)(10)(275)(25,207)(39,809)
2,663(1,481)(8)(208)(38,843)(9,000)46,000(11,375)——(9,489)16,1362,781
34,484¥ 37,265

7,000
21,000(31,375)
20,851—(8,793)8,683(1,002)35,486¥ 34,484

14,00047,000(34,375)—(53)(8,758)17,814(509)
35,995¥ 35,486

Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
Amortization of bond issuance costs
Decrease in provision for loss on disaster
Interest expense
Increase in tenant receivables
Increase in accounts payable
Increase in rents received in advance
Decrease in investment properties due to sale
Cash payments of interest expense
Decrease in consumption tax
refund receivable
Others, net
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Payments for purchases of investment properties
Proceeds from tenant security deposits
Payments for tenant security deposits
Payments for security deposits paid to lessors
Others, net
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Net proceeds from (repayment of) short-term loans
Proceeds from long-term debt
Repayment of long-term debt
Proceeds from issuance of new units
Payments for bond issuance costs
Payment of dividends
Net Cash Provided by Financing Activities
Net Change in Cash and Cash Equivalents
Cash and Cash Equivalents at the Beginning of Period
Cash and Cash Equivalents at the End of Period
The accompanying notes to financial statements are an integral part of these statements.

NBF Report July – December 2012 37

Notes to Financial Statements
NIPPON BUILDING FUND INC.
For the six months ended December 31, 2012, June 30, 2012 and December 31, 2011

Note 1

Organization and Basis of Presentation

Organization
Nippon Building Fund Inc. (hereinafter “NBF”) was formed on March 16, 2001 as an investment corporation under the Law Concerning
Investment Trusts and Investment Corporations of Japan (hereinafter the Investment Trust Law of Japan) with Mitsui Fudosan Co., Ltd.,
Sumitomo Mitsui Trust Bank, Limited., and Nippon Building Fund Management Ltd. (hereinafter “NBFM”) acting as sponsors. Registration
with the Kanto Local Finance Bureau of the Ministry of Finance was completed on May 10, 2001 and NBF started acquisition of officeproperties on May 23, 2001.
NBF is an externally managed real estate fund, formed as an investment corporation. NBFM, as NBF’s asset management company, isengaged in acquiring, managing, leasing, and renovating office properties. Mitsui Fudosan Co., Ltd. currently owns 43% of NBFM while
Sumitomo Life Insurance Company owns 35% and the remaining 22% is mainly owned by financial institutions.
On September 10, 2001, NBF had raised approximately ¥50,000 million through an initial public offering of units. Those units are listedon the J-REIT section of the Tokyo Stock Exchange.
As of December 31, 2012, NBF had ownership or beneficiary interests in 68 office properties containing approximately 913,747 square
meters of rentable office space. As of December 31, 2012, NBF had leased office space to 1,099 tenants engaged in a variety ofbusinesses. The occupancy rate for the office properties was approximately 98.2%.

Basis of Presentation
The accompanying financial statements have been prepared in accordance with the provisions set forth in the Investment Trust Law ofJapan and the Japanese Financial Instruments and Exchange Law and their related accounting regulations, and in conformity withaccounting principles generally accepted in Japan (hereinafter “Japanese GAAP”), which are different in certain respects as to applicationand disclosure requirements of International Financial Reporting Standards.
The accompanying financial statements have been restructured and translated into English from the financial statements of NBF
prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as requiredby the Financial Instruments and Exchange Law. Some supplementary information included in the statutory Japanese language financial
statements, but not required for fair presentation, is not presented in the accompanying financial statements. NBF does not prepare
consolidated financial statements, as NBF has no subsidiaries.

Note 2

Summary of Significant Accounting Policies

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

Investment Properties
Investment properties are recorded at cost, which includes the allocated purchase price, related costs and expenses for acquisition of
the office properties and the beneficiary interests of properties in trust. Property and equipment balances are depreciated using thestraight-line method over the estimated useful lives. The estimated useful lives of the principal tangible fixed assets (including assets heldin trust) are as follows:

Buildings and improvements
Structures
Machinery and equipment
Tools, furniture and fixtures

2-50 years
2-50 years
2-17 years
2-19 years

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

Investment Corporation Bond Issuance Costs
Deferred investment corporation bond issuance costs are amortized using the straight-line method over the respective terms of the bonds.

New Investment Units Issuance Costs
The issuance costs of new investment units are expensed when incurred.

38 NBF Report July – December 2012

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

Real Estate Taxes
Real estate taxes are imposed on properties on a calendar year basis and expensed when incurred. In terms of newly purchased
properties, NBF capitalizes a portion of the real estate taxes that relate to a period from the purchase date of each property until theend of the calendar year as part of the acquisition cost of the relevant property. Capitalized real estate taxes amounted to ¥56 million
for the period ended December 31, 2012, ¥133 million for the period ended June 30, 2012 and ¥66 million for the period ended
December 31, 2011.

Revenue Recognition
NBF operates office properties that are rented to tenants on lease terms of generally two years, with monthly payments due inadvance. Rental and other property income is recorded when due from tenants and is recognized monthly as it is earned. Common area
charges provided for in tenant leases are recognized as income when earned and their amounts can be reasonably estimated.

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

Additional Information
Effective from the accounting changes and corrections of past errors to be conducted after the beginning of the fiscal period ended
December 31, 2011, NBF adopted the “Accounting Standard for Accounting Changes and Error Corrections” (Accounting Standards
Board of Japan (ASBJ) Statement No. 24 issued on December 4, 2009) and the “Guidance on Accounting Standard for Accounting
Changes and Error Corrections” (ASBJ Guidance No. 24 issued on December 4, 2009).

Note 3Financial Instruments

Status of Financial Instruments
Policy for Financial Instruments
NBF procures funds for acquisition of assets and repayment of debt, which includes repayment of tenant security deposits, loans andinvestment corporation bonds, through issuance of new investment units, bank loans and issuance of investment corporation bonds, withthe aim of ensuring steady asset growth and stable earnings from a mid- and long-term angle.
As a general rule NBF invests surplus funds in deposits considering safety of the investments.
NBF may enter into derivative transactions solely for the purpose of reducing interest rate risks and other risks arising from liabilities.
NBF does not engage in speculative transactions. Currently NBF is not engaged in any derivative transactions.

Financial Instruments, Their Risks and Risk Management System
Deposits are used for investment of NBF’s surplus funds. These deposits are exposed to credit risks such as bankruptcy of thedepository financial institutions. NBF limits credit risk by using only short-term deposits in financial institutions with high credit ratings.
Proceeds from loans and investment corporation bonds are used mainly to acquire real estate properties and repay outstanding loans
and bonds. While these loans and bonds are exposed to liquidity risk, such risk is managed in the following ways such as diversifying themeans of funding and lending institutions, dispersing repayment dates, establishing committed credit line, keeping sufficient liquidity in
hand, and monitoring cash flows projected monthly.
Short-term loans are exposed to interest-rate fluctuation. NBF limits the impact of such risks by maintaining the debt-asset ratio low
and the level of long-term fixed-rate debt high.
Tenant security deposits are exposed to liquidity risk arising from vacating of 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.

Supplemental Explanation regarding Fair Values of Financial Instruments
The fair value of financial instruments is based on their observable market value, if available. When there is no observable market value
available, fair value is based on a price that is reasonably estimated. Since various factors are reflected in estimating the fair value, different
assumptions and factors could result in a different value.

NBF Report July – December 2012 39

Estimated Fair Value of Financial Instruments
Book value, fair value and difference between the two as of December 31, 2012 are as follows.
The financial instruments for which it is very difficult to estimate the fair value are excluded from the following table (See Note 2. below).
(Yen in millions)

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

Book value

Fair value

Difference¥ 37,265¥ 37,265¥ 37,265¥ 37,265¥¥¥ 20,000
42,750336,875¥399,625¥ 20,000
43,045
348,761¥411,806

¥

—
—

—
295
11,886¥12,181

Notes: 1. Methods to Estimate Fair Value of Financial Instruments
Assets:(1) Cash and cash equivalents
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments aresettled within a short term period.
Liabilities:(1) Short-term loans
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments aresettled within a short term period.
(2) Long-term debt due within one year
Fair values of long-term loans are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied if
similar new loans were entered into.
(3) Long-term debt
Long-term debt which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)Book value
Fair value
Difference¥ 60,000¥ 61,985¥ 1,985(1) Investment corporation bonds(2) Long-term loans
276,875
286,776
9,901
Total¥336,875¥348,761¥11,886
1) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is no observable market value available, fair values arecalculated based on the present value of principal and interest cash flows discounted at the current interest rate that is estimated by taking into consideration theremaining term of the investment corporation bonds and their credit risk.
2) Long-term loans
Fair values of long-term loans are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied if
similar new loans were entered into.

Book value, fair value and difference between the two as of June 30, 2012 are as follows.
The financial instruments for which it is very difficult to estimate the fair value are excluded from the following table (See Note 2. below).
(Yen in millions)

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

Book value

Fair value

Difference¥ 34,484¥ 34,484¥ 34,484¥ 34,484¥¥¥ 29,000
27,750317,250¥374,000¥ 29,000
27,960328,862¥385,822

¥

—
—

—
210
11,612¥11,822

Notes: 1. Methods to Estimate Fair Value of Financial Instruments
Assets:(1) Cash and cash equivalents
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments aresettled within a short term period.

40 NBF Report July – December 2012

Notes to Financial Statements

Liabilities:(1) Short-term loans
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments aresettled within a short term period.
(2) Long-term debt due within one year
Fair values of long-term loans are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied if
similar new loans were entered into.
(3) Long-term debt
Long-term debt which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)Book value
Fair value
Difference(1) Investment corporation bonds¥ 60,000¥ 61,965¥ 1,965(2) Long-term loans
257,250
266,897
9,647
Total¥317,250¥328,862¥11,6121) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is no observable market value available, fair values arecalculated based on the present value of principal and interest cash flows discounted at the current interest rate that is estimated by taking into consideration theremaining term of the investment corporation bonds and their credit risk.
2) Long-term loans
Fair values of long-term loans are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied if
similar new loans were entered into.
2. Financial Instruments for Which It Is Very Difficult to Estimate the Fair Value.
As of December 31, 2012
¥43,005

Tenant security deposits including trust accounts(Yen in millions)
As of June 30, 2012
¥41,864

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 becancelled, renewed or re-signed even if a lease term is set in the lease contract, that makes a reasonable estimate of future cash flows difficult.
3. Redemption Schedule for Monetary Claims as of December 31, 2012

Cash and cash equivalents

Due within
one year¥37,265

Due after one
to two years—

Due after two
to three years—

Due after three
to four years—

Due after four
to five years—(Yen in millions)Due after fiveyears—

Due after two
to three years—

Due after three
to four years—

Due after four
to five years—(Yen in millions)Due after fiveyears—

Due after three
to four years¥—
10,00040,750¥50,750

Due after four
to five years¥—
10,00039,750¥49,750(Yen in millions)Due after five
years
¥
—
10,000128,875¥138,875

Due after three
to four years¥—
10,00061,750¥71,750

Due after four
to five years¥—
20,00019,750¥39,750(Yen in millions)Due after five
years
¥
—
10,000107,250¥117,250

Redemption Schedule for Monetary Claims as of June 30, 2012

Cash and cash equivalents

Due within
one year¥34,484

Due after one
to two years—

4. Repayment Schedule for Loans and Investment Corporation Bonds as of December 31, 2012

Short-term loans
Investment corporation bonds
Long-term loans
Total

Due within
one year¥20,000—
42,750¥62,750

Due after one
to two years¥—
10,00036,750¥46,750

Due after two
to three years¥—
20,00030,750¥50,750

Repayment Schedule for Loans and Investment Corporation Bonds as of June 30, 2012

Short-term loans
Investment corporation bonds
Long-term loans
Total

Due within
one year¥29,000—
27,750¥56,750

Due after one
to two years¥—
10,00041,750¥51,750

Due after two
to three years¥—
10,00026,750¥36,750

NBF Report July – December 2012 41

Note 4

Schedule of Tangible Assets of Investment Properties

Tangible assets as of December 31, 2012 and June 30, 2012 consisted of the following:
As of December 31, 2012

As of June 30, 2012
(Yen in millions)

Acquisition
costs

Land
Land in trust
Land including trust total
Buildings and improvements
Buildings and improvements in trust
Building and improvements including
those in trust total
Structures
Machinery and equipment
Tools, furniture and fixtures
Structures in trust
Machinery and equipment in trust
Tools, furniture and fixtures in trust
Construction in process
Construction in process in trust
Other tangible assets total
Total

Note 5

Accumulated
depreciation

Book value

Acquisition
costs

Accumulated
depreciation

Book value¥257,640
306,612564,252
183,251
155,264¥———(38,702)(50,158)¥257,640
306,612564,252
144,549
105,106¥257,613
284,389
542,002
182,270
147,433¥———(35,623)(47,441)¥257,613
284,389
542,002
146,647
99,992

338,515
2,830
1,568
1,265
2,139
1,655
1,367
11
4
10,839¥913,606(88,860)(1,189)
(750)
(575)
(840)
(939)
(764)
—
—
(5,057)¥(93,917)

249,655
1,641
818
690
1,299
716
603
11
4
5,782
¥819,689

329,703
2,817
1,562
1,199
2,066
1,621
1,297
13
3
10,578¥882,283(83,064)(1,114)
(680)
(517)
(786)
(866)
(703)
—
—
(4,666)¥(87,730)

246,639
1,703
882
682
1,280
755
594
13
3
5,912
¥794,553

Net Assets

NBF issues only non-par value units in accordance with the Investment Trust Law of Japan and all of the issue prices of new units aredesignated as stated capital. NBF maintains at least ¥50 million as the minimum net assets as required by the Investment Trust Law of Japan.

Note 6

Short-Term Loans and Long-Term Debt

Short-term loans consist of short-term notes and short-term borrowings under loan agreements. The annual interest rates on shortterm loans outstanding are floating rates and on December 31, 2012 and June 30, 2012 ranged from 0.28% to 0.49%. Long-term debt is
at fixed rates and as of December 31, 2012 and June 30, 2012 consisted of the following:
As of December 31, 2012
As of June 30, 2012
(Yen in millions)

Unsecured loans due 2013 to 2023 principally from banks and insurancecompanies with interest rates mainly ranging from 0.4% to 2.4%
1.74% unsecured bonds due 2014 (Note 1)
1.23% unsecured bonds due 2015 (Note 1)
1.85% unsecured bonds due 2015 (Note 1)
0.64% unsecured bonds due 2016 (Note 1)
2.04% unsecured bonds due 2017 (Note 1)
2.00% unsecured bonds due 2018 (Note 2)
Less: amount due within one year
Notes: 1. Subject to provision of collateral restrictions.
2. Subject to provision of collateral and financial restrictions pursuant to material decline in credit rating.

42 NBF Report July – December 2012

¥319,625
10,00010,00010,00010,00010,00010,000379,625
42,750¥336,875¥285,000
10,00010,00010,00010,00010,00010,000345,000
27,750¥317,250

Notes to Financial Statements

The annual maturities of long-term debt as of December 31, 2012 were as follows:(Yen in millions)Due after one to two years
Due after two to three years
Due after three to four years
Due after four to five years
Due after five years¥ 46,750
50,75050,75049,750138,875

During the period ended December 31, 2012, NBF obtained committed credit lines of ¥60 billion with certain financial institutions to
reduce refinancing risk. The unused amount of such committed credit lines was ¥60 billion on December 31, 2012.

Note 7

Rental Revenues and Expenses

Rental revenues and expenses for the periods ended December 31, 2012, June 30, 2012, and December 31, 2011 were as follows:

Revenues from Property Leasing:
Rental:Rental revenues
Common area charges
OthersSubtotal
Other revenues related to property leasing:
Parking lots
Facility charge
Incidental income
Cancellation fees
Miscellaneous income
Subtotal
Total revenues from property leasing
Rental Expenses:
Property management fees
Real estate taxes
Repairs and maintenanceInsurance
Other rental expenses
Depreciation and amortization
Total rental expenses
Operating Income from Property
Leasing Activities

Note 8For the six months ended
December 31, 2012

For the six months ended
June 30, 2012
(Yen in millions)

For the six months ended
December 31, 2011

¥25,551
2,849
116
28,516¥24,957
2,640
113
27,710¥24,359
2,568
114
27,041

604
184
2,064
105
57
3,014
31,530

578
181
1,636
46
93
2,534
30,244

566
175
1,719
219
53
2,732
29,773

4,518
2,738
1,046
35
3,086
6,191
17,614

4,346
2,785
732
34
2,489
6,139
16,525

4,217
2,645
836
34
2,511
5,902
16,145¥13,916¥13,719¥13,628

Loss on Sale of Investment Property

Loss on sale of investment property for the period ended December 31, 2011 was as follows. No investment properties were soldduring the periods ended December 31, 2012 and June 30, 2012.

NBF Sudacho Verde Building
Proceeds from sale of investment property
Cost of sale of investment property
Other related sale expenses
Loss on sale of investment property(Yen in millions)¥3,250
3,319
128
¥ 197

NBF Report July – December 2012 43

Note 9

Income Taxes

NBF is subject to income taxes in Japan. The effective tax rate on NBF’s income was 0.01% for the periods ended December 31,
2012, June 30, 2012 and December 31, 2011. The following table summarizes the significant differences between the statutory tax rates
and NBF’s effective tax rates for financial statement purposes.

Statutory tax rate
Deductible dividends
Others
Effective tax rate

For the six months ended
December 31, 2012

For the six months ended
June 30, 2012

For the six months ended
December 31, 201136.59%(36.59)0.01
0.01%

39.33%(39.33)0.01
0.01%

39.33%(37.89)(1.43)
0.01%

NBF was established as an investment corporation under the Investment Trust Law of Japan, and as long as an investment
corporation distributes to its unitholders at least 90% of earnings available for dividends for a period and other requirements prescribed inJapanese tax regulations are met, the investment corporation is allowed to deduct total amount of dividends in calculating its taxable
income under Japanese tax regulations.
The Act to Revise the Income Tax Act, etc., in Order to Construct a Tax System Addressing Changes in the Socio-Economic Structure(Act No. 114 of 2011) and the Act on Special Measures for Securing Necessary Financial Resources to Implement Measures to Rebuild
Areas Devastated by the Great East Japan Earthquake (Act No. 117 of 2011) were promulgated on December 2, 2011. In accordancewith the promulgation, the corporation tax rate fell and special corporate tax for reconstruction was imposed at the fiscal period beginning
April 1, 2012. These changes had little impact on the deferred tax assets and the income taxes-deferred.

Note 10Per Unit Information

Information about earnings per unit for the periods ended December 31, 2012, June 30, 2012 and December 31, 2011 and net assets
per unit as of December 31, 2012, June 30, 2012 and December 31, 2011 were as follows.
The computation of earnings per unit is based on the weighted average number of units outstanding during the period. The
computation of net assets per unit is based on the number of units outstanding at each period end.

Earnings per Unit:
Net income per unit (Yen)
Weighted average number of units outstanding
Net Assets per Unit (Yen)

Note 11For the six months ended
December 31, 2012

For the six months ended
June 30, 2012
(Yen)

For the six months ended
December 31, 2011¥15,754
613,000¥15,613607,783¥15,777
578,500

As of December 31, 2012

As of June 30, 2012

As of December 31, 2011

¥727,577¥727,302¥733,348

LeasesAs Lessor
NBF leases some of its investment properties to outside parties under non-cancelable operating leases. As of December 31, 2012 andJune 30, 2012, future minimum rental revenues under the non-cancelable operating leases are as follows:
As of December 31, 2012
As of June 30, 2012
(Yen in millions)Due within one year
Due after one year
Total

44 NBF Report July – December 2012¥17,849
24,072¥41,921¥19,263
26,382¥45,645

Notes to Financial Statements

As Lessee
NBF leases some of its investment properties from outside parties under non-cancelable operating leases. As of December 31, 2012
and June 30, 2012, future minimum rental expenses under the non-cancelable operating leases are as follows:
As of December 31, 2012
As of June 30, 2012
(Yen in millions)Due within one year
Due after one year
Total

Note 12

¥1
2
¥3

¥2
2
¥4

Transactions with Related Parties(1) Parent Company and Major Corporate Unitholders(For the six months ended December 31, 2012)
None applicable.
(For the six months ended June 30, 2012)
None applicable.
(For the six months ended December 31, 2011)
None applicable.
(2) Affiliates(For the six months ended December 31, 2012)
None applicable.
(For the six months ended June 30, 2012)
None applicable.
(For the six months ended December 31, 2011)
None applicable.
(3) Sister Companies(For the six months ended December 31, 2012)
None applicable.
(For the six months ended June 30, 2012)
None applicable.
(For the six months ended December 31, 2011)
None applicable.
(4) Directors and Major Individual Unitholders(For the six months ended December 31, 2012)
None applicable.
(For the six months ended June 30, 2012)
Classification

Director
and/or close
relative

Name

Koichi
Nishiyama

Principal business or
occupation

Nature of transaction

Executive Director
of NBF and
President & CEO
of NBFM(Note 1) (Note 3)

Payment of asset
management fees
to NBFM (Note 1)
Payment of fees to
NBFM for the provisionof general administration
services relating
to organizational
management (Note 3)

Amount oftransaction
Yen in millions

Account

Balance at
end of period
Yen in millions¥1,163(Note 2) (Note 4)

Accounts
payable¥314(Note 4)¥2(Note 4)

Accounts
payable¥1(Note 4)

Notes: 1. Koichi Nishiyama resigned from this investment company’s corporate executive officer on March 31, 2012. He entered into this transaction as a former representative(retirement as of March 31, 2012) of a third party (NBFM), and the fee amount is subject to the conditions set forth in the by-laws of NBF.
2. The amount of asset management fees includes ¥113 million for management related to acquisition of properties included in the book value of each investment property, etc.
3. Koichi Nishiyama resigned from this investment company’s corporate executive officer on March 31, 2012. He entered into this transaction as a former representative(retirement as of March 31, 2012) of a third party (NBFM), and the fee amount is set forth in the “General Administration Agreement Regarding the Management ofInstitutions” concluded between NBF and NBFM.
4. Consumption taxes are not included in transaction amounts. Consumption taxes are included in the balance at the end of the period.

NBF Report July – December 2012 45

(For the six months ended December 31, 2011)
Classification

Director
and/or close
relative

Name

Koichi
Nishiyama

Principal business or
occupation

Nature of transaction

Executive Director
of NBF and
President & CEO
of NBFM

Payment of asset
management fees
to NBFM (Note 1)
Payment of fees to
NBFM for the provisionof general administration
services relating
to organizational
management (Note 3)

Amount oftransaction
Yen in millions

Account

Balance at
end of period
Yen in millions¥1,120(Note 2) (Note 4)

Accounts
payable¥296(Note 4)¥2(Note 4)

Accounts
payable¥1(Note 4)

Notes: 1. Koichi Nishiyama entered into this transaction as a representative of a third party (NBFM), and the fee amount is subject to the conditions set forth in the by-laws of NBF.
2. The amount of asset management fees includes ¥94 million for management related to acquisition of properties included in the book value of each investment property, etc.
3. Koichi Nishiyama entered into this transaction as a representative of a third party (NBFM), and the fee amount is set forth in the “General Administration Agreement
Regarding the Management of Institutions” concluded between NBF and NBFM.
4. Consumption taxes are not included in transaction amounts. Consumption taxes are included in the balance at the end of the period.

Note 13

Investment and Rental Property

NBF owns office buildings (including land) for rent in Tokyo and other areas. The carrying amounts, net changes in the carrying amounts
and the fair value of the investment and rental properties are as follows.
(Yen in millions)

Carrying amount
Balance at beginning of the Fiscal Period
Amount of increase (decrease) during
current period
Balance at end of the Fiscal Period
Fair value at end of the period

For the six months ended
December 31, 2012

For the six months ended¥830,226¥811,032

25,134855,360¥896,740

19,194
830,226¥871,770

June 30, 2012

Notes: 1. Carrying amounts represent acquisition cost less accumulated depreciation.
2. The major increase in the fiscal period ended December 31, 2012 was mainly due to the acquisitions of 2 properties (NBF COMODIO Shiodome and Nishi-Shinjuku Mitsui
Bldg. (Additional Acquisition), ¥28,961 million) and the major decrease was mainly due to recognition of depreciation costs.
The major increase in the fiscal period ended June 30, 2012 was mainly due to the acquisitions of 5 properties (Higashi Gotanda Square, Ryukakusan Bldg., ShinKawasaki Mitsui Bldg. (Additional Acquisition), NBF Matsuyama Nichigin-mae Bldg, and Hiroshima Fukuromachi Bldg. (Additional Acquisition), ¥23,118 million) and the
major decrease was mainly due to recognition of depreciation costs.
3. Fair value at end of the period is based on appraisals provided by independent real estate appraisers.

Information about profit and loss from investment and rental properties is disclosed in Note 7 (Rental Revenues and Expenses).

Note 14Segment Information

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

Related Information(For the six months ended December 31, 2012)
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for more than 90% of total
operating revenues.
2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of the bookvalue of total investment properties.
3. Information on Major Tenants(Yen in millions)

TenantOperating revenues

Related segment

Mitsui Fudosan Co., Ltd.

¥6,928

Real estate leasing businessNote: NBF leases properties to Mitsui Fudosan Co., Ltd. under a master lease agreement, and Mitsui Fudosan Co., Ltd. subleases such properties to subtenants. NBF leases otherproperties to Mitsui Fudosan Co., Ltd.

46 NBF Report July – December 2012

Notes to Financial Statements(For the six months ended June 30, 2012)
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for more than 90% of total
operating revenues.
2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of the bookvalue of total investment properties.
3. Information on Major Tenants(Yen in millions)

TenantOperating revenues

Related segment

Mitsui Fudosan Co., Ltd.

¥6,727

Real estate leasing businessNote: NBF leases properties to Mitsui Fudosan Co., Ltd. under a master lease agreement, and Mitsui Fudosan Co., Ltd. subleases such properties to subtenants. NBF leases otherproperties to Mitsui Fudosan Co., Ltd.

(For the six months ended December 31, 2011)
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for more than 90% of total
operating revenues.
2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of the bookvalue of total investment properties.
3. Information on Major Tenants(Yen in millions)

TenantOperating revenues

Related segment

Mitsui Fudosan Co., Ltd.

¥6,388

Real estate leasing businessNote: NBF leases properties to Mitsui Fudosan Co., Ltd. under a master lease agreement, and Mitsui Fudosan Co., Ltd. subleases such properties to subtenants. NBF leases otherproperties to Mitsui Fudosan Co., Ltd.

Note 15Significant Subsequent Events

Issuance of New Units
At meetings of the Board of Directors held on January 7, 2013 and January 16, 2013, NBF resolved the issuance of new units.
Payments for the new issuance were made on January 23, 2013 and January 31, 2013, and the new units were issued under theconditions described below.
As a result, the total amount of stated capital increased to ¥504,309 million and the number of units issued and outstanding increased
to 692,000 units.

A. Issuance of New Units through Public Offering(I) Number of units issued(II) Offering price per unit
(III) Total offering price(IV) Issue price per unit
(V) Total issue price(VI) Payment date

74,000 units¥891,800¥65,993 million¥864,500¥63,973 million
January 23, 2013

B. Issuance of New Units through Third Party Allotment(I) Number of units issued
5,000 units(II) Issue price per unit
¥864,500(III) Total issue price¥4,323 million(IV) Payment date
January 31, 2013
(V) Allottee
Nomura Securities Co., Ltd.

NBF Report July – December 2012 47

Independent Auditor’s Report

To the Board of Directors of
Nippon Building Fund Inc.:

We have audited the accompanying financial statements of Nippon Building Fund Inc. (a Japanese Real Estate Investment Trust),
which comprise the balance sheets as at December 31, 2012 and June 30, 2012, and the statements of income, statements ofchanges in net assets and statements of cash flows for each of the six months ended December 31, 2012, June 30, 2012 andDecember 31, 2011, and a summary of significant accounting policies and other explanatory information expressed in Japanese yen.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting
principles generally accepted in Japan, and for such internal control as management determines is necessary to enable thepreparation of financial statements that are free from material misstatements, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits inaccordance with auditing standards generally accepted in Japan. Those standards require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are freefrom material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s
preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in thecircumstances, while the objective of the financial statement audit is not for the purpose of expressing an opinion on theeffectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of thefinancial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the financial statements present fairly, in all material respects, the financial position of Nippon Building Fund Inc. as at
December 31, 2012 and June 30, 2012, and their financial performance and cash flows for each of the six months ended December
31, 2012, June 30, 2012 and December 31, 2011 in accordance with accounting principles generally accepted in Japan.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 15 to the financial statements, which states that Nippon Building Fund Inc.
issued new units.

April 9, 2013
Tokyo, Japan

48 NBF Report July – December 2012

Appendix
Major Interested Parties
Nippon Building Fund Management Ltd. (Asset Management Company and Administrative Agent regarding the Management of Institutions, herein "NBFM")
NBFM, as Asset Management Company provided for in theManagement Fees 3

Investment Trust Law of Japan, performs management of NBF’s

In the event that Real Estate, etc. is newly acquired, compensation

assets and undertakes management of the institutions of NBF. As ofequivalent to the total amount of the acquisition price of said Real

December 31, 2012, NBFM has been entrusted as an asset

Estate, etc. (meaning the acquisition price of both land and buildings,

management company only by NBF.

and in the event of the simultaneous acquisition of multiple units ofReal Estate, etc., the acquisition price of each item, provided,

Operation■

however, that national consumption tax, regional consumption tax

Undertakes asset management of NBF pursuant to an Assetand miscellaneous costs of acquisition are excluded) multiplied by

Management Entrustment Agreement based on an entrustment

the following percentage rates will, in principle, be payable, provided,from NBF in accordance with the Articles of Incorporation of NBF

however, that with the approval of the directors of NBF,

and the Investment Objects and Policies set forth therein.

compensation may be calculated using different rates not exceeding
the following rates.

■

Undertakes management of the general affairs of the general●

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

0.5%

meeting of unitholders and the Board of Directors as●

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

Administrative Agent regarding the Management of Institutions
based on an entrustment from NBF and pursuant to an
Agreement for General Administration Regarding theManagement of Institutions.

Fees for the Asset Management Operation
Management Fees 1
The amount equivalent to 2.5% effective from July 1, 2003 of theamount of the revenue arising from Real Estate, etc. as calculated oneach closing date (provided, however, that revenues from the sale ofReal Estate, etc. and other Managed Assets will be excluded) will bepayable.

Management Fees 2
The amount equivalent to 3% of income before income tax(provided, however, that in the event a loss is carried forward, thenthe 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.

NBF Report July – December 2012 49

Appendix

History of NBFM

Directors and Staff

NBFM is an Asset Management Company which is a limited

As of December 31, 2012, the directors and corporate auditors

liability company duly established under the laws of Japan. Major

of NBFM are as follows. The staff other than directors and auditors

events in the history of NBFM are as follows.

of NBFM is comprised of 18 persons.

September 19, 2000 Established

Name of Directors and Auditors

November 17, 2000

Kenichi Tanaka

President & CEO (standing)

Yasushi Akimoto

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

Director, Head of Administration Group(standing)

Masato Shikata

Director

Fukuhisa Kumada

Director

Hideo Yoshimura

Corporate Auditor

Toru Suzuki

Corporate Auditor

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 FundManagement Japan Limited” to “Nippon Building FundManagement Ltd.”)

September 30, 2007 Registered as a financial instruments firm with the
Kanto Local Finance Bureau Chief (Financial
Instruments) No. 371

Outline of Financial Condition
An outline of the financial condition of NBFM is as follows.
Outline of principal assets and liabilities for the most recent
fiscal year:
As of March 31, 2012

Numberof Shares Owned

Percent

Mitsui Fudosan Co., Ltd.

4,257

43.0%

Sumitomo Life
Insurance Company

Name

3,465

35.0

Sumitomo Mitsui Trust Bank,
Limited495

5.0

Sumitomo Mitsui Banking
Corporation

495

5.0

Daido Life
Insurance Company

297

3.0

Mitsui Sumitomo
Insurance Co., Ltd.

297

3.0

Mitsui Life Insurance
Company Limited

297

3.0

Britel Fund Trustees Limited
Total

50 NBF Report July – December 2012

297

3.0

9,900

100.0%(Yen in millions)

Total Assets¥2,006

Total Liabilities

408

Total Net assets

1,598

Profit and loss for the most recent fiscal year:
Year ended March 31, 2012

List of Shareholders (as of December 31, 2012)

Title(Yen in millions)Operating Income¥2,273

Ordinary Profit

1,529

Net Income

895

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
9 central wards in Tokyo:
Chiyoda, Minato, Chuo, Shinjuku,
Shinagawa, Shibuya, Toshima,
Bunkyo and Meguro

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 andOther 14 wards of Tokyo andneighboring 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
hereinafter “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.)■

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.

Total of above two areas: 70% or more
Other Cities■

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.

investment strategy of NBF set forth below, invests and manages the

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

assets of NBF. NBFM has established asset management guidelines based

Total of above area: 30% or less

B. Investment Strategy
Nippon Building Fund Management Ltd. (“NBFM”), based on theon the Articles of Incorporation of NBF and in accordance with theinvestment strategy of NBF.

(1) Strategy for Creation of the Portfolio

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 stable profits
on a medium-to-long-term basis. The selection criteria of investment(2) Acquisition Strategy

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

and on consideration of a quantitative proportion of the office stock locatedin the various regions of Japan.

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).

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 December 31, 2012, NBF satisfied
the criteria.
The “Designated Real Estate Ratio” means the ratio of the total amountof 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

NBF Report July – December 2012 51

Certificates backed by such office properties) (“Investment Objectives andunleasable assets which thereafter become operational) will not exceed

Policies,” Articles of Incorporation). The details of the relevant criteria are

10% of the total assets indicated on the most recent balance sheet of

set forth in the following table.

NBF. For this purpose, “leased/leasable assets” shall mean property withThough 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“leasable” thereafter (including such cases as reconstruction or large-

Scale of building

Points to be reviewed■

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

■

Desired total net rentable area is 1,650m(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).

2(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 toEnsure that construction quality exceeds
earthquake standards (meaning those required
pursuant to the Building Standards Law asamended in 1981) or standards equivalent
thereto (obtain structural appraisal/assessment (appraisal/assessment of the building
structure pursuant to the Building Standards
Law conducted by The Building Center ofJapan), 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
to maintain and enhance the value of operating properties, reserves for

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

etc. (Article 14.1 (2) of the Articles of Incorporation).

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).

payables, reserves for cash distributions and any other similar reserves,

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. As of December 31, 2012, foreseen
reserves provided from January 2013 to December 2013 are as follows:
Itemc) Uncompleted or Unleasable Properties

ReasonReserves forlong-term renovations■

Average annual amount over an approximately 10-year period based on engineering
reports■

Expenses of providing “free access floor”■

Expenses for other move-in construction costs(partitions, etc.)

investment amount, the date of completion or of becoming leasable,

Reserves for tenant improvements (reserves for future
construction expenses required
for spaces leased to tenants)

estimated revenue and so forth, provided, however, that the contract

Total Foreseen Amount (annual basis): ¥3,960 million

In principle, NBF acquires Real Estate, etc. which are leased/leasable
assets at the time of closing. NBF may acquire a property which is not
yet leasable at the time of closing based on consideration of the impact
on NBF’s asset management activities after taking into account theamount of any such unleasable asset combined with the total contract
amount of previously acquired unleasable assets (but excluding

52 NBF Report July – December 2012

Notes: 1. In addition to the above-mentioned amount, certain amounts are set aside as cash
reserves for renovation pursuant to the administrative rules of the buildings in which
NBF owns condominium interests, etc.

Investment and Distribution Policies

2. The amount of reserves set forth above is the total amount of reserves with respect
to the 68 properties owned by NBF as of December 31, 2012.

b) Measures to Avoid Reductions and Fluctuations in
Operating Income
In order to avoid large-scale reductions and fluctuations in operating
income due to fire damage, withdrawal of tenants and so forth, efforts,such as area diversification and obtaining adequate fire and casualty
insurance, etc., will be exerted.

c) Disposition
In disposing of individual operating properties, selections will be madethrough comprehensive research and analysis based on the forecasted
income, actual and predicted fluctuations in asset value, future prospects
and stability of the area of location, risks of deterioration and obsolescence of real estate and predicted costs thereof as well as the composition of the portfolio, etc. Sell/hold studies will be periodically undertakenwith respect to all operating properties (“Investment Objectives andPolicies,” Articles of Incorporation).

(4) Financial Policiesa) Issuance of Units
NBF may issue units in order to undertake acquisition and renovation andtemporarily exceed 60% when acquiring certain assets, etc. (medium-tolong-term operating asset management policy and annual management
plan established by the Asset Management Company).

d) 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).

(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 candisseminate fair and unbiased information to all its investors without
delay. In addition to conducting disclosure in the style required by theInvestment Trust and Investment Corporation Law of Japan, the Financial
Instruments and Exchange Law of Japan, the Tokyo Stock Exchange, theInvestment Trusts Association and other laws and organizations, NBF also
voluntarily discloses information it deems necessary for investor
decision-making.

a) Appraisal Value, etc.

so forth of assets and to provide allowance for funds required for working

In the event that NBF undertakes asset valuation for the purpose ofcapital as well as for the repayment of debt (including security deposits, bor-

disclosure in Performance Information Reports, etc. using methods androwings and repayment of obligations regarding NBF bonds, etc.).

standards 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
bonds in order to undertake acquisition and renovation and so forth ofassets and to provide allowance for funds required for working capital aswell as for the repayment of debt (including security deposits, borrowings
and repayment of obligations regarding NBF bonds, etc.) (“Investment
Objectives and Policies,” Articles of Incorporation).
Borrowings are limited to those from Qualified Institutional Investors as
specified in the Financial Instruments and Exchange Law of Japan, incase capital is borrowed. Further, the total limit on all such borrowings
and issues of NBF bonds will be ¥1,000,000 million. When undertaking
borrowings or when issuing NBF bonds, NBF may provide operating
assets as collateral (Article 15 of the Articles of Incorporation).

c) Loan-to-Value Ratio
The ratio of the total amount of borrowings, issues of NBF bonds
and lease deposits under management to the total amount of assets of

to be used for real estate, real estate leasehold rights and superficies
will, in principle, be the appraised valuation provided by a certified realestate appraiser, and (b) the disclosure value to be used for beneficiary
certificates, equity interests of tokumei kumiai and equity interests ofpartnerships for which respective assets are real estate, real estateleasehold rights or superficies will be the calculated value of equity
interests of each based on the value of their respective assets asdetermined in (a) plus the fair value of any financial assets asdetermined in conformity with generally accepted accounting principles,less trust and total tokumei kumiai liabilities (Articles of Incorporation).
The appraisal value of property with respect to the period
commencing on the acquisition thereof and ending on the date ofdisclosure of such value with respect to the next following closure of
NBF’s accounting term shall be the acquisition price of the said property(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.

NBF (loan-to-value ratio) is envisioned to be limited to 60%, but may

NBF Report July – December 2012 53

Investment Objectives of NBF
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.

A. Principal Investment Objectives among
Designated Assets
NBF will principally invest in the below-listed Designated Assets withthe objective of assuring steady growth and stable profits from theManaged Assets.

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 assetsof which are primarily invested and Managed Assets referred to inparagraph (1), (3) or (4) above, provided, however, that those that are
deemed securities are excluded)

B. 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(1) Real estate, real estate leasehold interests and superficies(2) Certificates of deposit issued by Japanese legal entities(2) Beneficiary Certificates backed by real estate, real estate leasehold(3) Call loansrights 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 tothose the assets of which are primarily invested and Managed Assets
principally referred to in paragraphs (1) and (2) above)(4) Equity interests in partnerships as defined by Article 667 of the Civil
Code of Japan (limited to leased, operating and managed partnership(4) Japanese government bonds, notes and bills (meaning thosespecified in Article 2.1.1 of the Financial Instruments and Exchange
Law of Japan)(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 thoseassets primarily referred to in paragraphs (1) and (2) above that are

specified in Article 2.1.4 of the Financial Instruments and Exchange

specified in Article 2.2.5 of the Financial Instruments and Exchange

Law of Japan, provided, however, that this is limited to asset-backed

Law of Japan)

securities principally referred to in paragraphs (1) and (2) of section(5) Preferred Investment Certificates of Special Purpose Companies(meaning those specified in Article 2.1.8 of the Financial Instruments

A above)(8) Monetary claims (limited to those claims that are deemedand Exchange Law of Japan, provided, however, that this is limited to

Designated Assets under the Investment Trust Law of Japan other

those the assets of which are primarily invested and Managed Assets

than those referred to in section A and above)

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 of Japan,(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)

provided, however, that this is limited to those the assets of which areprimarily invested and Managed Assets principally referred to in paragraphs (1) and (2) above)(7) Beneficiary Certificates of investment trusts (meaning those specified

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.

Japan, provided, however, that this is limited to those the assets of(1) Equity interests of partnerships, excluding assets in section A,
paragraph (4)which are primarily invested and Managed Assets principally referred(2) Easements

to in paragraphs (1) and (2) above)(3) Trademark rights

in Article 2.1.10 of the Financial Instruments and Exchange Law of(8) Investment Securities (meaning those specified in Article 2.1.11 of the

54 NBF Report July – December 2012

(4) Copyrights

Investment and Distribution Policies(5) Chattels

Instruments and Exchange Law of Japan, although the Investment Trusts(6) Requisite ancillary rights to Designated Assets referred to in

Association of Japan has established rules such that a corporate-stylesection A

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 theDistribution Policies of NBF

Distributable Amount in the following cases, provided, however, that the
maximum amount of such distributions will be the amount set forth in the

A. Distributions of Profits
A registered investment corporation may deduct its cash dividends ofprofits from taxable income under Japanese tax regulations if it distributes to
its unitholders in excess of 90% of its taxable income and complies withother organizational and operational requirements. NBF intends to make dividend 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).

(1) NBF’s earnings available for distributions are based on accounting of
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
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
total expenses, capital surplus reserves and estimated or equivalent variances) calculated on each closing date.

(2) The amount of cash distributions will be determined by NBF, suchamount being in excess of 90% of earnings available for dividends of NBF
set forth in Article 67.15 of the Special Taxation Measures Law of Japan(hereinafter “Distributable Earnings”), provided, however, that the maximum amount of distributions will be the Distributable Amount. NBF has
the right to allow for long-term reserve for renovations, reserve for payables, reserve for cash distributions and other reserves and allowances
similar thereto which are deemed necessary for maintaining or enhancing
the assets of NBF.

(3) Earnings retained and not allocated to cash distributions or otherwise available for distribution as of the closing date will be managed inaccordance with “Investment Objectives and Policies” in the Articles
of Incorporation.

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

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

(1) Amount determined by NBF as being eligible for the requirements ofArticle 39.32.3 of the Special Taxation Treatment for Investment
Corporations, in case of the Distributable Amount being less than the
Taxable Income Available for Dividends.

(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
environments, real estate markets and leasing markets.
As for cash distributions in excess of profits, as long as the current
Japanese taxation treatment applicable to NBF’s unitholders in Japan towhom such distributions are paid requires them to calculate capital gainor loss at the time of each distribution, NBF will not make distributions inexcess of profits.
Notwithstanding the above, NBF may make distributions in excess of
profits in accordance with the distribution policies stated above in order tomeet “Requirement for Deduction from Taxable Income of Dividends ofProfit, etc.,” and if such distributions in excess of profits are deemednecessary by the Board of Directors 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 arelisted or recorded in the latest Unitholder Registry as of the closing date, in
proportion to the number of units owned by or pledged to them (Article
14.3 of the Articles of Incorporation).

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

NBF Report July – December 2012 55

Investment Restrictions
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.

(1) Investment Location and Currencies
NBF will invest neither in real estate located outside of Japan nor in
assets denominated in non-Japanese currencies (“Investment Objectives
and Policies,” Articles of Incorporation).

(2) Borrowing
See “Investment Policies of NBF, B. Investment Strategy,(4) Financial Policies.”(3) Concentration of Investment
There is no limitation on concentration of investment. See “Investment
Policies of NBF, B. Investment Strategy, (1) Strategy for Creation of thePortfolio.”(4) Investment Objectives
NBF does not invest aggressively in the Monetary Claims andthe rules stipulated by the Investment Trusts Association (as amended),as well as “Investment Objectives and Policies” of the Articles ofIncorporation.

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.
Main restrictions are as follows.

(1) Pursuant to Article 198.1 of the Investment Trust Law of Japan, aregistered investment corporation must entrust business related toasset management to an asset management company registered as afinancial 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 (allreferences in parentheses below are to the provisions of the Financial
Instruments and Exchange Law of Japan, except where stated otherwise) besides restrictions applied to a registered investment
corporation. NBF will naturally comply with such investment restrictions,a general overview of which follows.
a) Internal Transactions (§ 42.2.1)

Securities referred to in “Investment Objectives, B. Other Investment

Transactions between an asset management company and its direc-

Objectives among Designated Assets.” Rather, NBF takes into accounttors or officers are prohibited except for certain cases specified in Article

their stability and liquidity based on the extent of their relationship with

128 of the government ordinance regarding the Financial Instruments andDesignated Assets referred to in “Investment Objectives, A. Principal

Exchange Law that are considered unlikely to result in failure to protect

Investment Objectives among Designated Assets.” NBF invests in rights tothe interests of unitholders, damage fair transactions or discredit thefinancial derivatives transactions solely to hedge against risks, including

financial instruments business.

risks of fluctuation in interest rates for debt (“Investment Objectives andPolicies,” Articles of Incorporation).
Moreover, investment in other funds (investment securities orb) Reciprocal Transactions with Managed Assets (§ 42.2.2)

Transactions between asset management companies of investment

Beneficiary Certificates) is limited mainly to those the assets of which arecorporation assets are prohibited except for certain cases specified in thereferred to in “Investment Objectives of NBF, A. Principal Investment

provisions of the government ordinance regarding the Financial

Objectives among Designated Assets,” paragraphs (1) and (2).

Instruments and Exchange Law of Japan that are considered unlikely to

The real estate held by such funds may not include any real estate

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

located outside of Japan (Articles of Incorporation).

actions or discredit the financial instruments business.

(5) Compliance with Laws and Regulationsc) Transactions for the Benefit of Third Parties (§ 42.2.3)

The Managed Assets of NBF will be managed in compliance with the

An asset management company may not undertake transactions in

Financial Instruments and Exchange Law of Japan and related regulations,certain financial instruments, indices or options based on fluctuations in the

56 NBF Report July – December 2012Investment and Distribution Policies

price, index, value, or amount of consideration related to transactions in theassets of an investment corporation, without a legally valid reason, with the(2) Limitation on Acquisition of the Same Issueof Units (§ 194 of the Investment Trust Law)

objective of benefiting a third party other than NBF or said investment.

An investment corporation may not acquire the same units issued by acorporation in excess of 50/100 of total number of said issued and out-d) Transactions Harmful to the Interests of NBF (§ 42.2.4)

standing units.

An asset management company may not undertake transactions thatare 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

In addition to the above, the following activities are prohibited

accept them for the purpose of pledge, unless it acquires units issued byitself in the following cases:●

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.

(§42.2.7 of the Financial Instruments and Exchange Law, Cabinet Office
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 of(4) Restriction on Acquisition of Parent
Corporation’s Units by Subsidiary Corporation(§ 81.1.2)

assets under management, or market conditions
(iv)
(v)

An investment corporation (subsidiary), a majority of the units of which

Asset management that introduces unfair restrictions or other limitations

is owned by another investment corporation (parent), may not acquire thefrom external entities

units of such parent investment corporation except in the following cases:

The sale or purchase of investment securities, or similar transactions,●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.

with the objective of unfairly inflating transaction amounts or artificiallyinflating 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

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.

said underwriter differ from the planned amounts(a) foreign entities including corporations for their own account (asstipulated by Cabinet Office Ordinance §126.3)(b) entities that hold more than 50/100 of the total amount of investment securities representing underlying managed assets issued in
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 toinvestment securities that give holders rights in the said managed
assets and such rights)(viii) Other activities prohibited by Cabinet Office Ordinance 130

NBF Report July – December 2012 57

Corporate Data
(As of December 31, 2012)

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:¥436,013 million
613,000 units

Unitholders

15,220Transfer Agent

Sumitomo Mitsui Trust Bank, Ltd.
4-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005, 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 March 28, 2013 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 July 1, 2012 to December 31, 2012, 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

58 NBF Report July – December 2012Investors’ Information(As of December 31, 2012)

Fiscal Periods

Unitholders

Six months ending June 30 and December 31

Other domestic corporations
352 (2.4%)

Overseas investors 360 (2.5%)
Financial institutions(Including securities companies)

186 (1.2%)

Total numberof unitholders:

Total Number of Units Issued
23rd Period (From July 1, 2012 to December 31, 2012)

613,000 units

22nd Period (From January 1, 2012 to June 30, 2012)

613,000 units

14,610Individuals and others
13,712 (93.9%)

Individuals andothers35,468 (5.8%)

Other domestic
corporations
48,301 (7.9%)

Total numberof units:

613,000

Distributions per Unit
Financial institutions

Expected distribution for the 24th Period
For the operating period from January 1, 2013 to June 30, 2013 (6 months)(Including securities companies)¥16,000 per unit

Overseas
investors
170,191(27.7%)

359,040 (58.6%)

Confirmed distribution for the 23rd Period
For the operating period from July 1, 2012 to December 31, 2012 (6 months)¥15,754 per unit

Major Unitholders
NameJapan Trustee Services Bank, Ltd. (Trust Account)
Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account)
The Nomura Trust and Banking Co., Ltd. (Trust Account)
The Master Trust Bank of Japan, Ltd. (Trust Account)
Mitsui Fudosan Co., Ltd.
Nomura Bank (Luxembourg) SA
Sumitomo Life Insurance Company
The Chugoku Bank, Ltd.
State Street Bank West Client-Treaty
The Senshu Ikeda Bank, Ltd.

Number of Units Held

Percentage of Total

103,541
46,93534,12728,904
21,815
19,847
12,256
8,033
7,642
7,426

16.9%
7.7
5.6
4.7
3.6
3.2
2.0
1.3
1.2
1.2

Historical Unit Price(Yen)
2,000,000(Points)
3,000

NBF unit price (left scale)
TSE REIT Index (right scale)
TOPIX (right scale)

2,500

1,600,000
2,000
1,200,000

1,500
1,000

800,000
500
400,000

0
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,
2001
2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012

NBF Report July – December 2012 59

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/

Printed in Japan