Semi-Annual Report
Second Half of 2018(35th Period – July to December 2018)
Including AIFMD Article 23 Information

Nippon Building Fund Inc.

Contents

Performance Results ............................................................................................................................................. 1
Overview of Performance and Distribution.......................................................................................................... 1
Summary of Selected Financial Date ................................................................................................................... 2
Management’s Discussion and Analysis .............................................................................................................. 4
Finacial Statements............................................................................................................................................. 15
Notes to Finacial Statements .............................................................................................................................. 19
Independent Autidor’s Report ............................................................................................................................ 36
Response to Article 23 of the European Alternative Investment Fund Managers Directive .............................. 37

Note regarding the European Alternative Investment Fund Managers Directive (European Directive 2011/61/EU)
This report, which has been prepared to comply with Article 22 of the European Alternative Investment Fund Managers Directive (European
Directive 2011/61/EU), or the AIFMD, also includes certain information required under Article 23 of the AIFMD. Such information required under
Article 23 of the AIFMD is included in the Article 23 portion of this report starting on page 37 of this report.

Performance Results:
NBF is conducting asset management in accordance with its basic policy of “aim to achieve steady growth of
its assets under management and to secure stable profits on a mid-to long-term basis.”
NBF has endeavored to expand stable revenues from its rental business with respect to its existing portfolio by
reinforcing measures for maintaining occupancy rates and increasing rents upon renewal of contracts throughappropriate and flexible leasing activities with a good understanding of market trends and strengthened
relationship with tenants. In addition, NBF has also put forth efforts to reduce costs by properly allocating
timing and cost for renovation/construction while making strategic and rightly-focused additional investments.
NBF also promotes ESG (environment, social and governance) initiatives and received “Green Star,” the highest
rating in the GRESB (Global Real Estate Sustainability Benchmark) Real Estate Assessment, and “5-Star,” thetop rating in the GRESB Score ranking conducted in 2018. In addition, it also received “A,” the top rating in
the GRESB Public Disclosure Level evaluation scheme.

Overview of Performance and Distribution:
As the result of above-explained operations, NBF's performance results during the current period consisted ofoperating revenues of ¥37,468 million (an increase of ¥833million, or 2.3%, compared to the previous period),
operating income from leasing activities of ¥17,634million (an increase of ¥601million, or 3.5%, compared tothe previous period), operating income after asset management, custody and agent fees etc. of ¥16,031 million(an increase of ¥257million, or 1.6% compared to the previous period), ordinary income of ¥14,519 million(an increase of ¥508million, or 3.6%, compared to the previous period), and net income of ¥14,519 million(anincrease of ¥508 million, or 3.6%, compared to the previous period).
In accordance with the distribution policy prescribed in its Articles of Incorporation, NBF decided to distribute¥14,519 million, the full amount arrived at by excluding from undistributed earnings fractions of distribution
per unit of less than ¥1, so as to deduct the maximum amount of cash distribution of profit from taxable income
through the application of preferential tax measures to investment corporations (Article 67-15 of the Act on
Special Measures Concerning Taxation). As a result, the distribution per unit was ¥10,283 (an increase of ¥633,
or 6.6% compared to the previous period).

1

Summary of Selected Financial Data
35th Period
from July 1, 2018
to December 31,
2018

34th Period
from January 1,
2018 to June 30,
2018

33rd Period
from July 1, 2017
to December 31,
2017

35th Period
from July 1, 2018
to December 31,
2018
U.S. dollars in

Yen in millions, except per unit data or where otherwise indicatedthousands except
per unit data
(Note 1)

Operating revenues

Note 2

37,468¥ 36,635¥ 42,125$341,550

37,46836,251

36,560341,550

－

384

5,565

－

Operating expenses

21,437

20,86025,573

195,411

Rental expenses

19,834

19,217

20,095

180,799

－

－

3,843

－

14,51914,012

14,683132,356

Revenues from property leasing¥

Gains on sales of investment
properties

Losses on sales of investment
properties

Ordinary income
Net income
Funds from operations
Net operating income from property
leasing activities
Total amount of cash distribution(a)

14,51914,01014,682

132,351

Note 3

21,614

20,695

20,151

197,027

Note 324,72924,102

23,656

225,428(b)

14,52013,626

13,230132,357

7,095

7,068

7,191

64,678Depreciation and amortization
Capital expenditures
Total assets

4,417

2,747

2,966

40,263

1,024,893

1,020,237

1,013,861

9,342,691

418,125

417,500

413,875

3,811,531(d)

540,468

539,575

538,795

4,926,781(c)Interest-bearing debt
Net assets
Total number of units issued (Units)(e)1,412,000

1,412,000

1,412,000

Net assets per unit (Yen/$)(d) / (e)382,768

382,135

381,5833,489

Distribution per unit (Yen/$)(b) / (e)10,283

9,650

9,370

94

Note 3

15,307

14,657

14,271140Note 3

1.4%

1.4%

1.4%

(2.8%)(2.8%)(2.9%)

2.7%

2.6%

2.7%

Funds from operations per unit
(Yen/$)
ROA(Annual rate)
ROE

Note 3(Annual rate)
Loan to value (LTV)
Capital ratio
Payout ratio(5.4%)(5.2%)(5.5%)

Note 3

40.8%

40.9%

40.8%

(d) / (c)

52.7%

52.9%

53.1%

100.0%

97.3%

90.1%

184

181

184

(b) / (a),Note 4

Number of days
Number of investment properties

Note 572

72

72

Number of tenants

Note 5

1,525

1,532

1,554

1,084,895

1,084,931

1,051,588

99.5%

99.3%

98.8%

Total rentable area (m2)Occupancy rate (Average)

Note 52

Notes:1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥109.7 = U.S. $1.00, the approximate
exchange rate on December 31, 2018.
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 Gains and Losses on sales of investment properties) + Depreciation andamortization
Net operating income from property leasing activities: (Revenue from property leasing – Rental expenses) + Depreciation
and amortization
Funds from operations per unit: (Net income (excluding Gains and Losses on Sales of Investment Properties) +Depreciation and amortization) / Weighted average number of units issued and outstanding during the period
ROA: Ordinary income / (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 meansgross number of tenants by building. Occupancy rate, end-tenant basis, is the weighted average of month-end occupancy
rate on a floor space basis.

3

Management’s Discussion and Analysis
1. Distribution for the Current Period
Distribution per unit for the current period was ¥10,283. NBF expects to distribute almost all retained
earnings at the current period end to be eligible for special tax treatment (Article 67-15 of the Act on Special
Measures Concerning Taxation) that allows NBF to deduct its cash dividends of profits from taxable income.

For the six months
ended December 31,
2018

For the six months
ended June 30,
2018

For the six months
ended December 31,
2017(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）¥14,519,796
200—
14,519,596
10,283
14,519,596
10,283——¥14,010,450
933
383,717
13,625,800
9,650
13,625,800
9,650
—
—

¥14,682,709—
1,452,269
13,230,440
9,370
13,230,440
9,370
—
—

Notes:1. Above cash distributions were paid after the period end.

2. Changes in Assets, Liabilities and Net Assets
Assets
As of December 31, 2018, total assets increased by ¥4,656 million to ¥1,024,893 million compared with
June 30, 2018. Return on average total assets (ROA) for the six months ended December 31, 2018 was 1.4
percent same as for the previous six-month period.
Current assets increased by ¥6,941 million to ¥21,409 million compared with June 30, 2018. Investment
properties decreased by ¥2,519 million to ¥995,990 million compared with June 30, 2018.

Liabilities
Current liabilities increased by ¥18,325 million to ¥75,377 million compared with June 30, 2018, primarily
because of an increase in long-term debt due within one year compared with June 30, 2018.
Long-term debt decreased by ¥15,250 million to ¥357,000 million compared with June 30, 2018.
As a result, total interest-bearing liabilities increased by ¥625 million to ¥418,125 million compared with
June 30, 2018. The ratio of long-term debt (for which the redemption period at the time of contract or issuance ismore than one year) to total interest-bearing liabilities increased to 100 percent as of December 31, 2018 from
99.0 percent as of June 30, 2018.

4

The loan-to-value ratio, calculated as the ratio of interest-bearing liabilities to total assets, decreased to 40.8
percent as of December 31, 2018 from 40.8 percent as of June 30, 2018.
Notes:1. Interest-bearing liabilities mean "Short-term loans", "Long-term debt due within one year" and "Long-term Debt".

Net assets
Net assets increased by ¥893 million to ¥540,468 million compared with June 30, 2018.

3. 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, 2018,
NBF had issued 1,412,000 units out of 4,000,000 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 of units authorized and issued by NBF.

Issue date

March 16, 2001
May 23, 2001
September 8, 2001
July 14, 2004
August 11, 2004
August 10, 2005
March 16, 2006
March 29, 2006
February 4, 2008
March 4, 2008
January 26, 2011
February 22, 2011
January 25, 2012
February 21, 2012
January 23, 2013
January 31, 2013
January 1, 2014
March 19, 2014
March 28, 2014

Remarks

Initial capital(private)
Privateplacement
Public offering
Public offering
Third party
allocation
Public offering
Public offering
Third party
allocation
Public offering
Third party
allocation
Public offering
Third party
allocation
Public offering
Third party
allocation
Public offering
Third party
allocation
Unit split
Public offering
Third party
allocation

Units issued andoutstanding
Increase
Balance(units)200

200

197,600

197,800

82,90080,000Paid-in capital

Notes

Increase
Balance(Yen in millions)100

Note 1

98,80098,900Note 2

280,700
360,700

49,99958,838148,899
207,737

Note 3Note 44,000
58,00080,0005,300

364,700
422,700
502,700
508,000

2,942
51,491
79,0405,236

210,679
262,170
341,210
346,446

Note 5Note 6Note 7Note 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 1474,000687,000

63,973499,986

Note 155,000

692,000

4,323

504,309

Note 16

692,000
26,5001,384,000
1,410,500―
14,022504,309518,331

Note 17
Note 18

1,500

1,412,000

794

519,125

Note 19

5

¥

100

¥

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 fundproperty 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 fundproperty acquisition.
7. Public offering of new units for ¥1,019,200 per unit (excluding underwriting fee: ¥988,000) to repay debt and to fundproperty 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 fundproperty 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 fundproperty 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 fundproperty acquisition.
14. Additional issue of new units (third party allocation) for ¥605,745 per unit undertaken pursuant to the public offering in
Note 13.
15. Public offering of new units for ¥891,800 per unit (excluding underwriting fee: ¥864,500) to repay debt and to fundproperty acquisition.
16. Additional issue of new units (third party allocation) for ¥864,500 per unit undertaken pursuant to the public offering in
Note 15.
17．Effective January 1, 2014, NBF implemented a 2-for-1 unit split of its investment units.
18．Public offering of new units for ¥545,860 per unit (excluding underwriting fee: ¥529,150) to repay debt and to fundproperty acquisition.
19．Additional issue of new units (third party allocation) for ¥529,150 per unit undertaken pursuant to the public offering in
Note 18.

Market Price of Units
High/Low (closing price) of units on the TSE:
For the six months ended
December 31, 2018

High
Low

For the six months ended
June 30, 2018

(Yen)
¥642,000
545,000¥725,000
610,000

6

For the six months ended
December 31, 2017

¥595,000
535,000

Borrowings
Borrowings from financial institutions as of December 31, 2018 are shown below.

Long-term loans
Average

LenderDevelopment Bank of Japan Inc.

MUFG Bank, Ltd.

Sumitomo Mitsui Trust Bank, Limited

Sumitomo Mitsui Banking Corporation

Mizuho Bank, Ltd.

Sumitomo Life Insurance Company

Shinkin Central Bank

Mizuho Trust & Banking Co., Ltd.
MITSUI LIFE INSURANCE COMPANY
LIMITED

THE BANK OF FUKUOKA, Ltd.

Balanceinterest
rate (%)

Due on(Yen in millions)¥2,625 2.17000% April 28, 20195,500 2.21000% August 30, 201910,000 1.26375% July 2, 2023
13,000 0.74750% September 10, 2027
10,000 0.35750% February 15, 2028
10,000 0.25630% April 8, 2026
5,000 0.25000% June 1, 2026
5,000 0.38750% September 14, 2028
10,000 0.49130% September 27, 2029
6,000 0.23050% May 30, 2024
15,000 1.06000% March 1, 201915,000 0.78125% July 31, 2020
10,000 0.73125% February 26, 2021
5,000 1.04000% June 30, 2021
0.00000%
3,000
July 31, 2019
(Note 5)7,000 0.35880% June 1, 2028
5,000 0.75625% July 2, 201910,000 0.61125% February 28, 2020
7,000 0.95875% May 29, 2020
10,000 1.13000% December 30, 2019
5,000 1.17625% March 5, 2021
5,000 0.16500% January 25, 2019
3,000 0.20250% January 27, 2020
6,000 0.17000% September 11, 2019
6,000 0.22300% May 31, 2024
0.11073%
4,000
May 31, 2024
(Note 5)4,000 1.12375% December 30, 2022
10,000 0.98250% February 28, 2023
5,000 0.95875% April 28, 2023
6,000 0.52375% April 28, 2020
0.18273%
11,000June 1, 2029
(Note 5)1,000 0.14830% June 30, 2021
10,000 0.85625% February 28, 2022
8,000 1.07000% July 29, 2022
0.11773%
7,000
November 30, 2025
(Note 5)5,000 0.52250% July 16, 2021
3,000 0.30000% February 3, 2026
5,000 0.25000% May 22, 2026
5,000 0.65500% July 16, 2032
2,000 0.40380% April 28, 2028
5,000 0.64630% April 28, 2033
5,000 0.25000% September 14, 2026
3,000 0.38130% December 30, 2026
3,000 0.35630% June 1, 2027
4,000 0.43380% July 12, 2027
4,000 0.21930% March 29, 2024
10,000 0.98250% February 28, 2023
4,000 0.94750% September 30, 2022
2,000 1.12875% February 13, 2020
2,000 0.94250% March 29, 2019
2,000 1.23000% March 30, 2021
2,000 1.03375% November 1, 2022
2,000 1.48625% May 30, 2025
2,000 1.04750% December 13, 2023
2,000 0.54875% June 30, 2023

7

Repayment
methodUse of
funds

Notes

（Note 1）
（Note 2）

Bulletpayment(Note 3)

Unsecured/unguaranteed/pari passu,
See (Note 4)

Nippon Life Insurance Company
The Norinchukin BankThe Daishi Bank, Ltd.
Resona Bank, Limited.
DAIDO LIFE INSURANCE COMPANYTAIYO LIFE INSURANCE COMPANY
The Hachijuni Bank, Limited
The Chugoku Bank, Limited
The Iyo Bank, LTD.

The Yamaguchi Bank, Ltd.
Meiji Yasuda Life Insurance Company
The Joyo Bank, Ltd.
The Yamanashi Chuo Bank, Ltd.
The 77 Bank, Ltd.
Shinsei Bank, Limited
The Hiroshima Bank, Ltd.
The Chiba Bank, Ltd.

Total long-term loans (Note 6)
Total borrowings

2,000 0.23880% May 31, 2024
2,000 0.17750% June 30, 2022
2,000 1.34375% May 31, 2019
3,000 0.94750% September 30, 2022
5,000 0.72125% September 30, 2020
2,000 0.25750% March 1, 2024
2,000 0.24500% June 28, 2024
3,000 1.04375% March 8, 2019
0.14273%
1,000
June 1, 2027
(Note 5)1,000 0.94250% March 29, 2019
1,000 0.70625% October 2, 2020
1,000 0.45625% June 30, 2022
1,000 0.41750% September 11, 2023
1,000 0.99750% July 2, 2021
1,000 0.95875% May 29, 2020
2,000 0.53250% July 9, 2021
1,000 0.63875% December 2, 2020
2,000 0.46500% June 26, 2020
1,000 0.95875% May 29, 2020
2,000 0.60500% May 28, 2021
1,000 0.63120% April 30, 2021
0.00000%
1,000
January 27, 2022
(Note 5)0.00000%
1,000
June 30, 2025
(Note 5)1,000 1.08750% May 1, 2019
1,000 1.10750% September 4, 2020
1,000 0.47750% January 10, 2029
3,000 1.27750% April 27, 2022
1,000 0.56250% March 27, 2020
1,000 0.38630% March 3, 2027
1,000 0.27250% October 11, 2024
1,000 0.27500% May 14, 2025
0.00000%
2,000
June 30, 2023
(Note 5)1,000 1.53375% May 30, 2025
0.00000%
1,000
January 27, 2021
(Note 5)1,000 0.25880% June 27, 2025

Unsecured/unguaranteed/pari passu,
See (Note 4)

Bulletpayment(Note 3)¥381,125¥381,125

Notes:
1. Scheduled for repayment of ¥125 million at six-month intervals and ¥2,625 million at the final maturity date.
2. Scheduled for repayment of ¥250 million at six-month intervals and ¥5,250 million at the final maturity date.
3. Use of funds for the above includes acquisition of real estate or beneficiary interests, repayment of borrowings and working
capital, etc.
4. A special agreement attached to “Loan Agreement” entered into between NBF and each financial institution provides that theabove borrowings from all financial institutions rank pari passu to each other.
5. This loan is a floating rate loan. Other long-term loans are all fixed rate loans.
6. The total amount of long-term loans (i.e. excluding those expected to be repaid within one year) repayable within 5 years of thedate of the balance sheet and expected to be repaid by specific year(s) is as follows.

Long-term loans

1 to 2 years

2 to 3 years(Yen in millions)
3 to 4 years
4 to 5 years¥56,000¥35,000¥38,000¥42,000

8

NBF Bonds

Issue date

Balance as ofDecember 31,
2018(Yen in millions)No. 13 Unsecured Bonds

June 26, 2013

¥10,000

No. 14 Unsecured Bonds

June 9, 2016

No. 15 Unsecured Bonds

Redemption

Use offunds

1.16800% June 26, 2023

Bullet payment

Note 15,000

1.00000% June 8, 2046

Bullet payment

Note 1

May 22, 2017

5,000

0.91400% May 22, 2037

Bullet payment

Note 1Notes
2 and 3

No. 16 Unsecured Bonds

May 23, 2018

5,000

0.22000% May 23, 2025

Bullet payment

Note 1Notes
2 and 3

No. 17 Unsecured Bonds

May 23, 2018

5,000

0.88800% May 21, 2038

Bullet payment

Note 1Notes
2 and 3

No. 18 Unsecured Bonds

December 19, 2018

7,000

0.20000%

Bullet payment

Note 1Notes
2 and 3

Issue

Total (Note 4)

CouponMaturity
date

January 10,2024¥37,000

Notes:
1. Use of funds includes acquisition of real estate, repayment of borrowings and investment corporation bonds, etc.
2. Rank pari passu with all other publicly and privately issued bonds.
3. Subject to provision of collateral restrictions.
4. 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

Others
NBF has security deposits totaling ¥51,939 million as of December 31, 2018.

9

Notes
Notes
2 and 3Notes
2 and 3

■ Capital Expenditures
1. Planning
As of December 31, 2018, 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 aswell as to increase the level of tenant satisfaction based on the results of tenant satisfaction surveys andneighboring competitive building specification surveys, etc.
Estimated amounts
Name of property

Objective

Estimated
duration

Totalamounts

Payment for thecurrent period(from July 1, 2018 to
December 31, 2018)

Cumulative
amount paid

(Yen in millions)
NBF Shinagawa Tower
Shiba NBF Tower
NBF Shibakouen Bldg.
Toyo-cho Center Bldg.
NBF Shibakouen Bldg.
Sun Mullion NBF Tower
Shin-Kawasaki Mitsui
Bldg.
Aqua Dojima NBF Tower
Shiba NBF Tower
Tsukuba Mitsui Bldg.
Shinjuku Mitsui Bldg. No.2
NBF Shibuya East
Aqua Dojima NBF Tower
Gate City Ohsaki
Tsukuba Mitsui Bldg.
NBF Shinkawa Bldg.
Tsukuba Mitsui Bldg.

Renewal construction
to improve
competitivenessRenovation of air
conditioning①
Renovation of air
conditioning①
Renovation of air
conditioning
Renovation of air
conditioning②
Renovation of air
conditioning
Renovation of air
conditioning
Renovation of
restroom①
Renovation of air
conditioning②
Renovation of lighting
equipment①
Renovation of lighting
equipment
Renovation of air
conditioning
Renovation of
restroom②
Renovation of air
conditioning
Renovation ofelevator
Renovation of piping
facility (East
Building)
Renovation of lighting
equipment②

From January 2019
to December 2019

¥2,760

¥－

¥－

272

－

－

219

－

－

216

－

－

216

－

－

159

－

－

150

－

－

143

－

－

142

－

－

135

－

－

135

－

－

116

－

－

116

－

－

114

－

－

105

－

－

From July 2019
to December 2019

105

－

－

From January 2019
to June 2019

92

－

－

From July 2019
to December 2019
From January 2019
to June 2019
From July 2019
to December 2019
From July 2019
to December 2019
From January 2019
to April 2019
From February 2019
to July 2019
From July 2019
to December 2019
From January 2019
to June 2019
From July 2019
to December 2019
From July 2019
to December 2019
From July 2019
to December 2019
From January 2019
to June 2019
From April 2018
to March 2019
From July 2019
to December 201910

NBF Hiroshima Tatemachi
Bldg.

Renovation of lighting
equipment
Rooftopwaterproofing work
Renovation ofelevator
Renovation of lighting
equipment
Renovation of lighting
equipment

Sapporo L-Plaza

Renovation of exterior

NBF Urawa Bldg.

Renovation of lighting
equipment

Sumitomo Densetsu Bldg.
Toyo-cho Center Bldg.
NBF Hiroshima Tatemachi
Bldg.
NBF Unix Bldg.

From January 2019
to June 2019
From January 2019
to June 2019
From March 2019
to November 2019
From July 2019
to December 2019
From January 2019
to June 2019
From July 2019
to December 2019
From January 2019
to June 2019

86

－

－

82

－

－

70

－

－

64

－

－

51

－

－

49

－

－

40

－

－

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NBF posted ¥5,382 million incapital expenditures together with ¥965 million for repairs and maintenance expenses.

Name of property

Objective

PeriodExpenditure(Yen in millions)

NBF Platinum Tower

Renovation of emergency generator,
renovation of network controller, renovationof mechanical parking facilities, etc.

¥897

Chofu South Gate Bldg.

Renovation of emergency generator,
renovation of central monitoring facilities,
renovation of air conditioning, etc.

514

Shinjuku Mitsui Bldg. No.2

Renovation of emergency generator,
renovation of elevator, renovation ofcommon hallway, etc.

340

NBF Shibakouen Bldg.

Renovation of air conditioning, renovation of
vacuum circuit breaker, renovation of
mechanical parking facilities, etc.

222

Shiba NBF Tower

Sun Mullion NBF Tower

NBF Shinkawa Bldg.

Shin-Kawasaki Mitsui Bldg.

Renovation of air conditioning, renovation of
restroom, renovation of control room, etc.
Renovation of air conditioning, renovation of
mechanical parking facilities, renovation ofhigh ceiling lighting equipment for entrance,
etc.
Renovation of restroom (West Building),
renovation of DC power supply (East
Building), renovation of gondola (East
Building), etc.
Renovation of air conditioning, renovation of
external floor tiles, renovation of automatic
control, etc.

11

From July 2018
to December 2018
205

175

170

160

Nakanosakaue Sunbright Twin

Renovation of central monitoring facilities,
renovation of air conditioning, renovation ofhigh position tank for recycled water, etc.

134

NBF Ikebukuro East

Renovation of sanitation, renovation of highvoltage incoming and transforming facilities,
renovation of gondola, etc.

127

NBF Utsunomiya Bldg.

Renovation of air conditioning, renovation of
mechanical parking facilities, renovation ofwatt-hour meter, etc.

109

NBF Akasaka Sanno Square

Renovation of air conditioning, renovation of
restroom, renovation of elevator hall, etc.

78

Other buildings

Asset preservation construction and otherrenewal construction to improve tenantsatisfaction, etc.

1,286

Total

¥4,417

Mitsubishi Heavy Industries Head Office Bldg. has been changed to "NBF Shinagawa Tower" at March 1, 2019.

■ 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,
2018

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

For the six months
ended June 30,
2018

For the six months
ended December 31,
2017¥1,386
50(Yen in millions)¥1,34048¥1,368
50

45
13
14
95
¥1,603

46
13
14
182
¥1,643

46
13
14
144
¥1,63512

■ Trading Activities during the Current Period
1. Trading of Real Estate and Real Estate Held in TrustNone.

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 bank deposits included in assets held in trust.

3. Transactions with Related Parties of Asset Management Company(1) Ongoing Transactions
None. (No purchases, or sales or other transactions involving related parties.)(2) Fees Paid for the Period from July 2018 to December 2018
Description of transactions with related parties (Note 1)

Category

Total fees paid
(A)

Paid to(Yen in millions)

Office management fees,
etc.
(Note 2)

Property maintenance fees

Leasing related service fees

¥1,525

Mitsui Fudosan Co., Ltd.

NBF Office Management Co., Ltd.
3,879 Mitsui Fudosan Co., Ltd.
Mitsui Fudosan Facilities Co., Ltd.
Mitsui Fudosan Building Management Co.,Ltd.
Mitsui Fudosan Facilities West Co., Ltd.
Mitsui Fudosan Residential Lease Co.,Ltd.
85 Mitsui Fudosan Co., Ltd.
NBF Office Management Co., Ltd.
Mitsui Fudosan Realty Co., Ltd.

Amount ofpayment (B)(Yen in millions)

B/A¥1,481

97.1%

44
796
498

2.9%
20.5%
12.8%

257

6.6%

253
1
43
19
1

6.5%
0.0%
50.9%
22.1%
1.5%

Notes:
1. “Related parties” are defined as related parties of asset management companies under asset management agreementwith NBF as defined in Article 123 of Order for Enforcement of the Law Concerning Investment Trusts andInvestment 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. During the period from
July 1, 2018 to December 31, 2018, transactions with and fees paid to, Mitsui Fudosan Co., Ltd., NBF Office
Management Co., Ltd., Mitsui Fudosan Facilities Co., Ltd., Mitsui Fudosan Building Management Co., Ltd., Mitsui
Fudosan Facilities West Co., Ltd., Mitsui Fudosan Residential Lease Co.,Ltd. and Mitsui Fudosan Realty Co., Ltd.
which meet either of the said definitions, are as described above.
2. In terms of properties for which NBF has not entrusted office management businesses to Mitsui Fudosan Co., Ltd. due
to its master leasing (14 properties: Roppongi T-CUBE, Nishi-Shinjuku Mitsui Bldg., Celestine Shiba Mitsui Bldg.,
Toranomon Kotohira Tower, Yotsuya Medical Bldg., Panasonic Tokyo Shiodome Bldg., NBF Ogawamachi Bldg.,
Gate City Ohsaki, Nakameguro GT Tower, Osaki Bright Core - Bright Plaza, Higashi Gotanda Square,

13

Shin-Kawasaki Mitsui Bldg., Parale Mitsui Bldg. and Shinanobashi Mitsui Bldg.), NBF has entrusted them to NBF
Office Management Co., Ltd. as business representative of the property owners or lessors.
3. In addition to the above fees paid, the following have been paid to related parties for repair and maintenance work, etc.
(Yen in millions)

Mitsui Fudosan Building Management Co., Ltd¥612

Mitsui Fudosan Co., Ltd.

570

Mitsui Fudosan Facilities West Co., Ltd.

74

Mitsui Fudosan Facilities Co., Ltd.

14

Mitsui Fudosan Reform Co. Ltd.

5Harajuku-no-mori Co.,Ltd.

4

Mitsui Fudosan Residential Lease Co.,Ltd.

2

MITSUI Designtec Co.,Ltd.

1

MITSUIHOME LINKAGE Co., Ltd.

0DAIICHI ENGEI Co., Ltd.

014

NIPPON BUILDING FUND INC.
BALANCE SHEETSAs of December 31, 2018 and June 30, 2018

As ofDecember 31, 2018

As ofJune 30, 2018

(Yen in millions)
AssetsCurrent Assets:
Cash and cash equivalents（Note 4）
Tenant receivables
Prepaid expenses
Other current assets
Total current assets
Investment Properties:
Land including trust accounts（Notes 5,14）
Buildings and improvements including trust accounts（Notes 5,14）
Other tangible assets（Notes 5,14）
Less: accumulated depreciation（Notes 5,14）
Leasehold rights in trust accounts and other intangible assets（Note 14）
Total investment properties, net
Long-term Prepaid Expenses（Note 14）
Other Assets（Note 3）
Total Assets
Liabilities
Current Liabilities:
Short-term loans（Notes 4,7）
Long-term debt due within one year（Notes 4,7）
Accounts payable
Rents received in advanceAccrued expenses and other liabilities
Total current liabilities
Long-term Debt（Notes 4,7）
Tenant Security Deposits Including Trust Accounts（Note 4）
Other Liabilities
Total Liabilities
Net Assets（Note 7）
Unitholders' Equity
Unitholders' capital
Units authorized: 4,000,000 units
Units issued and outstanding: 1,412,000 units
Retained earnings
Total Net Assets
Total Liabilities and Net Assets
The accompanying notes to financial statements are an integral part of these statements.

15¥ 20,206
332
782
89
21,409¥ 12,475
356
780
857
14,468681,865
428,838
13,917(164,515)
35,885995,990
19
7,475

681,810424,537
13,706(157,449)
35,905998,50923
7,237¥1,024,893¥1,020,237¥—
61,125
7,374
4,647
2,231
75,377357,000
51,939109
484,425¥ 4,000
41,250
6,197
4,542
1,063
57,052372,250
51,26892
480,662

519,125

519,125

21,343
540,468

20,450539,575¥1,024,893¥1,020,237

NIPPON BUILDING FUND INC.
STATEMENTS OF INCOME
For the six months ended December 31, 2018, June 30, 2018 and December 31, 2017

For the six months
ended December
31, 2018

For the six months
ended June30, 2018

For the six months
ended December
31, 2017(Yen in millions)Operating Revenues and Expenses
Operating Revenues:
Rental（Note 8）¥34,082¥33,007¥33,222

Other revenues related to property leasing（Note 8）

3,386

3,244

3,338

Gains on sales of investment properties（Note 9）

—

384

5,565

37,46836,63542,125

Property management fees（Note 8）

5,314

5,048

5,229

Real estate taxes（Note 8）

3,100

3,280

3,422

Repairs and maintenance（Note 8）

965

876

940

Insurance（Note 8）

33

34

37

Other rental expenses（Note 8）

3,327

2,911

3,276

Depreciation and amortization（Note 8）

7,095

7,068

7,191

—

—

3,843

Asset management fees

1,386

1,340

1,368

Other operating expenses

217

303

267

Total Operating Expenses

21,437

20,86025,573Operating Income

16,031

15,775

16,552

Interest income

0

0

0

Property tax refund and interest on refund

3

—

—

Other non-operating revenues

12

4

3

(1,486)(1,726)(1,832)

Amortization of bond issuance costs

(8)

(5)

(4)

Other non-operating expenses

(33)

(36)

(36)

Ordinary Income

14,51914,012

14,683

Income before Income Taxes

14,51914,012

14,683

(0)

(2)

(1)

Total Operating Revenues
Operating Expenses:

Losses on sales of investment properties（Note 9）

Non-Operating Revenues and Expenses
Non-Operating Revenues:

Non-Operating Expenses:
Interest expense

Current and deferred income taxes（Note 10）
Net Income¥ 14,519

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

16¥

14,010¥14,682NIPPON BUILDING FUND INC.
STATEMENTS OF CHANGES IN NET ASSETSFor the six months ended December 31, 2018, June 30, 2018 and December 31, 2017

(Yen in millions)
Number of Unitholders’Units
CapitalBalance as of June 30, 2017

Retained
Earnings

Total. . . . . . . . . . . . . . . . . . . . 1,412,000¥ 519,125¥ 17,878¥ 537,003

Cash dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

——(12,890)(12,890)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

——14,682

14,682

Balance as of December 31, 2017 . . . . . . . . . . . . . . . . . . . . 1,412,000

519,125

19,670538,795

Cash dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

——(13,230)(13,230)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

——14,01014,010. . . . . . . . . . . . . . . . . . . . 1,412,000

519,125

20,450539,575

Cash dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

——(13,626)(13,626)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

——14,51914,519Balance as of December 31, 2018 . . . . . . . . . . . . . . . . . . . . 1,412,000¥ 519,125¥ 21,343¥ 540,468

Balance as of June 30, 2018

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

17

NIPPON BUILDING FUND INC.
STATEMENTS OF CASH FLOWSFor the six months ended December 31, 2018, June 30, 2018 and December 31, 2017

For the six
months ended
December 31,
2018

For the six
months ended
June 30,
2018

For the six
months ended
December 31,
2017(Yen in millions)
Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
Amortization of bond issuance costs
Interest expense(Increase) Decrease in tenant receivables
Increase (Decrease) in accounts payable
Increase (Decrease) in rents received in advance
Decrease in investment properties due to sales
Cash payments of interest expense(Increase) 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
Refunds from 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
Payments for bond issuance costs
Payment of dividends
Net Cash Used in 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¥ 14,519
7,095
8
1,486
25
1,173
106
—
(1,580)¥ 14,012
7,068
5
1,726
(25)
261
(356)
63,606(1,687)¥ 14,683
7,191
4
1,832
46
1,134
(77)
26,944(1,869)

625

(625)

—

1,427
24,884(792)
83,193(202)
49,686(4,369)
1,389
(718)
(48)
4
(380)
(4,122)(95,153)
9,403(6,873)
(15)
2
(528)
(93,164)(2,776)
2,104(3,488)(0)
4(535)(4,691)(4,000)14,000(9,375)(32)(13,624)(13,031)
7,731
12,475¥ 20,206

4,000
39,000(39,375)(61)(13,227)(9,663)(19,634)
32,109¥ 12,475(12,000)
20,000(19,375)—(12,888)(24,263)
20,732
11,377¥ 32,109

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

18

NIPPON BUILDING FUND INC.
Notes To Financial Statements
For the six months ended December 31, 2018, June 30, 2018 and December 31, 2017
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
office properties on May 23, 2001.
NBF is an externally managed real estate fund, formed as an investment corporation. NBFM, as NBF’s asset
management company, is engaged in acquiring, managing, leasing, and renovating office properties. Mitsui
Fudosan Co., Ltd. currently owns 46% of NBFM while Sumitomo Life Insurance Company owns 35% and theremaining 19% is mainly owned by financial institutions.
On September 10, 2001, NBF had raised approximately ¥50,000 million through an initial public offering ofunits. Those units are listed on the J-REIT section of the Tokyo Stock Exchange.
As of December 31, 2018, NBF had ownership or beneficiary interests in 72 office properties containing
approximately 1,084,895 square meters of rentable office space. As of December 31, 2018, NBF had leased
office space to 1,525 tenants engaged in a variety of businesses. The occupancy rate for the office properties wasapproximately 99.5%.

Basis of Presentation
The accompanying financial statements have been prepared in accordance with the provisions set forth in theInvestment Trust Law of Japan and the Japanese Financial Instruments and Exchange Law and their related
accounting regulations, and in conformity with accounting principles generally accepted in Japan (hereinafter“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements ofInternational 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 required by the Financial Instruments and Exchange Law. Some
supplementary information included in the statutory Japanese language financial statements, but not required forfair presentation, is not presented in the accompanying financial statements. NBF does not prepare consolidated
financial statements, as NBF has no subsidiaries.

19

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 andexpenses for acquisition of the office properties and the beneficiary interests of properties in trust. Property andequipment balances are depreciated using the straight-line method over the estimated useful lives. The estimateduseful lives of the principal tangible fixed assets (including assets held in trust) are as follows:
Buildings and improvements including trust accounts
Buildings and improvements
2-50 years
Other tangible assets
Structures
2-50 years
Machinery and equipment
2-17 years
Tools, furniture and fixtures
2-19 years
Costs related to the renovation, construction and improvement of properties are capitalized. Expenditures forrepairs and maintenance which do not add to the value or prolong the useful life of a property, are expensed
when incurred.

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

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 thepurchase date of each property until the end of the calendar year as part of the acquisition cost of the relevant
property. No capitalized real estate taxes were incurred for the period ended December 31, 2018 and December
31, 2017. Capitalized real estate taxes amounted to ¥397 million for the period ended June 30, 2018.

Revenue Recognition
NBF operates office properties that are rented to tenants on lease terms of generally two years, with monthly
payments due in advance. Rental and other property income is recorded when due from tenants and isrecognized 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.

20

Note 3 – Changes in Presentation
NBF has applied "Partial Amendments to Accounting Standard for Tax Effect Accounting" (ASBJ Statement
No. 28 on February 16, 2018) from the beginning of the fisical period, and the deferred tax assets are classified
in the investments and other assets, the deferred tax liabilities are classified as non-current liabilities.
As a result, on the balance sheet as of June 30, 2018, "Deferred tax assets" of ¥40 thousand, which waspreviously included in "Other current assets", was included and reclassified as part of "Other Assets".

Note 4 – Financial Instruments
Status of Financial Instruments
Policy for Financial Instruments
NBF procures funds for acquisition of assets and repayment of debt, which includes repayment of tenantsecurity deposits, loans and investment corporation bonds, through issuance of new investment units, bank loans
and issuance of investment corporation bonds, with the 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 otherrisks arising from liabilities. NBF does not engage in speculative transactions. Currently NBF is not engaged inany 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 the depository financial institutions. NBF limits credit risk by using only short-term deposits infinancial institutions with high credit ratings.
Proceeds from loans and investment corporation bonds are used mainly to acquire real estate properties andrepay outstanding loans and bonds. While these loans and bonds are exposed to liquidity risk, such risk ismanaged in the following ways such as diversifying the means of funding and lending institutions, dispersing
repayment dates, establishing committed credit line, keeping sufficient liquidity in hand, and monitoring cash
flows projected monthly.
Floating rate loans are exposed to interest-rate fluctuation. NBF limits the impact of such risks by maintaining
the ratio of interest-bearing liabilities to total assets 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 thetermination of contract. NBF manages this risk by monitoring forecasted cash flows on a monthly basis toensure 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 isno 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.

Estimated Fair Value of Financial Instruments
Book value, fair value and difference between the two as of December 31, 2018 are as follows.
The financial instruments for which it is very difficult to estimate the fair value are excluded from the21

following table (See Note 2. below).
(Yen in millions)Book value
(1)

(1)
(2)

AssetsCash and cash equivalents
Total
Liabilities
Long-term debt due within
one yearLong-term debt
Total

Fair value¥ 20,206¥ 20,206¥ 20,206¥ 20,206

61,125357,000¥418,125

61,377
361,552¥422,929

Difference
¥
¥

－
－

252
4,552
¥4,804

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 are settled within a short term period.
Liabilities:(1) Long-term debt due within one year
Long-term debt due within one year which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)(1)Long-term loans
Total

Book value¥61,125¥61,125

Fair value¥61,377¥61,377

Difference
¥252
¥252

(1) Long-term loans
Fair values of floating rate long-term loans are based on the book values because the market interest rates arereflected within a short term period and the book values are considered to approximate fair values. Fair values of fixed
rate 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) Long-term debt
Long-term debt which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)

(1)
(2)

Investment corporation bonds
Long-term loans
Total

Book value¥37,000
320,000¥357,000Fair value¥37,033
324,519¥361,552

Difference
¥ 33
4,519
¥4,552(1) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is noobservable market value available, fair values are calculated based on the present value of principal and interest cash
flows discounted at the current interest rate that is estimated by taking into consideration the remaining term of theinvestment corporation bonds and their credit risk.

22

(2) Long-term loans
Fair values of floating rate long-term loans are based on the book values because the market interest rates arereflected within a short term period and the book values are considered to approximate fair values. Fair values of fixed
rate 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, 2018 are as follows.
The financial instruments for which it is very difficult to estimate the fair value are excluded from thefollowing table (See Note 2. below).

(Yen in millions)Book value
(1)

(1)
(2)
(3)

AssetsCash and cash equivalents
Total
Liabilities
Short-term loans
Long-term debt due within
one yearLong-term debt
Total

Fair value

Difference¥ 12,475¥ 12,475¥ 12,475¥ 12,475¥¥－－¥4,000¥4,000¥－41,250372,250¥417,500

41,496
376,529¥422,025

246
4,279¥4,525

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 are settled 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 are settled within a short term period.
(2) Long-term debt due within one year
Long-term debt due within one year which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)(1)Long-term loans
Total

Book value¥41,250¥41,250

Fair value¥41,496¥41,496

Difference
¥246
¥246

(1) Long-term loans
Fair values of floating rate long-term loans are based on the book values because the market interest rates arereflected within a short term period and the book values are considered to approximate fair values. Fair values of fixed
rate 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.

23

(3) Long-term debt
Long-term debt which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)

(1)
(2)

Book value¥30,000
342,250¥372,250

Investment corporation bonds
Long-term loans
Total

Fair value¥30,180
346,349¥376,529

Difference
¥ 180
4,099
¥4,279(1) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is noobservable market value available, fair values are calculated based on the present value of principal and interest cash
flows discounted at the current interest rate that is estimated by taking into consideration the remaining term of theinvestment corporation bonds and their credit risk.
(2) Long-term loans
Fair values of floating rate long-term loans are based on the book values because the market interest rates arereflected within a short term period and the book values are considered to approximate fair values. Fair values of fixed
rate 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.
(Yen in millions)

As of December 31, 2018
Tenant security deposits
including trust accounts

As of June 30, 2018

¥51,939¥51,268

Security deposits from tenants are not subject to fair value disclosure because they are not marketable, and actual deposit
period is not estimable as leases may be cancelled, renewed or re-signed even if a lease term is set in the lease contract, thatmakes a reasonable estimate of future cash flows difficult.

3. Redemption Schedule for Monetary Claims as of December 31, 2018
(Yen in millions)

Cash and cash
equivalents

Due within
one year

Due after one
to two years

Due after two
to three years

Due after
three to fouryears

Due after four
to five years

Due after fiveyears

¥20,206

－

－

－

－

－

Redemption Schedule for Monetary Claims as of June 30, 2018
(Yen in millions)

Cash and cash
equivalents

Due within
one year

Due after one
to two years

Due after two
to three years

Due after
three to fouryears

Due after four
to five years

Due after fiveyears

¥12,475

－

－

－

－

－

24

4. Repayment Schedule for Loans and Investment Corporation Bonds as of December 31, 2018

Due within
one yearInvestment
corporationbonds
Long-term
loans
Total

¥

－

Due after
one to two
years
－

¥

Due after
two to threeyears¥

Due after
three to four
years

－

¥

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

－

¥10,000¥27,000

61,12556,00035,00038,00042,000149,000¥61,125¥56,000¥35,000¥38,000¥52,000¥176,000

Repayment Schedule for Loans and Investment Corporation Bonds as of June 30, 2018

Due within
one year
Short-term
loans
Investment
corporationbonds
Long-term
loans
Total

¥4,000Due after
one to two
years
－

¥

Due after
two to threeyears¥

Due after
three to four
years

－

¥

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

－

¥

－

¥

－

－

－

－

－

10,00020,00041,25062,25050,00025,00050,000155,000¥45,250¥62,250¥50,000¥25,000¥60,000¥175,000

Note 5 – Tangible Assets of Investment Properties
Tangible assets as of December 31, 2018 and June 30, 2018 consisted of the following:
As of December 31, 2018

As of June 30, 2018

(Yen in millions)
Book
value

Acquisition costs¥351,817
330,048
681,865
236,636

Accumulated
depreciation¥———(78,441)¥351,762
330,048
681,810234,595

Accumulated
depreciation¥———(74,817)¥351,817
330,048
681,865
158,195¥351,762
330,048
681,810
159,778

192,202(77,003)

115,199

189,942(73,901)

116,041

428,838
3,346
2,123
1,991
2,800

(155,444)(2,007)(1,525)(1,280)(1,560)273,394
1,339
598
711
1,240

424,537
3,337
2,091
1,936
2,775

(148,718)(1,938)(1,461)(1,214)(1,499)275,819
1,399
630
722
1,276

2,063

(1,545)

518

2,036

(1,503)533

1,594
13,917¥1,124,620(1,154)(9,071)¥(164,515)

440
4,846
¥960,105

1,531
13,706¥1,120,053(1,116)(8,731)¥(157,449)

415
4,975
¥962,604

Acquisition costs
Land
Land in trust
Land including trust total
Buildings and improvements
Buildings and improvements
in trust
Buildings 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 intrust
Other tangible assets total
Total

25

Book
value

Note 6 – 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 are designated as stated capital. NBF maintains at least ¥50 million as the minimum net assets as
required by the Investment Trust Law of Japan.

Note 7 – Short-Term Loans and Long-Term Debt
Short-term loans consist of short-term notes and short-term borrowings under loan agreements. The annualinterest rates on short-term loans outstanding are floating rates and on June 30, 2018 was at 0.07%. Long-term debt
as of December 31, 2018 and June 30, 2018 consisted of the following:
As of
December 31,
2018

As of
June 30, 2018

(Yen in millions)
Unsecured loans due 2019 to 2033 principally from banks andinsurance companies with interest rates mainly ranging from 0.0%
to 2.2%.............................................................................................
1.17% unsecured bonds due 2023
0.20% unsecured bonds due 2024
0.22% unsecured bonds due 2025
0.91% unsecured bonds due 2037
0.89% unsecured bonds due 2038
1.00% unsecured bonds due 2046

(Note 1) ......................................
(Note 1) ......................................
(Note 1) ......................................
(Note 1) ......................................
(Note 1) ......................................
(Note 1) ......................................

Less: amount due within one year ........................................................

¥381,125
10,000
7,000
5,000
5,000
5,000
5,000
418,125
61,125¥357,000¥383,500
10,000
—
5,000
5,000
5,000
5,000
413,500
41,250¥372,250

Notes: 1. Subject to provision of collateral restrictions.
The annual maturities of long-term debt as of December 31, 2018 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……………………………………
……………………………………
……………………………………
……………………………………
……………………………………

¥ 56,000
35,00038,00052,000176,000

During the periods ended December 31, 2018 and June 30, 2018, NBF had commitment credit line contracts of¥60 billion with several financial institutions to reduce refinancing risk. The unused amount of such committed
credit lines was ¥60 billion as of December 31, 2018.

Note 8 – Rental Revenues and Expenses
Rental revenues and expenses for the periods ended December 31, 2018, June 30, 2018 and December 31, 201726

were as follows:
For the six
months ended
December 31,
2018

For the six
months ended
June 30, 2018

For the six
months ended
December 31,
2017(Yen in millions)

Revenues from Property Leasing:
Rental:Rental revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common area charges. . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 maintenance . . . . . . . . . . . . . . . . . . . . . .
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other rental expenses . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . .
Total rental expenses . . . . . . . . . . . . . . . . . .. . . . . . . . . .
Operating Income from Property Leasing Activities. . .

¥31,261
2,585
236
34,082¥30,262
2,584
161
33,007¥30,509
2,598
115
33,222

688
281
2,328
52
37
3,386
37,468

649
280
1,896
363
56
3,244
36,251

710
272
2,211
64
81
3,338
36,560

5,314
3,100
965
33
3,327
7,095
19,834¥17,634

5,048
3,280
876
34
2,911
7,068
19,217¥17,034

5,229
3,422
940
37
3,276
7,191
20,095¥16,466

Note 9 – Gains and Losses on Sales of Investment Properties
Gains and losses on sales of investment properties for the periods ended June 30, 2018 and December 31, 2017
were as follows. No investment properties were sold during the periods ended December 31, 2018.
For the six months ended June 30, 2018
NBF Hibiya Bldg.
Proceeds from sale of investment property
Cost of sale of investment property
Other related sale expenses
Gain on sale of investment property(Yen in millions)¥64,000
63,60610¥ 384

For the six months ended December 31, 2017
GSK Bldg.
Proceeds from sale of investment property
Cost of sale of investment property
Other related sale expenses
Gain on sale of investment property(Yen in millions)¥17,000
11,4269¥ 5,565

NBF Shin-Urayasu Tower
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)¥11,700
15,51825¥ 3,84327

Note 10 – Income Taxes
NBF is subject to income taxes in Japan. The effective tax rate on NBF's income was 0.00% for the periods
ended December 31, 2018 and December 31, 2017, and 0.01% for the period ended June 30, 2018. The following
table summarizes the significant differences between the statutory tax rates and NBF's effective tax rates forfinancial statement purposes.

For the six months
ended December 31,
2018

Statutory tax rate . . . . . . . . . . . . . . . . . . . . . .
Deductible dividends . . . . . . . . . . . . . . . . . . . . .
Reserve for advanced depreciation . . . . . . .
Others. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate. . . . . . . . . . . . . . . . . . . . . . . . . .

31.51%(31.51)
—
0.00
0.00%

For the six months
ended June 30,
201831.74%(30.87)(0.87)
0.00
0.01%

For the six months
ended December 31,
201731.74%(28.60)(3.14)
0.00
0.00%

NBF was established as an investment corporation under the Investment Trust Law of Japan, and as long as aninvestment corporation distributes to its unitholders at least 90% of earnings available for dividends for a period
and other requirements prescribed in Japanese tax regulations are met, the investment corporation is allowed todeduct total amount of dividends in calculating its taxable income under Japanese tax regulations.

Note 11 – Per Unit Information
Information about earnings per unit for the periods ended December 31, 2018, June 30, 2018 and December 31,
2017 and net assets per unit as of December 31, 2018, June 30, 2018 and December 31, 2017 were as follows.
The computation of earnings per unit is based on the weighted average number of units outstanding during theperiod. The computation of net assets per unit is based on the number of units outstanding at each period end.
For the six months
ended December 31,
2018

For the six months
ended June 30,
2018

For the six months
ended December 31,
2017

Net income per unit (Yen)¥10,282¥9,922¥10,398

Weighted average number ofunits outstanding

1,412,000

1,412,000

1,412,000

Earnings per Unit:

Net Assets per Unit (Yen)

As ofDecember 31, 2018

As ofJune 30, 2018

As ofDecember 31, 2017

¥382,767¥382,135¥381,583

Note 12 – Leases
As Lessor
NBF leases some of its investment properties to outside parties under non-cancelable operating leases. As of
December 31, 2018 and June 30, 2018, future minimum rental revenues under the non-cancelable operating leases
are as follows:28

Due within one year .....................
Due after one year........................
Total .........................................

As of December 31, 2018
As of June 30, 2018
(Yen in millions)¥ 19,008¥ 19,543
43,19743,060¥ 62,205¥62,603

As Lessee
NBF leases some properties from outside parties under non-cancelable operating leases. As of December 31,
2018 and June 30, 2018, future minimum rental expenses under the non-cancelable operating leases are as follows:

Due within one year .....................
Due after one year........................
Total .........................................

As of December 31, 2018
As of June 30, 2018
(Yen in millions)
¥2
¥2
0
1
¥2
¥3

Note 13 – Transactions with Related Parties(1) Parent Company and Major Corporate Unitholders(For the six months ended December 31, 2018)
None applicable.
(For the six months ended June 30, 2018)
None applicable.
(For the six months ended December 31, 2017)
None applicable.
(2) Affiliates(For the six months ended December 31, 2018)
None applicable.
(For the six months ended June 30, 2018)
None applicable.
(For the six months ended December 31, 2017)
None applicable.

(3) Sister Companies(For the six months ended December 31, 2018)
None applicable.
(For the six months ended June 30, 2018)
None applicable.
(For the six months ended December 31, 2017)
None applicable.

29

(4) Directors and Major Individual Unitholders(For the six months ended December 31, 2018)
None applicable.
(For the six months ended June 30, 2018)
None applicable.
(For the six months ended December 31, 2017)
None applicable

Note 14 – Investment and Rental Properties
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)
For the six months ended
For the six months ended
December 31, 2018
June 30, 2018
Carrying amount
Balance at beginning¥ 998,531¥ 973,508
of the Fiscal Period
Amount of increase(decrease) during(2,522)25,023current period
Balance at end of the
996,009998,531
Fiscal Period
Fair value at end of the¥ 1,239,870¥ 1,232,120
periodNotes:
1. Carrying amounts represent acquisition cost less accumulated depreciation.
2. The major decrease in the fiscal period ended December 31, 2018 was mainly recognition ofdepreciation costs.
The major increase in the fiscal period ended June 30, 2018 was mainly due to the acquisitions of 3
properties (Roppongi T-CUBE, Celestine Shiba Mitsui Bldg. (additional acquisition) and Osaki BrightCore - Bright Plaza (additional acquisition) ¥92,960 million) and the major decrease was mainly due
to sale of NBF Hibiya Bldg. which amounted to ¥ 63,606 million and 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 8 (Rental Revenues
and Expenses) and Note 9 (Gains and Losses on Sales of Investment Properties).

Note 15 – Segment Information
Segment Information
Segment information has been omitted as NBF has only one segment, which is real estate leasing business.

30

Related Information(For the six months ended December 31, 2018)
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for morethan 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 morethan 90% of the book value of total investment properties.

3. Information on Major Tenants(Yen in millions)
TenantOperating revenues
Related segment
Mitsui Fudosan
Real estateCo., Ltd.
¥11,279
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 other properties to
Mitsui Fudosan Co., Ltd.

(For the six months ended June 30, 2018)
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for morethan 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 morethan 90% of the book value of total investment properties.

3. Information on Major Tenants(Yen in millions)
TenantOperating revenues
Related segment
Mitsui Fudosan
Real estateCo., Ltd.
¥9,660leasing 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 other properties to
Mitsui Fudosan Co., Ltd.

(For the six months ended December 31, 2017)
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for morethan 90% of total operating revenues.

31

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 morethan 90% of the book value of total investment properties.

3. Information on Major Tenants(Yen in millions)
TenantOperating revenues
Related segment
Mitsui Fudosan
Real estateCo., Ltd.
¥8,316
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.

Note 16 – Significant Subsequent Events
None applicable.

32

Ⅲ 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 the Investment Trust Law of Japan, performs
management of NBF's assets and undertakes management of the institutions of NBF. As of December 31,
2018, NBFM has been entrusted as an asset management company only by NBF.

Operation- Undertakes asset management of NBF pursuant to an Asset Management Entrustment Agreement based on an
entrustment from NBF in accordance with the Articles of Incorporation of NBF and the Investment Objects
and Policies set forth therein.
- Undertakes management of the general affairs of the general meeting of unitholders and the Board of
Directors as Administrative Agent regarding the Management of Institutions based on an entrustment from
NBF and pursuant to an Agreement for General Administration Regarding the Management of Institutions.

Fees for the Asset Management Operation
Management Fees 1
The amount equivalent to 2.5% effective from July 1, 2003 of the amount of the revenue arising from
Real Estate, etc. as calculated on each closing date (provided, however, that revenues from the sale of Real
Estate, etc. and other Managed Assets will be excluded) will be payable.
Management Fees 2
The amount equivalent to 3% of income before income tax (provided, however, that in the event a loss iscarried forward, then the amount of income before income taxes remaining after such loss has been covered)prior to deduction of Management Fees 2 as calculated on each closing date will be payable.
Management Fees 3
In the event that Real Estate, etc. is newly acquired (in the event of merger, succession of status bymerger), compensation equivalent to the total amount of the acquisition price of said Real Estate, etc.
(meaning the acquisition price of both land and buildings, in the event of the simultaneous acquisition ofmultiple units of Real Estate, etc., the acquisition price of each item, and in the event of merger, the appraisedvalue of Real Estate, etc. succeeded by NBF at the time of the merger, provided, however, that national
consumption tax, regional consumption tax and miscellaneous costs of acquisition are excluded) multiplied by
the following percentage rates will, in principle, be payable, provided, however, that with the approval of thedirectors of NBF, compensation may be calculated using different rates not exceeding the following rates.
・The portion up to and including ¥10,000 million ………………………………… 0.5％
・The portion exceeding ¥10,000 million up to and including ¥30,000 million …… 0.2％
・The portion exceeding ¥30,000 million up to and including ¥50,000 million …… 0.05％
・The portion exceeding ¥50,000 million …………………………………………. nothing33

History of NBFM
NBFM is an Asset Management Company which is a limited liability company duly established under thelaws of Japan. Major events in the history of NBFM are as follows.
September 19, 2000
November 17, 2000
January 29, 2001
February 15, 2001
March 7, 2001
March 22, 2001
May 23, 2001
June 16, 2001
March 14, 2003
September 30, 2007

EstablishedObtained license as a building lots and building transactions agent under the
Building Lots and Building Transactions Law
Obtained approval as a discretionary transaction agent under the Building Lots
and Building Transactions Law
Registered as a general real estate investment advisor under the Real Estate
Investment Advisor Registration Regulations
Obtained approval as an Asset Management Company under the Investment
Trust Law of Japan
Increased capital from ¥100 million to ¥198 million
Changed name (from “MF Asset Management Co., Ltd.” to "Office Building
Fund Management Japan Limited")
Increased capital from ¥198 million to ¥495 million
Changed name (from "Office Building Fund Management Japan Limited" to"Nippon Building Fund Management Ltd.")
Registered as a financial instruments firm with the Kanto Local Finance Bureau
Chief (Financial Instruments) No. 371

List of Shareholders (as of December 31, 2018)
Numberof Shares Owned
4,554
3,465
495
495
297
297
297
9,900

Name
Mitsui Fudosan Co., Ltd.
Sumitomo Life Insurance Company
Sumitomo Mitsui Trust Bank, Limited
Sumitomo Mitsui Banking Corporation
Daido Life Insurance Company
Mitsui Sumitomo Insurance Co., Ltd.
Britel Fund Trustees Limited
Total

Percent
46.0%
35.0
5.0
5.0
3.0
3.0
3.0
100.0%

Directors and Staff
As of December 31, 2018, the directors and corporate auditors of NBFM are as follows. The staff otherthan directors and auditors of NBFM is comprised of 26 persons.
Name of Directors and Auditors
Title
Yoshiyuki Tanabe
President & CEO (standing)Morio Shibata
Director, Head of Investment & Finance Group (standing)
Miki Takahashi
Director, Head of Administration Group (standing)Masahiko Okamoto
Director
Fuminori Tamura
Director
Makoto Ishida
Corporate Auditor
Norio Morimoto
Corporate Auditor.

34

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, 2018
Total Assets
Total Liabilities
Total Net Assets(Yen in millions)¥2,647
476
2,171

35

36

DISCLAIMER
This document has been prepared solely for the purpose of providing U.K. and Dutch
investors with certain information under Article 23 of the European Alternative Investment
Fund Managers Directive (European Directive 2011/61/EU) as implemented in theirrespective jurisdictions, and does not constitute an offer to sell or a solicitation of any offer
to buy the units of Nippon Building Fund Inc. (“NBF” or the “AIF”). Accordingly, you should
not use this document for any other purpose.
Prohibition of Sales to EEA Retail Investors
The units of NBF are not intended to be offered, sold or otherwise made available to andshould not be offered, sold or otherwise made available to any retail investor in theEuropean Economic Area, or the EEA. For these purposes, a retail investor means a person
who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive
2014/65/EU, as amended, or the MiFID II; or (ii) a customer within the meaning of Directive
2002/92/EC, as amended, or the Insurance Mediation Directive, where that customer would
not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii)
not a qualified investor as defined in Directive 2003/71/EC, as amended, the Prospectus
Directive. Consequently no key information document required by Regulation (EU) No
1286/2014, or the PRIIPs Regulation, for offering or selling the units of NBF or otherwise
making them available to retail investors in the EEA has been prepared and therefore
offering or selling the units of NBF, or otherwise making them available, to any retailinvestor in the EEA may be unlawful under the PRIIPs Regulation.
United Kingdom
The units of NBF are being marketed in the United Kingdom pursuant to Article 59 of theUnited Kingdom Alternative Investment Fund Managers Regulations 2013. In accordancewith this provision, Nippon Building Fund Management Ltd. (the “AIFM”) has notified the
Financial Conduct Authority (the “FCA”) of its intention to offer these units in the United
Kingdom. For the purposes of the United Kingdom Financial Services and Markets Act 2000(“FSMA”) NBF is an unregulated collective investment scheme which has not beenauthorized by the FCA. Accordingly, any communications of an investor or inducement toinvest in NBF may be made to: (i) investment professionals falling within Article 19(5) of the
Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or
the Order; or (ii) high net worth companies and other persons to whom it may lawfully be
communicated, falling within Articles 49(2)(a) to (d) of the Order (all such persons together
being referred to as “Relevant Persons”). In the United Kingdom, this document and its
contents are directed only at Relevant Persons and must not be acted on or relied on by37

persons who are not Relevant Persons. Any person who is not a Relevant Person may not
act or rely on this document or any of its contents.
European Economic Area Investors
The Directive 2011/61/EU (the “Alternative Investment Fund Managers Directive”, or the“AIFMD”), was adopted on June 8, 2011 and was required to be implemented by each
Member State of the EEA into its national legislation by July 22, 2013. The units of NBF may
not be marketed (within the meaning given to the term “marketing” under the AIFMD), andthe Communication may not be conducted, to prospective investors domiciled or with aregistered office in any Member State of the EEA unless: (i) the units of NBF may bemarketed under any national private placement regime (including under the AIFMD) orother exemption in that Member State; or (ii) the units of NBF can otherwise be lawfully
marketed or sold in that Member State in circumstances in which the AIFMD does not apply,
provided that any such offer or sale is not made to a retail investor as described above. We
have made a notification to each of the Netherlands Authority for the Financial Markets andthe United Kingdom Financial Conduct Authority pursuant to Article 42 of the AIFMD inorder to market the units of NBF in the Netherlands and the United Kingdom, respectively.
Netherlands
The units of NBF are being marketed in the Netherlands under Section 1:13b of the Dutch
Financial Supervision Act (Wet op het financieel toezicht, or the “Wft”). In accordance withthis provision, the AIFM has notified the Dutch Authority for the Financial Markets of its
intention to offer these units in the Netherlands. The units of NBF will not, directly or
indirectly, be offered, sold, transferred or delivered in the Netherlands, except to or byindividuals or entities that are qualified investors (gekwalificeerde beleggers) within themeaning of Article 1:1 of the Wft, and as a consequence neither the AIFM nor NBF is subject
to the license requirement pursuant to the Wft. Consequently, neither the AIFM nor NBF is
subject to supervision of the Dutch Central Bank (De Nederlandsche Bank, “DNB”) or the
Netherlands Authority for Financial Markets (Autoriteit Financiële Markten, the “AFM”) andthis Article 23 AIFMD prospectus is not subject to approval by the AFM. No approved
prospectus is required to be published in the Netherlands pursuant to Article 3 of theEuropean Directive 2003/71/EC (the EU Prospectus Directive) as amended and implemented
in Netherlands law. The AIFM is solely subject to limited ongoing regulatory requirements as
referred to in Article 42 of the AIFMD.

38

Article 23 (1)(a)Objectives of the

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

AIF.

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

Investment

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

strategy.

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

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

AIF may invest in.

and other assets.

Techniques it may

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

employ and all

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

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

39

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

40

(k) Risks concerning strict environmental liabilities for the properties(l) Risks concerning reliance on expert appraisals and engineering, environmental
and seismic reports as well as industry and market data(m) Risks concerning lease contracts in Japan(n) Risks concerning building damage and loss due to fire, explosion, lightning, wind,
hail, snow, floods, electrical and mechanical hazards and other unexpected
accidents(o) Risks concerning building damage and loss due to fire, explosion and collapse
caused by earthquakes and other disasters such as eruptions, tsunami andliquefaction(p) Risks concerning the concentration of properties in the portfolio in certain areas(q) Risks concerning tenants’ financial status and insolvency(r) Risks concerning fluctuation of profits due to a limited number of tenants(s) Risks concerning subleases(t) Risks concerning ownership liabilities related to real estate(u) Risks concerning repair and maintenance costs related to real estate(v) Risks concerning liability as the seller of properties(w) Risks related to holding partnership interests(x) Risks concerning complexity of ownership and other interests of properties andinaccuracy of real estate registration(y) Risks concerning administrative rules and regulations and prefectural or municipal
ordinances for real estate(z) Risks concerning establishment of new or revisions of existing laws andregulations(aa) Risks concerning conclusion of post-dated sale agreements (forward
commitment contracts)(4) Risks Related to Trust Beneficiary Rights(a) Risks concerning investments in trust beneficiary interests(b) Risks concerning liquidity of beneficiary interests(c) Risks concerning insolvency of the trustee(5) Risks Related to Taxation(a) Risks of failure to satisfy pass-through requirements due to inability to pay
dividends and other reasons(b) Risks of failure to satisfy pass-through requirements due to excessive amount oftax burden(c) Risk of additional tax liability as a result of a tax audit, which could, among other41

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

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

investment

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

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

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

NBF may take out loans or issue long-term or short-term investment corporation bonds forwhich the AIF may

the purpose of investing in properties, conducting repairs and related work, paying cash

use leverage.

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

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

short-term loans as well as outstanding investment corporation bonds are unsecured andpermitted andunguaranteed.

associated risks.
Loans or investment corporation bonds in which NBF enters or NBF issues may be subject torestrictive covenants in connection with any future indebtedness that may restrict operations

42

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

The maximum amount of each loan and investment corporation bond issuance will be 1

leverage.

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

Any restrictions on

No applicable arrangements.

collateral and asset
reusearrangements.
Maximum level of

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

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

employ on behalf

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

acquisitions or other events.

Article 23(1) (b)Procedure by

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

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

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

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

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

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

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

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

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

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

properties to subtenants;

43

relationshipDirect lease agreements with Mitsui Fudosan Co., Ltd. as tenant;entered into for

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

the purpose ofinvestment,
includingFudosan Co., Ltd., and management contracts with regard to such assets; andAgreements for the development of certain properties.

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



A custody agreement regarding NBF’s assets;

applicable law, and

A transfer agent agreement regarding the units;

the existence orLoan agreements over certain of our short- and long-term loans;

not of any legal

Agreements establishing Sumitomo Mitsui Trust Bank, Limited as the trustee for

instruments
providing for therecognition andcertain trust beneficiary rights held by NBF; andVarious agreements related to our investment corporation bond offerings.

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

enforcement ofLoan agreements over certain of our long-term loans;judgments in theLease agreements for certain properties with Sumitomo Life Insurance Company as

territory where the
AIF is established.

tenant; and

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

All of the above agreements are governed by Japanese law.
NBF is not involved in or threatened by any legal arbitration, administrative or otherproceedings, the results of which might, individually or in the aggregate, be material.
NBF is a corporate-type investment trust in the form of investment corporation (toshi hojin)
provided for under the ITA. Therefore, the relationship between NBF and its unitholders isgoverned by NBF’s articles of incorporation (as opposed to individual agreements), which canbe amended from time to time upon resolution of a general unitholders’ meeting. NBF’s
articles of incorporation stipulate rules relating to general unitholders meetings, including theconvocation, setting of record date, exercise of voting rights, resolutions and election of NBF’s
directors.
The relationship between NBF and its unitholders is also governed by, and is subject to theprovisions of, Japanese law, including the ITA.
The courts in Japan would recognize as a valid judgment any final and conclusive civil
judgment for monetary claims (which, for this purpose, are limited to those of a purely civil
nature and do not include monetary claims of the nature of criminal or administrative
sanction, such as punitive damages, even though they take the form of civil claims) against
NBF obtained in a foreign court provided that (i) the jurisdiction of such foreign court isadmitted under the laws of Japan, (ii) NBF has received service of process for the44

commencement of the relevant proceedings, otherwise than by a public notice or any method
comparable thereto, or has appeared without any reservation before such foreign court, (iii)neither such judgment nor the relevant proceeding is repugnant to public policy as applied inJapan, (iv) there exists reciprocity as to the recognition by such foreign court of a final
judgment obtained in a Japanese court and (v) there is no conflicting judgement on thesubject matter by any Japanese court.
Article 23(1) (d)The identity of the AIFM (Asset Manager): Nippon Building Fund Management Ltd.

AIFM, AIF's

The AIFM provides services related to management and operation of assets, financing ofdepositary, auditor

the AIF, reporting to the AIF, and other matters delegated by the AIF.

and any other Auditor: KPMG AZSA LLC

service providers

The Auditor audits financial statements, prepares audit reports, and report to theand a description

supervisory directors if it finds any misconduct or any material fact that is in violation ofof their duties andlaws and regulations or the articles of incorporation with regard to execution of the duties

the investors' rightsof the executive director.

thereto.

 Custodian and Transfer Agent: Sumitomo Mitsui Trust Bank, Ltd.
The Custodian provides administrative services related to custody of assets and related
documents.
The Transfer Agent provides administrative services related to unitholders’ roster, issuanceof the investment units, payments of cash distributions to unitholders and addressing
unitholders’ claims, offers and notices.
Service providers owe contractual obligations under their respective agreements with the AIF
or AIFM, as the case may be. In addition, the FIEA provides that an asset manager owes a
J-REIT a fiduciary duty and must conduct its activities as the asset manager in good faith. The
FIEA also prohibits an asset manager from engaging in certain specified conduct, including
entering into transactions outside the ordinary course of business or with related parties of
the asset manager that are contrary to or violate the J-REIT’s interests. Pursuant to the ITA,
the unitholders have the right to approve the execution or termination of the asset
management agreement at a general meeting of unitholders.

Article 23(1) (e)Description of how

Not applicable.

the AIFM complies
with therequirements tocover professional
liability risks (own45funds /professional
indemnity
insurance).

Article 23(1) (f)Description of any

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

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

safekeeping activities.

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

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

AIF’s valuation

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

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

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

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

valuation.

assets.
Regarding hard to value assets, such assets comprise tenant security deposits including trust
accounts. Security deposits from tenants are not subject to fair value disclosure because they
are not marketable, and actual deposit period is not estimable as leases may be cancelled,
renewed or re-signed even if a lease term is set in the lease contract. This makes a reasonable46

estimate of future cash flows difficult. Valuation of such hard to value assets is included in thenotes to our financial statements.
If asset valuation methods other than those mentioned in the paragraphs above are to be
used in order to determine values for asset management reports, etc., valuation shall be
conducted in the following manner.
(1) Real estate, real estate leasehold rights and surface rights
In principle, valuation shall be based on the appraisal by a real estate appraiser.
(2) Trust beneficiary interests and equity interests in anonymous associations and voluntary
associations
Valuation shall be made by calculating the value of the equity interests in anonymous
associations or voluntary associations in relation to real estate, real estate leasehold rights or
surface rights, or the value of the trust beneficiary interests obtained by subtracting theamount of liabilities from the aggregate value of assets after (i) determining valuation as
described in (1) above with respect to trust assets or the assets of anonymous associations
composed of real estate, real estate leasehold rights or surface rights and (ii) determining
valuation in accordance with general accepted accounting principles in Japan with respect totrust assets or the assets of anonymous associations or voluntary associations composed offinancial assets.
Article 23(1) (h)Description of the

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

AIF’s liquidity risk

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

entered into credit lines in the amount of 60 billion yen as of December 31, 2018, and has

includingentered into loans and has issued investment corporation bonds in the past. While loans andredemption rights

investment corporation bonds are exposed to liquidity risk, such risk is managed in ways suchin normal andas by diversifying the means of funding and lending institutions, dispersing repayment dates,

exceptional

establishing committed credit lines, and keeping sufficient liquidity in hand.

circumstances andexisting

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

redemption of their investment.

arrangements withinvestors.
Article 23(1) (i)Description of allCompensation: The articles of incorporation provide that the AIF may pay its

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

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

maximum amountofficer and each of the supervisory officers.

47

which is directly /indirectly borne by
the investors.



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

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

0.5%

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

0.2%

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

0.05%

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

nothing

Management Fees 4 – In the event that Real Estate is sold, compensation equivalent to thetotal amount of the sale price of said Real Estate(or the sale price of each unit, in the event where multiple units of said Real Estate are soldsimultaneously), excluding the national consumption tax, regional consumption tax andmiscellaneous costs of the sale, multiplied by one the following applicable percentage rates
will, in principle, be payable; provided, however, that with the approval of the officers of NBF,
different rates not exceeding the following rates may be used.

48

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

0.5%

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

0.2%

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

0.05%

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

nothing

In addition to the above, NBF will pay the Asset Manager a management agent fee as follows:
3,000,000 yen per year for services related to the meetings of the board of officers and
5,000,000 yen per meeting for services related to the meeting of unitholders.


Custodian Fee: The AIF will pay the Custodian as follows:

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

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

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

420 yen

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

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

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

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

225 yen

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

Auditor Fee:

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

49



Accounting Service Feeth

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

800,000 yen per property

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

600,000 yen per property

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

400,000 yen per property

Miscellaneous

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

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

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

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

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

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

Article 158 of the ITA.

preferential
treatment received
by investors,
including detailingthe type ofinvestors and theirlegal or economic
links with the AIF

50

or AIFM.

Article 23(1) (k)The latest annual

Additional information may be found in our most recent semi-annual report prepared inreport referred toaccordance with Article 22 of the AIFMD, which is available at the Asset Manager’s officein Article 22(1).

located at 38th Floor, GranTokyo North Tower, 9-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo,
100-6738, Japan.

Article 23(1) (l)The procedure and

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

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

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

Exchange. Unit prices on the Tokyo Stock Exchange are determined on a real-time basis by theequilibrium between bids and offers. The Tokyo Stock Exchange sets daily price limits, which
limit the maximum range of fluctuation within a single trading day. Daily price limits are set
according to the previous day’s closing price or special quote.

Article 23(1) (m)Latest net asset

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

financial information vendors at

latest market price

http://www.reuters.com/finance/stocks/overview?symbol=8951.Tof the unit or shareof the AIF.

51

Article 23(1) (n)Details of the

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

historical

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

performance of the

Fiscal period (six months

Total Assets

Total Net Assets

Net Assets per unit

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

December 31, 2018

1,024,893

540,467

382,767

June 30, 2018

1,020,237

539,574

382,135

December 31, 2017

1,013,860

538,794

381,582

June 30, 2017

1,023,900

537,002380,313

December 31, 2016

1,030,434

536,413379,896

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

prime broker, anymaterial
arrangements of
the AIF with its
prime brokers, howconflicts of interest
are managed withthe prime broker
and the provisionin the contract withthe depositary on
the possibility oftransfer and reuseof AIF assets, andinformation about
any transfer of
liability to theprime broker that
may exist.
Article 23(1) (p)Description of how

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

its Internet website and semi-annual report.

disclosures will bemade in relation to52

leverage, liquidity
and risk profile of
the assets,pursuant to Articles
23(4) and 23(5).
Article 23(2)The AIFM shallNot applicable.

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

Not applicable.

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

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

their illiquid nature.

arising from their illiquid nature. The
percentage shall be calculated as the
net value of those assets subject tospecial arrangements divided by the
net asset value of the AIF concerned.
Overview of any special

There are no such special arrangements.

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

There are no such special arrangements.

assets which are subject to such53

arrangements.
How management and performance

There are no such special arrangements.

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

Any new arrangements or change in applicable arrangements will be

the liquidity of the AIF.

disclosed at an appropriate time.

For each AIF that the AIFM manages

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

disclosed at an appropriate time.

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

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

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

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

disclosed at an appropriate time.

arrangements.
Terms of redemption and

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

entitled to request the redemption of their investment.

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

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

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

The appropriateness and effectiveness of the risk management structure

the risk management systems

are regularly evaluated and enhanced by the AIFM.

employed by the AIFM to manage
those risks.

Deposits are exposed to risks of failure of the financial institution holding
the deposit and other credit risks, but such risks are controlled by striving todiversify the financial institutions holding the deposits.
Funds from debts and investment corporation bonds are mainly used for
asset acquisition or debt repayment, etc. While loans and investment
corporation bonds are exposed to liquidity risk, such risk is managed inways such as by diversifying the means of funding and lending institutions,dispersing repayment dates, establishing committed credit lines, andkeeping sufficient liquidity in hand. Our credit line is in the amount of 60
billion yen; no amount has been drawn down as of December 31, 2018.
Debt with a floating interest rate is exposed to interest rate fluctuation
risks, but the impact that interest rate rises have on the operations islimited by maintaining the proportion of debt that is long-term fixed-rate
debt at high levels, and setting a procurement limit depending on theeconomic and financial environment, terms of lease agreements withtenants, asset holding period and other factors.
Furthermore, derivative transactions (interest rate swap transactions) areavailable as hedging instruments to mitigate the risks of rises in floatinginterest rates.
Tenant security deposits are exposed to liquidity risk arising from vacatingof properties by tenants due to the termination of contract.
NBF manages this risk by monitoring forecasted cash flows on a monthly
basis to ensure it has sufficient funds.

Measures to assess the sensitivity of

No such measures have been implemented.

55

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

No such situation has occurred.

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

disclosed at an appropriate time.

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

No such right or guarantee exists.

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

Any new arrangements or change in applicable arrangements will be

providers relating to the above.

disclosed at an appropriate time.

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

The aggregate amount of debt with interest is JPY 418,125 million as ofleverage employed by the AIF

December 31, 2018.

calculated in accordance with thegross and commitment methods.

56

Disclaimer
This document contains translations of selected information described in the Securities Report (Yuka shoken
hokokusho) filed on March 28, 2019 pursuant to the Securities Exchange Law of Japan, and the Financial Statements
and the Performance Information Report for the period from July 1, 2018 to December 31, 2018, of Nippon Building
Fund Inc. prepared pursuant to the Investment Trust Law of Japan.

This English-language document was prepared solely for the convenience of and reference by overseas investors. It
neither corresponds to the original Japanese documents nor is intended to constitute a disclosure document. The
Japanese-language Securities Report and the Financial Statements and the Performance Information Report for the
aforementioned period should always be referred to as originals of this document.

English terms for Japanese legal, accounting, tax and business concepts used herein may not be precisely identical tothe concept of the equivalent Japanese terms. With respect to any and all terms herein, including without limitation,
financial statements, if there exist any discrepancies in the meaning or interpretation thereof between the original
Japanese documents and English statements contained herein, the original Japanese documents will always govern
the meaning and interpretation. None of Nippon Building Fund Inc., Nippon Building Fund Management Ltd. or anyof their respective directors, officers, employees, partners, unitholders/shareholders, agents or affiliates will be
responsible or liable for the completeness, appropriateness or accuracy of English translations or the selection of the
portions of any documents translated into English. No person has been authorized to give any information or makeany representations other than as contained in this document in relation to the matters set out in this document, and if
given or made, such information or representation must not be relied upon as having been authorized by Nippon
Building Fund Inc., Nippon Building Fund Management Ltd. or any of their respective directors, officers, employees,
partners, unitholders/shareholders, agents or affiliates.

The financial statements of Nippon Building Fund Inc. have been prepared in accordance with generally accepted
accounting principles in Japan (Japanese GAAP), which may materially differ in certain respects from generally
accepted accounting principles in other jurisdictions.

Many provisions of this document contain forward-looking statements and information. We base these statements on
our beliefs as well as our assumptions based solely on certain limited information currently available to us. Because
these statements reflect our current views concerning future events, these statements involve known and unknown
risks, uncertainties and assumptions. Our future performance could materially differ from those set out in theseforward-looking statements. We do not undertake and will not undertake to release revisions of forward-looking
statements to reflect future events or circumstances or of any other statements or information contained herein.

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