20th Period
NBF Report January – June 2011

Nippon Building Fund Inc.
http://www.nbf-m.com/nbf_e/More Growth, More Value

Profile

More Growth,More Value
NBF has consistently been the leader in its field since
J-REITs came into being. We will use the solid managementbase we have built up as we work to achieve further growthand maximize value for our unitholders.

Contents
A Decade-Long Track Record of Steady Growth ...
Building on Our Strengths ...............................
Financial Highlights ........................................
To Our Unitholders ..........................................

2
4
5
6

Feature:More Growth, More ValueA Decade-Long Track Record of Steadily
Growing Scale of Assets ............................ 8
Maintaining a High Occupancy Rate with a
Quality Portfolio and Skillful Management ... 10
Stable Finances ......................................... 12
Planned New Acquisition ................................ 14
New Acquisitions ............................................ 15
Location of Office Properties ........................... 18
Portfolio Overview .......................................... 20
Management Team and Management Structure ... 22
Management’s Discussion and Analysis .......... 26
Financial Statements ....................................... 36
Appendix ........................................................ 53
Investment and Distribution Policies ............... 55
Corporate Data ............................................... 62
Investors’ Information..................................... 63

On September 10, 2001, Nippon Building Fund Inc. (NBF) became the first Japanesereal estate investment trust (J-REIT) investment corporation with a listing on the J-REIT
section of the Tokyo Stock Exchange. Today, a decade after its listing, NBF has the largest
market capitalization and assets under management among J-REITs.
NBF employs funds raised through unitholder subscriptions and borrowing to invest inreal estate, real estate-backed securities, trust beneficiary rights and other assets with theobjective of sustainable growth in portfolio value and stable profits on a medium-to-longterm basis. NBF primarily invests in office buildings in the central business districts of Tokyo,
other Greater Tokyo and other cities in Japan.
Going forward, NBF will continue its steady management for the high quality andgrowth befitting the number-one J-REIT.
NBF Report January – June 2011 1

A Decade-Long Track Record of Steady Growth
Since its listing in September 2001, NBF has steadily built up a track record through its sound andunerring business operations.
(Yen)

Distribution per Unit

25,00019,02620,00016,003

16,25315,367

15,00014,582

17,291

16,893

17,046

97.5

98.1

98.7

15,185

10,000(Yen)

Historical Unit Price

2,000,000
1,500,000

Start of TSE
REIT Index

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

1,000,000

Removal of ban on J-REIT
holdings by investment trusts

500,000
0(Yen in billions)Occupancy Rate and Scale of Management Assets by Area

1,000

97.5

96.9

97.7

97.4
95.0

900

92.3
Occupancy Rate

800

Resolution of NBF’s “2003
Problem” (departure of tenantsfrom Shiba NBF Tower andother buildings)(right scale)

700

94.8

Management Assets by Area
(left scale)

Other Cities
Other Greater Tokyo
Tokyo CBDs

600

Equity financing
Target of ¥500 billion
in assets achieved

539.3
Equity financing

500

393.8

400

Equity financing
300

226.5
226.
192
1
192.1

200

2,265
2,265

2,265
2,265

100

2,265

2,265

0

(

246.0
2,460
2,460

2,460

260.2
2,602
2,602

2,602

5,393

414.1

336.1

3,938
3,938

4,141

3,938

4,141

276.0

285.6

3,361

2,760
2,760

2,856

3,361

2,856

5,393

4,141

5,393
2,760

2,856

3,361

22

24

26

28

29

33

43

43

47

52

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

May 23,2001

Dec. 31,2001

Jun. 30,
2002

Dec. 31,2002

Jun. 30,
2003

Dec. 31,2003

Jun. 30,
2004

Dec. 31,2004

Jun. 30,
2005

Dec. 31,
2005

Investmentcommencementdate

2 NBF Report January – June 2011)

22,549
19,391

19,22419,80922,252

20,12921,775
19,672
17,125
15,495J-REIT market value exceeds¥6 trillion; TSE REIT Index at
2,636.23 points

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

Decision by Bank of Japan topurchase units and bonds ofinvestment corporations

Subprime loan
problem surfaces
Bankruptcy ofLehman Brothers

98.7

97.8

99.0

Equity financing

98.6

624.8

6,248

6,248

96.8

Great East Japan
Earthquake

Issuance of No. 11
Unsecured Bonds (firstbond issue in 20 months)

95.4

EEquityi fifinancing
i

97.1

96.6
94.8

94.5
94
4.5
5

762.3

783.1

783.1

779.5

725.2
674.3

674.3

6,743

6,743

7,623

7,831

7,831

7,795

((%)

1
100

870.1*

Equity financing

Exchange of JFE
Building for 5 buildings

624.8

97.4

15,138

779.5

837.1

95

90

7,252
8,431
7,623

7,831

7,831

7,795

7,831

7,831

7,795

7,252
6,743
6,248

6,248

6,743

6,248

6,248

6,743

6,743

7,252

7,623

8,431

55

55

56

56

58

60

61

61

59

59

64

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Jun. 30,
2006

Dec. 31,2006

Jun. 30,
2007

Dec. 31,2007

Jun. 30,
2008

Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

Jun. 30,
2010

Dec. 31,2010

Jun. 30,2011*After planned acquisitions and transfers in the 21st Period and 22nd Period.

(As of June 30, 2011)

NBF Report January – June 2011 3

Building on Our Strengths
ProfileNBF’s steady growth has given it a solid position in the J-REIT market. We will continue to use ourstrengths and competitive advantages to the fullest to maximize value for our unitholders.

Japan’s First and Largest J-REIT◆ Scale of Managed Assets (Total Acquisition Price)¥837.1 billion*

Since its listing as the first J-REIT in September 2001, NBF has
steadily built up a track record with the largest scale of managed
assets of any J-REIT.

High-Quality Properties◆ Occupancy Rate

NBF has a portfolio of 64* office buildings, mainly located in
the central business districts of Tokyo. With diversification of
investment in greater Tokyo and regional cities, NBF maintains ahigh occupancy rate.

97.1%*
Sound Finances◆ S&P◆ Moody’s
◆ R&I

A+
A1
AA

(Long-term Corporate)(Issuer Rating)

By maintaining conservative financial management, NBF’s LTV
is 46.5 percent* and the percentage of long-term fixed-rate debt
included in its interest-bearing debt is 79.0 percent. These have
led to high ratings from rating agencies.*(Issuer Rating)Stable Returns◆ Distribution per Unit for the 20th Period¥15,138

In the 20 periods over the 10 years since its listing, NBF
has made steady distribution of profits under a basic policy ofstable profit distribution over the medium-to-long term.

Distribution per unit
(Yen)
25,00022,252
19,391

20,00015,138

14,582
15,00010,0005,000
05thPeriod10th
Period20th
Period15th
PeriodStrategic Partnership with Mitsui Fudosan
NBF achieves steady growth using the officebuilding management and property informationcollection capabilities of Mitsui Fudosan Co., Ltd.,
Japan’s leading real estate company, and byacquiring the properties it has developed.

* As of June 30, 2011

4 NBF Report January – June 2011

Financial Highlights

20th Period

19th Period

18th Period

17th Period

20th Period

from January 1, 2011 toJune 30, 2011

from July 1, 2010 to
December 31, 2010

from January 1, 2010 toJune 30, 2010

from July 1, 2009 to
December 31, 2009

from January 1, 2011 toJune 30, 2011
U.S. dollars in thousands
except per unit data (Note 1)

Yen in millions, except per unit data or where otherwise indicatedOperating revenues¥ 28,081¥ 27,314¥ 28,341¥ 29,928

Income before income taxes

8,758

8,400

9,283

10,663

108,607

Net income

8,757

8,399

9,282

10,662

108,596Note 3

14,291

13,57014,354

15,944

177,220

Net operating income
from property leasing activities Note 3

18,664

17,661

18,445

20,124

231,447

Total amount of cash distribution (a)

8,757

8,398

9,282

10,662

108,598

Total assets

823,705

765,203774,379

782,311

10,214,597

Interest-bearing debt

350,750

325,125

333,500

337,875

4,349,578

423,872

394,575

395,458

396,838

5,256,354

Funds from operations

Note 2$

348,222

Net assets(b)

LTV (Loan to value)

Note 3

Total number ofunits issued (units)(c) Note 4578,500

542,000

542,000

542,000

Net assets per unit (Yen/$)(b) / (c)732,709727,996

729,626

732,173

9,086

Distribution per unit (Yen/$)(a) / (c)15,13815,495

17,125

19,672

188

Funds from operations
per unit (Yen/$)Note 324,93725,03626,48329,417

309

46.5%

46.3%

46.8%

46.9%

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥80.64 = U.S.$1.00, the approximate exchange rate on June 30, 2011.
2. Operating revenues do not include consumption taxes.
3. Funds from operations: Net income (excluding Gain and Loss on sale of investment properties) + Depreciation and amortization
Net operating income from property leasing activities: (Revenue from property leasing – Rental expenses) + Depreciation and amortization
Loan to value: (Interest-bearing debt + Deposits under management) / Total assets
Funds from operations per unit: (Net income (excluding Gain and Loss on sale of investment properties) + Depreciation and amortization) /Weighted average number of units issued and outstanding during the period
4. The Company issued an additional 36,500 units in January and February 2011.

Operating revenues

Net income(Yen in millions)(Yen in millions)(Yen)

35,00015,00025,00030,00020,00025,00010,00015,00020,00015,00010,0005,000

10,000

5,000

5,000
0

Distribution per unit

16th 17th 18th 19th 20th
Period Period Period Period Period

0

16th 17th 18th 19th 20th
Period Period Period Period Period

0

16th 17th 18th 19th 20th
Period Period Period Period Period

NBF Report January – June 2011 5

To Our Unitholders
Based on its sound financial strategy,
NBF is committed to generatingwell-balanced external and internal
growth for stable distributions overthe medium to long term.
Koichi Nishiyama
Executive Director of Nippon Building Fund Inc.
President and CEO of Nippon Building Fund Management Ltd.

Performance during theSix Months Ended June 30, 2011

NBF’s occupancy rate as of June 30, 2011 rose
0.5 points from the end of the previous period to97.1 percent.

Improved occupancy rates and operation of
newly acquired properties contributed torevenue and income growth.
During the six months ended June 30, 2011

In the office building acquisition market,
although the effects of the earthquake brought
the market to a temporary standstill, sometransactions took place, mainly in Tokyo CBDs, as
the improvement in the capital procurement(the “20th Period”), there was an emerging sense

environment and adjustments to real estate pricesthat the office building leasing market wascontinued. Given these conditions, NBF acquired

bottoming out, and vacancy rates of Class S andsix properties, including additional acquisitions,Class A properties in the five key wards of Tokyo

for a total cost of ¥57.55 billion. We funded

continued the improvement trend that began inthese acquisitions in part by issuing new units. In

the second half of last year.

addition, we moved to further enhance theIn the wake of the Great East Japan

quality of our portfolio by deciding to acquire theEarthquake of March 2011, occupancy rates

Mitsubishi Heavy Industries Head Office Building

increased in large-scale high-quality properties inin September 2011 (acquisition price: ¥36.3

the central business districts (CBDs) of Tokyo,

billion) and to sell the NBF Sudacho Verdeparticularly recently built properties with superior

Building in July 2011.

anti-seismic features. With this clear improvement,

6 NBF Report January – June 2011

Primarily as a result of the improved occupancy

Performance Outlook (As of August 12, 2011)(Yen in millions)21st Period (Projected)
from July 1, 2011 to December 31, 2011

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

¥29,759
8,735
15,10097.7%¥29,206
8,735
15,10097.7%

Operating revenues
Net income
Distribution per unit (Yen)
Occupancy rate (End of period)

rate and revenue from new occupancy inafter early 2012. Based on this reasoning, NBF

properties acquired during the period, operating

forecasts distributions per unit of ¥15,100 for therevenues increased ¥767 million, or 2.8 percent, to

six months ending December 31, 2011 (the 21st

¥28,081 million, and operating income increased

Period) and for the six months ending June 30,¥600 million, or 5.3 percent, to ¥11,919 million. Net

2012 (the 22nd Period).

income increased ¥358 million, or 4.3 percent, to

We expect the operating environment to¥8,757 million despite expenses for reconstruction

remain unpredictable for some time. However, by

and repair of properties damaged by the Marchmaking the most of the advantages of the high-earthquake. Distribution per unit was ¥15,138 due

quality portfolio we have built up since we began

to an increase in the number of units resulting fromasset management and the leasing capabilities ofa capital increase.

our sponsor, Mitsui Fudosan Co., Ltd., we will
work to prevent contract cancellations bystrengthening tenant relations and bolster

Performance Outlook and
Future Management Policies

marketing to attract new tenants. Further, we willcontinue to invest aggressively and selectively inhigh-quality properties, including shuffling our

We believe that rents will not recover until
after early 2012. However, we will continue
to invest aggressively and selectively in highquality properties.
We sense that occupancy rates have bottomedout, and expect a full-period contribution from

portfolio, based on fund procurement capabilities
that leverage our strong financial base. We will
maintain our basic policy of aiming for steady
distributions to unitholders over the medium tolong term by generating well-balanced internaland external growth based on our sound financial
strategies.

the occupancy of newly acquired properties(including additional acquisitions). On the other
hand, while there are signs that the range of
decreases in rents is narrowing, we do not see
rents reaching a true bottom until some time

Koichi Nishiyama
Executive Director of Nippon Building Fund Inc.
President and CEO of Nippon Building Fund Management Ltd.

NBF Report January – June 2011 7

Feature: More Growth, More ValueA Decade-Long Track
Record of Steadily
Growing Scale of Assets
We seek to aggressively expand our asset base through rigorously selected
investments in high-quality properties that will contribute to our portfolio.
NBF has been publicly listed for 10 years.

acquisition price, excluding properties sold) have

Consistent with its investment policy, NBF has built

grown from ¥192.1 billion in at the time of listinga high-quality portfolio through rigorously selected

in 2001 to ¥870.1 billion in 2011.

investments in competitive office buildings, primarily in Tokyo CBDs. NBF’s assets (calculated as total

Over the past decade, NBF has experienced various
challenges, from the recession following the 2001

Occupancy Rate, Real GDP and Scale of Management Assets
(%)
100

(%)
3.0

95

0

90

NBF Occupancy Rate (left scale)Real GDP (right scale)

-6.0

85
■ Bursting of IT bubble■ “2003 Problem” foroffice leasing■ Recovery from bursting of IT bubble■ Economic growth■ Subprime
loan crisis■ Financial crisis■ Economic crisis■ Recovery from crisis■ Hope for economic recovery■ Real estate market gradually recovers

Scale of Management Assets(Yen in billions)
900

600

• Selected investment
for future growth• Enhancement of portfolio

300

0

-3.0

Dec. Jun. Dec. Jun. Dec. Jun. Dec. Jun. Dec. Jun. Dec. Jun. Dec. Jun. Dec. Jun. Dec. Jun. Dec.
2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010

Source: Real GDP: Cabinet Office, Government of Japan; Projections for April 2011 - March 2013: Japan Center for Economic Research

8 NBF Report January – June 2011

Jun.
2011

Dec. Jun. Dec. Jun.
2011 2012 2012 2013
(Proj.) (Proj.) (Proj.) (Proj.)terrorist attacks and a sharp increase in the supply

Industries Head Office Building (acquisition price:of new office buildings in central Tokyo (the so-¥36.3 billion). The grade and location of this build-called “2003 Problem”) to the subprime loan crisis

ing make it strongly competitive, and it is expected

and the global recession sparked by the collapse of

to become a core NBF property over the medium

Lehman Brothers in 2008. We have overcome

to long term. With the acquisition of these seven

these challenges and expanded the scale of assets

properties, we have generated external growth ofunder management.

approximately ¥93.9 billion since the start of 2011.

In January 2011, NBF carried out its first equity

In Japan, the Great East Japan Earthquake

financing in three years to acquire six properties

struck in March, and a mood of uncertainty aboutfor ¥57.55 billion. These six properties have athe economy prevails worldwide. However, we will

weighted-average NOI yield of 5.2 percent, which

continue to take advantage of valuable informa-

is higher than the NOI yield of NBF’s portfolio oftion channels, including those of our sponsor, theroughly 4.5 percent before the acquisition, thus

Mitsui Fudosan Group, to make rigorously selected

helping to raise overall portfolio quality. In February,investments in highly competitive, high-quality

we also decided to acquire the Mitsubishi Heavy

properties.

New Acquisitions

Acquisition priceRiver City M-SQUARE¥13,350 million

Gate City Ohsaki (Additional Acquisition)¥11,631 million

Nihonbashi Kabuto-cho M-SQUARE¥4,850 million

NBF Ueno Building¥10,400 million

Chofu South Gate Building¥9,320 million

Hakata Gion M-SQUARE¥8,000 million

Mitsubishi Heavy Industries Head Office Building¥36,300 million

Total¥93,851 million

Planned Sale
NBF Sudacho Verde Building

Sale price¥3,250 million

NBF Report January – June 2011 9

Feature: More Growth, More Value

Maintaining a High Occupancy
Rate with a Quality Portfolio
and Skillful Management
We seek to increase revenues from internal growth through the quality portfolio
we have built over the last decade and skillful management of properties.
NBF has a decade-long track record of maintaining a high occupancy rate. Two key factors

built a highly competitive portfolio.
The second is NBF’s sound internal growthstrategy. By taking advantage of the leasing capa-

underpin this performance.
The first is the advantage of NBF’s high-quality

bilities of our sponsor, Mitsui Fudosan Co., Ltd.,

portfolio. We not only seek to expand its asset

we have strengthened tenant relationships withscale, but also make rigorously selected invest-

measures including improving satisfaction amongments in quality properties. As a result, we haveexisting tenants.

Market Vacancy Rates in Central Business Districts (CBDs)

Average Vacancy Rates in Tokyo

(%)

(%)

15

10

12.4
12

Nagoya

Osaka

8

11.8

9

6

5.4

8.8
6

4

Class A
Buildings

Tokyo
3

0

Dec.
2002

Dec.
2004

Dec.
2006

Dec.
2008

Dec. Jun.
2010 2011

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

10 NBF Report January – June 20110

3.5

Class S Buildings

2

Jun.
2009

Dec.
2009

Jun.
2010

Dec.
2010

Jun.
2011

Source: CB Richard Ellis K. K.
Note: Building classes as determined by the Comprehensive Assessment System for Built
Environment Efficiency (CASBEE)Although conditions in the real estate leasing

NBF will continue to raise the competitivenessmarket remain challenging, the occupancy rates

of its portfolio and steadily execute its internalof quality properties with superior anti-seismic

growth strategy to achieve further growth.

features, notably Class S and Class A officebuildings in Tokyo CBDs, have been improving

Average Asking Rents in Tokyo CBDs

since the second half of 2010. In NBF’s portfolio,(Yen per tsubo)

contract cancellations have declined sharply and40,000occupancy rates have bottomed out.
35,000On the other hand, even though market rents arenearing their lower limit, there is a gap with rents of

New buildings

30,000existing tenants. Reflecting this gap, for the current
25,000year NBF has factored in a revenue decrease due torent adjustments. Our view is that market rents will

23,285

Average asking rent

20,000bottom out after early 2012. While we have not yet

17,292

Existing buildings

17,14015,000been impacted by the increased supply of office

Dec.
2007

buildings, we plan to deal with the situation by

Dec.
2008

Dec.
2009

Dec.
2010

Jun.
2011

Source: Miki Shoji Co., Ltd.

strengthening relationships with tenants.

NBF Occupancy Rate and Contract Cancellation Rate(%)
100

97.1 97.7 97.7

95

NBF Occupancy Rate
(left scale)90
8

NBF Contract Cancellation Rate(right scale)6

2.6

May Dec.
2001 2001

Dec.
2002

Dec.
2003

Dec.
2004

Dec.
2005

Dec.
2006

Dec.
2007

Dec.
2008

Dec.
2009

1.7

2.8

Dec. Jun. Dec. Jun.
2010 2011 2011 2012
(Proj.) (Proj.)

4
2
0

NBF Report January – June 2011 11

Feature: More Growth, More Value

Stable Finances
NBF will maintain a sound financial strategy and use it as the basis
for further growth.

Standard &Poor’s:Moody’s:

NBF’s track record demonstrates its conserva-

A+(Long-term Corporate)

approach has enabled smooth fund procurement, a vital activity for J-REITs, primarily

A1through equity financing six times, including the(Issuer Rating)

IPO, as well as through loans from financial institutions and the issuance of investment units.

AA

R&I:

tive approach to financial management. This

NBF has established guidelines and takes vari-(Issuer Rating)Stable Financial Track Record(%)
100Long-term Fixed-rate
Debt Ratio

79.0

80

60

46.5
40

LTV (Loan to Value)

20

0

Dec.
2001

Dec.
2002

12 NBF Report January – June 2011

Dec.
2003

Dec.
2004

Dec.
2005

Dec.
2006

Dec.
2007

Dec.
2008

Dec.
2009

Dec. Jun.
2010 2011ous measures to maintain and enhance its finan-

after the collapse of Lehman Brothers, but NBF

cial soundness. Our target loan-to-value (LTV)

will continue to maintain good relationships withratio is 40 to 50 percent, with a maximum of 60

Japanese banks and lenders. We recognize thatpercent. The LTV ratio was 46.5 percent as ofthese relationships are due not only to our high-June 30, 2011. We also strive to keep the ratio

quality portfolio and stable performance as theof long-term fixed-rate debt to total interest-

number-one J-REIT, but also to our good rela-bearing debt between 80 and 90 percent. As oftionships with Mitsui Fudosan and other spon-

June 30, 2011, it was 79.0 percent. We diversify

sors. These advantages are well recognized, andthe maturities of interest-bearing debt to reduce

we continue to obtain high ratings from credit

refinancing risk. At the same time, we haverating agencies.

established a total commitment line of ¥60.0 bil-

By continuing to maintain sound financial

lion (as of September 1, 2011) to prepare formanagement, and using it as the basis for gen-

new property acquisitions and refinancing. We

erating external and internal growth, NBF aims

diversify credit sources among lending institu-

to create even greater value for its investors.

tions, and currently have loans from 25 financial
institutions, the most for a J-REIT.
The financial environment has improved significantly compared with the period immediately

Diversified Maturities of Interest-Bearing Debt

Financing as of June 30, 2011

(Yen in billions)Short-term loans
Bonds
Long-term debt

50

40

30

Average years remaining
on long-term fixed-rateinterest-bearing debt:

3.76 years

Total average cost of debt:

1.69%

Number of lenders:

25

20

10

0

Commitment lines:
2011

2012

2013

2014

2015

2016

Total of¥60 billion*¥40 billion for 3 years¥20 billion for 1 year2017 2018 2019
(As of June 30, 2011)* As of September 1, 2011

NBF Report January – June 2011 13

Planned New Acquisition

65 Mitsubishi Heavy Industries●
Head Office Building

Location:

16-5, Konan 2-chome, Minato-ku, Tokyo

Completion date:

April 1, 2003

Acquisition date:

September 1, 2011

Acquisition price:¥36,300 million

14 NBF Report January – June 2011

New Acquisitions

3 Gate City Ohsaki●(Additional Acquisition)

Location:

11-1, 2, 6, Osaki 1-chome,
Shinagawa-ku, Tokyo

Completion date:

January 6, 1999

Acquisition date:

March 31, 2011

Acquisition price:¥11,631 million

NBF Report January – June 2011 15

14 River City M-SQUARE●

Location:

1-6, Tsukuda 2-chome,
Chuo-ku, Tokyo

Completion date:

January 15, 2010

Acquisition date:February 28, 2011

Acquisition price:¥13,350 million

29 Nihonbashi Kabuto-cho M-SQUARE●

Location:

1-4, Nihonbashi Kabutocho,
Chuo-ku, Tokyo

Completion date:June 15, 2009

Acquisition date:February 28, 2011

Acquisition price:¥4,850 million

16 NBF Report January – June 2011

New Acquisitions
36 NBF Ueno Building●

Location:24-11, Higashi-Ueno 4-chome, Taito-ku, Tokyo

Completion date:

January 5, 2010

Acquisition date:

January 31, 2011

Acquisition price:¥10,400 million

37 Chofu South Gate Building●

Location:48-26, Kojimacho 2-chome, Chofu City, Tokyo

Completion date:

October 26, 2007

Acquisition date:

April 15, 2011

Acquisition price:¥9,320 million

63 Hakata Gion M-SQUARE●

Location:

2-1, Reisenmachi, Hakata-ku, Fukuoka City, Fukuoka Prefecture

Completion date:June 25, 2009

Acquisition date:February 28, 2011

Acquisition price:¥8,000 million

NBF Report January – June 2011 17

Location of Office Properties(As of June 30, 2011)

1 NBF Hibiya Building●

2 Nishi-Shinjuku Mitsui Building●

4 Shiba NBF Tower●

5 NBF Platinum Tower●

6 NBF Minami-Aoyama Building●

Tokyo CBDs
1 NBF HIbiya Building
2 Nishi-Shinjuku Mitsui Building
3 Gate City Ohsaki
4 Shiba NBF Tower
5 NBF Platinum Tower
6 NBF Minami-Aoyama Building
7 Toranomon Kotohira Tower
8 NBF Nihonbashi Muromachi Center Building
9 Nakameguro GT Tower
10 Mitsuiseimei Ochanomizu Building
11 NBF Ginza Street Building
12 Shinjuku Mitsui Building No. 2
13 GSK Building
14 River City M-SQUARE
15 NBF Toranomon Building
16 Kowa Nishi-Shinbashi Building B
17 Nippon Steel Building No. 2
18 NBF Alliance
19 Yotsuya Medical Building
20 Shibuya Garden Front
21 NBF Shibuya East
22 NBF Shibakouen Building
23 NBF Takanawa Building
24 NBF Akasaka Sanno Square
25 NBF Shibakouen Daimon Street Building
26 Sumitomo Densetsu Building
27 NBF Higashi-Ginza Square
28 NBF Ogawamachi Building
29 Nihonbashi Kabuto-cho M-SQUARE
30 NBF Ikebukuro Tower
31 NBF Ikebukuro City Building
32 NBF Sudacho Verde Building(Scheduled for transfer in December 2011)65 Mitsubishi Heavy Industries Head Office Building(Acquired in September 2011)

18 NBF Report January – June 2011

Kita-ku

Arakawa-ku

31 30

Toshima-ku
Taito-ku

Bunkyo-ku

Nakano-ku

36
33

Sumida-ku
10

Shinjuku-ku

2

28

32

Chiyoda-ku

12

8

19
Imperial
Palace

13

7 15
16

6
18
20 21

Minato-ku

Setagaya-ku
5

11

27

4

23
26
65

Meguro-ku
3

Shinagawa-ku

17
14
35 34

25

22
9

Koto-ku

1

24

Shibuya-ku

29

Chuo-ku

Tokyo Bay

33 Nakanosakaue●

34 NBF Toyosu Canal Front●

Sunbright Twin

35 NBF Toyosu Garden Front●

54●
59 Aqua Dojima NBF Tower,●

Aqua Dojima East

55 Shinanobashi Mitsui Building●

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

TOCHIGI42

UTSUNOMIYA

43

IBARAKITo Omiya

SAITAMA

44

45

TOKYO

47

CHIBA

36

33

35 34

37

46

Other Cities
38

Tokyo Bay

48 Sapporo L-Plaza
49 NBF Sapporo Minami Nijo Building

40

39

41

48 49

KANAGAWA

50 NBF Sendai Honcho Building
51 NBF Unix Building
52 NBF Niigata Telecom Building
53 NBF Nagoya Hirokoji Building
54 Aqua Dojima NBF Tower
55 Shinanobashi Mitsui Building

52

50
51

56 Sun Mullion NBF Tower
57 Sakaisuji-Honmachi Center Building
58 NBF Sakai-Higashi Building
59 Aqua Dojima East

60

53

62 61
63

54 55 56 57

64

58 59

60 NBF Shijo Karasuma Building
61 NBF Hiroshima Tatemachi Building
62 Hiroshima Fukuromachi Building
63 Hakata Gion M-SQUARE
64 NBF Kumamoto Building

NBF Report January – June 2011 19

Portfolio Overview
NBF’s properties as of June 30, 2011 are as follows:
Name of Building

Investment
Type

Type of Ownership

Percentageof OwnershipYear Built(%)

Acquisition
Price

Book Value(Yen in millions)Tokyo CBDs
1 NBF Hibiya Building●
2 Nishi-Shinjuku Mitsui Building●
3 Gate City Ohsaki●
4 Shiba NBF Tower●
5 NBF Platinum Tower●
6 NBF Minami-Aoyama Building●
7 Toranomon Kotohira Tower●
8 NBF Nihonbashi Muromachi Center Building●
9 Nakameguro GT Tower●
10 Mitsuiseimei Ochanomizu Building●
11 NBF Ginza Street Building●
12 Shinjuku Mitsui Building No. 2●
13 GSK Building●
14 River City M-SQUARE●
15 NBF Toranomon Building●
16 Kowa Nishi-Shinbashi Building B●
17 Nippon Steel Building No. 2●
18 NBF Alliance●
19 Yotsuya Medical Building●
20 Shibuya Garden Front●
21 NBF Shibuya East●
22 NBF Shibakouen Building●
23 NBF Takanawa Building●
24 NBF Akasaka Sanno Square●
25 NBF Shibakouen Daimon Street Building●
26 Sumitomo Densetsu Building●
27 NBF Higashi-Ginza Square●
28 NBF Ogawamachi Building●
29 Nihonbashi Kabuto-cho M-SQUARE●
30 NBF Ikebukuro Tower●
31 NBF Ikebukuro City Building●
32 NBF Sudacho Verde Building●

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

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

100.0
85.1
18.6
100.0
100.0
100.0
100.0
100.0
93.1
100.0
100.0
100.0
100.0
100.0
100.0
83.0
100.0
100.0
100.0
50.0
100.0
100.0
100.0
100.0
87.0
100.0
100.0
83.8
100.0
100.0
100.0
100.0

1984
1999
1999
1986
2005
1995
2004
1986
2002
2009
1990
1983
1990
2010
1963
1994
1989
1989
2004
2003
1992
1990
1987
1989
1991
1991
2005
1986
2009
1993
1993
1988

63,50044,903
41,731
32,00031,00031,00024,54323,94523,856
20,84017,00016,285
15,616
13,35013,337
13,217
12,614
9,126
8,800
8,700
8,000
6,770
6,667
6,250
6,100
5,365
5,200
4,940
4,850
4,695
4,428
3,280

64,51635,12535,49029,42329,07731,592
20,182
24,25020,353
21,22917,58816,346
13,615
13,475
13,392
11,687
11,147
9,452
8,240
8,004
8,126
6,514
6,408
6,279
6,322
4,672
4,798
5,140
4,892
4,612
4,325
3,321

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

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

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

40,75035,20025,018
10,4009,320
20,30013,529
3,800
2,300
8,876
2,435
16,8162,000
15,7002,455

37,87932,28624,491
10,477
9,395
18,37012,398
3,256
2,174
7,048
2,417
14,982
1,922
15,834
2,218

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

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

4,404
1,870
3,566
4,029
3,958
7,232
17,81014,40010,500
6,500
2,227
1,914
1,627
2,930
835
8,000
4,500
837,111

3,763
1,710
3,518
3,098
3,630
7,004
16,18811,360
8,120
6,131
1,957
1,731
1,374
2,864
689
8,051
4,454
780,381

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

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

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

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

20 NBF Report January – June 2011

Revenue

Percentage ofTotal Revenues

Probable
Maximum Loss

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

(PML)
(%)

82
1
1
32
6
8
1
13
1
1
1
45
1
8
13
2
2
9
1
1
4
6
6
6
7
1
8
1
2
13
10
0

1,406
1,137
1,169
1,014
1,522
435
892
844
943
Note 2
Note 2
540
Note 2395
571
Note 2
Note 2294
250
Note 2
190
312
312
209
105
Note 2240
186
Note 2
196
186
Note 2

5.0
4.1
4.2
3.6
5.4
1.6
3.2
3.0
3.4
Note 2
Note 2
1.9
Note 21.4
2.0
Note 2
Note 21.1
0.9
Note 2
0.7
1.1
1.1
0.7
0.4
Note 20.9
0.7
Note 20.7
0.7
Note 2

1.6
1.8
1.5
2.3
1.5
4.7
1.6
4.8
1.2
5.8
8.2
1.6
0.8
4.0
8.4
2.0
3.5
7.3
5.6
3.4
4.4
5.9
5.3
9.9
2.8
5.2
3.1
4.2
6.4
3.9
9.9
9.0

100.0
98.7
100.0
100.0
100.0
100.0
93.7
100.0
83.9
97.9
95.1
94.9
94.5
98.0
96.4

9
9
4
6
1
1
90
1
15
62
39
38
13
41
24

1,050
1,063
978
216
Note 2
851
647
296
104
437
132
717
99
577
126

3.7
3.8
3.5
0.8
Note 2
3.0
2.3
1.1
0.4
1.6
0.5
2.6
0.4
2.1
0.5

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

100.0
98.1
92.2
92.4
96.4
87.4
96.6
100.0
94.8
78.2
86.5
70.7
84.7
91.1
100.0
97.3
98.3
97.1

12
3
9
48
33
20
45
1
30
37
20
17
15
28
17
15
15
1,011

322
107
169
255
203
231
667
596
379
251
106
69
69
129
38
224
186
28,081

1.2
0.4
0.6
0.9
0.7
0.8
2.4
2.1
1.4
0.9
0.4
0.3
0.3
0.5
0.1
0.8
0.7
100.0

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

Appraisal Value

Rentable
Area

Leased Area at
End of Period

Occupancy Rate at
End of Period(Yen in millions)

(m2)

(m2)

(%)

55,40045,90040,80026,70051,20016,90030,30026,60021,90014,70014,50014,60021,30013,50016,70015,60013,74010,3007,350
13,700
6,530
8,200
7,530
7,260
4,400
4,920
7,180
5,460
4,850
5,000
4,880
3,010

27,57632,96829,94024,72833,503
9,630
16,84816,311
21,4236,627
3,440
14,874
20,426
16,232
10,067
10,08817,338
4,043
7,450
8,258
4,993
7,087
10,458
5,258
3,428
5,991
4,871
4,805
3,298
5,652
5,127
2,971

26,22732,96829,94024,38333,503
8,911
16,84816,041
21,4236,627
3,440
13,575
20,426
16,232
9,702
10,061
17,338
4,043
7,450
8,258
4,814
7,087
10,458
5,258
3,428
5,991
4,871
4,805
3,298
5,205
4,758
0

95.1
100.0
100.0
98.6
100.0
92.5
100.0
98.3
100.0
100.0
100.0
91.3
100.0
100.0
96.4
99.7
100.0
100.0
100.0
100.0
96.4
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
92.1
92.8
0.0

30,30035,70028,7008,450
9,320
16,00014,100
3,430
2,100
7,270
2,080
18,4001,770
11,5002,260

32,082
36,63828,3008,504
13,762
27,924
20,03012,545
5,242
16,785
6,160
20,6983,455
22,846
4,770

32,08236,15428,3008,504
13,762
27,924
18,77012,545
4,398
16,426
5,857
19,635
3,263
22,397
4,597

6,560
1,560
2,870
3,250
2,980
7,240
18,20013,400
8,080
6,390
1,620
1,780
1,240
2,470
803
8,050
3,700
822,483

11,396
5,351
7,567
13,414
10,208
9,873
21,91725,314
14,954
11,438
5,255
3,243
3,932
5,612
1,309
14,328
7,934
828,491

11,396
5,250
6,973
12,3889,837
8,625
21,16925,314
14,180
8,943
4,546
2,292
3,332
5,114
1,309
13,942
7,801
804,393

Total Number ofTenants at
End of Period

NBF Report January – June 2011 21

Management Team and Management Structure(As of June 30, 2011)

Nippon Building Fund Inc. (NBF) is an investment corporation that takes a medium-to-long-term
perspective with the aim of generating steady asset growth and stable profits. NBF believes that fair,transparent management is central to increasing return on investment.
attendance, unless otherwise stipulated by laws, regulations or NBF’s

Nippon Building Fund Inc.

articles of incorporation. Decisions on substantive matters such as
Nippon Building Fund Inc. is an investment corporation established with the objective of investing in assets, primarily Designated
Assets as defined by the Investment Trust Law of Japan. NBF entrusts
management of its assets to Nippon Building Fund Management
Ltd., which is an asset management company.

changes in the articles of incorporation require the attendance ofunitholders that control a simple majority of total units issued andoutstanding, and a two-thirds majority of the voting rights of such
unitholders. In addition, any change in the asset management policies
and standards, which are stipulated by NBF’s articles of incorporation,

NBF’s primary investment objective is to achieve sustainablerequires an extraordinary resolution of unitholders as outlined above.

growth in portfolio value and stable profits on a medium-to-longconsisting of buildings primarily used for offices with their underlying

Executive Directors, Supervisory Directors and theBoard of Directors

land located in the central business districts (CBDs) of Tokyo, other

NBF’s articles of incorporation stipulate that NBF must haveGreater Tokyo and other cities in Japan. NBF also invests in securities,

one or more executive directors and three or fewer supervisory

beneficiary certificates representing beneficial interests in trusts anddirectors (but the number of supervisory directors must always

other assets backed by office properties.

be at least one greater than the number of executive directors).

term basis. NBF achieves this objective by investing in real estate

As of June 30, 2011, NBF had two executive directors and three
supervisory directors.

General Meeting of Unitholders

NBF’s executive directors are responsible for business execution. In

Specific matters pertaining to NBF that are subject to theInvestment Trust Law of Japan or the Company’s articles of incorpora-addition, they have authority for all judicial and extrajudicial proceed-tion are decided by resolution of the General Meeting of Unitholders,ings related to the operations of NBF.
Supervisory directors are responsible for supervising execution bywhich convenes at least once every two years, in principle. The seventh
General Meeting of Unitholders convened on March 10, 2011. The

the executive directors.
The Board of Directors consists of the executive and supervisory

date of the next General Meeting of Unitholders has not been set.
The General Meeting of Unitholders adopts or vetoes resolutions
on the basis of a simple majority of the voting rights of unitholders indirectors. Its responsibilities include authorizing business execution
and supervising the performance of the executive directors.

General Meeting ofUnitholders

Asset Custody

The Chuo Mitsui Trustand Banking Co., Ltd.
Mitsui Fudosan Co., Ltd.
NBF Office Management Co., Ltd.

Asset Custody
Entrustment

OfficeManagement
Entrustment

NIPPON BUILDING FUND Inc. (NBF)

Board of Directors

Borrowings /Bonds and
Notes
Debt
Service

Investment

Real Estate, etc.
Rent, etc.

AssetsUnitholders’EquityNIPPON BUILDINGFUND MANAGEMENT Ltd. (NBFM)

Qualified Institutional
Investors / Bondholders
Independent Auditors
KPMG AZSA LLC

Liabilities

Office Management

22 NBF Report January – June 2011

Asset
Management
Entrustment

Investment

Unitholder

Distribution

Unitholder

TradingManagement Team

Seated from left: Tsutomu Nishikawa, Koichi Nishiyama
Standing from left: Sadao Kamiyama, Hatsuo Komatsu, Yoshiyuki Hirai

Executive Directors

Name

Background Summary

Tsutomu Nishikawa

Appointed Executive Director of NBF in March 2011 after serving as an executive officer of
Mitsui Fudosan Co., Ltd.
Representative Director of Nippon Building Fund Management Ltd. Executive Director of
NBF since August 2001.
Attorney. Appointed Supervisory Director of NBF in March 2007.
Certified Public Accountant. Certified Public Tax Accountant. Appointed Supervisory Director
of NBF in March 2007.
Appointed Supervisory Director of NBF in March 2009. Real Estate Appraiser.

Koichi Nishiyama
Supervisory Directors

Hatsuo Komatsu
Sadao Kamiyama
Yoshiyuki Hirai

Resolutions by the Board of Directors require a simple majority withtors are two years from the time they assume office. The terms of

more than half of the members of the Board in attendance.

executive directors and supervisory directors selected to fill a vacancy

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

or to increase the number of directors expire at the same time as theand supervisory directors may not participate in decisions in which

remaining terms of their predecessors or the current directors. Boththey have a vested interest. Executive and supervisory directors withof the two executive directors, all three supervisory directors and thesuch financial interest shall not be included in the number of execu-

substitute supervisory director were elected at the General Meeting

tive and supervisory directors in attendance for such decisions.

of Unitholders held on March 10, 2011, and assumed office on

The terms of office of executive directors and supervisory direc-

March 17, 2011.

NBF Report January – June 2011 23

Nippon Building Fund Management Ltd.

Management Structure

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

General Meeting of Shareholders
AuditorCompliance Committee

Matters Entrusted to
Nippon Building Fund Management Ltd.

Board of Directors
Executive Board

Risk Management BoardCEOAs the asset management company required by the Investment

Investment
Review Board

Accounting Auditor

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

Compliance
Officer

Investment & FinanceGroup

Corporate OperationGroupaccordance with the manager of general administration contract designating Nippon Building Fund Management Ltd. as the institutional
manager of NBF’s assets, Nippon Building Fund Management Ltd. also
executes certain responsibilities in connection with the operation of
the General Meeting of Unitholders and the Board of Directors as
manager of general administration.

Real Estate Real EstateManagement Investment
Team
Team

Research
Team

Financial
Team

Fund
Operation
Team

Corporate
Risk
Planning & Management
Administration & Compliance
Team
Team

operations of Nippon Building Fund Management Ltd. The heads ofthe Investment & Finance Group and the Corporate Operation
Group also serve as directors, and oversee their respective divisions
under the direction and oversight of the president. Corporate audi-

Management Structure of
Nippon Building Fund Management Ltd.

tors conduct accounting audits and operational audits of Nippon

The Board of Directors makes decisions on the basic management

Building Fund Management Ltd. The Compliance Officer oversees

policies of Nippon Building Fund Management Ltd. and oversees

compliance for the asset management company and is responsible

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

for internal administration in connection with internal audits at the

who is the representative director, supervises and executes theasset management company.

Nippon Building Fund Management Ltd. Management Team
Name

Title

Career Summary

Koichi Nishiyama

President and CEO
and Representative
Director

April 1974
April 2000
Sept. 2000

Yasushi Akimoto

Director, Head ofInvestment &Finance Group

April 1983
April 1998
April 2006
April 2008

Hiroshi Yabuki

Director and COO

Masato Shikata
Fukuhisa Kumada

Aug. 2001

Joined Mitsui Fudosan Co., Ltd.
Manager of Building Fund Office, Building Division of Mitsui Fudosan
Became President and Representative Director of MF Asset Management Co., Ltd.
(now Nippon Building Fund Management Ltd.) (current position)
Became Executive Director of NBF (current position)

April 2011

Joined Mitsui Fudosan Co., Ltd.
Seconded to Daiichi Engei Co., Ltd. under the supervision of Personnel Department of Mitsui Fudosan
Head of Group under Business Promotion Section, Building Department of Mitsui Fudosan
Seconded to Nippon Building Fund Management Ltd. under the supervision of Personnel Department of
Mitsui Fudosan (current position)
Became Director of Nippon Building Fund Management Ltd. (current position)

April 1984
April 2004
Oct. 2008
Feb. 2010

Joined Sumitomo Life Insurance Company
Head of Niigata Branch Office of Sumitomo Life Insurance
Head of Real Estate Department, Real Estate Operating Office of Sumitomo Life Insurance
Became Director of Nippon Building Fund Management Ltd. (current position)

Director (Part-time)

April 2009

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

Director (Part-time)

Sept. 2010

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

Noriaki Moromachi

Corporate Auditor(Part-time)

April 2003

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

Toru Suzuki

Corporate Auditor(Part-time)

April 2008

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

24 NBF Report January – June 2011

Management Team and Management Structure

Compliance Initiatives

guidelines for management, acquisition and sale of assets; financial
guidelines for fund procurement and management policies; account-

The management of NBF and Nippon Building Fund Management
Ltd. conduct honest and appropriate business activities while main-ing guidelines for tax accounting and dividend distribution policies;and guidelines on transactions with potential conflicts of interest.

taining rigorous compliance by adhering to all relevant laws and regulations, based on a high level of corporate ethics.
The bylaws of NBF’s Board of Directors stipulate that Board of

Policy and Management System for
Dealing with Conflict of Interest Transactions

Directors meetings are to be held at least once every three months. In■ Fundamental Policy on Conflict of Interest Transactions

practice, NBF holds such meetings once a month. At Board meetings,

Nippon Building Fund Management Ltd. is constantly aware of its

executive directors report on the execution of their duties and super-

accountability to NBF and NBF’s unitholders with regard to any trans-visory directors ensure that oversight and check-and-balance systems

actions in which the interests of NBF and the interests of Nippon

are functioning properly.

Building Fund Management Ltd. and its related corporations or cus-

Nippon Building Fund Management Ltd. views compliance as a

tomers may conflict. Nippon Building Fund Management Ltd. follows

management strategy, with a fundamental compliance policy ofvoluntary rules stipulated in laws and internal bylaws to proactively

conducting operations honestly and fairly while maintaining a rigor-

prevent conflicts of interest.

ous compliance system based on a high level of corporate ethics.

All decisions made in executing the management of NBF’s assets

Specifically, Nippon Building Fund Management Ltd. has establishedare subject to the approval of the president, and are made after goinga Compliance Committee, consisting of the Compliance Officer, thethrough discussions by the Investment Review Board and Executive

president, the head of the Investment & Finance Group, the head ofBoard of Nippon Building Fund Management Ltd. Sponsor companies

the Corporate Operation Group and an outside committee member.

are not permitted to intervene in the decision-making process.

Initiatives to enhance awareness of and adherence to compliance■ Voluntary Rules for Conflict of Interest Transactions

include the establishment of Compliance Rules and a Compliance
Manual. In addition, a Compliance Program is formulated each year
to verify the progress of the execution plan for that year and identify
any problem areas.

Stipulated in Internal Bylaws

Nippon Building Fund Management Ltd. has set voluntary rules in
its internal bylaws to address transactions with parties, including
sponsor companies that have interests in Nippon Building FundManagement Ltd.

Risk Management System

The voluntary rules require the Investment Division, which initiates

NBF and Nippon Building Fund Management Ltd. have estab-the transaction, as well as the Compliance Department, the Assetlished the following risk management system to avoid and minimize

Management Examination Meeting and other units to protect NBF’srisks related to investments.

managed assets and profits by fully examining the transaction con-

■ NBF

tents according to the voluntary rules set in the internal bylaws in

NBF’s Risk Management Regulations define risk management poli-

the event of a transaction in which the interests of Nippon Building

cies and procedures. The Risk Management Board convenes once every

Fund Management Ltd. and parties that have interests in Nippon

three months and undertakes deliberation, monitoring and other ini-

Building Fund Management Ltd. may conflict with the interests of

tiatives to ensure that the entrusted asset manager is conducting its

NBF. These rules are designed from the standpoint of accountability

duties with due care in good faith in a manner consistent with its fidu-

to NBF and its unitholders.

ciary duty to the conservation and maintenance of entrusted assets.
■ Nippon Building Fund Management Ltd.

Nippon Building Fund Management Ltd. formulates a

In examining the transaction contents, Nippon Building FundManagement Ltd. solicits the opinions of attorneys, certified tax
accountants and other third-party experts as needed. In addition,

Management Policy, a Medium-to-Long-Term Asset Management

when purchasing real estate or other assets from parties that have

Policy and an Annual Management Plan to follow in managing NBF’sinterests in Nippon Building Fund Management Ltd., the purchaseassets. In addition, Nippon Building Fund Management Ltd. has set

price is strictly set, in principle no higher than the appraised value

Asset Management Guidelines as a set of standards to follow.

according to a real estate appraiser with no vested interest.

The Asset Management Guidelines consist of management

NBF Report January – June 2011 25

Management’s Discussion and Analysis
Summary of Selected Financial Data
20th Period
from January 1, 2011 toJune 30, 2011

19th Period
from July 1, 2010 to
December 31, 2010

18th Period
from January 1, 2010 toJune 30, 2010

Yen in millions, except per unit data or where otherwise indicatedOperating revenues
Note 2
Revenue from property leasing activities
Gain on sale of investment property
Operating expenses
Rental expenses
Loss on sale of investment property
Income before income taxes
Net income(a)Funds from operations
Note 3
Net operating income from property leasing activities Note 3
Total amount of cash distribution(b)
Depreciation and amortization
Capital expenditures
Total assets(c)Interest-bearing debt
Net assets(d)Total number of units issued (units)(e) Note 4
Net assets per unit (Yen/$)(d) / (e)Distribution per unit (Yen/$)(b) / (e)Funds from operations per unit (Yen/$)Note 3
ROA
Note 3(Annual rate)
ROE
Note 3(Annual rate)
LTV (Loan to value)
Note 3
Capital ratio(d) / (c)Payout ratio(b) / (a) Note 5
Number of days
Number of investment properties
Note 6
Number of tenants
Note 6
Total rentable area (m2)Occupancy rate
Note 6¥ 28,081
28,081—
16,162
14,951
—
8,758
8,757
14,291
18,664
8,757
5,534
1,695
823,705
350,750
423,872
578,500
732,709
15,13824,9371.1%(2.3%)
2.1%(4.3%)
46.5%
51.5%
100.0%
181
64
1,011
828,491
97.1%¥ 27,314
27,314—
15,995
14,824
—
8,400
8,399
13,57017,661
8,398
5,171
1,769
765,203
325,125
394,575
542,000
727,996
15,49525,0361.1%(2.2%)
2.1%(4.3%)
46.3%
51.6%
100.0%
184
59
952
762,983
96.6%¥ 28,341
28,035306
16,16914,828
140
9,283
9,282
14,354
18,445
9,282
5,239
1,478
774,379
333,500
395,458
542,000
729,626
17,12526,483
1.2%(2.4%)
2.3%(4.7%)
46.8%
51.1%
100.0%
181
59
910
763,000
94.5%

20th Period
from January 1, 2011 toJune 30, 2011
U.S. dollars in thousands
except per unit data (Note 1)$

348,222348,222—200,417
185,400—
108,607108,596
177,220
231,447
108,598
68,62421,01910,214,597
4,349,578
5,256,354
9,086
188
309

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥80.64 = U.S. $1.00, the approximate exchange rate on June 30, 2011.
2. Operating revenues do not include consumption tax.
3. All valuations are calculated through the following formulas. The figures in parentheses after ROA and ROE are annualized based on the six-month figures for the period.
Funds from operations: Net income (excluding Gain and Loss on sale of investment properties) + Depreciation and amortization
Net operating income from property leasing activities: (Revenue from property leasing – Rental expenses) + Depreciation and amortization
Funds from operations per unit: (Net income (excluding Gain and Loss on sale of investment properties) + Depreciation and amortization) / Weighted average number of units issued
and outstanding during the period
ROA: Income before income taxes / (Initial total assets + Total assets at end of period) ÷ 2
ROE: Net income / (Initial net assets + Net assets at end of period) ÷ 2
Loan to value: (Interest-bearing debt + Deposits under management) / Total assets
4. The Company issued an additional 36,500 units in January and February 2011.
5. Payout ratio figures are calculated to one decimal place only.
6. Number of investment properties means units generally perceived to be one office building. Number of tenants means gross number of tenants by building. Occupancy rate is the ratio of grossleased area to total rentable area at the end of the period.

26 NBF Report January – June 2011

Operating Environment and Results
In the Japanese economy during the six months ended June 30, 2011 (the “20th Period”), exports increased against the
backdrop of economic recovery overseas, while corporate earnings, capital investment and other economic indicators showed
upward momentum. However, the Great East Japan Earthquake that struck in March 2011 damaged production facilities anddisrupted the supply chain. Other effects of the disaster, such as restrictions on the supply of electricity, added to the downward
pressure on the economy, especially in the manufacturing sector.
In the office building leasing market, rent levels remained low in the central business districts (CBDs) of Tokyo. However, occupancy rates of Class S and Class A office buildings in Tokyo CBDs showed an improvement trend. In addition, there was a trend
toward expansion of floor space in certain buildings, and occupancy rates improved particularly in high-quality large-scale properties,
including those with superior anti-seismic features.
In the real estate acquisition market, despite a temporary sense of stagnation due to the effects of the earthquake, stabilizationof the fund procurement environment and adjustment of property prices led to an increase in transactions, mainly in Tokyo CBDs.
Under these conditions, NBF continued to manage its assets in accordance with its basic policy of investing in high-quality officebuildings that are highly competitive in terms of their location, size and infrastructure, and are expected to have stable cash flowfrom rents. After carefully selecting and reviewing information, NBF acquired six properties (including additional acquisitions) during
the 20th Period for a total of ¥57.55 billion. With the September 2011 acquisition of the Mitsubishi Heavy Industries Head Office
Building (¥36.3 billion), NBF has acquired properties worth approximately ¥93.9 billion since the beginning of 2011. NBF has alsodecided to sell the NBF Sudacho Verde Building in line with its asset replacement strategy.
In its existing portfolio, NBF carried out repair work as appropriate for buildings damaged by earthquakes and systematicallyconducted property management, renovations and new construction to further increase tenant satisfaction. NBF also worked tosecure stable rental revenue by maintaining a sound grasp of the market, setting appropriate rents for new tenants and revising rents
for tenants renewing their lease contracts.
As a result of these efforts, NBF’s real estate portfolio as of June 30, 2011 totaled 64 properties. Total investment on an
acquisition price basis was ¥837.1 billion. Total rentable area was 828,491m2 (250,618 tsubo). The occupancy rate increased 0.5
percentage points from December 31, 2010 to 97.1 percent. The number of tenants totaled 1,011.

Occupancy rate

Total investment(Yen in billions)

(%)

900

100

800

98

700

96

600
500

94

400

92

300

90

200
100
0

0
Jun. 30,
2009

Dec. 31,2009

Jun. 30,
2010

Dec. 31,2010

Jun. 30,
2011

Jun. 30,
2009

Dec. 31,2009

Jun. 30,
2010

Dec. 31,2010

Jun. 30,
2011

NBF Report January – June 2011 27

Overview of Performance
Operating revenues for the six months ended June 30, 2011 increased ¥767 million, or 2.8 percent, compared with the previous sixmonth period to ¥28,081 million, mainly because of the increase in revenue from new occupancy in the six properties acquired during
the period, including additional acquisitions. Operating income increased ¥600 million, or 5.3 percent, to ¥11,919 million. Net income
increased ¥358 million, or 4.3 percent, to ¥8,757 million. Distribution per unit was ¥15,138.
NBF also carried out earthquake repair work totaling ¥238 million during the period for buildings damaged by the Great East Japan
Earthquake. This consisted of an extraordinary loss of ¥206 million on construction costs and property construction of ¥32 million.

(Yen in millions)Operating income from property
leasing activities

35,000(Yen in millions)Operating revenues

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

5,000

5,000
0

16th
Period17th
Period18th
Period19th
Period0

20thPeriod16th
Period17th
Period18th
Period19th
Period20th
PeriodDistribution for the Current Period
Distribution per unit for the current period was ¥15,138. NBF expects to distribute almost all retained earnings at the current
period end to be eligible for special tax treatment (Special Taxation Measures Law of Japan Article 67-15) that allows NBF to deduct
its cash dividends of profits from taxable income.
For the six months ended
June 30, 2011

For the six months ended
December 31, 2010

For the six months ended
June 30, 2010

(Yen in thousands, except per unit amounts)

Retained earnings
Undistributed earnings
Total cash distribution(Cash distribution per unit)
Distribution of accumulated earnings(Distribution of accumulated earnings per unit)
Cash distribution in excess of accumulated earnings(Per unit)¥8,757,477
144
8,757,333
15,1388,757,333
15,138——¥8,398,598
308
8,398,290
15,495
8,398,290
15,495——¥9,281,802
52
9,281,750
17,1259,281,750
17,125——

Note: Above cash distributions were paid after the period end.

Distribution per unit

Total amount of cash distribution(Yen)(Yen in millions)

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

5,000
0

0

16th
Period17th
Period18th
Period28 NBF Report January – June 201119th
Period20th
Period16th
Period17th
Period18th
Period19th
Period20th
PeriodManagement’s Discussion and Analysis

Changes in Assets, Liabilities and Net Assets
Assets
As of June 30, 2011, total assets increased ¥58,502 million to ¥823,705 million compared with December 31, 2010. Return on
average total assets (ROA) for the six months ended June 30, 2011 increased to 1.13 percent from 1.09 percent for the previous
six-month period.
Current assets increased ¥3,470 million to ¥38,100 million compared with December 31, 2010. Investment properties increased¥54,518 million to ¥780,355 million compared with December 31, 2010.

Liabilities
Current liabilities increased ¥24,887 million to ¥82,426 million compared with December 31, 2010, primarily because of anincrease in long-term debt due within one year compared with December 31, 2010.
Long-term debt increased ¥625 million to ¥277,000 million compared with December 31, 2010.
As a result, total interest-bearing liabilities increased ¥25,625 million to ¥350,750 million compared to December 31, 2010.
However, the ratio of long-term fixed-rate debt (less amounts due within one year) to total interest-bearing liabilities decreased to79.0 percent as of June 30, 2011 from 85.0 percent as of December 31, 2010. The loan-to-value ratio, calculated as the ratio ofinterest-bearing liabilities plus deposits under management to total assets, increased to 46.5 percent as of June 30, 2011 from 46.3
percent as of December 31, 2010.
In addition, NBF worked to diversify funding sources. In January 2009, NBF updated a shelf registration to publicly offer up to¥200 billion in bonds.

Net assets
Net assets increased ¥29,297 million to ¥423,872 million compared with December 31, 2010.

Net assets

Total assets(Yen in millions)(Yen in millions)

1,000,000

500,000
400,000

800,000

300,000

600,000

200,000
400,000
100,000
00Jun. 30,
2009

Dec. 31,2009

Jun. 30,
2010

Dec. 31,2010

Jun. 30,
2011

Jun. 30,
2009

Dec. 31,2009

Jun. 30,
2010

Dec. 31,2010

Jun. 30,
2011

Funding
Balance of Paid-in Capital
NBF was established on March 16, 2001 with initial paid-in capital of ¥100 million. NBF began investing activities in May 2001
after ¥98,800 million was raised through private placements. As of June 30, 2011, NBF had issued 578,500 units out of 2,000,000
total authorized units. NBF’s units were listed on the J-REIT section of the Tokyo Stock Exchange in September 2001 upon thecompletion of a public offering. As the Investment Trust Law of Japan does not contain any provision for the issue of more than
one class of units, NBF’s units comprise the sole class of units authorized and issued by NBF.

NBF Report January – June 2011 29

Issue date

Units issued and outstanding
Increase
Balance(Units)Remarks

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

March 16, 2001

200

200

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

4,000

Paid-in capital
Increase

Balance

Notes(Yen in millions)

¥

100

¥

100

Note 1

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

Note 2
Note 3Note 4

364,700

2,942

210,679

Note 558,00080,000422,700
502,700

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

508,000

5,236

346,446

Note 831,800539,800

37,159383,605

Note 92,200

542,000

2,571

386,176

Note 1034,000576,000

26,957413,133

Note 112,500

578,500

1,982

415,115

Note 12

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

Market Price of Units
High/Low (closing price) of units on the TSE:
For the six months ended
June 30, 2011

For the six months ended
December 31, 2010
(Yen)

For the six months ended
June 30, 2010

¥871,000
735,000¥850,000
702,000¥815,000
704,000

High
Low

Borrowings
Borrowings from financial institutions as of June 30, 2011 are shown below.
Short-term loans
LenderBalance

Averageinterest rate (%)

Due on(Note 1)

Repayment
method

0.5%
0.5%
0.5%
0.5%
0.7%
0.7%

July 29, 2011
August 31, 2011
July 29, 2011
August 31, 2011
October 31, 2011
December 30, 2011

Bulletpayment

Use of
funds

Notes

(Note 4)

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

The Gunma Bank, Ltd.
The 77 Bank, Ltd.
Shinkin Central BankThe Joyo Bank, Ltd.
The Yamaguchi Bank, Ltd.
The Chugoku Bank, Limited¥2,000
2,000
1,000
1,000
1,000
1,000

Total short-term loans¥8,00030 NBF Report January – June 2011

Management’s Discussion and Analysis

Long-term loans
LenderBalance

Averageinterest rate (%)

Due on(Note 1)

1.8%
1.5%
1.8%
2.0%
2.4%
2.2%
2.2%
2.1%
2.1%
1.9%
1.7%
1.8%
1.5%
1.8%
1.5%
1.9%
1.8%
1.5%
2.3%
1.4%
1.2%
1.5%
1.7%
1.2%
1.7%
1.8%
1.6%
1.6%
2.0%
1.9%
1.6%
1.8%
1.0%
1.6%
1.6%
1.8%
1.8%
1.5%
1.8%
1.4%
1.0%
2.1%
2.2%
2.2%
1.3%
2.0%
1.0%
1.9%
1.0%
1.4%
1.3%
1.3%
1.8%
2.0%
1.4%
1.6%
1.4%
1.8%
1.8%
1.7%
2.1%
2.0%

November 28, 2014
September 11, 2015
September 27, 2017
February 15, 2016
May 30, 2018
April 28, 2019
August 30, 2019
July 19, 2011
May 23, 2018
May 23, 2016
July 16, 2014
February 3, 2016
April 30, 2013
June 27, 2013
December 28, 2012
April 28, 2014
June 30, 2014
September 11, 2015
May 30, 2016
December 30, 2011
June 1, 2018
February 7, 2012
July 31, 2013
November 30, 2018
February 13, 2012
March 30, 2012
November 1, 2012
December 13, 2013
May 30, 2013
May 29, 2014
September 30, 2013
September 30, 2014
June 1, 2017
September 30, 2013
April 27, 2012
July 31, 2014
September 30, 2014
March 4, 2016
June 27, 2013
December 30, 2011
June 1, 2017
December 21, 2011
April 27, 2012
May 23, 2012
September 9, 2011
October 30, 2015
June 1, 2017
July 12, 2012
June 1, 2017
April 1, 2015
October 19, 2018
May 31, 2019
March 30, 2012
October 31, 2014
October 4, 2013
February 3, 2015
December 2, 2013
June 26, 2014
March 30, 2015
December 15, 2014
July 11, 2014
August 31, 2015

Repayment
methodUse of
funds

Notes

(Yen in millions)

Development Bank of Japan Inc.

¥ 4,000
10,00010,00010,00010,0004,500
9,250
Sumitomo Life Insurance Company
5,000
7,000
5,000
5,000
3,000
Sumitomo Mitsui Banking Corporation
5,000
5,000
4,000
6,000
1,000
Zenkyoren (The National Mutual Insurance 10,000
Federation of Agricultural Cooperatives) 10,000
The Chuo Mitsui Trust and10,000Banking Co., LIMITED
10,000Mizuho Corporate Bank, Ltd.
2,000
8,000
7,000
MITSUI LIFE INSURANCE COMPANY, LIMITED 2,000
4,000
2,000
3,000
2,000
3,000
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
8,000
4,000
4,000
The Sumitomo Trust and
5,000Banking Company, Limited
7,000
Mitsubishi UFJ Trust and
3,000
Banking Corporation
1,000
7,000
Shinkin Central Bank
4,000
3,000
3,000
Meiji Yasuda Life Insurance Company
3,000
4,000
1,000
Resona Bank, Limited.
3,000
3,000
1,000
THE BANK OF FUKUOKA, Ltd.
4,000
2,000
Nippon Life Insurance Company
2,000
2,000
2,000
DAIDO LIFE INSURANCE COMPANY
1,000
1,000
1,000
2,000
The Hachijuni Bank, Ltd.
1,000
2,000
1,000
TAIYO LIFE INSURANCE COMPANY
1,000
2,000
1,000

(Note 2)
(Note 3)

Bulletpayment(Note 4)

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

NBF Report January – June 2011 31

Lender

Balance

Averageinterest rate (%)

Due on(Note 1)

Repayment
method

1.7%
1.0%
1.1%
1.9%
0.9%

May 29, 2014
February 25, 2016
December 28, 2012
April 30, 2014
January 4, 2017

Bulletpayment

Use of
funds

Notes

(Note 4)

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

(Yen in millions)

The Chugoku Bank, Limited

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

The Yamanashi Chuo Bank, Ltd.
The Iyo Bank, LTD.
The Yamaguchi Bank, Ltd.

Total long-term loans
Total borrowings (Note 6)¥272,750¥280,750

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

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥27,750¥41,750¥26,750¥61,750

NBF Bonds
Issue date

Balance as ofJune 30, 2011
(Yen in millions)

CouponMaturitydate

Redemption

No. 3 Unsecured Bonds
No. 5 Unsecured Bonds

June 12, 2003
September 22, 2004

¥10,000
10,000

2.00%
1.60%

Bullet payment
Bullet payment

Note 1 Notes 2 and 4
Note 1 Notes 2 and 4

No. 7 Unsecured Bonds

November 9, 2005

10,0001.85%

Bullet payment

Note 1 Notes 3 and 5

No. 8 Unsecured Bonds
No. 9 Unsecured Bonds
No. 10 Unsecured Bonds
No. 11 Unsecured Bonds
Total (Note 6)

March 7, 2007
May 24, 2007
May 24, 2007
January 28, 2010

10,00010,00010,00010,000¥70,000

1.48%
1.74%
2.04%
1.23%

June 12, 2018
September 22,
2011
November 9,
2015
March 7, 2012
May 23, 2014
May 24, 2017
January 28, 2015

Bullet payment
Bullet payment
Bullet payment
Bullet payment

Note 1
Note 1
Note 1
Note 1Issue

Use ofproceeds

Notes

Notes 3 and 5
Notes 3 and 5
Notes 3 and 5
Notes 3 and 5

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

Investment
corporation bonds

Within 1 year

1 to 2 years

2 to 3 years

3 to 4 years

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

Others
NBF has security deposits totaling ¥40,328 million as of June 30, 2011.

Capital Expenditures
1. Planning
As of June 30, 2011, NBF is planning the following capital expenditures for the renovation of its properties. The amounts below
include repairs and maintenance costs that will be expensed as incurred. Moreover, in addition to a steady program of expenditures
for construction, repair and renovation of facilities, a program of renewal construction is being implemented in order to increase
competitive power in the market as well as to increase the level of tenant satisfaction based on the results of tenant satisfaction
surveys and neighboring competitive building specification surveys, etc.

32 NBF Report January – June 2011

Management’s Discussion and Analysis

Name of property

Estimated
durationObjective

Sumitomo Densetsu Bldg. Renovation of air conditioning
From January 2012
(2nd stage)to June 2012
Yokohama ST Bldg.
Renovation of disaster prevention From July 2011
equipment (2nd stage)to December 2011
Aqua Dojima NBF Tower Renovation of wall throughFrom October 2011
air conditioning (1st stage)to December 2011
Aqua Dojima NBF Tower Renovation of wall throughFrom January 2012
air conditioning (2nd stage)to April 2012
GSK Bldg.
Renovation of hot andFrom March 2012chilled water generator
to April 2012
Shin-Kawasaki
Renovation of heat insulator for From September 2011
Mitsui Bldg.
hot and chilled water plumbing to February 2012
Sumitomo Densetsu Bldg. Renovation of air conditioning
From August 2011
(1st stage)to December 2011
NBF Takanawa Bldg.
Renovation of air conditioning
From July 2011
(4th stage)to December 2011
Yotsuya Medical Bldg.
Leasehold improvement
From January 2012
to March 2012
NBF Ogawamachi Bldg. Renovation of air conditioning
From September 2011
(5th stage)to December 2011
NBF Atsugi Bldg.
Renovation of air conditioning
From January 2012
(1st, 8th, 9th floor)
to March 2012
NBF Atsugi Bldg.
Renovation of air conditioning
From July 2011
(6th, 7th floor)
to September 2011

Total amounts

Estimated amounts
Payment for thecurrent period(from January 1, 2011
to June 30, 2011)(Yen in millions)

Cumulative
amount paid

¥192

¥—

¥—

123

—

—

122

—

—

122

—

—

117

—

—

113

—

—

107

—

—

106

—

—

91

—

—

53

—

—

52

—

—

35

—

—

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NBF posted ¥1,695 million in capital expenditures
together with ¥579 million for repairs and maintenance expenses and ¥163 million for loss on disaster. In addition, NBF recorded¥43 million as provision for loss on disaster, to provide for construction planned after June 30, 2011.
Name of property

Objective

Expenditure(Yen in millions)

PeriodShinjuku Mitsui Bldg.
Renovation of refrigeration system (2nd stage), renovation of air
No. 2
conditioning (4th to 6th floors), renovation of restroom, etc.
NBF Shin-Urayasu Tower Renovation of wash basin, renovation of air conditioning (2nd stage),leasehold improvement of 17th floor, etc.
NBF Hibiya Bldg.
Renovation of air conditioning (2nd to 8th floors), renovation of central
monitoring facilities, renovation of air conditioning (4th basement floor,
2nd stage), etc.
NBF Atsugi Bldg.
Renovation of air conditioning (1st stage), renovation of halon extinction From January 2011
equipment, etc.
to June 2011
NBF Urawa Bldg.
Renovation of air conditioning (1st, 2nd basement floor), renovation of
halon extinction equipment, renovation of multistory parking, etc.
NBF Sapporo Minami
Renovation of chiller for air-cooling, renovation of halon extinction
Nijo Bldg.
equipment (2nd stage), renovation of ventilation equipment (oil tankroom), etc.
Other buildings
Asset preservation construction and other renewal construction to improvetenant satisfaction
Total

¥ 468
135
107
92
24
22
847
¥1,695

NBF Report January – June 2011 33

3. Cash Reserve for Capital Improvements
NBF accumulates cash reserves from cash flows to prepare for large-scale mid-term to long-term capital improvements andrepairs and maintenance that will be conducted in accordance with NBF’s business plan for each property.
As of June 30, 2011

As of December 31, 2010
(Yen in millions)

Reserve balance at the beginning of the period
Amount accumulated in the current period
Withdrawal from reserves in the current period
Amount carried forward¥1,1824,414
2,841¥2,755¥1,3981,690
1,906¥1,182

Notes: 1. The reserve figures represent only the amount of reserves attributable to NBF's ownership interest; the amount of reserves attributable to other owners has been excluded.
2. In addition to the above reserves, there are other reserves set up, based on maintenance needs and contracts with organizations responsible for management of properties, for the purpose of retaining funds to be used for future repair and maintenance. This reserve is not included in the above reserves and accumulated to ¥4,855 million
as of June 30, 2011.

Expenses regarding Entrustment, etc.
The following table sets forth the breakdown of entrustment fees, etc. paid by NBF.
For the six months ended
June 30, 2011

For the six months ended
December 31, 2010
(Yen in millions)

For the six months ended
June 30, 2010

¥ 973
36
51
17
13
121
¥1,211

¥ 943
37
44
19
13
115
¥1,171

¥ 988
37
45
19
13
99
¥1,201

Item

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

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

Date

Acquisition price (Note 1)

NBF Ueno Bldg.
River City M-SQUARE
Nihonbashi Kabuto-cho M-SQUARE
Hakata Gion M-SQUARE
Gate City Ohsaki (additional acquisition)
Chofu South Gate Bldg.
Total

January 31, 2011
February 28, 2011
February 28, 2011
February 28, 2011
March 31, 2011
April 15, 2011

¥10,400
13,3504,850
8,000
11,631
9,320¥57,551

Note: 1. “Acquisition price” does not include national consumption tax, local consumption tax and miscellaneous costs of acquisition.

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

34 NBF Report January – June 2011

Management’s Discussion and Analysis

3. Transactions with Related Parties and Transactions with Major Shareholders ofAsset Management Company(1) Ongoing Transactions
Amount of purchase price, etc. (Note 2) (Note 3)
Category

Purchase price, etc. (Yen in millions)

Sale price, etc. (Yen in millions)¥57,551
Total amount¥—Amount of purchases from related parties, etc.

Breakdown of transactions with related parties, etc.
Mitsui Fudosan Co., Ltd.
Sumitomo Life Insurance Company
Cool Spring Investment TMK (special purpose company)
Total

Amount of sales from related parties

37,831 (65.7)— (—)

18,200 (31.6)
11,631 (20.2)
8,000 (13.9)
37,831 (65.7)

— (—)
— (—)
— (—)
— (—)

(2) Fees Paid for the Period from January 1, 2011 to June 30, 2011
Description of transactions with related parties (Note 1)
Category

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

Leasing related service fees

Total fees paid(A)
(Yen in millions)¥1,167
2,796

63

Amount ofpayment (B)(Yen in millions)

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

¥1,130
32
492
338
164
124
11
3
23
12
1

B/A

96.8%
2.7%
17.6%
12.1%
5.9%
4.4%
0.4%
0.1%
35.7%
19.6%
1.2%

Notes: 1. “Related parties” are defined as related parties of asset management companies under asset management agreement with NBF as defined in Article 123 of Order for
Enforcement of the Law Concerning Investment Trusts and Investment Corporations, and Article 26, Section 27 of the Regulations regarding management report of theInvestment trusts and Investment corporations set by the Investment Trusts Association, Japan. “Major shareholders” are the major shareholders of asset managementcompanies as defined in Article 29, Section 4, Paragraph 2 of the Financial Instruments and Exchange Law. During the period from January 1, 2011 to June 30, 2011,transactions with and fees paid to, Mitsui Fudosan Co., Ltd., NBF Office Management Co., Ltd., First Facilities Co., Ltd., First Facilities West Co., Ltd., Mitsui Fudosan
Building Management Co., Ltd., First Facilities Yokohama Co., Ltd., Mitsui Fudosan Housing Lease Co., Ltd., and Mitsui Real Estate Sales Co., Ltd. which meet either ofthe said definitions, are as described above.
2. Figures indicate contractual sales prices.
3. Figures indicate percentages of total prices.
4. Properties that have not entrusted office management businesses through such means as master leasing by Mitsui Fudosan Co., Ltd. (10 properties: Nishi-Shinjuku
Mitsui Bldg., Gate City Ohsaki, Nakameguro GT Tower, Toranomon Kotohira Tower, NBF Ogawamachi Bldg., Shin-Kawasaki Mitsui Bldg., Parale Mitsui Bldg.,
Shinanobashi Mitsui Bldg., Sakaisuji-Honmachi Center Bldg. and Yotsuya Medical Bldg.) have entrusted them to NBF Office Management Co., Ltd. as business representative of the property owners or lessors.
5. In addition to the above fees paid, the following have been paid to related parties for repair and maintenance work.
(Yen in millions)First Facilities Co., Ltd.
Mitsui Fudosan Co., Ltd.
Mitsui Fudosan Building Management Co., Ltd.
First Facilities West Co., Ltd.
Mitsui Fudosan Housing Lease Co., Ltd.
LaLaport Management Co., Ltd.
Mitsui Real Estate Sales Co., Ltd.
Daiichi Engei Co., Ltd.
Mitsui Home Linkage Co., Ltd.

¥943
174
170
86
15
3
0
0
0

NBF Report January – June 2011 35

Balance Sheets
NIPPON BUILDING FUND INC.
As of June 30, 2011 and December 31, 2010

As ofJune 30, 2011

As of
December 31, 2010
(Yen in millions)

AssetsCurrent Assets:
Cash and cash equivalents (Note 4)
Tenant receivables
Other current assets
Total current assets
Investment Properties:
Land including trust accounts (Notes 5, 15)
Buildings and improvements including trust accounts (Notes 5, 15)
Other tangible assets (Notes 5, 15)
Less: accumulated depreciation (Notes 5, 15)
Leasehold rights in trust accounts and other intangible assets (Note 15)
Total investment properties, net
Other Assets
Total Assets
Liabilities
Current Liabilities:
Short-term loans (Notes 4, 7)
Long-term debt due within one year (Notes 4, 7)
Accounts payable
Rents received in advance
Provision for loss on disaster (Note 10)
Accrued expenses and other liabilities
Total current liabilities
Long-term Debt (Notes 4, 7)
Tenant Security Deposits Including Trust Accounts (Note 4)
Other Liabilities
Total Liabilities
Net Assets (Note 6)
Unitholders’ Equity
Unitholders’ capital
Units authorized: 2,000,000 units
Units issued and outstanding: 578,500 units
Retained earnings
Total Net Assets
Total Liabilities and Net Assets
The accompanying notes to financial statements are an integral part of these statements.

36 NBF Report January – June 2011

¥ 35,995
286
1,819
38,100¥ 33,668
281
681
34,630503,240
307,783
9,585(75,905)
35,652
780,355
5,250¥823,705

473,463
278,4818,624(70,385)
35,654
725,837
4,736¥765,203¥ 8,000
65,750
3,630
3,648
43
1,355
82,426
277,000
40,32879
399,833¥ 8,000
40,750
3,779
3,348
—
1,662
57,539276,375
36,637
77
370,628

415,115

386,176

8,757
423,872¥823,705

8,399
394,575¥765,203

Statements of Income
NIPPON BUILDING FUND INC.
For the six months ended June 30, 2011, December 31, 2010 and June 30, 2010

For the six months ended
June 30, 2011

For the six months ended
December 31, 2010
(Yen in millions)

For the six months ended
June 30, 2010

¥25,773
2,308—
28,081¥24,747
2,567—
27,314¥25,5832,452
306
28,341

3,947
2,678
579
32
2,181
5,534
—
973
238
16,162
11,919

3,776
2,621
718
32
2,506
5,171
—
943
228
15,995
11,319

3,798
2,648
883
36
2,224
5,239
140
988
213
16,16912,1724

7

8(2,861)
(5)
(58)
(35)
8,964

(2,888)
(5)
—
(33)
8,400

(2,862)
(5)
—
(30)
9,283

(163)
(43)
8,758
(1)
¥ 8,757

—
—
8,400
(1)
¥ 8,399

—
—
9,283
(1)
¥ 9,282

Operating Revenues and Expenses
Operating Revenues:
Rental (Note 8)
Other revenues related to property leasing (Note 8)
Gain on sale of investment properties (Note 9)
Total Operating Revenues
Operating Expenses:
Property management fees (Note 8)
Real estate taxes (Note 8)
Repairs and maintenance (Note 8)
Insurance (Note 8)
Other rental expenses (Note 8)
Depreciation and amortization (Note 8)
Loss on sale of investment properties (Note 9)
Asset management fees
Other operating expenses
Total Operating Expenses
Operating Income
Non-Operating Revenues and Expenses
Non-Operating Revenues:
Interest income
Non-Operating Expenses:
Interest expense
Amortization of bond issuance costs
New investment units issuance costs
Other non-operating expenses, net
Ordinary Income
Extraordinary Loss:
Loss on disaster (Note 10)
Provision for loss on disaster (Note 10)
Income before Income Taxes
Current and deferred income taxes (Note 11)
Net Income
The accompanying notes to financial statements are an integral part of these statements.

NBF Report January – June 2011 37

Statements of Changes in Net Assets
NIPPON BUILDING FUND INC.
For the six months ended June 30, 2011, December 31, 2010 and June 30, 2010

(Yen in millions)
Number of
Units

Unitholders’CapitalRetained
Earnings

Total

542,000¥386,176¥ 10,662¥396,838————(10,662)
9,282(10,662)
9,282

542,000

386,176

9,282

395,458————(9,282)
8,399(9,282)
8,399

Balance as of December 31, 2010

542,000

386,176

8,399

394,575

Cash dividends declaredIssuance of new units through public offering as of January 26, 2011
Issuance of new units through allocation to a third party as ofFebruary 22, 2011
Net income—
34,000—26,957(8,399)—(8,399)26,957

2,500
—

1,982
—

—
8,757

1,982
8,757

Balance as of June 30, 2011

578,500¥415,115¥ 8,757¥423,872

Balance as of December 31, 2009
Cash dividends declared
Net income
Balance as of June 30, 2010
Cash dividends declared
Net income

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

38 NBF Report January – June 2011

Statements of Cash FlowsNIPPON BUILDING FUND INC.
For the six months ended June 30, 2011, December 31, 2010 and June 30, 2010

For the six months ended
June 30, 2011

For the six months ended
December 31, 2010
(Yen in millions)

For the six months ended
June 30, 2010

¥ 8,758
5,534
5
43
2,861
(6)
(162)
300
—
(2,864)¥ 8,400
5,171
5
—
2,888
21
757
(28)
—
(2,887)¥ 9,283
5,239
5
—
2,862
(8)
(197)
(159)
3,272
(2,815)(1,102)(272)
13,095—(226)
14,101—(203)
17,279(60,042)
5,039(1,348)(10)(517)(56,878)(1,756)
4,213(4,727)(15)(92)(2,377)(1,501)
3,408(5,103)(8)(119)(3,323)—32,000(6,375)28,881—(8,396)
46,1102,327
33,668¥ 35,995(8,000)2,000(2,375)——(9,281)(17,656)(5,932)39,600¥ 33,668(8,000)24,000(20,375)—(54)(10,658)(15,087)(1,131)40,731¥ 39,600

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

NBF Report January – June 2011 39

Notes to Financial Statements
NIPPON BUILDING FUND INC.
For the six months ended June 30, 2011, December 31, 2010 and June 30, 2010

Note 1

Organization and Basis of Presentation

Organization
Nippon Building Fund Inc. (hereinafter “NBF”) was formed on March 16, 2001 as an investment corporation under the Law Concerning
Investment Trusts and Investment Corporations of Japan (hereinafter the Investment Trust Law of Japan) with Mitsui Fudosan Co., Ltd., The
Chuo Mitsui Trust and Banking Co., Ltd., and Nippon Building Fund Management Ltd. (hereinafter “NBFM”) acting as sponsors.
Registration with the Kanto Local Finance Bureau of the Ministry of Finance was completed on May 10, 2001 and NBF started acquisitionof office properties on May 23, 2001.
NBF is an externally managed real estate fund, formed as an investment corporation. NBFM, as NBF’s asset management company, isengaged in acquiring, managing, leasing, and renovating office properties. Mitsui Fudosan Co., Ltd. currently owns 43% of NBFM while
Sumitomo Life Insurance Company owns 35% and the remaining 22% is mainly owned by financial institutions.
On September 10, 2001, NBF had raised approximately ¥50,000 million through an initial public offering of units. Those units are listedon the J-REIT section of the Tokyo Stock Exchange.
As of June 30, 2011, NBF had ownership or beneficiary interests in 64 office properties containing approximately 828,491 square
meters of rentable office space. As of June 30, 2011, NBF had leased office space to 1,011 tenants engaged in a variety of businesses. The
occupancy rate for the office properties was approximately 97.1%.

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

Note 2

Summary of Significant Accounting Policies

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

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

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

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

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

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

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

40 NBF Report January – June 2011

Provision for Loss on Disaster
Provision for loss on disaster is recorded at the amount reasonably estimated as of June 30, 2011 to provide for repair costs for assets
damaged by the Great East Japan Earthquake.

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

Real Estate Taxes
Real estate taxes are imposed on properties on a calendar year basis and expensed when incurred. In terms of newly purchased
properties, NBF capitalizes a portion of the real estate taxes that relate to a period from the purchase date of each property until the end of
the calendar year as part of the acquisition cost of the relevant property. Capitalized real estate taxes amounted to ¥293 million for theperiod ended June 30, 2011. No capitalized real estate taxes were incurred for the periods ended December 31, 2010, and June 30, 2010.

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

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

Reclassifications
Certain reclassifications have been made to prior periods’ financial statements to conform with the presentation used for the period
ended June 30, 2011.

Note 3

Change in Accounting Policy

The New Accounting Standard for Asset Retirement Obligations
Effective from the fiscal period ended Decmber 31, 2010, NBF adopted “Accounting Standard for Asset Retirement Obligations”(Accounting Standards Board of Japan (“ASBJ”) Statement No. 18 issued on March 31, 2008) and the “Guidance on Accounting Standard
for Asset Retirement Obligations” (ASBJ Guidance No. 21 issued on March 31, 2008). There was no impact on its financial position or
results of the operation as a result of such adoption.

Note 4

Financial Instruments(For the six months ended June 30, 2011)

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

Financial Instruments, Their Risks and Risk Management System
Deposits are used for investment of NBF’s surplus funds. These deposits are exposed to credit risks such as bankruptcy of the depository
financial institutions. NBF limits credit risk by using only short-term deposits in financial institutions with high credit ratings.

NBF Report January – June 2011 41

Proceeds from loans and investment corporation bonds are used mainly to acquire real estate properties and repay outstanding loans
and bonds. While these loans and bonds are exposed to liquidity risk, such risk is managed in the following ways such as diversifying themeans of funding and lending institutions, dispersing repayment dates, establishing committed credit line, keeping sufficient liquidity in
hand, and monitoring cash flows projected monthly.
Short-term loans are exposed to interest-rate fluctuation. NBF limits the impact of such risks by maintaining the debt-asset ratio low
and the level of long-term fixed-rate debt high.
Tenant security deposits are exposed to liquidity risk arising from vacating of properties by tenants due to the termination of contract.
NBF manages this risk by monitoring forecasted cash flows on a monthly basis to ensure it has sufficient funds.

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

Estimated Fair Value of Financial Instruments
Book value, fair value and difference between the two as of June 30, 2011 are as follows.
The financial instruments for which it is very difficult to estimate the fair value are excluded from the following table (See Note 2. below).
(Yen in millions)

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

Book value

Fair value

Difference¥ 35,995¥ 35,995¥ 35,995¥ 35,995¥¥¥ 8,000
65,750277,000¥350,750¥ 8,000
66,089286,276¥360,365

¥

—
—

—
339
9,276
¥9,615

Notes: 1. Methods to Estimate Fair Value of Financial Instruments
Assets:(1) Cash and cash equivalents
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments
are settled within a short term period.
Liabilities:(1) Short-term loans
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments
are settled within a short term period.
(2) Long-term debt due within one year
Long-term debt due within one year which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)Book value
Fair value
Difference(1) Investment corporation bonds¥20,000¥20,079¥ 79(2) Long-term loans
45,75046,010260
Total¥65,750¥66,089¥3391) Investment corporation bonds
The fair values of investment corporation bonds are based on observable market value, if available. When there is no observable market value available, fairvalues are calculated based on the present value of principal and interest cash flows discounted at the current interest rate that is estimated by taking into
consideration the remaining term of the investment corporation bonds and their credit risk.
2) Long-term loans
Fair values of long-term loans are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be
applied if similar new loans were entered into.
(3) Long-term debt
Long-term debt which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)Book value
Fair value
Difference(1) Investment corporation bonds¥ 50,000¥ 51,763¥1,763(2) Long-term loans
227,000
234,513
7,513
Total¥277,000¥286,276¥9,276
1) Investment corporation bonds
The fair values of investment corporation bonds are based on observable market value, if available. When there is no observable market value available, fairvalues are calculated based on the present value of principal and interest cash flows discounted at the current interest rate that is estimated by taking into
consideration the remaining term of the investment corporation bonds and their credit risk.
2) Long-term loans
Fair values of long-term loans are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be
applied if similar new loans were entered into.

42 NBF Report January – June 2011

Notes to Financial Statements

2. Financial Instruments for Which It Is Very Difficult to Estimate the Fair Value.
(Yen in millions)Book value
Tenant Security Deposits Including Trust Accounts¥40,328

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

Cash and cash equivalents

Due within
one year¥35,995

Due after one
to two years—

Due after two
to three years—

Due after three
to four years—

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

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

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

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

Due after five
years
¥
—
20,00069,000¥89,000

4. Repayment Schedule for Loans and Investment Corporation Bonds(Yen in millions)Short-term loans
Investment corporation bonds
Long-term loans
Total

Due within
one year¥ 8,000
20,00045,750¥73,750

Due after one
to two years¥——
27,750¥27,750(For the six months ended December 31, 2010)

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

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

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

Estimated Fair Value of Financial Instruments
Book value, fair value and difference between the two as of December 31, 2010 are as follows.
The financial instruments for which it is very difficult to estimate the fair value are excluded from the following table (See Note 2. below).

NBF Report January – June 2011 43

(Yen in millions)

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

Book value

Fair value

Difference¥ 33,668¥ 33,668¥ 33,668¥ 33,668¥¥¥ 8,000
40,750276,375¥325,125¥ 8,000
40,991
284,119¥333,110

¥

—
—

—
241
7,744
¥7,985

Notes: 1. Methods to Estimate Fair Value of Financial Instruments
Assets:(1) Cash and cash equivalents
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments
are settled within a short term period.
Liabilities:(1) Short-term loans
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments are settled within a short term period.
(2) Long-term debt due within one year
Long-term debt due within one year which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)Book value
Fair value
Difference(1) Investment corporation bonds¥10,000¥10,060¥ 60(2) Long-term loans
30,75030,931
181
Total¥40,750¥40,991¥2411) Investment corporation bonds
The fair values of investment corporation bonds are based on observable market value, if available. When there is no observable market value available, fairvalues are calculated based on the present value of principal and interest cash flows discounted at the current interest rate that is estimated by taking into
consideration the remaining term of the investment corporation bonds and their credit risk.
2) Long-term loans
Fair values of long-term loans are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be
applied if similar new loans were entered into.
(3) Long-term debt
Long-term debt which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)Book value
Fair value
Difference(1) Investment corporation bonds¥ 60,000¥ 61,646¥1,646(2) Long-term loans
216,375
222,473
6,098
Total¥276,375¥284,119¥7,744
1) Investment corporation bonds
The fair values of investment corporation bonds are based on observable market value, if available. When there is no observable market value available, fairvalues are calculated based on the present value of principal and interest cash flows discounted at the current interest rate that is estimated by taking into
consideration the remaining term of the investment corporation bonds and their credit risk.
2) Long-term loans
Fair values of long-term loans are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be
applied if similar new loans were entered into.
2. Financial Instruments for Which It Is Very Difficult to Estimate the Fair Value.
(Yen in millions)Book value¥36,637

Tenant Security Deposits Including Trust Accounts

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

Cash and cash equivalents

Due within
one year¥33,668

Due after one
to two years—

Due after two
to three years—

Due after three
to four years—

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

Due after two
to three years¥——
42,750¥42,750

Due after three
to four years¥—
10,00036,750¥46,750

Due after four
to five years¥—
20,00029,750¥49,750(Yen in millions)Due after five
years
¥
—
20,00074,375¥94,375

4. Repayment Schedule for Loans and Investment Corporation Bonds

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

44 NBF Report January – June 2011

Due within
one year¥ 8,000
10,00030,750¥48,750

Due after one
to two years¥—
10,00032,750¥42,750

Notes to Financial Statements

Note5

Schedule of Tangible Assets of Investment Properties

Tangible assets as of June 30, 2011 and December 31, 2010 consisted of the following:
As of June 30, 2011

As of December 31, 2010
(Yen in millions)

Acquisition
costs

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

Note 6

Accumulated
depreciation

Book value

Acquisition
costs

Accumulated
depreciation

Book value¥248,256
254,984
503,240
170,905
136,878¥———(29,674)(42,298)¥248,256
254,984
503,240
141,231
94,580¥218,479
254,984
473,463
142,649
135,832¥———(26,866)(39,904)¥218,479
254,984
473,463
115,783
95,928

307,783
2,673
1,424
1,071
1,936
1,373
1,101
—
7
9,585
¥820,608(71,972)
(941)
(553)
(416)
(680)
(728)
(615)
—
—
(3,933)¥(75,905)

235,811
1,732
871
655
1,256
645
486
—
7
5,652
¥744,703

278,481
2,260
1,138
850
1,918
1,339
1,071
48
—
8,624
¥760,568(66,770)
(861)
(496)
(369)
(631)
(684)
(574)
—
—
(3,615)¥(70,385)

211,711
1,399
642
481
1,287
655
497
48
—
5,009
¥690,183

Net Assets

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

Note 7

Short-Term Loans and Long-Term Debt

Short-term loans consist of short-term notes and short-term borrowings under loan agreements. The annual interest rates on shortterm loans outstanding are floating rates and on June 30, 2011 and December 31, 2010 ranged from 0.54% to 0.65% and from 0.64%
to 0.75%, respectively. Long-term debt is at fixed rates and as of June 30, 2011 and December 31, 2010 consisted of the following:
As of June 30, 2011

Unsecured loans due 2011 to 2019 principally from banks and insurancecompanies with interest rates mainly ranging from 0.9% to 2.4%
1.60% unsecured bonds due 2011 (Note 1)
1.48% unsecured bonds due 2012 (Note 2)
1.74% unsecured bonds due 2014 (Note 2)
1.23% unsecured bonds due 2015 (Note 2)
1.85% unsecured bonds due 2015 (Note 2)
2.04% unsecured bonds due 2017 (Note 2)
2.00% unsecured bonds due 2018 (Note 1)
Less: amount due within one year

¥272,750
10,00010,00010,00010,00010,00010,00010,000342,750
65,750¥277,000

As of December 31, 2010
(Yen in millions)¥247,125
10,00010,00010,00010,00010,00010,00010,000317,125
40,750¥276,375

Notes: 1. Subject to provision of collateral and financial restrictions pursuant to material decline in credit rating.
2. Subject to provision of collateral restrictions.

NBF Report January – June 2011 45

The annual maturities of long-term debt as of June 30, 2011 were as follows:(Yen in millions)Due after one to two years
Due after two to three years
Due after three to four years
Due after four to five years
Due after five years¥27,750
51,75036,75071,75089,000During the period ended June 30, 2011, NBF obtained committed credit lines of ¥50 billion with certain financial institutions to reducerefinancing risk. The unused amount of such committed credit lines was ¥50 billion on June 30, 2011.

Note 8

Rental Revenues and Expenses

Rental revenues and expenses for the periods ended June 30, 2011, December 31, 2010 and June 30, 2010 were as follows:

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

46 NBF Report January – June 2011

For the six months ended
June 30, 2011

For the six months ended
December 31, 2010
(Yen in millions)

For the six months ended
June 30, 2010

¥23,061
2,598
114
25,773¥22,025
2,608
114
24,747¥22,757
2,706
120
25,583

554
156
1,483
64
51
2,308
28,081

531
138
1,808
46
44
2,567
27,314

534
140
1,486
228
64
2,452
28,035

3,947
2,678
579
32
2,181
5,534
14,951

3,776
2,621
718
32
2,506
5,171
14,824

3,798
2,648
883
36
2,224
5,239
14,828¥13,130¥12,490¥13,207

Notes to Financial Statements

Note 9Gain and Loss on Sale of Investment Properties

Gain and loss on sale of investment properties for the period ended June 30, 2010 were as follows. No investment properties were soldduring the periods ended June 30, 2011 and December 31, 2010.

NBF Ebisu-Minami Building
Proceeds from sale of investment property
Cost of sale of investment property
Other related sale expenses
Gain on sale of investment property(Yen in millions)

NBF Hakata Gion Building
Proceeds from sale of investment property
Cost of sale of investment property
Other related sale expenses
Loss on sale of investment property(Yen in millions)¥1,350
1,001
43
¥ 306
¥2,200
2,271
69
¥ 140

Note 10 Extraordinary Loss
Repair costs for assets damaged by the Great East Japan Earthquake have been recognized as extraordinary loss.

Note 11 Income Taxes
NBF is subject to income taxes in Japan. The effective tax rate on NBF’s income was 0.01% for the periods ended June 30, 2011,
December 31, 2010 and June 30, 2010. The following table summarizes the significant differences between the statutory tax rates and
NBF’s effective tax rates for financial statement purposes.

Statutory tax rate (Note 1)
Deductible dividends
Others
Effective tax rate

For the six months ended
June 30, 2011

For the six months ended
December 31, 2010

For the six months ended
June 30, 201039.33%(39.33)0.01
0.01%

39.33%(39.33)0.01
0.01%

39.33%(39.33)0.01
0.01%

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

Note 12 Per Unit Information
Information about earnings per unit for the periods ended June 30, 2011, December 31, 2010 and June 30, 2010 and net assets perunit as of June 30, 2011, December 31, 2010 and June 30, 2010 were as follows.
The computation of earnings per unit is based on the weighted average number of units outstanding during the period. The
computation of net assets per unit is based on the number of units outstanding at each period end.

Earnings per Unit:
Net income
Weighted average number of units outstanding
Net Assets per Unit

For the six months ended
June 30, 2011

For the six months ended
December 31, 2010
(Yen)

For the six months ended
June 30, 2010

¥15,280
573,086¥15,495
542,000¥17,124
542,000

As of June 30, 2011

As of December 31, 2010

As of June 30, 2010

¥732,709¥727,996¥729,626

NBF Report January – June 2011 47

Note 13 Leases
As Lessor
NBF leases some of its investment properties to outside parties under non-cancelable operating leases. As of June 30, 2011 andDecember 31, 2010, future minimum rental revenues under the non-cancelable operating leases are as follows:
As of June 30, 2011

Due within one year
Due after one year
Total

As of December 31, 2010
(Yen in millions)¥22,450
32,119¥54,569¥19,396
28,947¥48,343

As Lessee
NBF leases some of its investment properties from outside parties under non-cancelable operating leases. As of June 30, 2011 andDecember 31, 2010, future minimum rental expenses under the non-cancelable operating leases are as follows:
As of June 30, 2011

Due within one year
Due after one year
Total

As of December 31, 2010
(Yen in millions)

¥2
4
¥6

¥—
—
¥—

Note 14 Transactions with Related Parties(For the six months ended June 30, 2011)(1) Parent Company and Major Corporate Unitholders
None applicable.
(2) Affiliates
None applicable.
(3) Sister Companies
None applicable.
(4) Directors and Major Individual Unitholders
Classification

Director
and/or close
relative

Name

Koichi
Nishiyama

Principal business or
occupation

Nature of transaction

Payment of asset
management fees to
NBFM (Note 1)
Executive Director of
Payment of fees to
NBF and
NBFM for the provision
President & CEOof general administrationof NBFM
services relating
to organizational
management (Note 3)

Amount oftransaction
Yen in millions

Account

Balance at
end of period
Yen in millions¥1,244(Note 2) (Note 4)

Accounts
payable¥285(Note 4)

¥7(Note 4)

Accounts
payable¥1(Note 4)

Notes: 1. Koichi Nishiyama entered into this transaction as a representative of a third party (NBFM), and the fee amount is subject to the conditions set forth in the by-laws of NBF.
2. The amount of asset management fees includes ¥272 million for management related to acquisition of properties included in the book value of each investment
property, etc.
3. Koichi Nishiyama entered into this transaction as a representative of a third party (NBFM), and the fee amount is set forth in the “General Administration Regarding theManagement of Institutions” concluded between NBF and NBFM.
4. Consumption taxes are not included in transaction amounts. Consumption taxes are included in the balance at the end of the period.

(For the six months ended December 31, 2010)(1) Parent Company and Major Corporate Unitholders
None applicable.
(2) Affiliates
None applicable.
(3) Sister Companies
None applicable.

48 NBF Report January – June 2011

Notes to Financial Statements(4) Directors and Major Individual Unitholders
Classification

Director
and/or close
relative

Name

Koichi
Nishiyama

Principal business or
occupation

Nature of transaction

Payment of asset
management fees to
NBFM (Note 1)
Executive Director of
Payment of fees to
NBF and
NBFM for the provision
President & CEOof general administrationof NBFM
services relating
to organizational
management (Note 2)

Amount oftransaction
Yen in millions

Account

Balance at
end of period
Yen in millions¥943(Note 3)

Accounts
payable¥241(Note 3)¥2
(Note 3)

Accounts
payable¥1(Note 3)

Notes: 1. Koichi Nishiyama entered into this transaction as a representative of a third party (NBFM), and the fee amount is subject to the conditions set forth in the by-laws of NBF.
2. Koichi Nishiyama entered into this transaction as a representative of a third party (NBFM), and the fee amount is set forth in the “General Administration Regarding theManagement of Institutions” concluded between NBF and NBFM.
3. Consumption taxes are not included in transaction amounts. Consumption taxes are included in the balance at the end of the period.

(For the six months ended June 30, 2010)(1) Parent Company and Major Corporate Unitholders
None applicable.
(2) Affiliates
None applicable.
(3) Sister Companies
None applicable.
(4) Directors and Major Individual Unitholders
Classification

Director
and/or close
relative

Name

Koichi
Nishiyama

Principal business or
occupation

Nature of transaction

Payment of asset
management fees to
NBFM (Note 1)
Executive Director of
Payment of fees to
NBF and
NBFM for the provision
President & CEOof general administrationof NBFM
services relating
to organizational
management (Note 2)

Amount oftransaction
Yen in millions

Account

Balance at
end of period
Yen in millions¥988(Note 3)

Accounts
payable¥303(Note 3)¥2
(Note 3)

Accounts
payable¥1(Note 3)

Notes: 1. Koichi Nishiyama entered into this transaction as a representative of a third party (NBFM), and the fee amount is subject to the conditions set forth in the by-laws of NBF.
2. Koichi Nishiyama entered into this transaction as a representative of a third party (NBFM), and the fee amount is set forth in the “General Administration Regarding theManagement of Institutions” concluded between NBF and NBFM.
3. Consumption taxes are not included in transaction amounts. Consumption taxes are included in the balance at the end of the period.

Note 15 Investment and Rental Property(For the six months ended June 30, 2011)
NBF owns office buildings (including land) for rent in Tokyo and other areas. The carrying amounts, net changes in the carrying
amounts and the fair value of the investment and rental properties are as follows.
(Yen in millions)

As of December 31, 2010

Carrying amount
Net increase

As of June 30, 2011

Fair value
As of June 30, 2011

¥725,823¥54,558¥780,381¥822,483

Notes: 1. Carrying amounts represent acquisition cost less accumulated depreciation.
2. The major increase in the carrying amount during the period was mainly due to the acquisitions of 6 properties (NBF Ueno Bldg., River City M-SQUARE, Nihonbashi
Kabuto-cho M-SQUARE, Hakata Gion M-SQUARE, Gate City Ohsaki (additional acquisition), and Chofu South Gate Bldg., ¥58,409 million) and the major decrease wasmainly due to recognition of depreciation costs.
3. Fair value as of June 30, 2011 is based on appraisals provided by independent real estate appraisers.

Information about profit and loss from investment and rental properties for the six months ended June 30, 2011 is disclosed in Note 8(Rental Revenues and Expenses) and Note 9 (Gain and Loss on Sale of Investment Properties).

NBF Report January – June 2011 49

(For the six months ended December 31, 2010)
NBF owns office buildings (including land) for rent in Tokyo and other areas. The carrying amounts, net changes in the carrying amounts
and the fair value of the investment and rental properties are as follows.
(Yen in millions)

As of June 30, 2010

Carrying amountNet decrease

As of December 31, 2010

Fair value
As of December 31, 2010

¥729,233¥3,410¥725,823¥772,178

Notes: 1. Carrying amounts represent acquisition cost less accumulated depreciation.
2. The major decrease in the carrying amount during the period was mainly due to recognition of depreciation costs.
3. Fair value as of December 31, 2010 is based on appraisals provided by independent real estate appraisers.

Information about profit and loss from investment and rental properties for the six months ended December 31, 2010 is disclosed in
Note 8 (Rental Revenues and Expenses) and Note 9 (Gain and Loss on Sale of Investment Properties).

Note 16 Segment Information
Effective from the fiscal period ended December 31, 2010, NBF has adopted the “Accounting Standard for Disclosure of Segment
Information” (ASBJ Statement No. 17, revised on March 27, 2009) and the “Guidance on Accounting Standard for Disclosure of Segment
Information” (ASBJ Guidance No. 20, issued on March 21, 2008).

(For the six months ended June 30, 2011)

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

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

TenantOperating revenues

Related segment

Mitsui Fudosan Co., Ltd.

¥6,320Real estate leasing businessNote: NBF leases properties to Mitsui Fudosan Co., Ltd. under a master lease agreement, and Mitsui Fudosan Co., Ltd. subleases such properties to subtenants. NBF leases otherproperties to Mitsui Fudosan Co., Ltd.

(For the six months ended December 31, 2010)

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

Related Information
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for more than 90% of total
operating revenues.

50 NBF Report January – June 2011

Notes to Financial Statements

2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of the bookvalue of total investment properties.
3. Information on Major Tenants(Yen in millions)

TenantOperating revenues

Related segment

Mitsui Fudosan Co., Ltd.

¥6,306

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

Disclosure of the segment information for previous periods has been omitted as NBF only has segment of the real estate leasing business.

Note 17 Significant Subsequent Events
On September 15, 2011 NBF issued unsecured bonds as described below through a public offering, pursuant to a comprehensive
resolution concerning issuance of domestic unsecured bonds adopted by its Board of Directors on July 21, 2011.
No. 12 Unsecured Bonds
1. Name: Number 12 Unsecured Investment Corporation Bonds (with pari passu conditions among specified Investment Corporation Bonds)
2. Total Issue Amount: ¥10 billion
3. Issue Price: ¥100 with a par value of ¥100
4. Redemption Value: ¥100 with a par value of ¥100
5. Interest rate: 0.64%
6. Collateral and Guarantee: Unsecured and unguaranteed
7. Redemption: The redemption date for the total amount of principal is September 15, 2016 (if that day is a bank holiday in Japan, theredemption date shall be the first preceding business day.). The unsecured bonds may be redeemed at the option of NBF at any timefrom the day immediately after the issuance date unless otherwise determined by the book-entry transfer agent.
8. Interest Payment Dates: March 15 and September 15 each year (if that day is a bank holiday in Japan, the redemption date shall be thefirst preceding business day.).
9. Use of Proceeds: To be used for a part of the redemption of Number 5 Unsecured Investment Bonds (¥10,000,000,000) which matures
on September 22, 2011.

NBF Report January – June 2011 51

Independent Auditors’ Report

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

We have audited the accompanying balance sheets of Nippon Building Fund Inc. (a Japanese Real Estate
Investment Trust) as of June 30, 2011 and December 31, 2010, and the related statements of income,changes in net assets and cash flows for each of the six months ended June 30, 2011, December 31,
2010 and June 30, 2010 expressed in Japanese yen. These financial statements are the responsibility of
the Company’s management. Our responsibility is to independently express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, thefinancial position of Nippon Building Fund Inc. as of June 30, 2011 and December 31, 2010, and theresults of its operations and its cash flows for each of the six months ended June 30, 2011, December 31,
2010 and June 30, 2010, in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to Note 16 to the financial statements, which statesthat Nippon Building Fund Inc. issued new units.

Tokyo, Japan
September 28, 2011

52 NBF Report January – June 2011

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

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

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

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

June 30, 2011, NBFM has been entrusted as an asset management

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

company only by NBF.

and in the event of the simultaneous acquisition of multiple units of

As of the same date, NBFM has paid-in capital of ¥495 million.

Real Estate, etc., the acquisition price of each item, provided,

There is no capital relationship with NBF. Koichi Nishiyama, President

however, that national consumption tax, regional consumption tax& CEO of NBFM, is concurrently an executive director of NBF.

and miscellaneous costs of acquisition are excluded) multiplied by thefollowing percentage rates will, in principle, be payable, provided,

Operation■■

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

Undertakes asset management of NBF pursuant to an Assetcompensation may be calculated using different rates not exceeding

Management Entrustment Agreement based on an entrustment

the following rates.

from NBF in accordance with the Articles of Incorporation of NBF●

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

0.5%

and the Investment Objects and Policies set forth therein.

●

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

0.2%

Undertakes management of the general affairs of the general
meeting of unitholders and the Board of Directors as●

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

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

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

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

Management Fees 2
The amount equivalent to 3% of income before income tax(provided, however, that in the event a loss is carried forward, thenthe amount of income before income taxes remaining after such loss
has been covered) prior to deduction of Management Fees 2 as
calculated on each closing date will be payable.

NBF Report January – June 2011 53

Appendix

History of NBFM

Directors and Staff

NBFM is an Asset Management Company which is a limited

As of June 30, 2011, the directors and corporate auditors of

liability company duly established under the laws of Japan. Major

NBFM are as follows. The staff other than directors and auditors ofevents in the history of NBFM are as follows.

NBFM is comprised of 17 persons.

September 19, 2000 Established

Name of Directors and Auditors

Title

November 17, 2000 Obtained license as a building lots and building
transactions agent under the Building Lots andBuilding Transactions Law

Koichi Nishiyama

President & CEO (standing)

Yasushi Akimoto

Director, Head of Investment & FinanceGroup (standing)January 29, 2001

Hiroshi Yabuki

Director, Head of Administration Group(standing)

Masato Shikata

Director

Fukuhisa Kumada

Director

February 15, 2001

March 7, 2001

Obtained approval as a discretionary transaction
agent under the Building Lots and Building
Transactions Law
Registered as a general real estate investment advisor
under the Real Estate Investment Advisor Registration
Regulations
Obtained approval as an Asset Management
Company under the Investment Trust Law of Japan

March 22, 2001

Increased capital from ¥100 million to ¥198 million

May 23, 2001

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

June 16, 2001
March 14, 2003

Increased capital from ¥198 million to ¥495 million
Changed name (from “Office Building FundManagement Japan Limited” to “Nippon Building
Fund Management Ltd.”)

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

List of Shareholders (as of June 30, 2011)
Name

Numberof Shares Owned

Percent

Mitsui Fudosan Co., Ltd.

4,257

43.0%

Sumitomo Life Insurance Company

3,465

35.0

The Chuo Mitsui Trust andBanking Co., Ltd.

495

5.0

Sumitomo Mitsui Banking
Corporation

495

5.0

Daido Life Insurance Company

297

3.0

Mitsui Sumitomo InsuranceCo., Ltd.

297

3.0

Mitsui Life Insurance
Company Limited

297

3.0

Britel Fund Trustees Limited

297

3.0

9,900

100.0%Total

54 NBF Report January – June 2011

Noriaki Moromachi

Corporate Auditor

Toru Suzuki

Corporate Auditor

Outline of Financial Condition
An outline of the financial condition of NBFM is as follows.
Outline of principal assets and liabilities for the most recent
fiscal year:
As of March 31, 2011

(Yen in millions)

Total Assets¥1,879Total Liabilities

341

Total Net Assets

1,538

Profit and loss for the most recent fiscal year:
Year ended March 31, 2011

(Yen in millions)Operating Income¥2,165

Ordinary Profit

1,409

Net Income

832

Investment and Distribution Policies
Investment Policies of NBF

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

Tokyo CBDs

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

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

NBF achieves this objective by investing in real estate consisting ofbuildings primarily used for offices with their underlying land located in

Other Greater Tokyo

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

Other 14 wards of Tokyo andneighboring cities (see Note 1
below) such as Musashino,
Tachikawa, Yokohama, Kawasaki,
Chiba, Kashiwa, Saitama, etc.

Tokyo and Other Cities in Japan as well as securities, beneficiary
certificates representing beneficial interests in trusts (hereinafter“beneficiary certificates”) and other assets backed by office properties(collectively hereinafter “Real Estate, etc.”) (“Investment Objectives andPolicies,” Articles of Incorporation). (Reference to laws, legal documents,
etc. used as the basis or sources hereof are set forth in parenthesis
herein.)B. Investment Strategy
Nippon Building Fund Management Ltd. (“NBFM”), based on theinvestment strategy of NBF set forth below, invests and manages theassets of NBF. NBFM has established asset management guidelines
based on the Articles of Incorporation of NBF and in accordance with
the investment strategy of NBF.

Area Analysis■

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

■

Relatively low yearly NOI yields.

■

Relatively high liquidity at the time of sale.

■

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

Total of above two areas: 70% or more
Other Cities
Principal regional cities such as
Sapporo, Sendai, Niigata,
Shizuoka, Hamamatsu, Nagoya,
Kyoto, Osaka, Kobe, Okayama,
Hiroshima, Takamatsu, Fukuoka,
Kumamoto, etc.

■

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

■

Relatively high yearly NOI yields.

■

Relatively low liquidity at the time of sales.

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

(1) Strategy for Creation of the Portfolio
The goal of the portfolio is to generate steady growth and stableprofits on a medium-to-long-term basis. The selection criteria of(2) Acquisition Strategya) Ratio of Real Estate Assets

investment assets is based on the composition of investment assets in

NBF will maintain a ratio of 75% or more with respect to thethe portfolio and on consideration of a quantitative proportion of the“Designated Real Estate Ratio” (“Investment Objectives and Policies,”

office stock located in the various regions of Japan.

Articles of Incorporation). As of June 30, 2011, NBF satisfied the criteria.

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

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

b) Due Diligence
When investing in office properties, selections will be made throughcomprehensive research and analysis based on the forecast investment
yields resulting from the acquisition costs and their anticipated profits,
future prospects and stability of the area of location, availability ofmeasures responding to risks of deterioration and obsolescence,
insurability and so forth of the relevant office properties (or Beneficiary

NBF Report January – June 2011 55

Certificates backed by such office properties) (“Investment Objectives(but excluding unleasable assets which thereafter become operational)

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

will not exceed 10% of the total assets indicated on the most recent

criteria are set forth in the following table.

balance sheet of NBF. For this purpose, “leased/leasable assets” shallThough such consideration will involve the study of the criteria included

mean property with respect to which the construction of the buildingin the following table, it is possible that when NBF acquires or intends to

has been completed and such building is leased or leasable. Properties

acquire operating assets, not all of the following criteria will be satisfied.

which are owned by NBF and have become operational at some point

Itemshall be deemed “leasable” thereafter (including such cases as

Scale of building

Points to be reviewed■

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

■

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

■

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

Construction type andspecifications of facilities■

Earthquake resistance■

Measures regarding
status of legal title

■

●

●

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

2(3) Management and Disposition Policies
Regarding acquired Real Estate, etc., the goal is to obtain steady

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

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

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

increasing occupancy rates, extending the term of leases and rendering

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

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

Measures to protect security deposits, policies and measures regarding cash reserves
for long-term renovation plans.
Appropriate measures regarding demands fordivision of co-owned interests or the sale ofa co-owner’s interest, etc.

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

Tenancy characteristics■

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

a) Reserves for Long-Term Renovations

Environmental:
condition of land, etc.

■

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

renovations, repairs and tenant improvements will be determined based

From the reserves set forth above, a portion corresponding to
on renovation plans for each building. As of June 30, 2011, foreseen
reserves provided from July 2011 to June 2012 are as follows:
Itemc) Uncompleted or Unleasable Properties

ReasonReserves forlong-term renovations■

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

Expenses of providing “free access floor”■

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

account the investment amount, the date of completion or ofReserves for tenant improvements (reserves for future
construction expenses required
for spaces leased to tenants)

becoming leasable, estimated revenue and so forth, provided, however,Total Foreseen Amount (annual basis): ¥3,625 million

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

56 NBF Report January – June 2011

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

Investment and Distribution Policies

2. The amount of reserves set forth above is the total amount of reserves with respect
to the 64 properties owned by NBF as of June 30, 2011.

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

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

(4) Financial Policiesa) Issuance of Units
NBF may issue units in order to undertake acquisition and renovation

temporarily exceed 60% when acquiring certain assets, etc. (mediumto-long-term operating asset management policy and annual
management plan established by the Asset Management Company).

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

(5) Disclosure Policy
NBF’s policy on disclosure is to earn recognition from society byshowing itself to be an open and transparent investment company. It
also works at all times to engender an environment in which it candisseminate fair and unbiased information to all its investors without
delay. In addition to conducting disclosure in the style required by theInvestment Trust and Investment Corporation Law of Japan, theFinancial Instruments and Exchange Law of Japan, the Tokyo Stock
Exchange, the Investment Trusts Association and other laws andorganizations, NBF also voluntarily discloses information it deems
necessary for investor decision-making.

a) Appraisal Value, etc.

and so forth of assets and to provide allowance for funds required for work-

In the event that NBF undertakes asset valuation for the purpose

ing capital as well as for the repayment of debt (including security deposits,of disclosure in Performance Information Reports, etc. using methods

borrowings and repayment of obligations regarding NBF bonds, etc.).

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

c) Loan-to-Value Ratio
The ratio of the total amount of borrowings, issues of NBF bonds

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

and lease deposits under management to the total amount of assets ofcity-planning tax and consumption tax) as stated in the sale andNBF (loan-to-value ratio) is envisioned to be limited to 60%, but may

purchase contract, etc. for the said property.

NBF Report January – June 2011 57

Investment Objectives of NBF

however, that this is limited to those the assets of which are primarily invested and Managed Assets principally referred to in paragraphs (1) and (2) above)

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

A. Principal Investment Objectives among
Designated Assets
NBF will principally invest in the below-listed Designated Assets withthe objective of assuring steady growth and stable profits from theManaged Assets.
(1) Real estate, real estate leasehold interests and superficies(2) Beneficiary Certificates backed by real estate, real estate leasehold
rights and superficies, including inclusive trusts consisting of funds
appurtenant to real estate(3) Tokumei kumiai ownership interests as defined by Article 535 of the(9) Beneficiary Certificates of Money Trust (limited to those the trust
assets of which are primarily invested and Managed Assets referred
to in paragraph (1), (3) or (4) above, provided, however, that thosethat are deemed securities are excluded)

B. Other Investment Objectives among
Designated Assets
NBF may, in the course of efficiently managing funds or in othercases as necessary, invest in the following Designated Assets.
(1) Bank deposits(2) Certificates of deposit issued by Japanese legal entities(3) Call loans(4) Japanese government bonds, notes and bills (meaning thosespecified in Article 2.1.1 of the Financial Instruments andExchange Law of Japan)

Commercial Code of Japan (provided, however, that this is limited to(5) Regional treasury bonds, notes and bills (meaning those specified inthose the assets of which are primarily invested and Managed Assets

Article 2.1.2 of the Financial Instruments and Exchange Law ofprincipally referred to in paragraphs (1) and (2) above)

Japan)(4) Equity interests in partnerships as defined by Article 667 of the Civil
Code of Japan (limited to leased, operating and managed partnership assets primarily referred to in paragraphs (1) and (2) above that

(6) Commercial paper (meaning that specified in Article 2.1.15 of the
Financial Instruments and Exchange Law of Japan)(7) Designated bonds of Special Purpose Companies (meaning thoseare specified in Article 2.2.5 of the Financial Instruments andspecified in Article 2.1.4 of the Financial Instruments and Exchange

Exchange Law of Japan)

Law of Japan, provided, however, that this is limited to asset-(5) Preferred Investment Certificates of Special Purpose Companies(meaning those specified in Article 2.1.8 of the Financial Instruments
and Exchange Law of Japan, provided, however, that this is limited tobacked securities principally referred to in paragraphs (1) and (2) ofsection A above)(8) Monetary claims (limited to those claims that are deemed

those the assets of which are primarily invested and Managed Assets

Designated Assets under the Investment Trust Law of Japan otherprincipally referred to in paragraphs (1) and (2) above)

than those referred to in section A and above)(6) Special Purpose Beneficiary Certificates (meaning those specified in
Article 2.1.13 of the Financial Instruments and Exchange Law ofJapan, provided, however, that this is limited to those the assets of(9) Securities (other than those listed in section A and above)(10) Rights to financial derivative transactions (limited to those specified in
Article 2.20 of the Financial Instruments and Exchange Law of Japan)

which are primarily invested and Managed Assets principally referred
to in paragraphs (1) and (2) above)(7) Beneficiary Certificates of investment trusts (meaning those specified

C. Assets Other than Designated Assets
NBF may, in the course of efficiently managing funds or in otherin Article 2.1.10 of the Financial Instruments and Exchange Law ofcases as necessary, invest in the following assets.

Japan, provided, however, that this is limited to those the assets ofwhich are primarily invested and Managed Assets principally referred(1) Equity interests of partnerships, excluding assets in section A,
paragraph (4)to in paragraphs (1) and (2) above)(2) Easements(8) Investment Securities (meaning those specified in Article 2.1.11 of
the Financial Instruments and Exchange Law of Japan, provided,

58 NBF Report January – June 2011

(3) Trademark rights(4) Copyrights

Investment and Distribution Policies(5) Chattels

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

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

J-REIT may pay out the excess of retained earnings for the period up toa maximum of 60% of depreciation for the period. NBF is entitled tomake cash distributions of the amounts described below in excess of theDistribution Policies of NBF
A. Distributions of Profits
A registered investment corporation may deduct its cash dividends ofprofits from taxable income under Japanese tax regulations if it distributes
to its unitholders in excess of 90% of its taxable income and complies withother organizational and operational requirements. NBF intends to makedividend distributions that ensure that NBF satisfies those requirements.
NBF will, in principle, effect distributions in accordance with the following policies (Article 14.1 of the Articles of Incorporation).

(1) NBF’s earnings available for distributions are based on accountingof profits prepared in accordance with the Investment Trust Law and in
conformity with generally accepted accounting principles in Japan.
The distributable amount which results from operation of managed
assets of NBF (hereinafter, “Distributable Amount”) shall be the amountof profit (the amount of net assets on the balance sheet less the amountof total expenses, capital surplus reserves and estimated or equivalentvariances) calculated on each closing date.

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

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

B. Distribution in Excess of Earnings
A registered investment corporation is allowed to distribute cash toits unitholders in excess of the Distributable Amount under the Financial

Distributable Amount in the following cases, provided, however, that the
maximum amount of such distributions will be the amount set forth in
the rules of the Investment Trusts Association of Japan (Article 14.2 of
the Articles of Incorporation).

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

(2) Amount determined by NBF not in excess of the amount of depreciation for the current term less the amount of appropriate reserves for thecurrent term, if NBF determines it appropriate considering trends in macro
economic environments, real estate markets and leasing markets.
As for cash distributions in excess of profits, as long as the current
Japanese taxation treatment applicable to NBF’s unitholders in Japan towhom such distributions are paid requires them to calculate capital gainor loss at the time of each distribution, NBF will not make distributions
in excess of profits.
Notwithstanding the above, NBF may make distributions in excess of
profits in accordance with the distribution policies stated above in order
to meet “Requirement for Deduction from Taxable Income of Dividendsof Profit, etc.,” and if such distributions in excess of profits are deemednecessary by the Board of Directors of NBF.

C. Method of Distributions
Distributions will be made in cash, in principle, within three months
from the closing date, to such unitholders or registered pledgees as arelisted or recorded in the latest Unitholder Registry as of the closing date,in proportion to the number of units owned by or pledged to them
(Article 14.3 of the Articles of Incorporation).

D. Prescription for Cash Distributions, etc.
NBF will be discharged from the obligation to pay distributions ofprofits three calendar years from the date of commencing payment.
Interest will not accrue on unpaid distributions (Article 14.4 of the
Articles of Incorporation).

NBF Report January – June 2011 59

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

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

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

B. Compliance with the Financial Instruments
and Exchange Law and the Investment Trust
Law of Japan
NBF is subject to restrictions on investment under the Financial
Instruments and Exchange Law and the investment Trust Law of Japan.
Main restrictions are as follows.

(1) Pursuant to Article 198.1 of the Investment Trust Law of Japan, aregistered investment corporation must entrust business related toasset management to an asset management company registered as afinancial instrument firm, but an asset management company isprohibited from performing certain acts related to the business ofmanaging the assets of said investment corporation. As a result, aninvestment corporation is subject to certain investment restrictions(all references in parentheses below are to the provisions of the
Financial Instruments and Exchange Law of Japan, except where stated otherwise) besides restrictions applied to a registered investment
corporation. NBF will naturally comply with such investment restrictions, a general overview of which follows.
a) Internal Transactions (§ 42.2.1)

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

Transactions between an asset management company and its direc-

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

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

128 of the government ordinance regarding the Financial Instruments

Designated Assets referred to in “Investment Objectives, A. Principal

and Exchange Law that are considered unlikely to result in failure toInvestment Objectives among Designated Assets.” NBF invests in rights

protect the interests of unitholders, damage fair transactions or discredit

to financial derivatives transactions solely to hedge against risks, includ-

the financial instruments business.

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

Transactions between asset management companies of investment

Beneficiary Certificates) is limited mainly to those the assets of which

corporation assets are prohibited except for certain cases specified inare referred to in “Investment Objectives of NBF, A. Principal Investment

the provisions of the government ordinance regarding the Financial

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

Instruments and Exchange Law of Japan that are considered unlikely to

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

result in failure to protect the interests of unitholders, damage fairlocated outside of Japan (Articles of Incorporation).

transactions or discredit the financial instruments business.

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

The Managed Assets of NBF will be managed in compliance with the
Financial Instruments and Exchange Law of Japan and related regula-

60 NBF Report January – June 2011

An asset management company may not undertake transactions incertain financial instruments, indices or options based on fluctuations in theInvestment and Distribution Policies

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

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

An investment corporation may not acquire the same units issued bya corporation in excess of 50/100 of total number of said issued andd) Transactions Harmful to the Interests of NBF (§ 42.2.4)

outstanding units.

An asset management company may not undertake transactions thatare other than upon normal terms and conditions for such transactions,and further, such transactions upon said conditions would be harmful tothe interests of the investment.

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

In addition to the above, the following activities are prohibited

accept them for the purpose of pledge, unless it acquires units issued byitself in the following cases:●(§42.2.7 of the Financial Instruments and Exchange Law, Cabinet
Office Ordinance §130).
(i)

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

(ii)

●

●

Transactions for the benefit of the investment management company

when acquired from another investment corporation as the surviving
entity of a merger;
when purchasing units pursuant to the provisions of the Investment
Trust Law of Japan; orwhen purchasing units pursuant to a government ordinance regarding
the Investment Trust Law of Japan.

or third parties that would be harmful to the interests of theinvestment corporation(iii) Transactions for the benefit of third parties that are not necessary(4) Restriction on Acquisition of Parent Corporation’sUnits by Subsidiary Corporation (§ 81.1.2)

according to investment management policies, the financial conditionof assets under management, or market conditions(iv) Asset management that introduces unfair restrictions or other limitations from external entities(v)

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

An investment corporation (subsidiary), a majority of the units ofwhich is owned by another investment corporation (parent), may notacquire the units of such parent investment corporation except in thefollowing cases:●

with the objective of unfairly inflating transaction amounts or artificiallyinflating prices(vi) Transactions between third parties and their agents (excluding specifictransactions to which rights holders have agreed pursuant to advance
explanation of the rationale for the transaction)(vii) When entities as specified below engage in underwriting investment
securities or other transactions, requested tenders or acquisitions ofinvestment securities when the subject investment securities to beacquired by or the amount subscribed under the tender agreement by●

when acquired from another investment corporation as the surviving
entity of a merger; or
when purchasing units pursuant to a government ordinance regarding
the Investment Trust Law of Japan.

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

the said underwriter differ from the planned amounts(a) foreign entities including corporations for their own account (asstipulated by Cabinet Office Ordinance §126.3)(b) entities that hold more than 50/100 of the total amount of investment securities representing underlying managed assets issued in
the two most recent fiscal years, as defined by §2.8.1-3, §2.8.8
and §2.8.9 of the Financial Instruments and Exchange Law (limited to investment securities that give holders rights in the said
managed assets and such rights)(viii) Other activities prohibited by Cabinet Office Ordinance 130

NBF Report January – June 2011 61

Corporate Data
(As of June 30, 2011)

Corporate Office:38th Floor, GranTokyo North Tower, 9-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-6738, Japan+81-3-6259-8681
http://www.nbf-m.com/nbf_e/

Date of Inception:

March 16, 2001

Capital:Contributed capital and units issued and outstanding:¥415,155 million
578,500 units

Unitholders:

15,348Transfer Agent:

The Chuo Mitsui Trust and Banking Co., Ltd.
33-1, Shiba 3-chome, Minato-ku, Tokyo, 105-8574, Japan

Business Office of the Transfer Agent:

Stock Transfer Agency Department of the Chuo Mitsui Trust and Banking Co., Ltd.
8-4, Izumi 2-chome, Suginami-ku, Tokyo, 168-0063, Japan+81-3-3323-7111

Independent Auditors:

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

Investor Relations:

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

This document contains translations of selected information described in theor accuracy of English translations or the selection of the portion(s) of any

Securities Report (Yuka shoken hokokusho) filed on September 29, 2011 pursuant to the

document(s) translated into English. No person has been authorized to give any

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

information or make any representations other than as contained in this document inInformation Report for the period from January 1, 2011 to June 30, 2011, of Nippon

relation to the matters set out in this document, and if given or made, such informa-

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

tion or representation must not be relied upon as having been authorized by Nippon

This English language document was prepared solely for the convenience of andBuilding Fund Inc., Nippon Building Fund Management Ltd. or any of their respective

reference by overseas investors and neither corresponds to the original Japanese

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

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

The financial statements of Nippon Building Fund Inc. have been prepared inguage Securities Report and the Financial Statements and the Performanceaccordance with generally accepted accounting principles in Japan (Japanese GAAP),

Information Report for the aforementioned period should always be referred to aswhich may materially differ in certain respects from generally accepted accounting

originals of this document.

principles in other jurisdictions.

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

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

herein may not be precisely identical to the concept of the equivalent Japanesemation. We base these statements on our beliefs as well as our assumptions based

terms. With respect to any and all terms herein, including without limitation, financial

solely on certain limited information currently available to us. Because thesestatements, if there exist any discrepancies in the meaning or interpretation thereof

statements reflect our current views concerning future events, these statements

between the original Japanese documents and English statements contained herein,

involve known and unknown risks, uncertainties and assumptions. Our future

the original Japanese documents will always govern the meaning and interpretation.

performance could materially differ from those set out in these forward-looking

None of Nippon Building Fund Inc., Nippon Building Fund Management Ltd. or any

statements. We do not undertake and will not undertake to release revisions of for-of their respective directors, officers, employees, partners, unitholders/shareholders,ward-looking statements to reflect future events or circumstances or of any otheragents or affiliates will be responsible or liable for the completeness, appropriatenessstatements or information contained herein.

62 NBF Report January – June 2011

Investors’ Information(As of June 30, 2011)

Fiscal Periods

Unitholders

Six months ending June 30 and December 31

Other domestic corporations
357 (2.3%)

Overseas investors 367 (2.4%)
Financial institutions(Including securities companies)

Total Number of Units Issued

190 (1.3%)

20th Period (From January 1, 2011 to June 30, 2011)

578,500 units

Total numberof unitholders:

19th Period (From July 1, 2010 to December 31, 2010)

542,000 units

15,348Other domestic
corporations
43,579 (7.5%)

Individuals andothers36,460 (6.3%)
Individuals and others
14,434 (94.0%)

Distributions
Expected distribution for the 21st Period (ending December 2011)

Total numberof units:

For the operating period from July 1, 2011 to December 31, 2011 (6 months) ¥15,100 per unit

578,500

Confirmed distribution for the 20th Period (ended June 2011)
For the operating period from January 1, 2011 to June 30, 2011 (6 months)

Overseas
investors
162,909(28.2%)¥15,138 per unit
Financial institutions(Including securities companies)

335,552 (58.0%)

Major Unitholders
NameJapan Trustee Services Bank, Ltd. (Trust Account)
The Nomura Trust and Banking Co., Ltd. (Trust Account)
Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account)
Mitsui Fudosan Co., Ltd.
The Master Trust Bank of Japan, Ltd. (Trust Account)
Nomura Bank (Luxembourg) SA
Sumitomo Life Insurance Company
Deutsche Securities Inc.
The Chugoku Bank, Ltd.
State Street Bank West Pension Fund Clients-Exempt

Number of Units Held

Percentage of Total

78,99450,29649,44920,815
17,678
16,763
12,256
12,124
8,863
7,233

13.7%
8.7
8.5
3.6
3.1
2.9
2.1
2.1
1.5
1.3

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

NBF unit price (left scale)
TSE REIT Index ((rightg scale))TOPIX (rightt scale)

2,500

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

1,500

1,000
800,000
500
400,000

0
Sep. 10, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30,
2001
2001
2002
2002
2003
2003
2004
2004
2005
2005
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011

NBF Report January – June 2011 63

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

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