Business Report for the 6th Fiscal Period(November 1, 2008 – April 30, 2009)

proving stableasset management

sixth Fiscal Period

Performance Highlights

Category

6th Fiscal Period
Performance

6th Fiscal Period Forecast(announced on December 15, 2008)

5th Fiscal Period
Performance		

181 days		

181 days		

184 days

operating revenue¥

5,606 million¥

5,620 million¥

5,584 million

Operating income¥

2,700 million¥

2,682 million¥

2,651 million

Ordinary income¥

2,047 million¥

2.001 million¥

1,994 million

Net income¥

2,046 million¥

2,000 million¥

1,993 million

		155,000 units		155,000 units		155,000 units¥

13,206¥

12,900¥12,863		

14 properties		

14 properties		

14 properties

Period of asset management

Number of investment units
Dividend per unit
Portfolio size
Appraised value of portfolio-¥ 170,876 million

Key factors behind the 13,206 yen dividend, an increase of¥ 189,441 million

306 yen over the forecast✣ E cology Toyosu Procentury was owned and occupied throughout the Sixth Fiscal Period and thus contributed toearnings for the entire period✣ A decrease in management costs was achieved by reviewing repair plans, reducing general administrative
expenses, etc.

Ordinary income rose by

46 million yen✣ Interest payment decreased as the base interest rate level was lower than expected

Japanese Economic Indicators

Real GDP growth rate for the quarter from January through March 2009 was -3.8% from the previous
period.

In addition to stagnant external demand, personal consumption and capital expenditures, both key
drivers of internal demand, have dropped for two consecutive quarters and four consecutive quarters
respectively as of March 2009.

Indices of All Industry Activity decreased for the sixth consecutive month in March 2009; however, theIndices turned upward in April.

Business Report for Sixth Fiscal Period Speaking to You
L e t t e r f r o m t h e Pr e s i d e n t

TOP REIT Continues Pursuitand Provision of Stable Asset Management
The following is an overview of TOP REIT Inc.’s (TOP REIT)

achieve a dividend per unit of 13,206 yen, an increase of over 300

performance over its Sixth Fiscal Period (November 1, 2008 – April

yen versus our initial forecast. This distribution has been realized as

30, 2009) from the perspective of the asset manager. The overview

a result of operating revenue of 5,606 million yen, ordinary income

is presented by Nobuhito Endo, President and Representativeof 2,047 million yen and net income of 2,046 million yen. TOP

Director of TOP REIT Asset Management Co., Ltd.

REIT has also forecast a dividend per unit of 12,500 yen for both the

TOP REIT provided prudent asset management during the Sixth

Seventh Fiscal Period (May 1, 2009 – October 31, 2009) and Eighth

Fiscal Period within the winds and storms of the global and JapaneseFiscal Period (November 1, 2009 – April 30, 2010). I would like toeconomies that were prevalent during this period and managed to

discuss the key factors that supported this performance during our
Sixth Fiscal Period.

iMPORTANT TO STEER RATIONALLY AND WISELYThis fiscal period featured unprecedented economic turmoil
resulting from global financial instability and the economic
recession. Large tremors shook the overseas markets with therepeated failure and forced mass restructurings of leading U.S.
multinational firms in the automobile, financial and other industries.
Japan was not immune from the waves of the global recession andthe export industry symbolized by the automobile industry, which
has been the driver of the Japanese economy, posting immense
deficits as a result of the rapid and sudden deceleration of Western
economies. Consequently many companies experienced a severe

Nobuhito Endo
President and Representative Director, TOP REIT Asset Management Inc. / Executive Officer, Top REIT, Inc.
Endo entered Sumitomo Trust and Banking in April 1978. He was promoted to General Manager of the Real
Estate Management Department in April 2004 and served as the General Manager of the Real Estate Information
Development Department from April 2006. He was appointed President and Representative Director of TOP REIT
Asset Management in July 2007 and Executive Officer of TOP REIT in October 2007.

[ CONTENTS ]1 Sixth Fiscal Period Performance Highlights

10 Portfolio List

1 Japanese Economic Indicators

11 Portfolio

2 Speaking to You: Letter from the President

13 Financial Standing and Strategy

6 Top REIT Asset Management’s Commitment to Making
TOP REIT a Top Brand

14 TOP REIT Successfully Refinanced 26,000 Million Yen

7 Robust Support Key to Stability and Future Growth
8 Achievements of TOP REIT in the Sixth Fiscal Period
9 Portfolio Management

15 TOP REIT Asset Management
16 Property Highlights
19 Unit Price Performance and Volume/IR Schedule/
Unitholders (as of end of April 2009)

Business Report for 5th Fiscal Period deterioration in their performance. The

strong RELATIONSHIPS WITH

financial institutions providing financing

severe financial climate and failure of

FINANCIAL INSTITUTIONS

and achieved both reliable refinancing andbusiness models, amidst other factors, also
led to the failure of many new real estatecompanies and sponsors of J-REITs.

a diversification of the repayment periods

It is very important to build and maintainon the financings (see page 14).

strong relationships with financial institutions in these economic times. TOP REIT

The J-REIT market, now in its eighth year,

has taken this point to heart and therefore,

RELIABILITY AND TRUST of BLUE

was also forced into a period of severe

has built and maintains a strong bank

CHIP SPONSORS

trials as the macro economy continued toformation with Sumitomo Trust andsteadily worsen. There has been no time

Banking (one of the sponsors of our asset

in our history where it has been moremanager), three mega banks, two otherimportant to steer the portfolio rationallytrust banks, the Development Bank ofinstitutions is the presence of our blue chip

and wisely and thus achieve “stable asset

Japan and Dai-ichi Mutual Life Insurance.

sponsors: Sumitomo Trust and Banking,management.” TOP REIT committed itself

This bank formation is a cornerstone for

Nippon Steel City Produce (member of theto placing the value of investors first as asupporting the financial management andNippon Steel Group) and Oji Real Estate

result of these conditions and the asset

thus the portfolio of TOP REIT. Despite the(member of the Oji Paper Group). Eachmanager has dedicated its management

overall severity of stances toward financingof these corporate groups is well known inservices to continually achieving thistaken by financial institutions, TOP REIT

Japan and boasts a wealth of experience

demand.

has maintained a strong relationship withand track records globally that has assisted

One of the major factors behind our ability
to build this bank formation with financial

Dividends(yen)
15,00014,992
13,116

12,00011,921

11,884

3rd FP

4th FP

12,863

13,206

5th FP

6th FP

12,50012,500

7th FP
Forecast

8th FP
Forecast

9,000
6,000
3,000
0

1st FP

2nd FP(FP ending in April 2010)*The actual number of days in the First Fiscal Period was 245. The above numbers are calculated using the following calculation method: (fiscal period results)/245 days x 365 days/2.

Lender Institutions

Flagship Properties in the TOP REIT Portfolio
NEC Head Office Building

25.8%
Other

35.6%

Share oflong-term
fixed rents

64.4%

Harumi Island Triton Square
Office Tower Y

20.3%
AkasakaOji Building

6.0%

Harumi Island Triton Square
Office Tower Z

12.3%*The above graph is based on the acquisition prices.

Business Report for Sixth Fiscal Period them in securing a high degree of trust

occupancy at the end of the Sixth Fiscalfrom financial institutions and markets.

Period regardless of the economic travails.

a fixed-term lease contract with fixed-rate
rent through March 2011; Musashi Urawa
Shopping Suare, which prohibits mid-term

Additionally, the sponsors have seconded alarge number of experienced personnel to

LONG-TERM AND FIXED-RATE RENT

cancellation through October 2015 andthe asset manager that have demonstrated

AGREEMENTS

fixed-rate rent through October 2010; andtheir management abilities and have

Ordinarily, the leases for space in officesupported the trust financial institutions

buildings run for two or three years andhave in TOP REIT (see page 7).

then are renewed with rents checked fortheir validity in the market. In addition,

A ROBUST PORTFOLIO

tenants are able to cancel their lease
contracts with advance notification up

Since TOP REIT’s inception, we haveto six months in advance. Therefore, it isfollowed a basic policy that insists on
investing in and managing properties with
an emphasis on quality including location,building size, facilities and tenants. A totalof 64.4% (based on acquisition price) of
the TOP REIT portfolio is comprised of thelarge flagship properties NEC Head Office
Building, Harumi Island Triton Squareeasy to negotiate for rent increases whenthe economy is strong and real estate

the contract in November 2014. The
ownership of many properties with lengthy
agreements and fixed-rate rent limits
the potential for a sizeable impact from
economic fluctuations and also stabilizes
returns by minimizing the risk of rents
being lowered and tenants moving out.

of cancellation in such circumstances.

CAUTIOUS APPROACH TO

Contrarily, there is pressure to lower rents

ACQUISITIONS

and a greater risk of tenants walking out
on their contracts in times of economic
experienced.

Oji Building and the tenants include NEC

has a fixed-rate rent through the end of

demand is robust, and there is little risk

recession like that which is currently being

Office Towers Y and Z and the Akasaka

Ito-Yokado Higashi-Narashino Store, which

The portfolio size of TOP REIT upon its
listing in March 2006 was 104.3 billion yen(7 properties) but this has been expanded
to 162.3 billion yen (14 properties) by(head office), Sumitomo Metal Industries

TOP REIT has concluded long-term andthe end of April 2009 (end of the Sixth(Tokyo head office), Japan Trustee Services

fixed-rate rent agreements with many

Fiscal Period). TOP REIT expanded its

Bank (head office), and Sony Computerof their tenants including the NEC Headportfolio prudently and steadily over theEntertainment (head office functions).

Office Building, which has a fixed-rate rent

past three years while focusing on real

TOP REIT has successfully demonstrated

until December 2013 and a clause that

estate market trends and the economic

the strengths of a high quality portfolio

prohibits early cancellation; Harumi Island

situation. We refrained from acquiringand continued to maintain a high 99.2%

Triton Square Office Tower Z, which has

any properties this fiscal period because

History of Occupancy and Total Leasable Area

Occupancy (%)
Total leasable area (unit: thousand m2)

99.8

99.9

99.5

99.7

261.7

261.7

April 2007

October 2007

99.5

99.5

99.2

276.8

283.6

283.6

April 2008

October 2008

229.2
178.1

March 2006

October 2006

April 2009

(6th fiscal period end)

Business Report for Sixth Fiscal Period of the weakening of the real estate market

above the originally forecast of 12,900 yen

due to the recession from last year, making

due to the contribution of cost cutting

it difficult to see if it has hit bottom. We

efforts and lease negotiations. Within thecontinuing severe economic recession,

will not recklessly pursue an expansion in
our portfolio hereafter, but will continue

StrongStrongTOP REIT has forecast a dividend per unit

our cautious approach to acquisitions that

Sponsors

Portfolioof 12,500 yen for each of the next two
fiscal periods (Seventh and Eighth Fiscal

StrongFund
Raising
Abilityemphasizes economic trends.

THE STRENGTHS OF TOP REIT
The success of J-REITs depends on three

Periods) primarily due to an increase infinancing costs.

the present economic difficulties because

elements. These are strong sponsors,

it possesses these three strengths.

strong fund raising ability and a strong
portfolio. We are confident that TOP REIT

This fiscal period TOP REIT was able to pay

has achieved steady performance undera dividend per unit of 13,206 yen, well

Nobuhito Endo
President and Representative Director
TOP REIT Asset Management Co., Ltd.
Executive Officer
TOP REIT, Inc.

Long-term and Fixed-rate Rent Agreements

26.7% NEC Head Office Building

Long-termandFixed-rate
Rent
Agreements

Other

47.1%

52.9%
1.8%
Musashi Urawa Shopping Square 2.5%
OAK PLAZA

9.2% Harumi Island Triton Square Office Tower Z

8.0% Sagamihara Shopping Center
4.6% Ito-Yokado Higashi-Narashino Store*The above graph is based on rents.

History of Portfolio Size(billion yen)

200
OfficeRetailOther

Appraised value

Residential

160
120
80
40

0
At IPO

1st FP

2nd FP

3rd FP

4th FP

5th FP

6th FP(March 2006)(October 2006)(April 2007)(October 2007)(April 2008)(October 2008)(April 2009)

No. of properties

7

8

11

11

13

14

14

Acquisition price

1,043.86

1,132.86

1,308.46

1,308.46

1,571.87

1,623.47

1,623.47

Appraised value

1,042.67

1,274.42

1,524.68

1,559.23

1,880.35

1,894.41

1,708.70（mn yen）（mn yen）

Business Report for Sixth Fiscal Period Top REIT Asset Management’s Commitment to
Making TOP REIT a Top Brand

As the asset manager of TOP REIT, Top REIT Asset Management (TRAM) is committed to the successful management of
the TOP REIT portfolio and to delivering optimal dividends and performance to investors. The management philosophy ofthe company calls for building TOP REIT into a “top brand” relied upon by investors, contributing to achieving the healthyand sound growth of the real estate investment trust market and real estate market, and contributing to the growth of society
and the economy and the formation of a desirable city.
The operating philosophy that TRAM follows to achieve these goals is outlined in the figure below.

●●

Mitigation of risk through diversified investment ●Building an optimal portfolio with high quality properties
Implementing appropriate management●

Profitability

An external growth strategy that applies
the pipeline function of sponsors

Growthpotential

Stability

Building andManaging an
Optimal Portfolio

Fairness

Corporate governance ●that thoroughly
emphasizes complianceand risk management

Operating
Structure
Focused on
Investors

Capturing Trust

Transparency

Information disclosure ●Proactive IR ●Robust relationships with investors ●Financial Strategy
that Effectively
Flexibility
Implements
Financial Know-how

Soundness●

Flexible Fund
Raising

Capturing a Top
Brand Position●

Maintenance of a soundfinancial structure

Business Report for Sixth Fiscal Period Robust Support Key to Stability and
Future Growth

TOP REIT enjoys the robust support of three Japanese business leaders through Top REIT Asset Management (TRAM).
TRAM is sponsored and owned by The Sumitomo Trust and Banking (38%); Nippon Steel City Produce (31%), the realestate development arm of Nippon Steel; and Oji Real Estate (31%), the real estate developer and planner for the Oji Paper
Group. The support provided by these sponsors is outlined in the figure below.

TOP REITTOP REIT ASSET MANAGEMENT

Optimal Utilization of Sponsor Strengths
Pipeline support
agreement

Agreement on providing
warehousing support

The Sumitomo
Trust & Banking

Nippon SteelCity Produce(Nippon Steel Group)

Oji Real Estate(Oji Paper Group)

Provision ofreal estate
investment
opportunities

Provision of
information
on properties
owned ordeveloped bysponsors or
their groups

Pipeline Function
Sponsors provide information
on available third party andsponsor group properties to
TOP REIT

Originationof structures
for acquiringproperties

Investment
andfinancing of
SPCs

Warehousing Function
Sponsors provide a temporary
ownership function for realestate to TOP REIT, enabling it
to secure blue chip properties
in advanceReal estate
operation
andmanagementthat utilizes
the expertiseand riskmanagement
capabilities ofthe sponsors

Leasing
activities that
apply theinformationon leasing
demandpossessed bysponsorgroupsManagement Expertise
Sponsors provide value-add
property and othermanagement services

Business Report for Sixth Fiscal Period Achievements of TOP REIT in the Sixth Fiscal Period
Real Estate Management: Contracts renewed with 13 office tenants (+0.5% on average)✣U pon the renewal of contracts at Harumi Island Triton Square Office Tower Y, revised the rent upward for some tenantsby an average increase in rent of +0.3%✣ At Faret East Building and Nittetsu Honmachi Building, rent was revised upward with 3 tenants (+8.2% on averagecompared to the rent before renewal), rent was revised downward with 1 tenant (-4.6% compared to the rent before
renewal) and rent remained unchanged with 2 tenants✣ 3 tenants moved out of Shiba-Koen Building, Faret East Building and Nittetsu Honmachi Building

Financial Strategies: Refinanced a total of ¥26.0bnFinancial 26.0bn✣ Refinanced ¥16.7bn in long-term loans and ¥9.3bn in short-term loans (in March 2009)■R
 eviewed the ratio of long-term and short-term loans to total loans and introduced 1-month TIBOR as a base interest
rate in view of keeping interest expenses down
■ Repaid 260 million yen by using cash reserves

Dividend: Declared dividend for 6th fiscal period of ¥13,206 (+¥306 compared to forecast; +¥343 compared to 5th fiscal period)✣P roperty acquired in the 5th fiscal period (Ecology Toyosu Procentury) occupied throughout the fiscal period✣D ecrease in management costs (cost savings from reviewing repair plans, reduced general administrative expenses,
interest rate costs lower than forecast, etc.)

From Seventh to Ninth Fiscal Period

Stability in Revenues
There has been a general manifestation of market fears of rent revenues
decreasing on a macro level, but TOP REIT has generally avoided this by

Othersfocusing on a policy that emphasized fixed-rate and long-term rents with highly-

25.8%

rated tenants. On a rent basis, 52.9% of the portfolio has long-term, fixed-rate
rents and thus provides stable revenues. The next round of rent renewals for the

StableRevenue
Expected

74.2%

flagship property Harumi Island Triton Square Office Tower Y is not until theLong-termandFixed-rate
Rent Agreements

52.9%

Tenth to Twelfth Fiscal Periods, so TOP REIT is confident it can provide stablerevenues and dividends over the next several fiscal periods.
Harumi Island Triton Square
Office Tower Y

Stable Revenues Expected from 74.2% of
Our Contracts during the Seventh to Ninth Fiscal Periods

21.3%

Tenants with Long-term Agreements
Share of portfolio
PropertyLong-term or
Fixed-rate Rent
Agreement

StableRevenue
Expected

Main tenants

based on rented
floor space

Based onrent

Expiration Date

Notes

NEC Head Office Building

25.7%

26.7%

Dec. 28, 2025

Fixed-rate rent by Dec. 2013 (16th FP)
Mid-term cancellation banned until
Dec. 2013 (16th FP)

Harumi Island Triton Square
Office Tower Z

3.9%

9.2%

Mar. 31, 2011

Fixed-term lease contract (fixed-raterent) until March 2011 (10th FP)

Sagamihara Shopping Center

22.0%

8.0%

Aug. 10, 2013

Next rent revision: August 2011
(11th FP)

Ito-Yokado Higashi-Narashino
Store

18.2%

4.6%

Nov. 26, 2014

Fixed-rate rent until expiration date
(18th FP) (using sales-based rent)

OAK PLAZA

2.2%

1.8%

Mar. 31, 2027

Musashiurawa Shopping
Square5.3%

2.5%

Oct. 31, 2025

TOTAL

77.2%

52.9%

Harumi Island Triton Square
Office Tower Y

8.3%

21.3%

Mar. 31, 2012
Mar. 31, 2011

Fixed-rate rent until March 2017
(22nd FP)
Mid-term cancellation banned until
Mar. 2017 (22nd FP)
Fixed-rate rent until Oct. 2010 (9th FP)
Mid-term cancellation banned until
Oct. 2015 (19th FP)

Next rent revisions: April 2011 (10thFP) and April 2012 (12th FP)

Note: Investment Breakdown indicates the proportion of each property’s acquisition value to the total acquisition value of all properties.

Business Report for Sixth Fiscal Period Portfolio Management

As noted earlier in this report, TRAM has been successful in negotiating rent renewals overall this Sixth Fiscal Period. The next
figure shows that we are facing a period of stability ahead in which 82.6% of our office tenants have over one year remaining until
their leases expire and are up for renewal. It is fair to say that TOP REIT is blessed with the stability of its tenants.
TOP REIT also continues to defy the general drop in asset values of portfolios. Though the total appraised value of the portfolio
has dropped since peaking in the Fifth Fiscal Period, it remains roughly 8 billion yen above the acquisition value as of April 2009,
the end of the Sixth Fiscal Period.
TOP REIT has also been able to raise the dividend this fiscal year through a combination of the high 99.2% occupancy rate of theoverall portfolio, an amazing figure within the current economy; revenues generated by the portfolio of 5,606 million yen, which isan increase; and the 28 million yen decrease in operating expenses to 2,905 million yen generated through the efforts of TRAM inmanaging the properties.
TOP REIT also continues to scour the market looking for appropriate properties in order to achieve our medium-term portfolio
target of 210 billion yen in assets, and thus reduce the weight in the portfolio held by the NEC Head Office Building. TOP REIT
will make an acquisition when the right property presents itself. However, our deliberateness has enabled strong performance todate and we have no intent to abandon our prudent strategy.

Office: Period Remaining until Next Rent Revision
3 years or more but
less than 5 years

Office: Schedule of Rent Revision in 7th & 8th FP
Property

Less than 1 year
until next revision

35.7%

17.4%

Over 2 years until
next rent revision

7th FP

8th FP

Akasaka Oji Building-

2 tenants

Shiba-Koen Building

3 tenants

1 tenant

Kanda Park Plaza

3 tenants

5 tenants

51.1%
Over 1 year until
next rent revision

82.6%
2 years or more
but less than 3 years

1 year or more but
less than 2 years

15.4%

31.5%

Operating Revenue(million yen)

3,000

4,000

2,000

0

1st FP

4,526

4,715

2st FP

3st FP

3 tenants

Operating Expenses

6,000

2,000

1 tenant

Nittetsu Honmachi Building(million yen)

4,037

2 tenants

Faret East Building

4,817

5,584

5,606

5,614

5,568

1,000

1,610
4st FP

5st FP

6st FP

7st FP(forecast)

8st FP(forecast)0

1st FP

2,465

2,464

3st FP

4st FP

1,878

2st FP

2,933

2,905

2,989

2,930

5st FP

6st FP

7st FP(forecast)

8st FP(forecast)Business Report for Sixth Fiscal Period Portfolio list

The diversified portfolio of Top REIT largely comprises properties in the Central Tokyo Area.

76.5% of the portfolio isAcomprised of office buildings in Central
Tokyo – the geographic driver of thePortfolio Data

Japanese economy

Asset Class

Acquisition
Value(million yen)Appraised Valueat End of Period(million yen)

Investment
Breakdown(%)

NEC Head Office Building

41,95048,000

25.8

Harumi Island Triton Square OfficeTower Y

33,00041,500

20.3

Akasaka Oji Building

9,660

14,400

6.0

Kanda Park Plaza

5,156

5,513

3.2

Shiba-Koen Building

5,770

4,210

3.6

Harumi Island Triton Square OfficeTower Z

20,00017,100

12.3

TokyoMetropolitan
Area

Faret East Building

2,091

2,950

1.3

Kansai Area

Nittetsu Honmachi Building

1,100

1,580

0.7

118,727

135,253

73.1

Sagamihara Shopping Center

12,00011,000

7.4

Ito-Yokado Higashi-Narashino
Store

8,900

5,483

5.5

Musashiurawa Shopping Square

4,335

3,910

2.7

Subtotal (3 properties)

25,235

20,393

15.5

Tokyo
Metropolitan
Area

Fukasawa House Towers H & I

10,6357,990

6.6

Ecology Toyosu Procentury

5,160

4,650

3.2

Subtotal (2 properties)

15,795

12,640

9.7

Central Tokyo

2,590

2,584

1.6

Subtotal (1 property)

2,590

2,584

1.6

Total

162,347

170,870

100.0

Area

Property NameCentral Tokyo

OfficeSubtotal (8 properties)

RetailResidential

Other

Tokyo
Metropolitan
Area

OAK PLAZA

Note: Investment Breakdown indicates the proportion of each property’s acquisition value to the total acquisition value of all properties.

Business Report for Sixth Fiscal Period 10

Portfolio

Top REIT Remains Committed to Building a Strong, Diversified Portfolio
Centered on the Tokyo Area

CentralTokyo

Keisei Ueno
Takadanobaba

BUNKYOWARDSHINJUKU
WARD

NakanoAsakusa
Ueno
Oshiage

Akihabara
KameidoOak plaza

NAKANO
WARD

Kanda

Shinjuku

Kinshicho

CHIYODAWARDTokyoSHIBUYA
WARD
Akasaka Oji
Building

Kanda Park Plaza

Shimbashi

MINATO
WARD

Shibuya
Shimokitazawa

CHUO
WARD

Hamamatsucho

SETAGAYA
WARD

Ecology Toyosu
Procentury

ToyosuShiba-Koen
Building

Sangenjaya

Shinkiba

Sengakuji

MEGURO
WARD
MeguroNEC Head Office
Building

Shinagawa

GotandaFukasawa House
Towers H & I

Harumi Island
Triton Square OfficeTowers Y & Z

Top REIT boasts a diversified portfolio built around Central Tokyo office properties

Diversification of Assets in Portfolio

100%

11.5%

80%
60%
40%

2.0%

Other
RetailRetail

18.4%

Residential 8.1%
Retail19.3%
Office88.5%

Office

81.6%

Office

70.6%

1.6%

Other

Residential 6.8%
Retail

16.1%

Office

75.5%

1.6%

Other

Residential 9.7%
Retail

15.5%

Office

73.1%

20%
0%
IPO

End of
1st FP

End of
2nd/3rd FP

End of
4th FP

End of
5th/6th FP

Business Report for Sixth Fiscal Period 11

tokyometropolitan
area
Musashiurawa
Shopping Square

SAITAMA

CHIBA

TOKYO

Faret East Building

Ito-Yokado HigashiNarashino StoreKANAGAWA

Sagamihara Shopping
CenterTotal acquisitions

Kansai¥162,347 million
Umeda

Appraised value (as of April 30, 2009)

KyobashiOsaka¥170,870 million

Yodoyabashi

Properties

14

Kintetsu Nanba

Rentable area

Nanba

283,622.23m2

Nittetsu Honmachi
Building

PML

2.3%

Geographic Area

100%

Osaka

1.1%

Tokyo 13.0%
Metropolitan Area

80%
60%
40%

Central Tokyo

Osaka

1.0%

Tokyo
Metropolitan Area

19.8%

Osaka

0.8%

Tokyo
Metropolitan Area

28.6%

86.0%

Central Tokyo

79.2%

Central Tokyo

IPO

End of
1st FP

End of
2nd/3rd FP

70.6%

Osaka

0.7%

Osaka

0.7%

Tokyo
Metropolitan Area

Tokyo
Metropolitan Area

Central Tokyo

Central Tokyo

End of
4th FP

End of
5th/6th FP

24.2%

75.1%

26.6%

72.8%

20%
0%

Business Report for Sixth Fiscal Period 12

Financial Standing and Strategy
The environment surrounding real estate companies and J-REIT

Koji Murata

firms was very severe during the Sixth Fiscal Period as a result of the

Director and CFO
Top REIT AssetManagement, Inc.

recession in the Japanese economy triggered by the global financial
collapse from the fall of 2008. TOP REIT continued our diligent efforts
to achieve stable and wise financial management under our soundfinancial policy ever since our IPO and even in the current economic
turmoil.
In particular, we were faced with the challenge to refinance 26 billion
yen in March 2009, and we were able to accomplish this without any
problem. The severe credit tightening led our creditor banks to raise

ProfileSince joining Kanzaki Paper in1957 (today’s Oji Paper), Murata
has continually served in financial
affairs. While at Oji Paper, he served
as manager of the General Affairs
Department and group manager of
the Financial Group in the Group Headquarters. He was seconded
to Oji Real Estate in June 2007. During the same month he wasseconded to Top REIT Asset Management where he serves as CFO.
He was appointed as director and CFO in July of the same year.

their terms on the interest spread that had originally been submitted,
but we were able to refinance within terms we had originally assumed might occur following a series of determinednegotiations between the banks and myself, the CFO of TRAM. In the end, we were unable to avoid a certain degree ofincrease in borrowing costs; however, the strengths of TOP REIT – sponsor reputation, stability of revenues through a highquality portfolio, and prudent asset and financial management – were definitely demonstrated in the refinancing itself.
There are six particular characteristics to this round of refinancing:➊ All borrowings remained collateral- and guarantee-free➋ Diversified repayment dates➌ After analyzing interest rate trends, we borrowed funds with a shift towards more short-term loans than
before, and made all of the refinanced loans floating interest➍ We introduced a one-month TIBOR as the base interest rate for short-term loans➎ We repaid 260 million yen using cash reserves on hand
➏ We were able to contract within the assumed increase in spread despite the impact from confusion in
the financial markets
Additionally, on April 21, 2009, Moody’s Investor’s Service, Inc. changed TOP REIT’s issuer rating from A2 to A3 and therating projection to “Negative.” Despite this, we intend to continue with our wise and prudent financial management andto spread out repayment dates and lengthen the average remaining periods of outstanding loans. Rating and Investment
Information (R&I) maintained TOP REIT’s AA- rating as well as the rating’s “Stable” projection.

Financial Policy

Stable Financial Management
Stable Financial Management✣W hile the ceiling is 60%, operate with about 50% as the targeted ratio of loans to total assets (LTV)✣ From the standpoint of stable financial management, extend borrowing periods and spread out repayment dates✣W hile closely monitoring the market, prepare appropriately for interest rate fluctuation risks

Stable Bank Formation✣M aintain stable transactions with major financial institutions✣A ll loans unsecured and without guarantee

Business Report for Sixth Fiscal Period 13

TOP REIT Successfully Refinanced 26,000 Million Yen

The following figure describes the successful refinancing of 26,000 million yen in loans by TOP REIT. This was done
collateral-free and at a difficult time in the markets. All of the fixed interest loans were switched to floating interest rates totake advantage of more inexpensive rates and lower costs, and most repayment dates were shifted away from March, when
the demand for funds is high, to February or November.
The Sixth Fiscal Period was the third consecutive period in which the LTV was successfully maintained at a level of 47%.

TERM LOAN 1
Long-term loans¥16,700 mn

Borrowed at floating interest rate

TERM LOAN 8
Long-term loans¥11,189 mn

Diversify
long-term andshort-term

Repayment date changed from fiscal year
end (March) to November

Repayment date: Nov. 30, 2011
Base interest rate changed from 3-month
TIBOR to 1-month TIBOR

Short-term loans¥5,511 mn

Repayment date:
March 3, 2009

Repayment date changed from fiscal year
end (March) to February

Repayment date: Feb. 26, 2010

Short-term loans¥6,700 mn

Base interest rate changed from 3-month
TIBOR to 1-month TIBOR

Short-term loans¥6,700 mn

Repayment date:
March 18, 2009

Repayment date: Feb. 26, 2010

Short-term loans¥2,600 mn

Borrowed at floating interest rate

TERM LOAN 9
Long-term loans¥1,273 mn

Diversify
long-term andshort-term

Repayment date set for November insteadof fiscal year end (March)

Repayment date: Nov. 30, 2011

Repayment date:
March 27, 2009

Base interest rate changed from 3-month
TIBOR to 1-month TIBOR

Short-term loans¥1,067 mn
Repayment date: March 26, 2010

After Refinancing(billion yen)
30
20
15
10
5
0

Repaid ¥260 mn using cash reserved at thesame time as the refinancing

LTV
(%)
50

1.067
6.7

40

16.7

5.511
9.0

Repayment date changed from fiscal year
end (March) to February

8.5

30

1.273

37.1

37.3

2nd FP

3rd FP

47.4

47.3

47.3

4th FP

5th FP

6th FP

28.0

11.189
8.5

20

9.3

10

4.0
7th FP 8th FP 9th FP 10th FP 11th FP 12th FP 13th FP 14th FP 15th FP 16th FP 17th FP

0

1st FP

Business Report for Sixth Fiscal Period 14

The Asset Manager

TOP REIT asset management
Top REIT Asset Management Co., Ltd.
General Meeting of Unitholders(TRAM), performs the various asset
management functions for TOP REIT and has

Auditoran organization as shown in the figure on the
Board of Directors

right. It is important
to note, however, that
TRAM’s primary

Investment and Management Committee

Risk and Compliance Committee

Representative Director and President

function is to maximize
unitholder value.

Asset
Management
Department

Investment
Department

Finance
Department

Planning and
Administrative
Department

In addition to this clear structure for the asset

Finance and Accounting Groupmanager, the decision-making structure is also

IR Group

important and is transparent so that clarity can be

Compliance
OfficePortfolio Management Groupassured with our investors. The Risk and Compliance
Committee also plays an important role in compliancematters.

Draft and propose

The interrelationships of the sponsors, asset manager
and TOP REIT are best summed up as below,

Compliance Officealthough it must be noted that the real economy
strength of the sponsor groups contributes vastly

Risk and Compliance
Committee

to TOP REIT’s underlying strong reputation in the

When a meeting of the
Risk and Compliance
Committee is recognized
as unnecessary

market.
Primary discussion items
Top REIT
Asset
Management(TRAM)

Discussion of risk
management in drafts andcompliance, and resolutions
regarding compliance

AssetManagement

Top REIT

Monitoring of risk
management, compliance,
etc.

Capital + Human Resources（DNA）

DIVERSIFIEDPORTFOLIOSPONSORS

Three Major Asset Types

The Sumitomo
Trust and Banking

38%

Nippon SteelCity Produce

31%

A wholly-owned
subsidiary of
Nippon SteelOji Real Estate
A wholly-owned
subsidiary of
Oji Paper

31%

Investment Management
Committee
Primary discussion items

Support

OfficeRetailResidential

Establish and changeManagement Plan and
Investment Management
Plan Guidelines（Sponsors’
Strength）

Other Asset Types

Acquisition and disposal ofmanaged assets, etc.

i.e. hotels andwarehouses
Board of Directors

When a resolution of theBoard of Directors
regarding the acquisitionof properties below acertain size, etc. isrecognized as unnecessary

Decision

Business Report for Sixth Fiscal Period 15

property HIGHLIGHTs
HARUMI ISLAND TRITON SQUAREOFFICE TOWERs Y & Z
A Landmark Development Rising Over Eastern Tokyo
Harumi Island Triton Square is a large-scale multi-use destination that is the fruitof a comprehensive redevelopment in Harumi, a bay-side gateway toTokyo. The signature of the project is the three landmark officeskyscrapers and it is also home to a concert hall, over 60
shops and restaurants, other commercial facilities and ahigh-rise condominium.
Tower Y and Tower Z are “intelligent” office buildings witha standard floor space of approximately 2,000m2 and 2.7m
ceiling height. The property’s end tenants include highly
recognized blue-chip companies.
Harumi Island Triton Square is located about a six-minute
walk from Kachidoki Station on the Toei Subway
Oedo Line.

Office Tower Y
Address

Office Tower Z

Ginza Sta.

Address

15

1-8-11 Harumi, Chuo Ward, Tokyo

1-8-12 Harumi, Chuo Ward, Tokyo

Type of title

Compartmentalized ownership interest

Type of title Compartmentalized
ownership interest (kubun shoyu-ken)                              (kubun shoyu-ken) (floors 3-15)(part of floor 17, floors 18-22)

Floor space

267,132.67m2

Floor space

267,132.67m2

Completion

October 2001

Completion

October 2001

Acquisition price

33,000 million yen

Acquisition price

20,000 million yen

Portfolio share

20.3%

Portfolio share

12.3%

316

50

Shinbashi Sta.

204

The Tsukiji Market
Hamarikyu
Onshi Teien

450

Tsukiji Sta.

a
id

r

ve

Ri

Tsukishima Sta.

m

Su

463

Kachidoki Sta.

473

304

Hamamatsucho Sta.

HARUMI ISLAND TRITON SQUAREOFFICE TOWERS Y & Z
Business Report for 6th Fiscal Period 16

property HIGHLIGHTs

sagamiharasHOPPING CENTER

One of the Most Popular Ito-Yokado Shopping Centers in Japan
Sagamihara Shopping Center is a large shopping center found along national
highway 16, one of Japan’s busiest national highways, and also near Kobuchi
Station on the JR Yokohama Line, providing excellent access to the property byroad or rail. In addition, Sagamihara City is a commuter town of Tokyo with aresident population of 710,336 (as of April 1, 2009), giving it a large and strong
position as a commercial area.
The anchor tenant is Ito-Yokado and other tenants include specialty stores. The
Center has about 19,000m2 in sales space and parking for over 1,300 vehicles andalso features a gardening store and family restaurant.

Address

3-13-33 Kobuchi, Sagamihara City, Kanagawa

Type of title

Ownership

Floor space

56,351.42m

Completion

August 1993, etc.

Acquisition price

12,000 million yen

Portfolio share

7.4%

HOME’SJUSCODon Quijote

Kobuchi Sta.

SAGAMIHARA SHOPPING CENTER
Toys”R”us16

Machida Sta.

Sagamihara
Women’s Univ.

Business Report for Sixth Fiscal Period 17

property HIGHLIGHTs

Fukasawa House Towers H & I are located in one of the most prestigious housing
areas in Setagaya Ward, Tokyo and lie adjacent to Komazawa Park. The
site itself is rich in greenery and landscaped to provide an excellent
residential environment. Fukasawa House is an immense housing
project comprised of thirteen residential towers and a retailzone. Tower H and Tower I are the buildings designated
for rental housing in the project, and have 124 units
ranging in size from two- to four-bedroom units
with areas of 75m2 to about 120m2. The towers
also boast strong anti-seismic structures.
The property is located a short 15-minute walk from
FUKAsAWA
Toritsu Daigaku Station on the Tokyu Toyoko Line, an
18-minute walk from Komazawa Daigaku Station
HOUSE
the Tokyu Den-en-toshi Line and a
towers H & I on
20-minute walk from Jiyugaoka

An Exquisite
Western-Style
Residence in a
Lush Environment

Address

Station on the Tokyu Toyoko
and Tokyu Oimachi Lines.
This site also enjoys
good bus
access.

2-1-2 Fukasawa, Setagaya Ward, Tokyo

Type of title

Compartmentalized ownership interest (kubun shoyu-ken)Floor space

12,135.36m2

Completion

June 2004
10,635 million yen

Portfolio share

6.6%

Komazawa
Park

t.

wa S

aza
Kom

Fukasawa House
Tower HSt.

Tower I

Jiyu

Acquisition priceKomazawa
Daigaku Sta.

Toritsu
Daigaku Sta.

.

Meguro St

Jiyugaoka Sta.

Business Report for Sixth Fiscal Period 18

Unit Price Performance and Volume
Unit Price (thousand yen)

Trading Volume (unit)

1,000

10,000
Trading Volume on the first day

Unit Price (based on closing price)
Trading Volume

31,893 units
800

8,000

6,000

600
IPO Price (¥550,000)
Market Capitalization

400¥53,940.0 mn

4,000¥998,000

Historical high(based on closing price)¥208,000

Historiacal low(based on closing price)

as of May 29, 2009

200

2,000

0

0
3/1
2006

6/1

9/1

12/1 1/4
2007

3/1

6/1

9/1

12/1 1/4
2008

3/1

6/1

9/1

12/1 1/4
2009

3/1

5/29

Unitholders (as of end of April 2009)
IR Schedule

Overseas corporations/individuals

Overseas corporations/individuals2009

126 (1.9％)

31,101 units (20.1％)

Other domestic Corporations

Other domestic Corporations

144 (2.2％)

13,395 units (8.6％)

APRIL

End of Sixth Fiscal Period

Financial institutions(including security firms)

Individuals/other

MAY

Financial institutions

107 (1.6％)

6,266 (94.3％)(including security firms)

JUNE

Announce performance of Sixth Fiscal Period

JULY

91,468 units (59.0％)

Payment of dividend for Sixth Fiscal Period
Individuals/other

19,036 units (12.3％)

AUGUST

No. of Units held

No. of Unitholders

Total No. of Units

Total No. of Unitholders

155,000

6,643

SEPTEMBEROCTOBEREnd of Seventh Fiscal Period

NOVEMBER
DECEMBER

2010

Announce performance of Seventh Fiscal Period

JANUARY

Payment of dividend for Seventh Fiscal Period

FEBRUARYMARCHDISCLAIMER: Top REIT, Inc. makes no assurance or warranty with respect to the completeness or accuracy of this English translation. In the eventof any discrepancy between the Japanese original and this English translation, the Japanese original shall prevail. For complete and accurate
information, please refer to the Japanese original.

Business Report for Sixth Fiscal Period 19