Mori Hills REIT Investment Corporation
Semiannual Report
26th Fiscal Period(February 1, 2019 - July 31, 2019)

To Our Unitholders
All of us at Mori Hills REIT Investment Corporation (“MHR”) wish to extend our deep appreciation to ourunitholders for your continuous support of MHR. I am pleased to report on MHR’s performance for the twentysixth fiscal period which ended July 31, 2019.
In the twenty-sixth fiscal period, the Japanese economy saw a temporary standstill in corporate earnings due
to a slowdown in exports caused by the impact of the US-China trade conflict. However the economy remainedsolid due to capital investment and support from increased consumer spending impacted by the change in theJapanese era name.
Within this economic environment, the rent level continued to be on an upward trend in the rental office building
market as the supply-demand balance remained tight due to the vacancy rate in central Tokyo continuing to be
low, and the leasing up of tenants into new buildings progressing steadily. In the luxury rental housing market,
occupancy rates and rent levels remained solid driven by the ongoing stable demand for quality housing incentral Tokyo amid limited new supply. In the real estate trading market, transaction prices continued to be highbacked by the strong investment appetite from investors at home and abroad in addition to the favorable fundraising environment, and transaction amounts also remained at a high level.
In the twenty-sixth fiscal period, MHR strove to maintain and enhance tenant satisfaction through measures
such as efficient and systematic operational management and maintenance and repair of properties in its
portfolio by better understanding tenant needs. Moreover, MHR maintained and enhanced occupancy rates andrents by proactively launching leasing activities targeting new and existing tenants while foreseeing trends inrental market conditions.
MHR’s real estate portfolio, as of the end of the twenty-sixth fiscal period, was comprised of 11 properties undermanagement with a total leasable area of 174,699.12m2. MHR has already invested 390,690 million yen (basedon the acquisition price) into this portfolio. The occupancy rate at the end of the twenty-sixth fiscal period was
99.4%. The asset management activities described above resulted in MHR recording in the twenty-sixth fiscal
period 9,561 million yen in operating revenue, 5,971 million yen in operating income, 5,346 million yen in
ordinary income, 5,344 million yen in net income and 2,850 yen in dividend per unit in the twenty-sixth period.
MHR declared dividends per unit of 2,860 yen for the twenty-seventh fiscal period ending January 31, 2020.
In addition, MHR will continue to seek to maximize unitholder value through further improvements in profitability
and stability by progressively achieving steady internal growth with a close watch on rental market trends while
actively pursuing external growth utilizing Mori Building Groups’ property pipeline.
I would like to ask for your continued support.

Hideyuki Isobe
Executive Director, Mori Hills REIT Investment Corporation
President and CEO, Mori Building Investment Management Co., Ltd.

1

Financial Highlights
Dividend per unit: 26th period

Dividend per unit: 27th period forecast*

2,850 yen

2,860 yen

*The forecasted figures for the 27th and the 28th fiscal period are projections from historical figures based on certain assumptions.
Accordingly, the figures may differ from actual results. Furthermore, the forecast shall not be construed as a guarantee of dividend amount.

Change in dividend per unit

※ Implemented a 5-for-1 investment unit split effective on February 1, 2014. Actual dividends per unit were divided by 5 for the periods before the split ofinvestment units in the graph.

Results of the 26th period and forecast of the 27th period
Forecast

Difference

26th period

27th period

February 1, 2019 July 31, 2019 (181 days)

August 1, 2019 January 31, 2020 (184 days)

27th - 26th period

Actual(Forecast - Actual)

Operating revenue

9,561 million yen

9,616 million yen+ 54 million yen

Operating income

5,971 million yen

5,986 million yen+14 million yen

Ordinary income

5,346 million yen

5,365 million yen+18 million yen

Net income

5,344 million yen

5,364 million yen+19 million yen

Dividend/unit

2,850 yen / unit

2,860 yen / unit

+ 10 yen / unit

Total units outstanding

1,874,960 units

1,874,960 units

390,690 million yen

390,690 million yen

Acquisition price(weighted average based on the numberof operating days during the period)(Note) Unless otherwise stated in this document, all amounts are rounded down below the unit and all fractions and areas are rounded up below the decimal point.

2

Overview of Portfolio
MHR has developed an urban portfolio mainly in Central Tokyo through its “investment in the city” concept,
taking advantage of market opportunities and our competitive strengths to enhance profitability as well as
portfolio value.
Portfolio breakdown
Area

Type

Size
6.4 5.6
% %

1.7%

98.3%

88.0%
■ Office■ 30,000 ㎡ or more

■ Residential■ Under 30,000 ㎡■ Retail(Note 1) The ratios represent proportion of acquisition price to total acquisition price.
(Note 2) Chart showing “Size” does not include Laforet Harajuku (Land).
(Note 3) For calculation of breakdown by type, acquisition price for Akasaka Tameike Tower and Atago Green Hills are divided into offices and residences.

Portfolio list3

4

Earthquake-resistance capacity
Best portfolio PML among J-REITs

Lowest portfolio
PML of all listed
J-REITs

0.93%※PML refers to the probable maximum loss ratio
expected to result from an earthquake.
A smaller percentage indicates superiority inearthquake-resistance.

5

Environmental performance
Highest ratio of green building (GB) certified properties among all J-REITs※ Based on acquisition price excluding Laforet
Harajuku (Land)GRESB Green Star Designation
GRESB is a benchmark that measures the sustainability performance of real estate companies
and real estate management institutions based on an annual questionnaire survey conductedby the GRESB B.V., composed primarily of European pension fund groups.
In the 2019 GRESB Assessment, MHR was designed as Green Star for the eighth consecutive
year. In addition, MHR received 4 Stars in the GRESB Rating. (Note)
In addition, MHR received 4 Stars in the GRESB Rating (Note).

GRESB Four-Quadrant Model Scores by Region(Source) Prepared by the Asset Manager based on the disclosed data by GRESB.
(Note) The comparative assessment of the overall score was initially introduced in 2016. It is a global ranking utilizing a five-star scale(“5 Stars” indicating the highest rank).

6

Financial Status
MHR’s cost of debt has decreased along with the improvement in LTV ratio (appraisal value basis).
We will continue to maintain a debt duration level that allows us to further strengthen our healthy financial base.
Trend in LTV (appraisal value basis) and average interest rate (including borrowing expenses)(%)■ LTV (appraisal value basis)(%)■ Average interest rate

65.0

60.0

2.5
2 .0 %

2 .1 %

2 .1 %
2.0

55.0
1.5
1 .2 %

50.0

1 .1 %
0 .9 %

0 .8 %

45.0

0 .7 6 %0 .7 6 %1.0
0 .7 4 %0 .7 1 %0 .6 9 %0 .6 9 %
0.5

・・・

40.0
5 7 .4 %5 6 .4 %5 3 .7 %4 3 .8 %4 3 .2 %4 3 .2 %4 2 .3 %4 2 .4 %4 2 .1 %4 2 .3 %4 1 .9 %4 0 .4 %3 9 .4 %9th
period10th
period11th
period17th
period18th
period19th
period20th
period21st
period22nd
period23rd
period24th
period25th
period26th
period

35.0

0.0
Jan.
2011

Jul.
2011

Jan.
2012

・・・

Jan.
2015

Jul.
2015

Jan.
2016

Jul.
2016

Jan.
2017

Jul.
2017

Jan.
2018

Jul.
2018

Jan.
2019

Jul.
2019

(Note) Average interest rate is calculated as [(interest expenses + interest expenses on investment corporation bonds + borrowing expenses + amortization of
investment corporation bond issuance costs) × 365 ÷ operating days during each period ÷ average interest-bearing debt balance during each period].

Extension in remaining duration of debt
(years )
5.0

4.4

4.5
4.0

4.5
3.8

3.7

3.5

4.3

4.2

4.4

4.0
3.7

3.2

3.0
2.5
2.0
1.5

1.5
1.2

1.4

・・・

1.0
9th
10th
11th
period2012 ・・・
2011period
2011period
Jan.
2011

Jul.
2011

Jan.
2012

17th
18th
19th
20th
21st
22nd
23rd
24th
25th
26th
periodperiod2016
periodperiodperiod2017
period2018
periodperiod2019
2018
2014period
2015period
2015
2017
2016
Jan.
2015

Jul.
2015

Jan.
2016

Jul.
2016

7

Jan.
2017

Jul.
2017

Jan.
2018

Jul.
2018

Jan.
2019

Jul.
2019

Overview of debt financing

Debt Balance
LTV (book value basis)

End of the 25th period
Jan. 31, 2019

End of the 26th period
Jul. 31, 2019

182,222 mn yen

179,222 mn yen

46.2%

45.7%

40.4%

39.4%

4.3 years

4.4 years(N ote 1 )LTV (appraisal value basis)(N ote 2 )Avg. remaining duration(Note 1) LTV (book value basis) is calculated as [Interest bearing debt / Total assets].
(Note 2) LTV (appraisal value basis) is calculated as [Interest-bearing debt / Appraisal value based total assets (Total assets + Total appraisal value - Total
book value)].

Long-term debt ratio / Fixed rate ratio[Long and short-term debt ratio]

Rating[Fixed rate ratio]

Japan Credit Rating (JCR)
Long-term issuer ratingAA(Stable)Overview of maturity (as of July 31, 2019)(billion yen)

8

Portfolio Management
MHR maintained and enhanced occupancy rates and rents by proactively launching marketing activities targeting
new and existing tenants based on a flexible price policy.
Rent and occupancy rate
[Office](yen/tsubo)(%)

40,000100

35,00030,00090

25,00020,00015,00080

10,000
5,000
0

70

Aug.
2018

Sep.

Oct.

Nov.

Dec.

Jan.
2020

Feb.

Mar.

Rent (Leasable floors)

30,62030,89530,89830,90030,91030,81130,897

Occupancy rate

99.9%

99.6%

99.6%

99.6%

99.6%

99.9%

99.9%

Apr.

May

Jun.

Jul.

30,90030,93430,93130,93830,94399.9%

100.0%

99.9%

99.9%

100.0%[Residential](yen/tsubo)(%)

25,000100

20,00090
15,00010,000

80

5,000
0

70

Aug.
2018

Sep.

Oct.

Nov.

Dec.

Jan.
2020

Feb.

Mar.

Apr.

May

Jun.

Jul.

Rent (Leasable floors)

15,205

15,22915,32915,335

15,332

15,37915,40715,45815,457

15,551

15,556

15,559

Occupancy rate

97.5%

96.9%

97.4%

98.1%

98.0%

98.1%

97.5%

97.2%

96.7%

96.3%

96.6%

96.6%

Result of tenants’ rent revision[Office][Residential](Note 1) Figures indicate the results of rent revisions of properties at which pass-through master lease agreements are applied.
(Note 2) Figures are calculated based on asset acquisitions and monthly rents which reflect move outs of end tenants confirmed as of July 31, 2019.

9

Corporate Governance
MHR entrusts the asset management of its assets to Mori Building Investment Management Co., Ltd., theasset manager.
The asset manager manages MHR’s assets based on the asset management agreement concluded with MHR.
Governance structure taking unitholders’ value into consideration
Our asset manager is Mori Building Investment Management Co., Ltd. (the Asset Manager). In accordance with
our articles of incorporation and as the asset manager that has been granted discretion by us to manage ourassets, the Asset Manager has formulated management guidelines and has stipulated basic policies concerninginvestment management, such as an investment policy, operation and management policy, financial policy,
disclosure policy and rules governing transactions with related parties.
The Asset Manager’s Compliance Department conducts inspections on legal compliance and confirms consistency
with internal rules. The Asset Manager confirms whether there are any conflict of interest transactions withrelated parties. In this way, the Asset Manager is striving to ensure comprehensive internal control, while also
striving to enhance its risk management structure as well as its effectiveness.
Furthermore, the Asset Manager has a set of internal rules (self-imposed regulations) which stipulate rules suchas its Related Parties Transaction Guidelines. These Guidelines stipulate matters concerning transactions, etc.
with related parties. Through the Asset Manager’s compliance with these Guidelines, we have established astructure which ensures that the aforementioned transactions are managed appropriately and that the AssetManager sufficiently executes the duty of care of a good manager and duty of loyalty to MHR.
Process to counter transactions involving conflicts of interest(Note) The Director (Part-time) is unable to participate in the resolution of the Board of Directors since this individual will be considered a board member of a related
party when acquiring asset from a related party.

10Mori Building’s Extensive Property Pipeline
Mori Building’s total assets is 2.0 trillion yen and number of properties under management is 96 buildings.
(Note 1)

MHR has the “preferential negotiation rights” (Note2) on sales of Mori Building Co., Ltd. properties, which serves
as the driving force for external growth.
Recent redevelopment projects in Toranomon Hills area
Toranomon Hills Residential tower(Tentative name)

Projected completion Jan. 2021

Toranomon Hills Mori Tower
Opened Jun. 2014

Toranomon Hills Station Tower(Tentative name)

Projected completion Jul. 2023
Toranomon Hills Business tower (Note 3)
Projected completion Dec. 2019

Total area: approx. 7.5ha
Total floor area: approx. 800,000 ㎡
Toranomon Hills Station of
Hibiya subway line
Partially in-service by 2020

Office space: approx. 300,000 ㎡
Residential units: approx. 720
Green space: approx. 15,000 ㎡

Toranomon-Azabudai Project (Projected completion March 2023)

Main Tower(A district)

West Tower(B-1 district)

East Tower(B-2 district)Total area: approx. 8.1ha
Total floor area: approx. 860,400 ㎡
Office space: approx. 213,900 ㎡
Residential units: approx. 1,400
Green space: approx. 24,000 ㎡

11

MHR (Note 1)
In Operation
Operation
Planning / UnderIn
Construction
Planning/Under Construction

MB Group (Note 2)

MHR (Note 4)

MB Group (Note 5)(Source) Prepared by the Asset Manager based on Mori Building’s “Mori Building Handy Map/ Mori Building Map/Home Route Support Map 2019.”(Note 1) “Total asset” is as of the end of March 2019 and number of properties under management is as of April 1, 2019.
(Note 2) There are some exceptions.
(Note 3) Mori Building participates as a member of the project.
(Note 4) Some of the properties have been partially acquired and held by MHR.
(Note 5) Properties are developed, owned, managed and planned for development by Mori Building Group as of April 1, 2019 and there are no properties
anticipated to be acquired by MHR.

12

Unit Price Performance(Note) TSE REIT Index is adjusted as of the 8th period result announcement (Sep. 14, 2010) and shows the relative performance vs. MHR’s unit price performance.

Unitholders Breakdown (as of July 31, 2019)＜Number of unitholders＞＜Number of investment units＞

Other domestic
Financialcorporations

institutions

1.5%

Foreigncorporations

Foreign(Incl. securities

corporations

companies)

and individuals

1.4%

1.9%

and individuals

Individuals
6.3%

17.8%
Financial

Otherdomestic
corporations

institutions(Incl. securities
companies)

17.1%

Individuals

58.8%(Investment

95.2%

trust 34.7%)

13

Risk Factors
An investment in our units involves significant risks. The principal risks with respect to investment in Mori Hills REIT
Investment Corporation are as follows.
Property and Business Risks
Any adverse conditions in the Japanese economy could adversely affect our properties.
We may not be able to acquire properties to execute our growth and investment strategy in a manner that is accretive
to earnings and the amount of dividends per unit.
The high concentration in our portfolio of premium properties in central Tokyo could have a material adverse effecton our business.
Increases in prevailing market interest rates may increase our interest expense and may result in a decline in themarket price of our units.
Our reliance on Mori Building Co., Ltd. and other Mori Building Group companies could have a material adverse
effect on our business.
Competition for tenants may adversely affect our ability to retain our current tenants, find new tenants and achievefavorable rental rates.
We may suffer large losses if any of our properties incur damage from a natural or man-made disaster or acts ofviolence.
We may incur unexpected expenses, expenditure or other losses for repair or maintenance of our properties.
We may be strictly liable for any unforeseen loss, damage or injury suffered by a third party at our properties.
Because most of our operating expenses are largely fixed, we may suffer adverse consequences if our rental
revenues decline.
Illiquidity in the real estate market may limit our ability to grow or adjust our portfolio.
Defects relating to our properties may adversely affect our financial condition and results of operations.
We rely on expert reports for appraisals and PML percentages, and these reports are subject to significant
uncertainties.
We rely on industry and market data that are subject to significant uncertainties.
The environmental assessments of our properties made prior to our ownership may not have uncovered allenvironmental liabilities, and Japanese laws subject property owners to strict environmental liabilities.
To the extent we purchase or commit to purchase properties still in the development stage, we will be exposed toincreased risks and uncertainties.
We may lose rental revenues in the event of lease terminations, decreased lease renewals, defaults, nonpayment bytenants on rental obligations or requests or demands for reduction in rents or if tenants experience financial
difficulties or insolvency.
Any of our current or future properties, may violate earthquake resistance or other building codes, and any suchbuildings may collapse in even minor earthquakes or may be required to be strengthened or demolished by us atsignificant expense.
14

Master lease agreements expose us to the risk of becoming an unsecured creditor of Mori Building Co., Ltd. as ourmaster lessee in the event of its insolvency.
Decreases in tenant lease and guarantee deposits would increase our funding costs.
Any inability to obtain financing for future acquisitions, or any restrictions on our activities under our financing
arrangements, could adversely affect us.
A high LTV ratio may increase our exposure to changes in interest rates and adversely affect us.
We may suffer impairment losses relating to our properties and may also suffer adverse tax effects upon recognizing
impairments.
A downgrading of our credit rating may affect payments of principal of or interest on our bonds.
The past performance of our sponsor, Mori Building Co., Ltd., is not an indicator or guarantee of our future results.
Our financial statements are prepared in accordance with Japanese GAAP, which differs in certain material respects
from IFRS, U.S. GAAP and generally accepted accounting principles and financial reporting standards in otherjurisdictions.

Management and Governance Risks
Our success depends on the performances of service providers to which we are required to assign various key
functions.
There are potential conflicts of interest between us and certain Mori Building Group companies, including the AssetManager.
We depend on the efforts of key personnel of the Asset Manager.
Unitholders have limited control over our investment policies.
J-REITs and their asset managers are subject to tight supervision by the regulatory authorities.
If unitholders do not exercise their voting rights, we may count their votes in favor of proposals at a general meetingof unitholders.

Taxation Risks
Our failure to satisfy a complex series of requirements pursuant to Japanese tax regulations would disqualify us fromcertain taxation benefits and significantly reduce our distributions to our unitholders.
If the Japanese tax authorities disagree with the interpretations we used for prior periods, we may be forced to pay
additional taxes for those periods.
We may not be able to benefit from reductions in certain real estate transfer taxes enjoyed by qualified J-REITs.
Changes in Japanese tax laws may significantly increase our tax burden.
We expect to be treated as a “passive foreign investment company” for U.S. federal income tax purposes.
Unitholders may be subject to U.S. Foreign Account Tax Compliance Act (FATCA) withholding tax after 2018.
Legal and Regulatory Risks
Our ownership rights in some of our properties may be declared invalid or limited.
We may lose our rights in a property we own if the purchase of the property is recharacterized as a secured
15

financing.
Our leasehold or subleasehold rights may be terminated or may not be asserted against a third party in some cases,or our leases with our tenants could be modified.
Properties for which third parties hold leasehold rights in the land and own the buildings may subject us to various
risks.
Many of our properties are in the form of compartmentalized ownership interests (kubun shoyū-ken) and our rights
relating to such properties may be affected by the intentions of other owners.
Many of our properties are in the form of property co-ownership (kyōyū) or trust beneficiary interest coownership(junkyōyū) and our rights relating to such properties may be affected by the intentions of other owners.
Some of our properties are subject to preferential purchase rights, rights of first refusal or other similar rights heldby lessees, tenants or other third parties.
Tax increases or adverse changes in applicable laws may affect our potential liabilities relating to our properties andoperations.
Our costs of complying with regulations applicable to our properties could adversely affect our results of operations.
We own a substantial portion of our properties through trust beneficiary interests and may suffer losses as a trust
beneficiary.
The AIFMD may negatively affect our ability to market our units in the EEA and increase our compliance costs
associated with marketing of our units in the EEA.
Our units may be deemed to constitute “plan assets” for ERISA purposes, which may lead to the rescission of certaintransactions, tax or fiduciary liability and our being held in violation of ERISA requirements.

16

Disclaimer
This report has been prepared by Mori Hills REIT Investment Corporation (“MHR”) for informational purposes only andshould not be construed as an offer of any transactions or the solicitation of an offer of any transactions. Please inquirewith the various securities companies concerning the purchase of MHR investment units. This report’s content includes
forward-looking statements about business performance; however, no guarantees are implied concerning future businessperformance.
Although the data and opinions contained in this report are derived from what we believe are reliable and accurate sources,
we do not guarantee their accuracy or completeness. The contents contained herein may change or cease to exist without
prior notice. Regardless of the purpose, any reproduction and/or use of this document in any shape or form without theprior written consent from MHR is prohibited.
This report contains charts, data, etc. that were prepared by Mori Building Investment Management Co., Ltd. (hereafter,
the “asset manager”) based on charts, data, indicators, etc. released by third parties. Furthermore, this report includes
statements based on analyses, judgments, and other observations concerning such matters by the asset manager as of thedate of preparation.

17

FINANCIAL STATEMENTS
BALANCE SHEET(Unit: thousands of yen)
As ofJuly 31, 2019

January 31, 2019

AssetsCurrent assets
Cash and deposits

3,923,970

5,431,643

Cash and deposits in trust

6,295,543

6,374,508

Operating accounts receivable

370,512415,926

Prepaid expenses

431,886

426,673

Consumption taxes receivable
Total current assets－

230,911

11,021,912

12,879,664

22,074,160

22,074,160

Noncurrent assets
Property, plant and equipment
Land
Buildings in trust

81,918,977

81,354,644

Accumulated depreciation(16,124,966 )(15,113,944)

Buildings in trust, net

65,794,010

66,240,699

921,547

912,216

Accumulated depreciation(308,260 )(297,612)

Structures in trust, net

613,287

614,603

Machinery and equipment in trust

910,898

859,689

Accumulated depreciation(263,302 )(241,072)

Machinery and equipment in trust, net

647,596

618,616Structures in trust

Tools, furniture and fixtures in trust
Accumulated depreciation
Tools, furniture and fixtures in trust, net
Land in trust
Construction in progress in trust
Total property, plant and equipment

237,085

226,353(144,267 )(130,858)

92,81895,495260,234,866

260,234,866

1,949

1,796

349,458,688

349,880,238

30,650,962

30,650,962

372

835

Intangible assets
Leasehold rights in trust
Other intangible assets in trust
Other
Total intangible assets－

322

30,651,335

30,652,121

Investments and other assets
Lease and guarantee deposits

10,00010,000Long-term prepaid expenses

1,013,172

997,864

Deferred tax assets

44

43

Derivatives

－

1,516

Total investments and other assets

1,023,217

1,009,423

381,133,241

381,541,783

Investment corporation bonds issuance cost

73,556

83,750Investment unit issuance cost

27,80834,760Total noncurrent assets
Deferred assets

Total deferred assets
Total assets

1

101,365

118,511392,256,519

394,539,959

(Unit: thousands of yen)
As ofJuly 31, 2019

January 31, 2019

Liabilities
Current liabilities
Operating accounts payable

216,835

266,227

Current portion of investment corporation bonds

5,000,000

3,000,000

Current portion of long-term loans payable

22,922,000

27,900,000

Accounts payable – other

14,25010,970Accrued expenses

333,025

322,650

1,445

1,421

Income taxes payable
Accrued consumption taxes

484,072－

Advances received

1,222,824

1,226,929

Deposits received

70,12228,659787－

30,265,364

32,756,858

Investment corporation bonds

17,000,000

22,000,000

Long-term loans payable

134,300,000

129,322,000

Lease and guarantee deposits in trust

14,570,283

14,391,619

Derivatives liabilities
Total current liabilities
Noncurrent liabilities

Derivatives liabilities
Total noncurrent liabilities
Total liabilities

784,044490,812

166,654,327

166,204,431

196,919,691

198,961,290

190,460,106

190,460,106(174,371 )－Net assets
Unitholders’ equity
Unitholders’ capital
Deduction from unitholders' capital
Allowance for temporary difference adjustments(Note10)
Total deduction from unitholders' capital(174,371 )－

190,285,734

190,460,106

Reserve for reduction entry

291,944

291,944

Total voluntary retained earnings

291,944

291,9445,543,979

5,315,914

Unitholders' capital, net
Surplus
Voluntary retained earnings

Unappropriated retained earnings
Total surplus

5,835,924

5,607,858

196,121,658

196,067,964

Deferred gains or losses on hedges(784,831 )(489,295 )Total valuation and translation adjustments(784,831 )(489,295 )Total net assets (Note10)

195,336,827

195,578,668

Total liabilities and net assets

392,256,519

394,539,959

Total unitholders’ equity
Valuation and translation adjustments

2

STATEMENT OF INCOME AND RETAINED EARNINGS(Unit: thousands of yen)
For the six months ended
July 31, 2019

January 31, 2019

Operating revenue
Rent revenues (Note14)

9,323,944

9,170,318

237,931

253,577

9,561,876

9,423,895

3,225,332

3,131,002

Asset management fee

260,906

245,488

Directors’ compensation

4,200

4,200

Other operating revenues (Note14)
Total operating revenue
Operating expenses
Expenses related to properties (Note14)

Asset custody fee

9,863

9,058

Administrative service fees

19,861

19,166

Other operating expenses (Note14)
Total operating expenses
Operating income

69,767

69,031

3,589,931

3,477,948

5,971,944

5,945,947

Non-operating income
Interest income

58

51

Gain on forfeiture of unclaimed dividends

979

1,128

Interest on refund

947

24

1,985

1,204

Interest expenses

375,336

363,550

Interest expenses on investment corporation bonds

68,55573,965

10,193

11,613

164,678

174,101

6,952

28,363

Total non-operating income
Non-operating expenses

Amortization of investment corporation bonds
issuance cost
Borrowing expenses
Amortization of investment unit issuance cost
Other

1,930

1,907

627,646

653,502

Ordinary income

5,346,284

5,293,648

Income before income taxes

5,346,284

5,293,648

1,454

1,429

Total non-operating expenses

Income taxes-current
Income taxes-deferred
Total income taxes
Net income
Retained earnings brought forward
Unappropriated retained earnings (undisposed loss)

3

(1)

(22)

1,453

1,406

5,344,831

5,292,242

199,148

23,671

5,543,979

5,315,914

STATEMENT OF CHANGES IN NET ASSETSFor the six months ended July 31, 2019
(Unit: thousands of yen)
Unitholders’ equity

Unitholders’capitalBalance at February 1, 2019

Unitholders’ capital

Surplus

Deduction fromunitholders' capital
Allowance
Total
for
deduction
temporaryfromdifference
unitholders'adjustments
capitalVoluntary retained
earnings

190,460,106

Balance at July 31, 2019

Reserve for
reduction
entry

Total
voluntary
retainedearnings

291,944

291,944－－

190,460,106(174,371)(174,371)(174,371)－(174,371)(174,371)(174,371)－－

190,460,106(174,371)(174,371)

190,285,734

291,944

291,944

Change during the period
Dividends from surplus
Dividends in excess ofearnings from allowancefor temporary difference
adjustments
Net income
Net changes of items otherthan unitholders’ equity
Total changes of items during
the period

Unitholders'
capital, net

Valuation and translation
adjustments

Unitholders’ equity
Surplus
Unappropri
ated
retainedearnings
Balance at February 1, 2019
Change during the period
Dividends from surplus
Dividends in excess ofearnings from allowancefor temporary difference
adjustments
Net income
Net changes of items otherthan unitholders’ equity
Total changes of items during
the period
Balance at July 31, 2019

Total
surplusTotal
unitholders’equityDeferred
gains orlosses onhedges5,607,858

196,067,964(5,116,765)(5,116,765)(5,116,765)(5,116,765)(174,371)(174,371)

5,344,831

5,344,831

5,344,831(489,295)

Total net
assets5,315,914

5,344,831(489,295)

Total
valuationandtranslation
adjustments

195,578,668(295,535)(295,535)(295,535)

228,065

228,065

53,694(295,535)(295,535)(241,841)

5,543,979

5,835,924

196,121,658(784,831)(784,831)

195,336,827

4

For the six months ended January 31, 2019
(Unit: thousands of yen)
Surplus
Unitholders’capitalBalance at August 1, 2018
Change during the period
Issuance of new investment
units
Dividends from surplus
Net income
Net changes of items otherthan unitholders’ equity

174,231,870

Voluntary retained
earnings
Total
Reserve forvoluntary
reduction
retainedentry
earnings
291,944

291,944

Unappropria
ted retained
earnings

Total
surplusTotal
unitholders’equity4,843,183

5,135,127

179,366,998

16,228,235

16,228,235(4,819,511)
5,292,242(4,819,511)
5,292,242(4,819,511)
5,292,242

Total changes of items during
the period

16,228,235－－

472,730

472,730

16,700,966

Balance at January 31, 2019

190,460,106

291,944

291,944

5,315,914

5,607,858

196,067,964

Valuation andtranslation adjustments
Total valuation andDeferred gains ortranslation
losses on hedges
adjustments
Balance at August 1, 2018
Change during the period
Issuance of new investment
units
Dividends from surplus
Net income
Net changes of items otherthan unitholders’ equity

(15)

(15)

Total net
assets179,366,982

16,228,235(4,819,511)
5,292,242(489,280)(489,280)(489,280)

Total changes of items during
the period(489,280)(489,280)

16,211,686

Balance at January 31, 2019

(489,295)(489,295)

195,578,668

5

STATEMENT OF CASH DISTRIBUTIONS(Unit: yen)
For the six months ended

For the six months ended

July 31, 2019

January 31, 2019

Ⅰ. Unappropriated retained earnings

5,543,979,968

5,315,914,348

Ⅱ. Addition of dividends in excess ofearnings

294,368,720

174,371,280

294,368,720

174,371,280

5,343,636,000

5,291,137,120

Allowance for temporary difference
adjustments
Ⅲ. Amount of dividends
Amount of dividends per unit
Dividends of earnings
Dividends of earnings per unit
Allowance for temporary difference
adjustments
Dividends in excess of earnings per unit
(allowance for temporary difference
adjustments)
Ⅳ. Retained earnings carried forward

6

2,850

2,822

5,049,267,280

5,116,765,840

2,693

2,729

294,368,720

174,371,280

157

93

494,712,688

199,148,508

Method of calculating the amount ofdividends

Pursuant

to

the

terms

of

the

Pursuant

to

the

terms

of

the

distribution policy set forth in Article 37

distribution policy set forth in Article 37

(1)

(1)

of

the

Company’s

Articles

of

of

the

Company’s

Articlesof

Incorporation, the amount of dividends

Incorporation, the amount of dividends

shall be in excess of an amountshall be in excess of an amountequivalent to 90% of the Company’s

equivalent to 90% of the Company’s

earnings available for dividends asearnings available for dividends as

defined in Article 67-15 of the Special

defined in Article 67-15 of the Special

Taxation Measures Law, but not in

Taxation Measures Law, but not inexcess of the amount of earnings as

excess of the amount of earnings as

defined in Article 136, Paragraph 1 ofdefined in Article 136, Paragraph 1 ofthe Investment Trust Act. Based on

the Investment Trust Act. Based onsuch policy, the Company decided to pay

such policy, the Company decided to pay

out dividends of earnings (5,049,267,280

out dividends of earnings (5,116,765,840

yen), which is the integral multiple ofyen), which is the integral multiple ofthe total number of investment units

the total number of investment units

issuedissuedandoutstanding(1,874,960

andoutstanding(1,874,960

units) out of the amount of earnings asunits) out of the amount of earnings as

defined in Article 136, Paragraph 1 ofdefined in Article 136, Paragraph 1 ofthe Investment Trust Act.

the Investment Trust Act.

In addition, pursuant to the terms of

In addition, pursuant to the terms ofthe distribution policy set forth in

the distribution policy set forth in

Article 37 (2) of the Company’s Articles

Article 37 (2) of the Company’s Articles

of Incorporation, the Company decidedof Incorporation, the Company decided

to pay out dividends attributable toto pay out dividends attributable toallowance

allowance

for

temporarydifferencefor

temporarydifference

adjustments (294,368,720 yen), which isadjustments (174,371,280 yen), which is

the integral multiple of the total

the integral multiple of the total

number of investment units issued andnumber of investment units issued andoutstanding (1,874,960 units) in due

outstanding (1,874,960 units) in due

consideration of the impact of the items

consideration of the impact of the itemsof deduction from net assets (as definedof deduction from net assets (as definedin Article 2, Paragraph 2, Item 30 (b) ofin Article 2, Paragraph 2, Item 30 (b) of

the

the

Ordinanceon

AccountingsofOrdinanceon

Accountingsof

Investment Corporations) on dividends.

Investment Corporations) on dividends.

As a result, the Company declared

As a result, the Company declared

dividends per unit of 2,850 yen.

7

dividends per unit of 2,822 yen.

STATEMENT OF CASH FLOWS(Unit: thousands of yen)
For the six months ended
July 31, 2019

January 31, 2019

Net cash provided by (used in) operating activities
Income before income taxes

5,346,284

5,293,648

Depreciation and amortization

1,058,120

1,075,178

10,193

11,613

6,952

28,363

(58)

(51 )

Amortization of investment corporation bonds
issuance cost
Amortization of investment unit issuance cost
Interest income
Gain on forfeiture of unclaimed dividends
Interest expenses(979)(1,128 )443,892

437,515

Decrease (increase) in operating accounts receivable

48,79535,033

Decrease (increase) in consumption taxes receivable

230,911(230,898 )Increase (decrease) in operating accounts payable(64,833)

49,378

Increase (decrease) in accounts payable – other

2,636(1,125 )Increase (decrease) in accrued expenses

15,761

21,705

Increase (decrease) in accrued consumption taxes

484,076(162,954 )Increase (decrease) in advances received(4,105)

115,157

Increase (decrease) in deposits received

41,463(497 )

Decrease (increase) in prepaid expenses(5,212)

8,002

Decrease (increase) in long-term prepaid expenses(15,308)(72,916 )Other, net

15

163

7,598,606

6,606,189

58

51(449,279)(437,495 )(1,430)(1,024 )

7,147,955

6,167,720

Purchase of property, plant and equipment in trust(620,364)(30,891,345 )Repayments of lease and guarantee deposits in trust(66,699)(24,574 )SubtotalInterest income received
Interest expenses paid
Income taxes paid
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities

Proceeds from lease and guarantee deposits in trust

241,984

1,337,753

Net cash provided by (used in) investing activities(445,080)(29,578,166 )Net cash provided by (used in) financing activities
Proceeds from long-term loans payable

12,000,000

24,600,000

Repayments of long-term loans payable(12,000,000)(10,500,000 )Redemption of investment corporation bonds(3,000,000)－

Proceeds from issuance of investment units－

16,186,522

Cash dividends paid

(5,289,514)(4,818,556 )Net cash provided by (used in) financing activities(8,289,514)

25,467,966

Net increase (decrease) in cash and cash equivalents(1,586,638)

2,057,520

Cash and cash equivalents at beginning of the period

11,806,152

9,748,631

Cash and cash equivalents at end of the period (Note18)

10,219,514

11,806,152

8

NOTES TO FINANCIAL STATEMENTS
For the six months ended July 31, 2019 and January 31, 2019

1. ORGANIZATION
Mori Hills REIT Investment Corporation (“the Company”) was incorporated by Mori Building Investment
Management Co., Ltd. (the Company’s Asset Manager) on February 2, 2006 with 100 million yen in capital (200units), and registration was approved based on Article 187 of the Act on Investment Trusts and Investment
Corporations of Japan (the “Investment Trust Act”) on March 6, 2006 (Registration No. 51 filed with the
Director-General of the Kanto Local Finance Bureau). Subsequently, the Company was listed on the Real Estate
Investment Trust Section of the Tokyo Stock Exchange on November 30, 2006 (Securities Code: 3234).
The Company’s real estate portfolio as of July 31, 2019 was comprised of 11 properties under managementwith a total leasable floor area of 174,699.12m2. The Company has already invested 390,690 million yen (based on
acquisition price) into this portfolio. The occupancy rate as of July 31, 2019 was 99.4%.

2. BASIS OF PRESENTATION
The financial statements of the Company have been prepared in accordance with accounting principles
generally accepted in Japan (“Japanese GAAP”), including provisions set forth in the Financial Instruments andExchange Act of Japan and the Investment Trust Act and related regulations, which are different in certain respects
as to the application and disclosure requirements of International Financial Reporting Standards. The accompanying
financial statements are basically a translation of the financial statements of the Company, which were prepared inaccordance with Japanese GAAP and were presented in the Securities Report of the Company filed with the Kanto
Local Finance Bureau of the Ministry of Finance. In preparing the accompanying financial statements, certain
reclassifications have been made to the financial statements issued domestically in order to present them in a format
which is more familiar to readers outside Japan. The amounts have been rounded down to the nearest thousand yen in
the accompanying financial statements. The Company does not prepare consolidated financial statements, as theCompany has no subsidiaries.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(1) Property, plant and equipment (including assets in trust) and depreciation
Depreciation of property, plant and equipment of the Company is calculated principally by the straight-line
method based on the following estimated useful lives determined by the Company. Significant renewals andadditions are capitalized at cost. Maintenance and repairs are charged to income.
Buildings
3~68 years
Structures

3~68 years

Machinery and equipment

8~33 years

Tools, furniture and fixtures 3~15 years(2) Intangible assets (including assets in trust)Intangible assets are amortized by the straight-line method based on the estimated useful lives.
(3) Long-term prepaid expenses
Long-term prepaid expenses are amortized by the straight-line method based on the estimated useful lives.
(4) Investment corporation bonds issuance cost
Investment corporation bonds issuance cost is amortized using the straight-line method over the term of thebonds.
(5) Investment unit issuance cost
Investment unit issuance cost is amortized using the straight-line method over three years.
(6) Revenue recognition
Revenues from leasing of investment properties are recognized as rent revenues over the lease period.

9(7) Accounting for property taxes
For property tax, city planning tax and depreciable assets tax, the Company charges the amount of property
taxes assessed and determined applicable to the fiscal period to expenses related to properties.
Registered owners of properties in Japan as of January 1 are responsible for paying property taxes for thecalendar year based on assessments by local governments. Therefore, registered owners who sold properties to theCompany were liable for property taxes for the calendar year, including the period from the date of the acquisitionby the Company until the end of the year. The Company reimbursed sellers of properties for the equivalent amountof property taxes and included the amount in the acquisition cost of real estate. The amount equivalent to property
taxes included in the cost of acquisition of real estate was none as of July 31, 2019 and 31,319 thousand yen as ofJanuary 31, 2019, respectively.
(8) Hedge accounting approach(a) Hedge accounting approach
Deferred hedge accounting is applied for interest rate swap transactions. However, special treatment isapplied for interest rate swaps when the requirements for special treatment are fulfilled.
(b) Hedging instruments and hedged items
Hedging instruments: Interest rate swap transactions
Hedged items:

Borrowing interest rates(c) Hedging policy
The Company conducts derivative transactions to hedge risks as stipulated in the Company’s Articles ofIncorporation in accordance with the Company’s risk management policy.
(d) Method for assessing the effectiveness of hedging
The Company evaluates by comparing the cumulative change in market rates of hedged items and hedging
instruments or cash flow and based on the amount of change in both during the period from the start of hedging towhen the effectiveness is being determined.
However, the assessment of hedge effectiveness is omitted, as it is assumed that important terms of thehedging instruments and hedged items are identical so that interest rate or cash flow fluctuations will be fully
offset at the inception of the hedge and continuously thereafter. Moreover, assessment of the effectiveness isomitted for interest rate swaps when the requirements for special treatment are fulfilled.
(9) Cash and cash equivalents
Cash and cash equivalents in the statement of cash flows consist of cash on hand and deposits in trust;deposits and deposits in trust that can be withdrawn at any time; and short-term investments with a maturity of
three months or less from the date of acquisition, which are readily convertible to cash and bear only an
insignificant risk of price fluctuation.
(10) Accounting for trust beneficial interest in real estate
For trust beneficial interest in real estate owned by the Company, all accounts of assets and liabilities within
the assets in trust as well as all accounts of revenue generated and expenses incurred from the assets in trust arerecognized in the relevant accounts of the balance sheet and statement of income and retained earnings.
The following material items of the assets in trust recognized in the relevant accounts are separately listedon the balance sheet.
(a) Cash and deposits in trust(b) Buildings in trust; structures in trust; machinery and equipment in trust; tools, furniture and fixtures in trust;land in trust; construction in progress in trust; leasehold rights in trust; and other intangible assets in trust(c) Lease and guarantee deposits in trust(11) Consumption taxes
Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes.
Non-deductible consumption taxes related to the acquisition of assets are treated as the cost of applicable assets.

10

4. ACCOUNTING STANDARDS NOT YET APPLIED
・ “Accounting Standard for Revenue Recognition” (Accounting Standards Board of Japan (ASBJ) Statement No. 29
issued on March 30, 2018)
・ “Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30 issued on
March 30, 2018)(1) Overview
The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board(FASB) in the United States have jointly developed comprehensive accounting standards for revenue recognition
and issued “Revenue from Contracts with Customers” (IFRS 15 in IASB and Topic 606 in FASB) in May 2014. Given
the situation where IFRS 15 will be applied from fiscal years beginning on or after January 1, 2018 and that Topic
606 will be applied from fiscal years beginning after December 15, 2017, the ASBJ has developed comprehensive
accounting standards for revenue recognition and issued them together with the implementation guidance.
The basic policy of the ASBJ when it developed the accounting standards for revenue recognition was tospecify the accounting standards, incorporating the basic principles of IFRS 15 as a starting point, from theperspective of comparability between financial statements, which is one of the benefits of maintaining compatibility
with IFRS 15. The basic policy also stipulates that if there is an item to which consideration should be given, suchas practices that have been conducted thus far in Japan, alternative treatments will be added to the extent to which
comparability is not impaired.
(2) Scheduled date of application
The accounting standards will be applied from the beginning of the fiscal period ending January 31, 2022.
(3) Impact of applying the accounting standards
The level of the impact on the financial statements of applying the “Accounting Standard for Revenue
Recognition” and its guidance is currently under evaluation.
・ “Accounting Standard for Fair Value Measurement” (Accounting Standards Board of Japan (ASBJ) Statement
No. 30 issued on July 4, 2019)
・ “Implementation Guidance on Accounting Standard for Fair Value Measurement” (ASBJ Guidance No. 31 issued on
July 4, 2019)(1) Overview
The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board(FASB) have established detailed guidance regarding fair value measurement (IFRS 13 “Fair Value Measurement”
in IFRS and Topic 820 “Fair Value Measurement” in FASB). The ASBJ repeatedly considered the guidance
regarding fair value of financial instruments and disclosure in order to improve the comparability with suchinternational accounting standards, and issued the Accounting Standard for Fair Value Measurement and the
Implementation Guidance on Accounting Standard for Fair Value Measurement.
(2) Scheduled date of application
The accounting standards will be applied from the beginning of the fiscal period ending January 31, 2022.
(3) Impact of applying the accounting standards
The level of the impact on the financial statements of applying the “Accounting Standard for Fair Value
Measurement” and its guidance is currently under evaluation.

11

5. ADDITIONAL INFORMATION
Notes on Provision and Reversal of Allowance for Temporary Difference Adjustments
For the six months ended July 31, 2019(1) Reason for provision, and related asset, etc. and amount of provision(Unit: thousands of yen)
Related asset, etc.

Reason for provision

Deferred gains or losses

Incurrence of loss on valuation of

on hedges

interest swaps

Allowance for temporary difference
adjustments
294,368(2) Specific method of reversal
Deferred gains or losses on hedges
Reversal in line with changes in fair value of derivative transactions that are the hedging instruments isplanned.
For the six months ended January 31, 2019(1) Reason for provision, and related asset, etc. and amount of provision(Unit: thousands of yen)
Related asset, etc.

Reason for provision

Deferred gains or losses

Incurrence of loss on valuation of

on hedges

interest swaps

Allowance for temporary difference
adjustments
174,371(2) Specific method of reversal
Deferred gains or losses on hedges
Reversal in line with changes in fair value of derivative transactions that are the hedging instruments isplanned.

12

6. PROPERTY AND EQUIPMENT
For the six months ended July 31, 2019
(Unit: thousands of yen)
Balance at
beginning of
the period

Amount ofincreaseduring theperiodAmount ofdecreaseduring theperiodBalance at
end of theperiodLand

22,074,160－－

22,074,160－－

22,074,160－

Buildings in trust

81,354,644

564,333－

81,918,977

16,124,966

1,011,049

65,794,010－

Structures in trust

912,216

9,331－

921,547

308,260

10,647613,287－

Machinery andequipment in trust

859,689

51,208－910,898

263,30222,229647,596－

Tools, furniture andfixtures in trust

226,353

10,732－

237,085

144,267

13,40892,818－260,234,866－－

260,234,866－－

260,234,866

－

1,796

198

46

1,949

－

－

1,949

－

365,663,726

635,80446

366,299,485

16,840,796

1,057,334

349,458,688

Leasehold rights
in trust

30,650,962－－

30,650,962－－

30,650,962－

Other intangible
assets in trust

11,952－－

11,952

11,580

463

372

－

Subtotal

30,662,915－－

30,662,915

11,580463

30,651,335

Total

396,326,642

635,80446

396,962,401

16,852,376

1,057,798

380,110,024

Property, plant and equipment

Type of asset

Land in trust
Construction inprogress in trust
Subtotal

Intangible
assets

Accumulated depreciation/
Accumulated amortization Net balance at
end of theRemarks
Depreciation
periodandamortization

7. SHORT-TERM LOANS PAYABLE
For the six months ended July 31, 2019
Not applicable.

138. INVESTMENT CORPORATION BONDS
For the six months ended July 31, 2019
(Unit: thousands of yen)
Issue
date

Balance at
beginning of
the period

Amount ofincreaseduring theperiodAmount ofdecreaseduring theperiodBalance at
end of theperiodInterest
rate

Redemption
maturitydate

May 24,2013

2,000,000－－

2,000,000

1.2600%

May 22,2020

Feb. 24,2014

3,000,000－

3,000,000－

0.4140%Feb. 22,2019

Feb. 24,2014

2,000,000－－

2,000,000

0.6880%Feb. 24,
2021

Nov. 27,2014

2,000,000－－

2,000,000

0.8650%Nov. 27,2024

May 26,2015

3,000,000－－

3,000,000

0.3220%

May 26,2020

May 26,2015

2,000,000－－

2,000,000

0.8200%

May 26,2025

Nov. 26,2015

3,500,000－－

3,500,000

0.3800%Nov. 26,
2020

Nov. 26,2015

1,500,000－－

1,500,000

0.8860%Nov. 26,2025

Aug.30,2016

2,000,000－－

2,000,000

0.3400%Aug. 28,2026

Jan. 31,2017

2,000,000－－

2,000,000

0.4900%Jan. 29,2027

Jun. 30,2017

2,000,000－－

2,000,000

0.5000%Jun. 30,2027

25,000,000－

3,000,000

22,000,000

Bond
Ninth Series
Unsecured
Investment
Corporation Bonds
Tenth Series
Unsecured
Investment
Corporation Bonds
Eleventh Series
Unsecured
Investment
Corporation Bonds
Twelfth Series
Unsecured
Investment
Corporation Bonds
Thirteenth Series
Unsecured
Investment
Corporation Bonds
Fourteenth Series
Unsecured
Investment
Corporation Bonds
Fifteenth Series
Unsecured
Investment
Corporation Bonds
Sixteenth Series
Unsecured
Investment
Corporation Bonds
Seventeenth Series
Unsecured
Investment
Corporation Bonds
Eighteenth Series
Unsecured
Investment
Corporation Bonds
Nineteenth Series
Unsecured
Investment
Corporation Bonds
Total(Note 1)

Use offunds

Collateral(Note 1)none

The funds are used for the acquisition cost of trust beneficial interests, the repayment of loans payable and redemption of investment
corporation bonds.

(Note 2) The redemption schedule of investment corporation bonds for each of the five years after the balance sheet date is as follows.
(Unit: thousands of yen)

Investment corporation bonds

Due within 1 year

Due after 1 year,
but within 2 years

Due after 2 years,
but within 3 years

Due after 3 years,
but within 4 years

Due after 4 years,
but within 5 years

5,000,000

5,500,000

－

－

－

14

9. LONG-TERM LOANS PAYABLE
For the six months ended July 31, 2019(1) Current portion of long-term loans payable(Unit: thousands of yen)
LenderBalance at
beginning of
the period

Amount ofincreaseduring theperiodAmount ofdecreaseduring theperiodBalance at
end of theperiodAverageinterest
rate(Note 1)

Repayment
date

250,000－

250,000－

0.3613%

May 31, 2019

250,000－

250,000－

0.3613%

May 31, 2019

1,702,000－

1,702,000－

0.3113%

May 31, 2019

1,702,000－

1,702,000－

0.3113%

May 31, 2019

1,100,000－－

1,100,000

0.4434%

Nov. 29, 2019

1,100,000－－

1,100,000

0.4434%

Nov. 29, 2019－574,000－

574,000

0.4000%

May 29, 2020－

574,000－

574,000

0.4000%

May 29, 2020－

834,000－

834,000

0.3760%

May 29, 2020－

834,000－

834,000

0.3760%

May 29, 2020

2,500,000－－

2,500,000

0.3123%

Aug. 30, 2019－

830,000－

830,000

0.3760%

May 29, 2020

250,000－

250,000－

0.3613%

May 31, 2019

894,000－

894,000－

0.3113%

May 31, 20191,600,000－－

1,600,000

0.4434%

Nov. 29, 2019－

300,000－

300,000

0.4000%

May 29, 2020－

834,000－

834,000

0.3760%

May 29, 2020

250,000－

250,000－

0.3613%

May 31, 2019

1,702,000－

1,702,000－

0.3113%

May 31, 2019

1,100,000－－

1,100,000

0.4434%

Nov. 29, 2019－574,000－

574,000

0.4000%

May 29, 2020－

834,000－

834,000

0.3760%

May 29, 2020

2,000,000－

2,000,000－

0.3113%

May 31, 2019

2,000,000－－

2,000,000

0.4434%

Nov. 29, 2019

Development Bankof Japan Inc.

2,000,000－－

2,000,000

0.4434%

Nov. 29, 2019

Aozora Bank, Ltd.

2,000,000－－

2,000,000

0.3123%

Aug. 30, 2019

1,000,000－－

1,000,000

0.4434%

Nov. 29, 2019－

834,000－

834,000

0.3760%

May 29, 2020

900,000－－

900,000

0.4434%

Nov. 29, 2019

3,000,000－

3,000,000－

0.3113%

May 31, 2019

600,000－－

600,000

0.4434%

Nov. 29, 2019

27,900,000

7,022,000

12,000,000

22,922,000

MUFG Bank, Ltd.

Resona Bank, Ltd.

Sumitomo Mitsui
Banking
Corporation

Mizuho Bank, Ltd.

The Bank ofFukuoka, Ltd.

Sumitomo Mitsui
Trust Bank, Ltd.
Shinsei Bank, Ltd.
The Norinchukin
Bank
Total

Use offunds

Remarks

Unsecured/

15(Note 2)

Unguaranteed(2) Long-term loans payable(Unit: thousands of yen)
Lender

MUFG Bank, Ltd.

Balance at
beginning of
the period

Amount ofincreaseduring theperiodAmount ofdecreaseduring theperiodBalance at
end of theperiodAverageinterest
rate(Note 1)

Repayment
date

574,000－

574,000－

0.4000%

May 29, 2020

574,000－

574,000－

0.4000%

May 29, 2020

834,000－

834,000－

0.3760%

May 29, 2020

834,000－

834,000－

0.3760%

May 29, 2020

1,200,000－－

1,200,000

0.6242%

Nov. 30, 2020

1,200,000－－

1,200,000

0.6242%

Nov. 30, 2020

1,300,000－－

1,300,000

0.7535%

Nov. 30, 2021

1,300,000－－

1,300,000

0.7535%

Nov. 30, 2021

1,369,000－－

1,369,000

0.5730%

May 31, 2021

1,369,000－－

1,369,000

0.5730%

May 31, 2021

1,369,000－－

1,369,000

0.7020%

May 31, 2022

1,369,000－－

1,369,000

0.7020%

May 31, 2022

1,500,000－－

1,500,000

0.4932%

Aug. 31, 2021

1,500,000－－

1,500,000

0.4932%

Aug. 31, 2021

500,000－－

500,000

0.6529%Aug. 31, 2023

500,000－－

500,000

0.6529%Aug. 31, 2023

1,600,000－－

1,600,000

0.4980%Nov. 30, 2022

1,600,000－－

1,600,000

0.6155%

Nov. 30, 2023

1,500,000－－

1,500,000

0.3290%Mar. 31, 2023

1,500,000－－

1,500,000

0.4100%Mar. 29, 2024

600,000－－

600,000

0.4100%Mar. 29, 2024

2,400,000－－

2,400,000

0.5040%Mar. 31, 2025

4,700,000－－

4,700,000

0.4065%

Aug. 31, 2027

5,000,000－－

5,000,000

0.4345%

Feb. 29, 2028－

3,904,000－

3,904,000

0.2890%Nov. 30, 2028

Use offunds

Remarks

Unsecured/

16(Note 2)

Unguaranteed(Unit: thousands of yen)
LenderMizuho Bank, Ltd

Balance at
beginning of
the period

Amount ofincreaseduring theperiodAmount ofdecreaseduring theperiodBalance at
end of theperiodAverageinterest
rate(Note 1)

Repayment
date

574,000－

574,000－

0.4000%

May 29, 2020

834,000－

834,000－

0.3760%

May 29, 2020

1,200,000－－

1,200,000

0.6242%

Nov. 30, 2020

1,300,000－－

1,300,000

0.7535%

Nov. 30, 2021

1,369,000－－

1,369,000

0.5730%

May 31, 2021

1,369,000－－

1,369,000

0.7020%

May 31, 2022

1,500,000－－

1,500,000

0.4932%

Aug. 31, 2021

500,000－－

500,000

0.6529%Aug. 31, 2023

1,600,000－－

1,600,000

0.6155%

Nov. 30, 2023

600,000－－

600,000

0.4100%Mar. 29, 2024

2,400,000－－

2,400,000

0.5040%Mar. 31, 2025

1,100,000－－

1,100,000

0.5775%

Jul. 31, 2029

2,700,000－－

2,700,000

0.6030%Feb. 28, 2030

3,000,000－－

3,000,000

0.1850%

May 23, 2022

3,000,000－－

3,000,000

0.4260%Aug. 30, 2024

1,400,000－－

1,400,000

0.4123%

Aug. 31, 2029

Use offunds

Unsecured/(Note 2)

Sumitomo Mitsui
Banking
Corporation－

1,952,000－

1,952,000

0.4140%

May 31, 2029

300,000－

300,000－

0.4000%

May 29, 2020

834,000－

834,000－

0.3760%

May 29, 2020

1,440,000－－

1,440,000

0.6242%

Nov. 30, 2020

1,560,000－－

1,560,000

0.7535%

Nov. 30, 2021

1,099,000－－

1,099,000

0.5730%

May 31, 2021

1,098,000－－

1,098,000

0.7020%

May 31, 2022

1,500,000－－

1,500,000

0.4932%

Aug. 31, 2021

500,000－－

500,000

0.6529%Aug. 31, 2023

1,600,000－－

1,600,000

0.4980%Nov. 30, 2022

2,200,000－－

2,200,000

0.3290%Mar. 31, 2023

800,000－－

800,000

0.4100%Mar. 29, 2024

1,100,000－－

1,100,000

0.4673%

Jul. 31, 2025

2,650,000－－

2,650,000

0.5460%Feb. 27, 2026

3,600,000－－

3,600,000

0.5640%Aug. 31, 2026－

1,144,000－

1,144,000

0.4090%Nov. 30, 2027

17

Remarks

Unguaranteed(Unit: thousands of yen)
LenderSumitomo Mitsui
Trust Bank, Ltd.

The Norinchukin
Bank

Balance at
beginning of
the period

Amount ofincreaseduring theperiodAmount ofdecreaseduring theperiodBalance at
end of theperiodAverageinterest
rate(Note 1)

Repayment
date

834,000－

834,000－

0.3760%

May 29, 2020

960,000－－

960,000

0.6242%

Nov. 30, 2020

1,040,000－－

1,040,000

0.7535%

Nov. 30, 2021

1,294,000－－

1,294,000

0.5730%

May 31, 2021

1,295,000－－

1,295,000

0.7020%

May 31, 2022

500,000－－

500,000

0.6529%Aug. 31, 2023

1,600,000－－

1,600,000

0.6155%

Nov. 30, 2023

600,000－－

600,000

0.4100%Mar. 29, 2024

2,400,000－－

2,400,000

0.5040%Mar. 31, 2025

1,000,000－－

1,000,000

0.5150%Jul. 31, 2026

2,000,000－－

2,000,000

0.4770%Jul. 31, 2028

2,600,000－－

2,600,000

0.5830%Feb. 26, 2027

2,400,000－－

2,400,000

0.3315%

Aug. 31, 2023

1,400,000－－

1,400,000

0.6670%Aug. 31, 2027

1,000,000－－

1,000,000

0.3290%Mar. 31, 2023

500,000－－

500,000

0.3735%

Jul. 31, 2024

600,000－－

600,000

0.4893%

Nov. 29, 2024

1,300,000－－

1,300,000

0.4260%Aug. 30, 2024－

3,000,000－

3,000,000

0.3140%

May 31, 2026

1,000,000－－

1,000,000

0.4100%Mar. 29, 2024

500,000－－

500,000

0.5150%Jul. 31, 2026

500,000－－

500,000

0.4700%Aug. 29, 2025

1,300,000－－

1,300,000

0.3760%Aug. 30, 2024－

2,000,000－

2,000,000

0.2140%Mar. 31, 2026

1,700,000－－

1,700,000

0.7963%Mar. 27, 2023

Development Bankof Japan Inc.

1,000,000－－

1,000,000

0.4100%Mar. 29, 2024

750,000－－

750,000

0.6430%Feb. 26, 2027

500,000－－

500,000

0.6670%Aug. 31, 2027

1,500,000－－

1,500,000

0.6155%

Nov. 30, 2023

Shinsei Bank, Ltd

500,000－－

500,000

0.3290%Mar. 31, 2023

500,000－－

500,000

0.5400%Aug. 29, 2025

1,300,000－－

1,300,000

0.5200%Aug. 29, 2025

18

Remarks

Unsecured/(Note 2)The Bank ofFukuoka, Ltd.

Use offunds

Unguaranteed(Unit: thousands of yen)
LenderMizuho Trust &Banking Co., Ltd.

Resona Bank, Ltd.

The Nishi-Nippon
City Bank, Ltd.

Aozora Bank, Ltd.
The Hiroshima
Bank, Ltd.
The Oita Bank,Ltd.
Shinkin Central
Bank
Total

Balance at
beginning of
the period

Amount ofincreaseduring theperiodAmount ofdecreaseduring theperiodBalance at
end of theperiodAverageinterest
rate(Note 1)

Repayment
date

500,000－－

500,000

0.3290%Mar. 31, 2023

500,000－－

500,000

0.5775%

Jul. 31, 2029

1,500,000－－

1,500,000

0.4700%Aug. 29, 2025

1,300,000－－

1,300,000

0.4700%Aug. 29, 2025

830,000－

830,000－

0.3760%

May 29, 2020

800,000－－

800,000

0.3290%Mar. 31, 2023

500,000－－

500,000

0.6130%Jul. 30, 2027

500,000－－

500,000

0.4700%Aug. 29, 2025

1,300,000－－

1,300,000

0.4805%

Aug. 31, 2028

1,000,000－－

1,000,000

0.4893%

Nov. 29, 2024

500,000－－

500,000

0.5400%Aug. 29, 2025

800,000－－

800,000

0.2570%Aug. 31, 2022

1,000,000－－

1,000,000

0.4100%Mar. 29, 2024

1,000,000－－

1,000,000

0.3290%Mar. 31, 2023

1,000,000－－

1,000,000

0.2300%Nov. 30, 2022

1,000,000－－

1,000,000

0.1795%

Sep. 30, 2022

129,322,000

12,000,000

7,022,000

134,300,000

Use offunds

Remarks(Note 2)

Unsecured/
Unguaranteed(Note 1) “Average interest rate” indicates the interest rate on loans payable for the respective lending financial institutions rounded to fourdecimal places. In addition, concerning the loans payable for which an interest rate swap transaction has been entered into for the
purpose of avoiding the risk of fluctuations in interest rates, the interest rate shown is the interest rate after taking into account theeffect of the interest rate swap transaction.
(Note 2)

The funds are used for the acquisition cost of trust beneficial interests, the refinancing of loans payable, redemption of investment
corporation bonds and related expenses.

(Note 3) The repayment schedule of long-term loans payable (excluding the current portion of long-term loans payable) due within 5 years
after the balance sheet date is as follows.
(Unit: thousands of yen)

Long-term loans payable

Due after 1 year,
but within 2 years

Due after 2 years,
but within 3 years

Due after 3 years,
but within 4 years

Due after 4 years,
but within 5 years

12,500,000

22,000,000

15,200,000

18,800,000

1910. NET ASSETS(1) Minimum net assets
The Company is required to maintain net assets of at least 50,000 thousand yen pursuant to the Investment
Trust Act.
(2) Allowance for temporary difference adjustments(a) Reason for provision or reversal and related asset, etc. and amount of provision(Unit: thousands of yen)
Related asset,
etc.

Reason forprovision

Deferred gains or

Loss on valuation

losses on hedges

of interest swaps

InitialamountBalance at
beginningof theperiodAllowance
set aside
duringperiodReversalduringperiodBalance atthe end ofcurrent
period174,371－

174,371－

174,371

Reason for reversal－(b)Specific method of reversal
Deferred gains or losses on hedges
Reversal in line with changes in fair value of derivative transactions that are the hedging instruments isplanned.

11. INCOME TAXES(1) Breakdown of significant components of deferred tax assets and deferred tax liabilities(Unit: thousands of yen)
As ofJuly 31, 2019

January 31, 2019

Deferred tax assets
Accrued enterprise tax excluded

43

44

from expenses
Deferred gains or losses on hedges

246,907

154,568

Subtotal deferred tax assets

246,952

154,611

Valuation allowance(246,907)(154,568)

44

43

44

43

Total deferred tax assets
Net deferred tax assets(2) Reconciliation of significant differences between the statutory tax rate and the effective tax rate
As ofJuly 31, 2019
Statutory tax rate

January 31, 201931.51%

31.51%(31.49%)(31.50%)

Others

0.01%

0.01%

Effective tax rate

0.03%

0.03%

[Adjustments]
Deductible cash distributions

20

12. PER UNIT INFORMATION
For the six months ended
July 31, 2019

January 31, 2019

Net assets per unit (yen)104,181

104,310Net income per unit (yen)

2,850

2,823

(Note 1)

Net income per unit was calculated by dividing the net income by the daily weighted average number of investment units during
the period.
Diluted net income per unit has not been stated as there are no diluted investment units.

(Note 2)

The following is the basis for calculating net income per unit.

For the six months ended
July 31, 2019
Net income (thousands of yen)

January 31, 2019
5,344,831

5,292,242－－

Net income attributable to common
investment units (thousands of yen)

5,344,831

5,292,242

Average number of investment units
during the period (units)

1,874,960

1,874,284

Amounts not attributable to common
unitholders (thousands of yen)

13. RELATED PARTY TRANSACTIONS(1) Parent company and major corporate unitholders
For the six months ended July 31, 2019

Type

Name

Capital stockorinvestments
Locationin capital(thousands ofyen)

Percentage
of votingRelationship
Description of rights heldwithbusinessin (by)related party
relatedparty

Description oftransaction

Leasing ofproperties(Note 2)
(Note 5)

Other
relatedcompany

Mori
Building
Co., Ltd.

Minatoku,Tokyo67,000,000

Real estatebusiness

15.0%
directly
held byrelatedparty

Payment ofproperty
Leasing andoperation andmanagement ofmanagement
real estate
fees(Note 6)
Payment ofotheroperatingexpenses(Note 7)
Deposit of leaseand guarantee(Note 4)(Note 8)Amount oftransaction(thousandsof yen)(Note 1)

Account
item

Operatingaccounts
receivable
Advances
6,092,668 received
Lease andguarantee
deposits
in trust
Prepaid
expenses
251,629
Operating(Note 3)
accounts
payable

1,277

－

－

Lease andguarantee
deposits
in trust

Balanceat end ofthe period(thousandsof yen)902
1,091,980
9,790,142
2,963
44,777－53,886(Note 1) The amount does not include consumption taxes.
(Note 2) Roppongi Hills Mori Tower, ARK Mori Building, Atago Green Hills, Toranomon Hills Mori Tower, a portion of Koraku Mori Building, aportion of ARK Hills South Tower, a portion of Roppongi First Plaza and a portion of Roppongi View Tower(Note 3) The amount includes fees (15,258 thousand yen) that are not charged to expenses but recognized as assets.
(Note 4) Roppongi View Tower

21

[Transaction terms and conditions and related policies](Note 5) The Company engages in transactions by conducting adequate procedures in line with the Related Parties Transaction Guidelines
stipulated by the Company’s Asset Manager and compliance regulations, after having comprehensively considered the market situationand other factors.
(Note 6) The Company decides on transactions by conducting adequate procedures in line with the Related Parties Transaction Guidelines
stipulated by the Company’s Asset Manager and compliance regulations, in light of the market situation, the content of services
provided, overall operational capacity and other factors.
(Note 7) The Company decides on transactions in light of the market situation, the content of services provided, overall operational capacity andother factors.
(Note 8) The Company engages in transactions by conducting adequate procedures in line with the Related Parties Transaction Guidelines
stipulated by the Company’s Asset Manager and compliance regulations, after having comprehensively considered the market situationand other factors.

For the six months ended January 31, 2019

Type

Other
relatedcompany

Name

Mori
Building
Co., Ltd.

Capital stockorinvestments
Locationin capital(thousands ofyen)

Minatoku,Tokyo67,000,000

Percentage
of votingRelationship
Description of rights heldwithbusinessin (by)related party
relatedparty

Real estatebusiness

15.0%
directly
held byrelatedparty

Description oftransaction

Amount oftransaction(thousandsof yen)(Note 1)

Account
item

Acquisition of
Property（Note 2）
（Note 6）30,640,000－

Leasing ofproperties(Note 3)(Note 7)

Leasing andmanagement ofreal estate

Payment ofproperty
operation andmanagement
fees(Note 8)Deposit of leaseand guarantee(Note 5)(Note 9)Operatingaccounts
receivable
Advances
6,007,201 received
Lease andguarantee
deposits
in trust
Prepaid
expenses
244,180
Operating(Note 4)accounts
payable－Lease andguarantee
deposits
in trust

Balanceat end ofthe period(thousandsof yen)－794
1,092,609
9,792,658
2,963
60,21153,886(Note 1) The amount does not include consumption taxes.
(Note 2) A portion of Toranomon Hills Mori Tower and a portion of Holland Hills Mori Tower(Note 3) Roppongi Hills Mori Tower, ARK Mori Building, Atago Green Hills, Toranomon Hills Mori Tower , a portion of Koraku Mori Building , aportion of ARK Hills South Tower, a portion of Roppongi First Plaza and a portion of Roppongi View Tower(Note 4) The amount includes fees (8,127 thousand yen) that are not charged to expenses but recognized as assets.
(Note 5) Roppongi View Tower[Transaction terms and conditions and related policies](Note 6) Acquisition decisions are made in accordance with the provisions of the Related Parties Transaction Guidelines stipulated by theCompany’s Asset Manager and compliance regulations Furthermore, acquisitions are not made at a value exceeding the appraisal value
as determined by an independent third-party real estate appraiser (including corporations).
(Note 7) The Company engages in transactions by conducting adequate procedures in line with the Related Parties Transaction Guidelines
stipulated by the Company’s Asset Manager and compliance regulations, after having comprehensively considered the market situationand other factors.
(Note 8) The Company decides on transactions by conducting adequate procedures in line with the Related Parties Transaction Guidelines
stipulated by the Company’s Asset Manager and compliance regulations, in light of the market situation, the content of services
provided, overall operational capacity and other factors.
(Note 9) The Company engages in transactions by conducting adequate procedures in line with the Related Parties Transaction Guidelines
stipulated by the Company’s Asset Manager and compliance regulations, after having comprehensively considered the market situationand other factors.

22

(2) Subsidiaries and affiliates
For the six months ended July 31, 2019
Not applicable.
For the six months ended January 31, 2019
Not applicable.

(3) Subsidiaries of parent company
For the six months ended July 31, 2019

Type

Name

Capital stock
Percentage
Amount oforof votingRelationshiptransaction
investments Description of rights held
Description of
Locationwith(thousandsin capitalbusinessin (by)transaction
related partyof yen)(thousands ofrelated(Note 1)
yen)
party

Subsidiary Mori Building
Minatoof other
Investmentku,
related ManagementTokyo
companyCo., Ltd.

Real estate,
trust
beneficiaryright and
200,000
otherfinancialasset
management
operations

None

Outsourcingof asset
Payment ofmanagement management
fees
Concurrent(Note 2)
post of(Note 3)
directors

260,906

Balanceat end of
Account
the period
item(thousandsof yen)Accruedexpenses

281,779(Note 1) The amount does not include consumption taxes.
(Note 2) The amount of management fees is provided in the “Asset Management Contract” concluded between the Company and theCompany’s Asset Manager.
[Transaction terms and conditions and related policies](Note 3) The Company decides on transactions in light of the market situation, the content of services provided, overall operational capacityand other factors.

For the six months ended January 31, 2019

Type

Name

Capital stock
Percentage
Amount oforof votingRelationshiptransaction
investments Description of rights held
Description of
Locationwith(thousandsin capitalbusinessin (by)transaction
related partyof yen)(thousands ofrelated(Note 1)
yen)
party

Subsidiary Mori Building
Minatoof other
Investmentku,
related ManagementTokyo
companyCo., Ltd.

Real estate,
trust
beneficiaryright and
200,000
otherfinancialasset
management
operations

None

Outsourcingof asset
Payment ofmanagement management
fees
Concurrent(Note 2)
post of(Note 4)
directors

Balanceat end of
Account
the period
item(thousandsof yen)276,128 Accrued(Note 3) expenses

265,127(Note 1) The amount does not include consumption taxes.
(Note 2) The amount of management fees is provided in the “Asset Management Contract” concluded between the Company and theCompany’s Asset Manager.
(Note 3) The amount of management fees includes 30,640 thousand yen in acquisition fees pertaining to a real estate acquisition included in
the book value of real estate.
[Transaction terms and conditions and related policies](Note 4) The Company decides on transactions in light of the market situation, the content of services provided, overall operational capacityand other factors.

23

(4) Directors and major individual unitholders
For the six months ended July 31, 2019

Type

Name

Directors
and their
close
relatives

Capital stock
Percentage
Amount oforof votingDescription ofRelationshiptransaction
investments
rights held
Description of
Locationbusiness orwith(thousandsin capitalin (by)transaction
position
related partyof yen)(thousands ofrelated(Note 1)
yen)
party

Hideyuki
Isobe－

Executive
Director of
the Company,
and President－& CEO ofMori Building
Investment
Management
Co., Ltd.

None

Executive
Payment of
Director of management
the Company,
fees toand President Mori Building& CEO ofInvestment
Mori Building Management
Investment
Co., Ltd.
Management(Note 2)
Co., Ltd.
(Note 3)260,906

Account
item

Balanceat end ofthe period(thousandsof yen)Accruedexpenses

281,779(Note 1) The amount does not include consumption taxes.
(Note 2) The transaction was conducted with Hideyuki Isobe as third-party representative (Mori Building Investment Management Co., Ltd.)and the amount of management fees is provided in the “Asset Management Contract” concluded between the Company and theCompany’s Asset Manager.
[Transaction terms and conditions and related policies](Note 3) The Company decides on transactions in light of the market situation, the content of services provided, overall operational capacityand other factors.

For the six months ended January 31, 2019

Type

Name

Directors
and their
close
relatives

Capital stock
Percentage
Amount oforof votingDescription ofRelationshiptransaction
investments
rights held
Description of
Locationbusiness orwith(thousandsin capitalin (by)transaction
position
related partyof yen)(thousands ofrelated(Note 1)
yen)
party

Hideyuki
Isobe－

Executive
Director of
the Company,
and President－& CEO ofMori Building
Investment
Management
Co., Ltd.

None

Executive
Payment of
Director of management
the Company,
fees toand President Mori Building& CEO ofInvestment
Mori Building Management
Investment
Co., Ltd.
Management(Note 2)
Co., Ltd.
(Note 4)

276,128(Note 3)

Account
item

Balanceat end ofthe period(thousandsof yen)Accruedexpenses

265,127(Note 1) The amount does not include consumption taxes.
(Note 2) The transaction was conducted with Hideyuki Isobe as third-party representative (Mori Building Investment Management Co., Ltd.)and the amount of management fees is provided in the “Asset Management Contract” concluded between the Company and theCompany’s Asset Manager.
(Note 3) The amount of management fees includes 30,640 thousand yen in acquisition fees pertaining to a real estate acquisition included in
the book value of real estate.
[Transaction terms and conditions and related policies](Note 4) The Company decides on transactions in light of the market situation, the content of services provided, overall operational capacityand other factors.

2414. BREAKDOWN OF PROPERTY-RELATED REVENUE AND EXPENSES(Unit: thousands of yen)

Breakdown of property operating income
For the six months ended
July 31, 2019
A.

January 31, 2019

Property operating revenue
Rent revenues
Rent and common area revenue
Other rent revenue

9,318,188

9,164,640

5,756

9,323,944

5,677

9,170,318

Other operating revenues
Parking revenue

59,861

57,105

Utilities and other revenue

175,152

195,559

Cancellation penalty

2,917

Key money income

862
237,931－

253,577

9,561,876

Total property operating revenue
B.

50

9,423,895

Property operating expenses
Expenses related to properties
Property management fees

1,082,549

1,061,959

Property taxes

659,480

607,648

Utilities

142,229

160,080

Maintenance and repairs

117,152

61,629Insurance premium

17,18017,014

Custodian fees

5,950

5,933

Depreciation and amortization

C.

1,057,798

1,074,791

Rent expenses

126,872

127,398

Other lease business expenses

16,1183,225,332

14,547

3,131,002

Total property operating expenses

3,225,332

3,131,002

Property operating income [A − B]

6,336,544

6,292,892(Unit: thousands of yen)Transactions with major unitholders
For the six months ended
July 31, 2019

January 31, 2019

From operating transactions
Rent revenues
Other operating revenues
Expenses related to properties
Other operating expenses

25

6,090,222

6,004,594

2,446

2,607

236,370

236,0531,277－

15. UNITHOLDERS’ EQUITY
For the six months ended
July 31, 2019

January 31, 2019

Total number of investment
units authorized and total
number of investment units
issued and outstanding
Total number of investment
units authorized

10,000,000 units

10,000,000 units

Total number of investment
units issued and outstanding

1,874,960 units

1,874,960 units

16. FINANCIAL INSTRUMENTS(1) Policy for financial instruments(a) Policy for holding financial instruments
The Company makes use of various financial instruments in order to invest surplus funds efficiently. In
addition, concerning fund procurement, the Company adopts a policy of undertaking such fund raising primarily
through the issuance of investment units, the borrowing of funds and the issuance of investment corporation bonds.
The Company limits derivative transactions to those that are entered into for the purpose of hedging the risk of
future fluctuations in interest rates on loans payable, and does not engage in speculative transactions.
(b) Description of financial instruments and associated risks, and risk management structure
Deposits used for investing the Company’s surplus funds are exposed to credit risks, for example, the failure of
the financial institutions that are holding the deposits, but the Company limits the risks by diversifying financial
institutions.
Investment corporation bonds and long-term loans payable are used for fund procurement associated with theacquisition of real estate related assets or repayment of loans payable. Of these, loans payable with variable interest
rates are exposed to the risk of fluctuations in interest rates, but derivative transactions are utilized as hedging
instruments.
Interest rate swaps are utilized with the Company seeking to, in effect, convert fluctuating interest rates onfund procurement into fixed interest rates. For information on the method of hedge accounting approach, hedging
instruments and hedged items, hedging policy and method for assessing the effectiveness of hedging, please refer to“Summary of significant accounting policies; (8) Hedge accounting approach.”
Concerning derivative transactions, risks are managed pursuant to the risk management policy set forth by
the Company.
(c) Supplementary explanation on matters concerning fair value of financial instruments
The fair value of financial instruments, aside from values based on market price, include values based onreasonable calculations when no market price exists. Certain assumptions are used for the estimation of fair value.
Accordingly, the results of such estimation may change if different assumptions are used. In addition, concerning
the contract amount of derivative transactions in “Derivative transactions” below the amount itself does not
represent the value of the market risks associated with the derivative transactions.

26

(2) Fair value of financial instruments
The following are the carrying amount, fair value and the difference between them of financial instruments as of July
31, 2019.
(Unit: thousands of yen)
Carrying amount(a) Cash and deposits

Fair value

3,923,970(b) Cash and deposits in trust

Difference

3,923,970－

6,295,543

6,295,543－

10,219,514

10,219,514－(c) Current portion of investment corporation bonds

5,000,000

5,022,700

22,700(d) Current portion of long-term loans payable

22,922,000

22,922,000－(e) Investment corporation bonds

17,000,000

17,210,380

210,380(f) Long-term loans payable

134,300,000

134,574,414

274,414179,222,000

179,729,494

507,494(784,831)(784,831)

－

Total

Total
Derivative transactions (Note 1)

The following are the carrying amount, fair value and the difference between them of financial instruments as ofJanuary 31, 2019.
(Unit: thousands of yen)
Carrying amount(a) Cash and deposits

Fair value

5,431,643(b) Cash and deposits in trust
Total

Difference

5,431,643－

6,374,508

6,374,508－

11,806,152

11,806,152－(c) Current portion of investment corporation bonds

3,000,000

3,000,300300(d) Current portion of long-term loans payable

27,900,000

27,900,000－(e) Investment corporation bonds

22,000,000

22,218,080

218,080(f) Long-term loans payable

129,322,000

129,689,189

367,189

182,222,000

182,807,569

585,569(489,295)(489,295)－

Total
Derivative transactions (Note 1)(Note 1) Assets and liabilities from derivative transactions are indicated in net amounts and net liabilities are indicated in parentheses.
(Note 2) Method of calculating the fair value of financial instruments, and derivative transactions
Assets(a) Cash and deposits; (b) Cash and deposits in trust
As these are settled within a short period of time, the fair value is approximately the same as the book value and is thus stated atthat book value.
Liabilities(c) Current portion of investment corporation bonds; (e) Investment corporation bonds
The fair value of these is based on market prices.
(d) Current portion of long-term loans payable; (f) Long-term loans payable
Of long-term loans payable, as those with variable interest rates reflect market interest rates within a short period of time, the fairvalue is thought to be approximately the same as the book value and is thus stated at that book value (However, long-term loans
payable with variable interest rates that are subject to special treatment for interest rate swaps (please refer to “Derivativetransactions” below) are based on a calculation method of discounting the sum total amount of principal and interest accounted fortogether with said interest rate swaps by the rate reasonably estimated as being applicable in the event of a similar transaction.).
Meanwhile, those with fixed interest rates are based on a calculation method of discounting the sum total amount of principal andinterest by the rate reasonably estimated as being applicable in the event of a similar transaction.
Derivative transactions
Please refer to “Derivative transactions” below.

27

(Note 3) Redemption of monetary claims scheduled to be due after the balance sheet date (as of July 31, 2019)

Due within
1 yearDue after
1 year,but within
2 years

Due after
2 years,
but within
3 years

Due after
3 years,
but within
4 years(Unit: thousands of yen)
Due after
4 years,
Due after
but within
5 years
5 years

Cash and deposits

3,923,970

－

－

－

－

－

Cash and deposits in trust

6,295,543

－

－

－

－

－

10,219,514

－

－

－

－

－

Total

Redemption of monetary claims scheduled to be due after the balance sheet date (as of January 31, 2019)

Due within
1 yearCash and deposits
Cash and deposits in trust
Total

Due after
1 year,but within
2 years

Due after
2 years,
but within
3 years

Due after
3 years,
but within
4 years(Unit: thousands of yen)
Due after
4 years,
Due after
but within
5 years
5 years

5,431,643

－

－

－

－

－

6,374,508

－

－

－

－

－

11,806,152

－

－

－

－

－

(Note 4) Investment corporation bonds and long-term loans payable scheduled to be due after the balance sheet date (as of July 31, 2019)

Due within
1 yearDue after
1 year,but within
2 years

Due after
2 years,
but within
3 years

Due after
3 years,
but within
4 years(Unit: thousands of yen)
Due after
4 years,
Due after
but within
5 years
5 years

Investment corporation bonds

5,000,000

5,500,000－－－

11,500,000

Long-term loans payable

22,922,000

12,500,000

22,000,000

15,200,000

18,800,000

65,800,000

27,922,000

18,000,000

22,000,000

15,200,000

18,800,000

77,300,000

Total

Investment corporation bonds and long-term loans payable scheduled to be due after the balance sheet date (as of January 31, 2019)

Due within
1 yearDue after
1 year,but within
2 years

Due after
2 years,
but within
3 years

Due after
3 years,
but within
4 years(Unit: thousands of yen)
Due after
4 years,
Due after
but within
5 years
5 years

Investment corporation bonds

3,000,000

8,500,000

2,000,000－－

11,500,000

Long-term loans payable

27,900,000

13,022,000

19,000,000

15,500,000

20,400,000

61,400,000

30,900,000

21,522,000

21,000,000

15,500,000

20,400,000

72,900,000

Total

17. DERIVATIVE TRANSACTIONS(1) Transactions for which hedge accounting is not applied
As of July 31, 2019
Not applicable
As of January 31, 2019
Not applicable28

(2) Transactions for which hedge accounting is applied
As of July 31, 2019
The following is the contract amount or amount equivalent to the principal provided in the contract as of thedate of settlement of accounts based on the each method of hedge accounting.
(Unit: thousands of yen)
Method ofhedge accounting
Principle
methodSpecialtreatment forinterest rate
swaps

Type ofderivative transaction
Interest rate swap
transactions
Floating receivable;
Fixed payable
Interest rate swap
transactions
Floating receivable;
Fixed payable

Contract amountMain
hedged item

Due after 1 year

Fair value

Method of calculating
the fair value

Long-termloans payable

89,122,000

70,700,000(784,831)

Based on the quoted
price obtained fromcounterparty financial
institutions.

Long-termloans payable

43,500,000

43,500,000*－*Derivative transactions that are subject to special treatment for interest rate swaps are accounted for together with long-term loans
payable that are the hedged items and the fair value is included in the fair value of those long-term loans payable (please refer toLiabilities (d) and (f) of (Note 2) Method of calculating the fair value of financial instruments, and derivative transactions of“Financial instruments; (2) Fair value of financial instruments” above).

As of January 31, 2019
The following is the contract amount or amount equivalent to the principal provided in the contract as of thedate of settlement of accounts based on the each method of hedge accounting.
(Unit: thousands of yen)
Method ofhedge accounting
Principle
methodSpecialtreatment forinterest rate
swaps

Type ofderivative transaction
Interest rate swap
transactions
Floating receivable;
Fixed payable
Interest rate swap
transactions
Floating receivable;
Fixed payable

Contract amountMain
hedged item

Due after 1 year

Long-termloans payable

89,122,000

77,722,000

Long-termloans payable

43,500,000

43,500,000

Fair value(489,295)*

Method of calculating
the fair value
Based on the quoted
price obtained fromcounterparty financial
institutions.
－*Derivative transactions that are subject to special treatment for interest rate swaps are accounted for together with long-term loans
payable that are the hedged items and the fair value is included in the fair value of those long-term loans payable (please refer toLiabilities (d) and (f) of (Note 2) Method of calculating the fair value of financial instruments, and derivative transactions of“Financial instruments; (2) Fair value of financial instruments” above).

18. CASH AND CASH EQUIVALENTS
Relationship between cash and cash equivalents at end of the period in the statement of cash flows and cash anddeposits stated in the balance sheet(Unit: thousands of yen)
For the six months ended
July 31, 2019
Cash and deposits

January 31, 2019
3,923,970

5,431,643

Cash and deposits in trust

6,295,543

6,374,508

Cash and cash equivalents

10,219,514

11,806,152

29

19. LEASESOperating lease transactions (as lessor)
Future minimum rent revenues under existing non-cancelable lease agreements(Unit: thousands of yen)
As ofJuly 31, 2019

January 31, 2019

Due within 1 year

4,295,643

4,327,326

Due after 1 year

12,741,853

13,371,253

17,037,496

17,698,579

Total

20. INVESTMENT AND RENTAL PROPERTIESThe Company owns real estate (primarily office buildings and residential and retail properties) available forlease in Tokyo. The following are the carrying amount, amount of increase (decrease) during the period and fair value
at end of the period for these investment and rental properties.
(Unit: thousands of yen)
For the six months ended
July 31, 2019

January 31, 2019

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

380,532,037

350,656,949(422,012)

29,875,087

380,110,024

380,532,037

442,950,000

437,230,000(Note 1) The carrying amount is the acquisition cost less accumulated depreciation.
(Note 2)Of the decrease during the period ended July 31, 2019, the decrease is primarily attributable to depreciation and amortization.
Of the increase (decrease) during the period ended January 31, 2019, the increase is primarily attributable to the acquisition of two
properties (Toranomon Hills Mori Tower (approximately 5.0% of total exclusive floor area) (26,128,148 thousand yen)) and Holland
Hills Mori Tower (approximately 13.6% of total exclusive floor area) (4,584,110 thousand yen)), the decrease is primarily attributableto depreciation and amortization.

(Note 3)

The fair value at end of the period is the appraisal value by a real estate appraiser (according to the “Real Estate Appraisal Report”
with the date of settlement of accounts as the appraisal date) pursuant to the method of and standards for asset valuation provided
in the Company’s Articles of Incorporation and the rules provided by The Investment Trusts Association, Japan.

Income and loss for investment and rental properties is presented in “Breakdown of property-related revenue
and expenses”

30

21. SEGMENT AND RELATED INFORMATION[Segment Information]
Disclosure is omitted because the Company operates as a single segment – Real estate leasing business.
[Related Information]
For the six months ended July 31, 2019(1) Information about each product and service
Disclosure is omitted because operating revenue from external customers within a single product and service
category accounts for over 90% of the operating revenue on the statement of income and retained earnings.
(2) Information about each geographical area(a) Operating revenue
Disclosure is omitted because operating revenue from external customers in Japan accounts for over 90%of the operating revenue on the statement of income and retained earnings.
(b) Property, plant and equipment
Disclosure is omitted because the amount of property, plant and equipment located in Japan accounts forover 90% of the amount of property, plant and equipment on the balance sheet.
(3) Information about each major tenant(Unit: thousands of yen)
Name of tenantOperating revenue

Mori Building Co., Ltd.

6,092,668

Related segment
Real estate leasing business

For the six months ended January 31, 2019(1) Information about each product and service
Disclosure is omitted because operating revenue from external customers within a single product and service
category accounts for over 90% of the operating revenue on the statement of income and retained earnings.
(2) Information about each geographical area(a) Operating revenue
Disclosure is omitted because operating revenue from external customers in Japan accounts for over 90%of the operating revenue on the statement of income and retained earnings.
(b) Property, plant and equipment
Disclosure is omitted because the amount of property, plant and equipment located in Japan accounts forover 90% of the amount of property, plant and equipment on the balance sheet.
(3) Information about each major tenant(Unit: thousands of yen)
Name of tenantOperating revenue

Mori Building Co., Ltd.

6,007,201

22. SUBSEQUENT EVENTS
Not applicable.

31

Related segment
Real estate leasing business