Semi-Annual Report

First Half of 2017
including AIFMD Article 23 Information(32nd Period – January to June 2017)

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

Contents
To Our Unitholders................................................. 2

Investment and Distribution Policies ......................22

Competitive Advantages .........................................4Management’s Discussion and Analysis ................30

Performance Highlights ..........................................8

Financial Statements ..............................................43

Key Performance Indicators ....................................9

Notes to Financial Statements ...............................47

Acquisitions & Dispositions ...................................10

Independent Auditor’s Report ................................64

Sustainability Initiatives .........................................11
Major Assets ..........................................................12

Response to Article 23 of the European Alternative
Investment Fund Managers Directive .................65

Portfolio Overview .................................................14

Investors’ Information ............................................85

Location of Office Properties..................................15

Corporate Data ......................................................86

Management Team and Management Structure .....16

Note regarding the European Alternative Investment Fund Managers Directive (European Directive 2011/61/EU)
This report, which has been prepared to comply with Article 22 of the European Alternative Investment Fund Managers Directive (European Directive 2011/61/EU),or the AIFMD, also includes certain information required under Article 23 of the AIFMD. Such informatio n required under Article 23 of the AIFMD is included in the
Article 23 portion of this report starting on page 65 of this report.

NBF Report January – June 20171

To Our Unitholders

Operating Environment and Results
During the six months ended June 30, 2017 (the “32ndPeriod”), the Japanese economy continued on a moderate
recovery trend backed by factors such as a mild increasing
trend in capital investment as well as robust personal
consumption against the backdrop of steady improvement in
the employment and income situations, while corporate
earnings improved in light of recovery in export and production.
As to the office building rental market of Tokyo’s CBDs, thevacancy rate continued on a downward trend as a result of
steady progress in filling vacancies through office consolidation,
expansion of floor space within a building and such at existingbuildings while new supply was limited. In response to such
solid demand, asking rent continued on an upward trend,
though slightly.
In the office building trading market, the appetite of overseas
investors, domestic real estate companies and J-REITs toacquire properties continues to be strong against the backdrop
of a favorable financing environment backed by the continuation

Kenichi Tanaka

of monetary easing measures. With decreasing amounts ofPresident and CEO of
Nippon Building Fund Management Ltd.

acquiring properties continues to intensify, resulting in

information on prime properties for sale, the competition for
decreased expected yield and trading prices remaining high.
Under these circumstances, NBF is conducting asset
management in accordance with its basic policy of “aim toachieve steady growth of its assets under management and tosecure stable profits on a mid- to long-term basis.”
During the 32nd period, NBF disposed Aqua Dojima East

Market Rents for Office Buildings in Tokyo Business Districts*(Average Asking Rent & Average Vacancy Rate)(Yen/tsubo)

25,0008.57%（’03.6-8）¥22,901（’08.8）9.43%（’12.6）

Real Estate Trading Value (Office Buildings)(%)(Yen in billions)

10.00

2,500

9.00
8.00

¥18,916 7.00（’17.7）20,000

6.00

2,000

1,500

5.00
15,000¥17,526（’04.10）

4.00

2.49%
（’07.11）
10,000¥16,207（’13.12）

Average asking rent (left scale)

Average vacancy rate (right scale)＊Chiyoda-ku, Chuo-ku, Minato-ku, Shinjuku-ku, and Shibuya-ku
Source: Compiled by asset management company using data from Miki Shoji Co., Ltd.

2

3.22%
2.00
（’17.7）Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jul.
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2017

NBF Report January – June 2017

1,000

3.00
500

1.00
0.00

0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
First half

Second half

Source: Compiled by asset management company using data published by Japan Real Estate Institute(beneficiary interests in trust assets, disposition price of ¥1,910

million, or 1.6%, compared to the previous period), operating

million), of which NBF owned co-ownership interest, in March

income from leasing activities of ¥16,443 million (an increase2017. Furthermore, NBF additionally acquired co-ownershipof ¥336 million, or 2.1%, compared to the previous period),interest of Kowa Nishi-Shinbashi Bldg. B (beneficiary interests inoperating income after asset management, custody andtrust assets, acquisition price of ¥38 million), which NBF had

agent fees etc. of ¥15,114 million (an increase of ¥509 million,

already owned, in April 2017.

or 3.5% compared to the previous period), ordinary income of¥13,111 million (an increase of ¥589 million, or 4.7%, compared

NBF has endeavored to expand stable revenues from its
rental business with respect to its existing portfolio by

to the previous period), and net income of ¥13,110 million (anreinforcing measures for maintaining occupancy rates andincrease of ¥589 million, or 4.7%, compared to the previous

increasing rents upon renewal of contracts through appropriate

period). Moreover, gain on disposition of Aqua Dojima Eastand flexible leasing activities with a good understanding ofwill be internally retained as reserve for reduction entry in themarket trends and strengthened relationship with tenants. In

entire amount.
In accordance with the distribution policy prescribed in its

addition, NBF has also put forth efforts to reduce costs byproperly allocating timing and cost for renovation while making

Articles of Incorporation, NBF decided to distribute the entire

strategic and rightly-focused additional invesments.

amount arrived by subtracting the provision of reserve for

As a result of above-explained operations, as of June 30,

reduction entry (¥220 million) from undistributed earnings,

2017, NBF owned 74 properties with a total acquisition price of

excluding fractions of the distribution per unit that are less

¥1,106.6 billion and a total rentable area of 1,094,812 m2. The

than ¥1 from undistributed earnings, so that it will be enabled

average occupancy rate of the entire portfolio during the 32nd

to deduct the maximum amount of cash distribution of profit

Period was 98.7%, a 0.5 percentage point increase from thefrom its taxable income through the application of preferential

previous period, and the total number of tenants was 1,590.

tax measures to investment corporations (Article 67-15 of the
Act on Special Measures Concerning Taxation). As a result,the distribution per unit was ¥9,129.

Overview of Performance and Distribution
As the result of above-explained operations, NBF’s
performance results during the reported period consisted ofoperating revenues of ¥36,410 million (an increase of ¥560

New Supply of Large-Scale Office Buildings in the 23 Wards of Tokyo(10,000 m2)

Forecast

250

Average of 1.03 million m2/year(gross floor space basis)from 2017 onward

216
200

Historical average (1986-2016)
1.03 million m2/year(gross floor space basis)

154

150
125

121

175

163
140

119

117

109

91

100

86

77

72

97

97

87

85

73

65

58

50

0

40

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source: Compiled by asset management company using data from Mori Building Co., Ltd. as of April 25, 2017.

NBF Report January – June 20173

Competitive Advantages
J-REIT with the Longest Track Record(Yen)Distribution per Unit 1

12,000

9,513
8,001

9,000

8,126 7,683

7,291

7,592

8,645

8,523

8,446

9,695

9,612

9,904 10,064

2H/’06

1H/’07

11,274 11,126

6,000
3,000
0

(Yen)

600,000

2H/’01

1H/’02

2H/’02

1H/’03

2H/’03

1H/’04

2H/’04

1H/’05

2H/’05

1H/’06

1st Period

2nd Period

3rd Period

4th Period

5th Period

6th Period

7th Period

8th Period

9th Period

10th Period 11th Period 12th Period 13th Period 14th Period 15th Period

NAV per Unit 1,2

400,000

274,985 274,232 266,237 255,091 260,181 270,677 301,494 319,869

370,861436,243 477,282

2H/’07

1H/’08520,605 558,366

581,647

1H/’07

1H/’082H/’08542,084

200,000
0

2H/’01

1H/’02

2H/’02

1H/’03

2H/’03

1H/’04

2H/’04

1H/’05

2H/’05

1H/’06

1st Period

2nd Period

3rd Period

4th Period

5th Period

6th Period

7th Period

8th Period

9th Period

10th Period 11th Period 12th Period 13th Period 14th Period 15th Period

2H/’06

2H/’07

2H/’08Notes: 1. Historical data for the 25th Period, the six months ended December 31, 2013, and before are adjusted for the two-for-one investment unit split.
2. NAV per unit = (Unitholders’ capital at period end + Reserve for advanced depreciation in the next period (reserve - reversal) +Unrealized gain or loss on appraisal value at period end)
÷ Units issued and outstanding at period end

Asset Scale ( Total Acquisition Price ) and Average Occupancy Rate during the Period 3
97.1( Yen in billions)

97.3

95.5

1,200

95.1

96.9

97.0

97.9

97.2

98.3

92.4

98.3

98.7

98.4

96.8
97.3

1,100
1,000

Average occupancy rate during
the period (right scale)

900
800

Managed Assets by Region(left scale)

725.2
700

674.4

23 wards of Tokyo

624.8

Central 5 wards of Tokyo (incl. in above)

600

Other cities

393.8

400

100
0

414.2

336.2

300
200

192.1
22

226.6

24

246.1

26

Buildings

Buildings

Buildings

May 23,2001

2H/’01

1H/’02

1st Period

2nd Period

260.3

28

Buildings

276.1

29

Buildings

285.7

33

Buildings

43

Buildings

43

Buildings

47

52

Buildings

Buildings

55

56

56

58

60

Buildings

Buildings

Buildings

Buildings

Buildings

2H/’06

1H/’07

2H/’07

1H/’082H/’082H/’02

1H/’03

2H/’03

1H/’04

2H/’04

1H/’05

2H/’05

1H/’06

4th Period

5th Period

6th Period

7th Period

8th Period

9th Period

10th Period 11th Period 12th Period 13th Period 14th Period 15th Period

Note: 3. Average occupancy rate during the period: weighted average of month-end occupancy rate on a floor space basis

NBF Report January – June 201755

Buildings

3rd Period(Investmentcommencement
date)

4

674.4

624.8

539.4

Other Greater Tokyo
500

762.3

10,887

1H/’099,836

2H/’09

8,562

1H/’107,747 7,569 7,600 7,740 7,877

2H/’10

1H/’11

2H/’11

1H/’12

2H/’12

8,427

9,129
8,645 8,152
8,397 8,867
7,681 7,787 8,036

1H/’13

2H/’13

1H/’14

2H/’14

1H/’15

2H/’15

1H/’162H/’16

1H/’1716th Period 17th Period 18th Period 19th Period 20th Period 21st Period 22nd Period 23rd Period 24th Period 25th Period 26th Period 27th Period 28th Period 29th Period 30th Period 31st Period 32nd Period

476,112435,711 406,368 399,013 395,174 398,537 389,797 389,664 400,890 407,433 421,124 430,708 444,360 460,479

1H/’092H/’091H/’102H/’10

1H/’11

2H/’11

1H/’12

2H/’12

1H/’13

2H/’13

1H/’14

2H/’14

1H/’15

2H/’15484,767 497,513

1H/’162H/’16505,308

1H/’1716th Period 17th Period 18th Period 19th Period 20th Period 21st Period 22nd Period 23rd Period 24th Period 25th Period 26th Period 27th Period 28th Period 29th Period 30th Period 31st Period 32nd Period

(%)

95.5

93.4

93.3

93.9

95.4

96.7

96.8

97.5

97.8

97.1

97.0

97.6

96.8

97.9

98.2

98.7

100
95

1,066.5 1,050.8 1,074.4 1,074.4

837.1

97.9

870.2

892.8

1,080.3 1,080.3 1,096.1 1,108.5

1,106.6

90

921.6

783.2 783.2 779.6 779.6

61

61

59

59

64

64

67

68

74

71

73

73

74

74

73

75

74

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

1H/’092H/’091H/’102H/’10

1H/’11

2H/’11

1H/’12

2H/’12

1H/’13

2H/’13

1H/’14

2H/’14

1H/’15

2H/’15

1H/’162H/’16

1H/’1716th Period 17th Period 18th Period 19th Period 20th Period 21st Period 22nd Period 23rd Period 24th Period 25th Period 26th Period 27th Period 28th Period 29th Period 30th Period 31st Period 32nd Period

NBF Report January – June 2017

5

Competitive Advantages

The Largest J-REIT in Size
Market Capitalization (June 30, 2017)

Acquisition Price (June 30, 2017)¥1,106.6 billion¥810.4 billion
Ratio of J-REITs by Type

Ratio of Assets by Type
Hotel (6.1%)

Diversified and hybrid(44.1%)

Office buildings(20.5%)

Others (infrastructure, seniors, etc.)(1.8%)

Logistics (12.6%)

J-REIT
Total Market Cap

J-REIT
Total Acquisition Price

Commercial facilities(9.7%)¥11,434.5
billionResidential(15.8%)¥16,199.6
billion

Office(44.6%)

Residential(10.2%)
Commercial facilities(19.1%)
Hotel and healthcare(4.9%)

Logistics(10.6%)

Source: Compiled by asset management company using data published by QUICK Corp.

Source: Compiled by asset management company using publicly available information.

A Portfolio Focused on Tokyo
NBF Osaki Bldg.
(Shinagawa-ku, Tokyo)

Investment Ratio by Area
(Acquisition Price Basis; As of June 30, 2017)

Other Cities¥127.6 billion(11.5%)

23 Wards of Tokyo¥878.2 billion(79.4%)NBF Platinum Tower(Minato-ku, Tokyo)

Yokohama ST Bldg.
(Yokohama City,
Kanagawa)

Other
Greater Tokyo¥100.7 billion(9.1%)¥1,106.6 billion
74 properties

Gate City Ohsaki(Shinagawa-ku, Tokyo)

Nakanoshima
Central Tower(Osaka City, Osaka)

Central 5 Wards of Tokyo¥559.0 billion (50.5%)

6

NBF Report January – June 2017

Shin Kawasaki Mitsui
Bldg.
(Kawasaki City,
Kanagawa)

Collaboration with Sponsor

Acquisitions

Leasing(10,000 m2 )(%)(Yen in billions)100

1,106.6

1,200

96.7

380.1
93.4

97.8

93.3

97.1

97.0

97.6

97.9

96.8

93.9
91.5

92.2
93.3

219.6

92.2

90

91.2

91.0

76.3

76.3

420.6

400

97.5

97.9

98.2

98.7 190

95.9

96.2

96.5

108.3

109.8

109.4

95.4

95

Approx.
60%*

800

96.8

77.0

85

91.0

91.2

90.8

91.1

86.1

89.3

91.4

82.8

105.6

103.8

107.4

94.3

94.7

107.4

107.9

95.5

130
107.9

100
70

86.2

0
2H/’1529th
Period1H/’1732nd
Period2H/’1631st
Period1H/’1630th
Period160002H/’0917th
PeriodAcquired from Mitsui Fudosan and funds
that it manages
Acquired through Mitsui Fudosan brokerage

1H/’1018th
Period2H/’1019th
Period1H/’1120th
Period2H/’11
21st
Period1H/’1222nd
Period2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
Period2H/’1427th
Period1H/’1528th
Period2H/’1529th
Period1H/’1630th
Period2H/’1631st
Period1H/’1732nd
PeriodNBF’s average occupancy rate during the period (nationwide)1 (left scale)
Reference: average market occupancy rate during the period2 (Tokyo business districts)(left scale)
NBF’s total rentable area at period end (right scale)Acquired from other (external) sources
Properties acquired when NBF began
managing properties*Ratio to total acquisitions since the initialpublic offering in September 2001

Notes: 1. NBF’s average occupancy rate during the period – weighted average of month-end occupancy rate on a floor space basis
2. Average market occupancy rate during the period – simple average of month-end occupancy rate
(Compiled by asset management company using data from Miki Shoji Co., Ltd.)

Stable Financial Management
LTV and Long-Term Fixed-Rate Debt Ratio

Average Maturity (Long-Term Interest-Bearing Debt)(Years)6

Target: 90% or higher for the long-term
fixed-rate debt ratio

(%)
100
99.6

96.4

97.7

96.5

95.2

93.8

94.0

4

4.73

4.53

4.29

4.02

4.11

2H/’1427th
Period1H/’1528th
Period2H/’1529th
Period

5.16

4.99

5.15

1H/’1630th
Period2H/’1631st
Period1H/’1732nd
Period

0.94

0.93

0.88

1H/’1630th
Period2H/’1631st
Period1H/’1732nd
Period

2
92.5

80

0

2H/’1325th
Period1H/’1426th
Period60

Average Interest Cost on Debt

Target: 36-46% for LTV
40

43.8

43.1

41.9

41.9

41.3

42.1

41.9

41.5

20

(%)
2.00
1.34

1.25

1.23

1.18

1.10

1.00

0.00

0
2H/’1325th
Period1H/’1426th
Period2H/’1427th
Period1H/’1528th
Period2H/’1529th
Period1H/’1630th
Period2H/’1631st
Period1H/’1732nd
Period2H/’1325th
Period1H/’1426th
Period2H/’1427th
Period1H/’1528th
Period2H/’1529th
PeriodNBF Report January – June 20177

Performance Highlights

Total Operating Revenues

NOI from Property Leasing Activities1(Yen in millions)(Yen in millions)

Profits from dispositions included in total operating revenues.
Figures in parentheses are total operating revenues excluding
profits from dispositions.

45,00040,00034,80635,00034,59334,64135,672(34,719)

36,41035,84925,00022,015

22,63923,276

23,69020,00015,00010,00025,0005,000
02H/’14
1H/’15
2H/’15
1H/’162H/’16
1H/’1727th Period 28th Period 29th Period 30th Period 31st Period 32nd Period

Net Income

2H/’14
1H/’15
2H/’15
1H/’162H/’16
1H/’1727th Period 28th Period 29th Period 30th Period 31st Period 32nd Period

Total Assets(Yen in millions)

Profits from dispositions included in net income.
Figures in parentheses are net income excluding profits
from dispositions.

16,00013,11014,00012,00022,167(36,190)

30,000022,22012,80812,520(12,890)(Yen in billions)
1,100
1,023.0

1,022.4

1,012.7

1,029.0

1,030.4

1,023.9

1,000(11,856)
10,846

10,995

10,977900

10,000
800

8,000
0

0

2H/’14
1H/’15
2H/’15
1H/’162H/’16
1H/’1727th Period 28th Period 29th Period 30th Period 31st Period 32nd Period

DPU

2H/’14
1H/’15
2H/’15
1H/’162H/’16
1H/’1727th Period 28th Period 29th Period 30th Period 31st Period 32nd Period

NAV per Unit
DPU include reversal of reserve for advanced depreciation.
The figure in parentheses is DPU excluding reversal of reserve for advanced depreciation.

(Yen)
10,000500,000
8,867

9,000
8,000

(Yen)

7,681

7,787

8,036
(7,773)484,767

9,129

8,397

450,000

430,708444,360

497,513505,308

460,479

400,000

7,000
350,000

6,000
5,000
0

300,000
2H/’14
1H/’15
2H/’15
1H/’162H/’16
1H/’1727th Period 28th Period 29th Period 30th Period 31st Period 32nd Period02H/’14
1H/’15
2H/’15
1H/’162H/’16
1H/’1727th Period 28th Period 29th Period 30th Period 31st Period 32nd Period

Note: 1. NOI from property leasing activities does not include such items as gain or loss on sale of investment properties.

8

NBF Report January – June 2017

Key Performance Indicators (As of June 30, 2017)

Total assets

Unrealized gain on appraisal value¥1,023.9 billion¥189.4 billion

Location

Average occupancy rate during the period 1

23 wards of Tokyo
Central 5 wardsof Tokyo

79.4%
50.5 %

98.7%

LTV

Long-term fixed-rate debt ratio

41.5 %

92.5 %

Average interest rate

Average maturity

0.88 %

5.15 years

Market capitalization

NAV per unit 2¥810.4 billion¥505,308

Notes: 1. Average occupancy rate during the period :weighted average of month-end occupancy rate on a floor space basis
2. NAV per unit : (Unitholders’ capital at period end + Reserve for advanced depreciation in the next period (reserve - reversal)+ Unrealized gain or loss on appraisal value at period end) ÷ Units issued and outstanding at period end

NBF Report January – June 20179

Acquisitions & Dispositions

Main Acquisitions

Dispositions

Kowa Nishi-Shinbashi Bldg. B

Aqua Dojima East

Location

Minato-ku, Tokyo

Location

Kita-ku, Osaka

Acquisition date2017.4.28

Disposition date2017.3.31

Age

2017

Note 123 years

Age

Note 224 years

Total floor space

Approx. 20,180m2

Total floor space

Approx. 24,726m2

Acquisition price¥38 million

Disposition price¥1,910 million

Share

Approx. 0.31%(Total Approx. 83.68%)

Share

Approx. 23%

Note 2: Age on disposition date
Note 1: Age on aquisition date

Gain on sale: ¥291 million

2016

Ueno East Tower(Acquisition price:¥21,600 million)

NBF Atsugi Bldg.
(Disposition price:¥2,750 million)

Toyo-cho Center Bldg.
(Acquisition price:¥7,800 million)

NBF Sendai Honcho Bldg.
(Disposition price:¥3,700 million)

Osaki Bright Core-Bright Plaza(Acquisition price:¥4,500 million)

2015

Gain on sale: ¥951 million

NBF Kandasudacho Bldg.
(Acquisition price:¥5,960 million)

23 wards of Tokyo

10NBF Report January – June 2017

Other Greater Tokyo

Other Cities

Sustainability Initiatives■ Environmental Evaluation
NBF Received a “Green Star” Rating (the most Superior Evaluation) in the Global Real
Estate Sustainability Benchmark (GRESB) Survey
In the 2017 Assessment, the following initiatives of NBF were highly evaluated in both dimensions of“Management and Policy” and “Implementation and Measurement” as sustainability efforts, and NBF
received a "Green Star" rating, the most superior rating, for the third consecutive year. NBF also
received a “4 Star,” based on its overall GRESB Score ranking.

GRESB Overview
The Global Real Estate Sustainability Benchmark (GRESB) survey is an indicator that
evaluates the sustainability initiatives of real estate companies and REITs rather thanparticular real assets.

■ Examples
Disaster Prevention and BCP Measures
Enhancement work on emergency power generator oil tank

Renewal and earthquake-resistance improvement of elevators

Enabling longer hours of emergency power supply

Seismic performance improvement by control mechanism renewal andvarious reinforcement measures

Nakanoshima Central Tower

Shinjuku Mitsui Bldg. No. 2

Energy Efficiency Measures

Cooperation with Stakeholders and Community Engagement Initiatives

HVAC Upgrades

Various Events, Etc.

Energy performance improvement by upgrading tohigh-efficiency equipment

Working with various stakeholders

NBF Utsunomiya Bldg.

Lunchtime concert

Training of building maintenance companies

NBF Toyosu Canal Front

NBF Report January – June 201711

Major Assets (As of June 30, 2017) (Building numbers correspond to those on pages 14 and 15.)

23 Wards of Tokyo
35 NBF Osaki Bldg.

36

Gate City Ohsaki

CASBEE Certification
DBJ Green Building Certification3

Mitsubishi Heavy Industries Head Office Bldg.

39

Tokyo Metropolitan
Semi-Top-Level-Facility Certification

NBF Toyosu Garden Front

DBJ Green Building Certification

12

NBF Report January – June 2017

Other Greater Tokyo
49 Chofu South Gate Bldg.

50 Shin-Kawasaki Mitsui Bldg.

Other Cities
66 Nakanoshima Central Tower

DBJ Green Building Certification

68 Sakaisuji-Honmachi Center Bldg.

73 Hakata Gion M-SQUAREDBJ Green Building Certification

NBF Report January – June 201713

Portfolio Overview (As of June 30, 2017)
Property Name
1 NBF Hibiya Bldg.
●
2 Nishi-Shinjuku Mitsui Bldg.
●
3 Mitsubishi Heavy Industries Head Office Bldg.
●
4 Shiba NBF Tower●
5 NBF Platinum Tower●
6 NBF Minami-Aoyama Bldg.
●
7 NBF COMODIO Shiodome●
8 Toranomon Kotohira Tower●
9 Celestine Shiba Mitsui Bldg.
●
10 NBF Ochanomizu Bldg.
●
11 NBF Shibuya Garden Front●
12 NBF Ginza Street Bldg.
●
13 Shinjuku Mitsui Bldg. No.2●
14 GSK Bldg.
●
15 River City M-SQUARE●
16 NBF Toranomon Bldg.
●
17 Kowa Nishi-Shinbashi Bldg. B●
18 NBF Shinkawa Bldg.
●
19 Shinbashi M-SQUARE●
20 NBF Alliance●
21 Yotsuya Medical Bldg.
●
22 NBF Shibuya East●
23 NBF Shibakouen Bldg.
●
24 NBF Takanawa Bldg.
●
25 NBF Akasaka Sanno Square●
26 NBF Shibakouen Daimon Street Bldg.
●
27 NBF Kandasudacho Bldg.
●
28 Sumitomo Densetsu Bldg.
●
29 NBF Higashi-Ginza Square●
30 Panasonic Tokyo Shiodome Bldg.
●
31 NBF Ogawamachi Bldg.
●
32 Nihonbashi Kabuto-cho M-SQUARE●
33 Ryukakusan Bldg.
●
34 Jingumae M-SQUARE●
35 NBF Osaki Bldg.
●
36 Gate City Ohsaki●
37 Nakanosakaue Sunbright Twin●
38 NBF Toyosu Canal Front●
39 NBF Toyosu Garden Front●
40 Nakameguro GT Tower●
41 Ueno East Tower●
42 NBF Ueno Bldg.
●
43 NBF Ikebukuro East●
44 Higashi Gotanda Square●
45 Toyo-cho Center Bldg.
●
46 NBF Ikebukuro Tower●
47 Osaki Bright Core/Bright Plaza●
48 NBF Ikebukuro City Bldg.
●

23 Wards of Tokyo (48 properties)
49 Chofu South Gate Bldg.
●
50 Shin-Kawasaki Mitsui Bldg.
●
51 Yokohama ST Bldg.
●
52 Parale Mitsui Bldg.
●
53 Tsukuba Mitsui Bldg.
●
54 NBF Utsunomiya Bldg.
●
55 S-ino Omiya North Wing●
56 NBF Urawa Bldg.
●
57 NBF Shin-Urayasu Tower●
58 NBF Matsudo Bldg.
●
Other Greater Tokyo (10 properties)
59 Sapporo L-Plaza●
60 NBF Sapporo Minami Nijo Bldg.
●
61 NBF Unix Bldg.
●
62 NBF Niigata Telecom Bldg.
●
63 Sumitomo Mitsui Banking Nagoya Bldg.
●
64 NBF Nagoya Hirokoji Bldg.
●
65 Aqua Dojima NBF Tower●
66 Nakanoshima Central Tower●
67 Shinanobashi Mitsui Bldg.
●
68 Sakaisuji-Honmachi Center Bldg.
●
69 Sun Mullion NBF Tower●
70 NBF Hiroshima Tatemachi Bldg.
●
71 Hiroshima Fukuromachi Bldg.
●
72 NBF Matsuyama Nichigin-mae Bldg.
●
73 Hakata Gion M-SQUARE●
74 NBF Kumamoto Bldg.
●
Other Cities (16 properties)
Total (74 properties)

Acquisition Price (Yen in millions)

63,50045,21336,30032,00031,00031,00028,80024,54322,50020,84020,26917,00016,285
14,434
13,35013,337
13,303
12,614
11,900
9,126
8,800
8,000
6,770
6,667
6,250
6,100
5,960
5,365
5,200
5,075
4,940
4,850
4,050
3,700
66,66057,28140,75035,20025,01823,856
21,60010,400
8,630
8,350
7,800
4,695
4,500
4,428
878,211
9,320
25,82013,529
3,800
8,875
2,435
16,8162,000
15,7002,455
100,751
4,404
1,870
4,028
3,957
14,9007,232
17,81014,90014,40012,70010,500
2,930
2,215
3,310
8,000
4,500
127,658
1,106,620

Book Value (Yen in millions)

63,75733,38135,68527,14026,314
31,49027,764
18,44922,222
19,997
18,77917,52015,77011,535
12,11313,09011,076
11,705
11,647
9,320
7,686
8,073
6,114
6,303
6,266
6,205
5,848
4,719
4,392
4,953
5,068
4,526
4,344
3,339
65,791
48,99636,32029,372
22,665
17,34821,564
9,236
9,055
7,712
8,124
4,224
4,522
4,097
805,636
8,170
22,112
12,726
3,131
7,365
2,227
13,584
1,806
15,611
2,254
88,990
3,148
1,582
2,840
3,424
14,483
6,274
15,90914,436
10,421
12,085
7,138
2,643
1,833
3,069
6,898
3,870
110,060
1,004,686＊Rounded down to the first decimal place, may not add up to equal the total due to rounding.

14

NBF Report January – June 2017

For further information, click here to jump
to the relevant page on NBF’s website.

Appraisal Value (Yen in millions)56,60041,30048,00028,40060,80019,10033,70035,00026,40013,80031,30016,90018,50014,50016,30017,00014,50014,70014,80012,500
7,600
7,150
8,150
7,190
6,550
4,400
8,090
5,710
7,810
6,120
5,880
5,560
4,870
3,980
85,90066,90030,00036,00029,10021,80022,1009,290
10,700
8,300
8,460
5,720
4,800
5,420
967,650
10,30023,10015,000
3,830
8,260
2,100
20,5002,360
10,1002,420
97,970
7,110
1,470
3,350
2,690
16,5007,310
17,60016,90012,90013,500
6,280
2,490
2,370
3,760
10,3003,920
128,450
1,194,070

Total Rentable Area (m2)

27,57233,45835,641
24,73033,503
9,631
20,538
16,84816,915
6,627
16,516
3,440
14,82820,426
16,261
10,067
10,173
17,307
5,392
4,033
7,481
4,999
7,084
10,450
5,258
3,432
4,470
5,991
4,871
4,577
4,805
3,298
5,332
7,232
74,42541,881
31,95936,66128,28921,423
17,227
8,504
11,073
6,166
11,294
5,631
2,784
5,127
725,640
13,762
39,83720,046
12,545
16,832
6,160
20,6983,455
22,7604,770
160,864
11,396
5,351
13,355
10,193
17,658
9,876
21,917
17,33025,31423,23014,954
5,567
3,927
5,983
14,328
7,931
208,308
1,094,812

Total Leased Area (m2)27,47133,33035,121
24,73033,503
9,521
19,97815,341
16,915
6,627
16,516
3,440
14,09020,426
16,261
10,028
10,173
17,185
5,169
4,033
7,349
4,999
6,981
10,450
5,258
3,432
4,470
5,991
4,871
4,577
4,805
3,137
5,332
7,232
74,42540,413
31,95936,66128,28921,36917,227
8,504
11,073
6,166
11,294
5,631
2,784
5,127
719,673
13,762
38,79819,912
12,181
16,697
5,848
20,6983,455
21,488
4,690
157,529
11,396
5,351
13,355
9,830
16,981
9,637
21,33916,78924,281
23,23014,954
5,567
3,885
5,983
14,328
7,931
204,837
1,082,040

Occupancy Rate (%)

Total Number of Tenants

99.6
99.6
98.5
100.0
100.0
98.9
97.3
91.1
100.0
100.0
100.0
100.0
95.0
100.0
100.0
99.6
100.0
99.3
95.9
100.0
98.2
100.0
98.6
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
95.1
100.0
100.0
100.0
96.5
100.0
100.0
100.0
99.8
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
99.2
100.0
97.4
99.3
97.1
99.2
94.9
100.0
100.0
94.4
98.3
97.9
100.0
100.0
100.0
96.4
96.2
97.6
97.4
96.9
95.9
100.0
100.0
100.0
98.9
100.0
100.0
100.0
98.3
98.8

93
46
10
31
7
11
17
23
10
6
1
1
46
1
7
13
20
35
6
7
39
4
16
15
6
8
9
1
6
1
16
1
12
8
1
78
20
14
4
18
2
6
21
14
1
18
20
9
759
1
22
92
32
63
40
43
12
52
25
382
13
3
55
33
11
22
44
27
63
50
30
30
12
22
18
16
449
1,590

Location of Office Properties (As of June 30, 2017)

For further information, click here to jump
to the relevant page on NBF’s website.

Kita-kuToshima-ku

Arakawa-ku

48 46
43

Investment by Region
Taito-ku

Bunkyo-ku
Nakano-ku
Shinjuku-ku

37 2
13

6
20

11

Setagaya-ku

25
16 8

40

17

23 26
9
24 28

Meguro-ku

44
47 36
35

9.1%

32
18
12 29 1530

1 19

Minato-ku 4 7
22

5

Other Greater Tokyo

三越前

Imperial
Palace

14
34

11.5%

Sumida-ku

10 2733

Chiyoda-ku 31

21

Shibuya-ku

Other Cities

42
41

Koto-ku

Central 5 Wardsof Tokyo

45

50.5%

Chuo-ku

38
39
Tokyo
Bay

59
60

3

23 Wards of Tokyo

79.4%

Shinagawa-ku

23 Wards of Tokyo

48 Properties : ¥878.2 billion
62
61

70 71
73 72

72

Ibaraki74
65 66 67 68 69

63

Tsukuba

Utsunomiya

53

54

Saitama64
Tochigi

Omiya

55

56
58

Other Cities

Tokyo

Matsudo

16 Properties: ¥127.6 billion

Chiba
Tokyo

57

49

Chiba

Shinagawa

50 Kawasaki
51
Kanagawa

Tokyo Bay52
Yokohama

Other Greater Tokyo

10 Properties: ¥100.7 billion
NBF Report January – June 201715

Management Team and Management Structure (As of September 30, 2017)

Nippon Building Fund Inc. (NBF) is an investment corporation that aims to achieve steady
growth of its assets under management and to secure stable profits on a mid- to long-term basis.
NBF continues to do its utmost for investors.

Nippon Building Fund Inc.
Nippon Building Fund Inc. is an investment corporation

The General Meeting of Unitholders adopts or vetoes

established with the objective of investing in assets, primarily

resolutions on the basis of a simple majority of the voting

Designated Assets as defined by the Investment Trust Law ofrights of unitholders in attendance, unless otherwise stipu-

Japan. NBF entrusts the management of its assets tolated by laws, regulations or NBF’s Articles of Incorporation.

Nippon Building Fund Management Ltd., which is an asset

Decisions on substantive matters such as changes in the

management company.

Articles of Incorporation require the attendance of

NBF’s primary investment objective is to achieve steadyunitholders that control a simple majority of total units issued

growth of its assets under management and to secure stableand outstanding, and a two-thirds majority of the voting

profits on a mid- to long-term basis. NBF achieves thisrights of such unitholders. In addition, any change in theobjective by investing in real estate consisting of buildings

asset management policies and standards, which are stipu-

primarily used for offices with their underlying land located in

lated by NBF’s Articles of Incorporation, requires an extraor-

the central business districts (CBDs) of Tokyo, other Greater

dinary resolution of unitholders as outlined above.

Tokyo and other cities in Japan. NBF also invests in securities, beneficiary certificates representing beneficial interests
in trusts and other assets backed by office properties.

Executive Directors, Supervisory Directors andthe Board of Directors
NBF’s Articles of Incorporation stipulate that NBF must

General Meeting of Unitholders

have one or more executive directors and four or fewer

Specific matters pertaining to NBF that are subject to thesupervisory directors, but the number of supervisory direc-

Investment Trust Law of Japan or the Company’s Articles oftors must always be at least one greater than the number ofIncorporation are decided by resolution of the General

executive directors. As of September 30, 2017, NBF had one

Meeting of Unitholders, which convenes at least once every

executive director and three supervisory directors.

two years, in principle. The tenth General Meeting of

NBF’s executive director is responsible for business

Unitholders convened on March 15, 2017. The date of theexecution and has authority for all judicial and extrajudicial

next General Meeting of Unitholders has not been set.

proceedings related to the operations of NBF. Supervisory
directors are responsible for supervising execution by the
executive director.

Asset Management Company
Nippon Building FundManagement Ltd.
Mitsui Fudosan Co., Ltd.

Entrusting AssetManagement Services

Entrusting Asset
Custody Services,etc.
Entrusting
Accounting Services

Entrusting Ofﬁce
Management Services
Nippon Building Fund Inc.

Entrusting Tax
Affairs Services

General Meeting of Unitholders

Borrowings/Issue ofBonds and Notes

Subcontracting

NBF Ofﬁce Management Co., Ltd.
Providing Ofﬁce
Management
Services

Principal and Interest
Payment
Investment
Rent, etc.

Real Estate, etc.

16

NBF Report January – June 2017

Board of Directors

Investment
Distribution

Sumitomo Mitsui Trust Bank, Ltd.
Tax Accountant Corporation
Heiseikaikeisha Tax Co.
Tax Accountant Corporation
PwC Co., Ltd.
Accounting Auditor
KPMG AZSA LLC
Financial Institutions, etc. / Bondholders
Securities Markets
Investors
Trading

Investors

Management Team

From left: Masahiko Yamazaki, Yoshiki Kageyama, Hakaru Goto, Yutaka Kawakami

Executive Director
Supervisory Directors

Name

Career Summary

Yoshiki Kageyama
Hakaru Goto
Masahiko Yamazaki

Appointed Executive Director of NBF in March 2015 after serving as a standing auditor of Mitsui Fudosan Realty Co., Ltd. Reappointed in March 2017.
Appointed Supervisory Director of NBF in March 2015 and reappointed in March 2017. Real Estate Appraiser.
Appointed Supervisory Director of NBF in March 2017. Attorney.

Yutaka Kawakami

Appointed Supervisory Director of NBF in March 2017. Certified Public Accountant.

The Board of Directors consists of the executive and

The terms of office of the executive director and supervi-

supervisory directors. Its responsibilities include authorizingsory directors are two years from the time they assume

business execution and supervising the performance of theoffice. The terms of executive directors and supervisory

executive director. Resolutions by the Board of Directors

directors selected to fill a vacancy or to increase the number

require a simple majority with more than half of the membersof directors expire at the same time as the remaining terms ofof the Board in attendance.

their predecessors or the current directors.

The bylaws of NBF’s Board of Directors stipulate thatAn executive director was reelected with the consent ofexecutive and supervisory directors may not participate inunitholders at the General Meeting of Unitholders held on

decisions in which they have a vested interest. Executive andMarch 15, 2017. One of the three supervisory directors was

supervisory directors with such financial interest shall not bereelected and two new supervisory directors were elected at theincluded in the number of executive and supervisory directors

same time, and assumed office on March 17, 2017.

in attendance for such decisions.

NBF Report January – June 201717

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

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

Nippon Building Fund Management Ltd. as the institutional

Investment Trust Law of Japan, Nippon Building Fundmanager of NBF’s assets, Nippon Building Fund Management

Management Ltd. manages NBF’s assets in accordance with

Ltd. executes certain responsibilities in connection with thethe asset management objectives and policies stipulated byoperation of the General Meeting of Shareholders and the

NBF’s Articles of Incorporation. In addition, in accordance with

Board of Directors as manager of general administration.

the manager of general administration contract designating

History of NBFM
NBFM is an Asset Management Company which is alimited liability company duly established under the laws ofJapan. Major events in the history of NBFM are as follows.
September 19, 2000

Established

November 17, 2000

Obtained license as a building lots and building transactions agent under the Building Lots and Building Transactions Law

January 29, 2001

Obtained approval as a discretionary transaction agent under the Building Lots and Building Transactions Law

February 15, 2001

Registered as a general real estate investment advisor under the Real Estate Investment Advisor Registration Regulations

March 7, 2001

Obtained approval as an Asset Management Company under the Investment Trust Law of Japan

March 22, 2001

Increased capital from ¥100 million to ¥198 million

May 23, 2001

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

June 16, 2001

Increased capital from ¥198 million to ¥495 million

March 14, 2003

Changed name (from “Office Building Fund Management 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 September 30, 2017)
Name

Percent

An outline of the financial condition of NBFM is as follows.

Mitsui Fudosan Co., Ltd.

4,554

46.0%

Outline of principal assets and liabilities for the most recent

Sumitomo Life Insurance Company

3,465

35.0

fiscal year:

Sumitomo Mitsui Trust Bank, Limited

495

5.0

As of March 31, 2017

Sumitomo Mitsui Banking Corporation

495

5.0

Total Assets¥2,476

Daido Life Insurance Company

297

3.0

Total Liabilities

441

Mitsui Sumitomo Insurance Co., Ltd.

297

3.0

Total Net Assets

2,035

Britel Fund Trustees Limited

297

3.0

9,900

100.0%

Total

18

Numberof Shares Owned

Outline of Financial Condition

NBF Report January – June 2017

(Yen in millions)

Management Team and Management StructureManagement Structure
General Meeting of Shareholders
AuditorBoard of Directors

Compliance Committee

Executive Board
Risk Management Meeting
CEO

Investment
Review Meeting

Accounting Auditor

ComplianceOfﬁcerInvestment & FinanceGroup

Real Estate AssetManagement
Team

Real Estate
Investment
Team

Corporate Operation
Group

FinancialTeam

Management Structure of
Nippon Building Fund Management Ltd.

Corporate
Planning &Administration
Team

Risk
Management &ComplianceTeam& Finance Group and the Corporate Operation Group also
serve as directors, and oversee their respective divisions under

The Board of Directors makes decisions on the basic

the direction and oversight of the president. Corporate auditors

management policies of Nippon Building Fund Management

conduct accounting audits and operational audits of Nippon

Ltd. and oversees execution of the duties of the representa-

Building Fund Management Ltd. The Compliance Officer

tive director. The president, who is the representative direc-

oversees compliance for the asset management company andtor, supervises and executes the operations of Nippon

is responsible for internal administration in connection with

Building Fund Management Ltd. The heads of the Investment

internal audits at the asset management company.

Directors and Staff
As of September 30, 2017, the directors and corporate
auditors of NBFM are as follows. The staff other than directors
and auditors of NBFM is comprised of 23 persons.
Name of Directors and Auditors

Title

Kenichi Tanaka

President & CEO (standing)Morio Shibata

Director, Head of Investment & Finance Group (standing)

Miki Takahashi

Director, Head of Corporate Operation Group (standing)

Hiromu Yamanaka

Director (part-time)

Fuminori Tamura

Director (part-time)

Yoichi Kunikane

Auditor (part-time)

Kenshi Ueda

Auditor (part-time)

NBF Report January – June 201719

Compliance Initiatives
The management of NBF and Nippon Building FundManagement Ltd. conduct honest and appropriate businessactivities while maintaining 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 Boardof Directors’ meetings are to be held at least once every threemonths. In practice, NBF holds such meetings once a month.
At Board meetings, the executive director reports on the execution of his duties and supervisory directors ensure that oversightand check-and-balance systems are functioning properly.
Nippon Building Fund Management Ltd. views complianceas a management strategy, with a fundamental compliancepolicy of conducting operations honestly and fairly while
maintaining a rigorous compliance system based on a high levelof corporate ethics. Specifically, Nippon Building FundManagement Ltd. has established a Compliance Committee,
consisting of the Compliance Officer, the president, the head of
the Investment & Finance Group, the head of the Corporate
Operation Group and an outside committee member. Initiatives
to enhance awareness of and adherence to compliance include
the establishment of Compliance Rules and a Compliance
Manual. In addition, a Compliance Program is formulated eachyear to verify the progress of the execution plan for that year
and identify any problem areas.

Risk Management System
NBF and Nippon Building Fund Management Ltd. haveestablished the following risk management system to avoid
and minimize risks related to investments.

NBF
NBF’s Risk Management Regulations define risk management policies and procedures. The Risk Management Meeting
convenes once every three months and undertakes deliberation, monitoring and other initiatives to ensure that theentrusted asset managers are conducting their duties with due
care in good faith in a manner consistent with its fiduciary duty
to the conservation and maintenance of entrusted assets.

Nippon Building Fund Management Ltd.
Nippon Building Fund Management Ltd. formulates aManagement Policy, a Medium-to-Long-Term AssetManagement Policy and an Annual Management Plan tofollow in managing NBF’s assets. In addition, Nippon Building
Fund Management Ltd. has set Asset Management
Guidelines as a set of standards to follow.

20

NBF Report January – June 2017

Policy and Management System for
Dealing with Conflict of Interest Transactions
Fundamental Policy on Conflict of Interest Transactions
Nippon Building Fund Management Ltd. is constantly
aware of its accountability to NBF and NBF’s unitholders withregard to any transactions in which the interests of NBF andthe interests of Nippon Building Fund Management Ltd. andits related corporations or customers may conflict. Nippon
Building Fund Management Ltd. follows voluntary rules stipulated in laws and internal bylaws to proactively prevent
conflicts of interest.
All decisions made in executing the management of NBF’s
assets are subject to the approval of the president, and aremade after going through discussions by the Investment
Review Meeting and Executive Board of Nippon Building FundManagement Ltd. Sponsor companies are not permitted tointervene in the decision-making process.

Voluntary Rules for Conflict of Interest Transactions Stipulated inInternal Bylaws
Nippon Building Fund Management Ltd. has set voluntaryrules in its internal bylaws to address transactions withparties, including sponsor companies that have interests in
Nippon Building Fund Management Ltd.
The voluntary rules require the Investment Division, which
initiates the transaction, as well as the Compliance Department,
the Investment Review Meeting and other units to protect
NBF’s managed assets and profits by fully examining thetransaction contents according to the voluntary rules set in
the internal bylaws in the event of a transaction in which theinterests of Nippon Building Fund Management Ltd. andparties that have interests in Nippon Building FundManagement Ltd. may conflict with the interests of NBF.
These rules are designed from the standpoint of accountability
to NBF and its unitholders.
In examining the transaction contents, Nippon Building
Fund Management Ltd. solicits the opinions of attorneys,
certified tax accountants and other third-party experts asneeded. In addition, when purchasing real estate or otherassets from parties that have interests in Nippon Building
Fund Management Ltd., the purchase price is strictly set, inprinciple no higher than the appraised value according to areal estate appraiser with no vested interest.

Sustainability Initiatives
Policy for Initiatives
Nippon Building Fund Management Ltd. (“NBFM”), to which
Nippon Building Fund Inc. (“NBF”) entrusts asset management
services, established a “Policy for Environmental Considerations”
in March 2015.

Management Team and Management Structure

Basic Policy

Asset Management Fee Structure

NBFM, in recognition of the importance of environmental considerations, etc. for carrying out real property investment and management activities, strives to achieve asset management activities
giving consideration to reduction of environmental load, enhancement of safety, security and comfort, as well as diversified affiliations
and collaborations with various entities, in line with the “Group
Environmental Policy” established by the Mitsui Fudosan Group.

Operation

Initiatives for Environmental Considerations(1) Reduction of environmental load
• Promoting energy saving and reduction of CO 2 emissions
By promoting efficient use of energy in real property
investment and management activities and pursuing introductionof energy-saving facilities, etc., NBFM endeavors to reduce CO 2
emissions through energy saving.
• Preserving the water environment and promoting resourcesaving and waste reduction
NBFM aims to preserve the water environment by initiatives
for saving water and introduction of water-saving devices. NBFM
also makes an effort to promote the 3Rs (reduce, reuse andrecycle) for resource saving and waste reduction.

(2) Enhancement of safety, security and comfort• Enhancement of safety and security
NBFM promotes improvement of response times during
emergencies and strengthens preparedness during normal
times, and strives to implement disaster prevention and BCP
measures in office buildings, the major assets for which it
manages investments.
• Enhancement of comfort
NBFM aims to improve customer satisfaction (CS) of tenants
of office buildings, the major assets for NBFM’s management ofinvestment, by enhancing the level of comfort.

Diversified Affiliations and Collaborations with
Various Entities(1) Coordination with outside related parties
To implement this Policy, NBFM strives to collaborate andcooperate with outside related parties such as property management companies, tenants and local communities, etc.

(2) Training of officers and employees
NBFM aims to improve awareness of environmental considerations by training its officers and employees through continuous
implementation of education and encouragement of activities
relating thereto.

Information Disclosure to Related Parties such as
Investors, and Utilization of Environmental
Certification and Evaluation

Nippon Building Fund Management Ltd. undertakes asset
management of NBF pursuant to an Asset Management
Entrustment Agreement based on an entrustment from NBF inaccordance with the Articles of Incorporation of NBF and theInvestment Objects and Policies set forth therein. In addition,
Nippon Building Fund Management Ltd. undertakes managementof the general affairs of the general meeting of unitholders andthe Board of Directors as Administrative Agent regarding theManagement of Institutions based on an entrustment from
NBF and pursuant to an Agreement for General Administration
Regarding the Management of Institutions.

Fees for the Asset Management Operation
Management Fees 1
The amount equivalent to 2.5% effective from July 1, 2003 of
the amount of the revenue arising from Real Estate, etc. as
calculated on each closing date (provided, however, thatrevenues from the sale of Real Estate, etc. and other Managed
Assets will be excluded) will be payable.
Management Fees 2
The amount equivalent to 3% of income before income tax(provided, however, that in the event a loss is carried forward,
then the amount of income before income taxes remaining after
such loss has been covered) prior to deduction of Management
Fees 2 as calculated on each closing date will be payable.
Management Fees 3
In the event that Real Estate, etc. is newly acquired (in theevent of merger, succession of status by merger), compensationequivalent to the total amount of the acquisition price of said
Real Estate, etc. (meaning the acquisition price of both land andbuildings, in the event of the simultaneous acquisition of multiple
units of Real Estate, etc., the acquisition price of each item, andin the event of merger, the appraised value of Real Estate, etc.
succeeded by NBF at the time of the merger, provided, however,that national consumption tax, regional consumption tax andmiscellaneous costs of acquisition are excluded) multiplied by
the following percentage rates will, in principle, be payable,
provided, however, that with the approval of the directors of NBF,
compensation may be calculated using different rates notexceeding the following rates.
●

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

0.5%

●

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

0.2%

●

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

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

NBFM endeavors to actively disclose this Policy and its compliance herewith, etc. to related parties such as investors andtenants. In addition, NBFM will consider the use of environmental
certification and evaluation to achieve goals based on this Policy.

NBF Report January – June 201721

Investment and Distribution Policies

Investment Policies of NBF
A. Basic Policies

Area

Specific Area

Area Analysis

Tokyo

23 wards of Tokyo

■

CBDs

of which, central 5
wards (Chiyoda-ku,
Chuo-ku,Minato-ku,
Shinjuku-ku,
Shibuya-ku)

NBF’s primary investment objective is to achieve steady growth of its
assets under management and to secure stable profits on a mid- tolong-term basis. NBF achieves this objective by investing in real estate■

consisting of buildings primarily used for offices with their underlying
land located in the Tokyo central business districts (hereinafter “CBDs”),
Other Greater Tokyo and Other Cities in Japan as well as securities,
beneficiary certificates representing beneficial interests in trusts

■

Other
GreaterTokyo(hereinafter “beneficiary certificates”) and other assets backed by officeproperties (collectively hereinafter “Real Estate, etc.”) (“Investment

Other

Objectives and Policies,” Articles of Incorporation). (Reference to laws,

CitiesTokyo Metropolis(excluding 23 wards ofTokyo) and 6 prefectures (Kanagawa,Chiba,Saitama,Ibaraki,
Gunma and Tochigi)
Major cities in prefectures excluding theabove prefectures■■

legal documents, etc. used as the basis or sources hereof are set forth inparenthesis herein.)	
Relatively high rent levels andlow vacancy rates compared to
Other Cities; also, relatively
large market scale (both leasing
and purchase/disposition) withhigh growth rates.
Relatively low NOI yields.
70% or	
Relatively high liquidity at thegreatertime of disposition.
	
B asic characteristics are
between those of Tokyo CBDsand Other Cities.

	
Relatively low rent levels andhigh vacancy rates compared toTokyo CBDs. also, relatively
small market scale (both leasing
and purchase/disposition) with 30% or less
low growth rates.
Relatively high NOI yields.

■

B. Investment Strategy■

Incorporation
Ratio

	
R elatively low liquidity at thetime of disposition.

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

Note: Due to unforeseeable events such as, extreme fluctuations in market trends, financial
trends, real estate market trends and so forth, it may not always be possible to operatein accordance with each of the above criteria.

based on the Articles of Incorporation of NBF and in accordance with theinvestment strategy of NBF.

(2) Acquisition Strategya) Ratio of Real Estate Assets(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 ofinvestment assets is based on the composition of investment assets in the

NBF will maintain a ratio of 75% or more with respect to the“Designated Real Estate Ratio” (“Investment Objectives and Policies,”
Articles of Incorporation). As of June 30, 2017, NBF satisfied the criteria.
The “Designated Real Estate Ratio” means the ratio of the total

portfolio and on consideration of a quantitative proportion of the officeamount of Designated Real Estate to the total amount of Designatedstock located in the various regions of Japan.

Assets owned by NBF.

Area Diversification

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).

The investment strategy of NBF divides the investment area into threeareas consisting of Tokyo CBDs, Other Greater Tokyo and Other Cities insuch manner that 70% or greater of total investment assets (Real Estate,etc.) are allocated to Tokyo CBDs and Other Greater Tokyo and 30% orless to Other Cities. The purpose of this area diversification is to mitigate
cash flow risks such as earthquakes, risk of vacancies and so forth(“Investment Objectives and Policies,” Articles of Incorporation).

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
Certificates backed by such office properties) (“Investment Objectives and

22

NBF Report January – June 2017

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

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

set forth in the following table.

NBF. For this purpose, “leased/leasable assets” shall mean property withThough such consideration will involve the study of the criteria included

respect to which the construction of the building has been completed

in the following table, it is possible that when NBF acquires or intends toand such building is leased or leasable. Properties which are owned byacquire operating assets, not all of the following criteria will be satisfied.

NBF and have become operational at some point shall be deemed

Item

Points to be reviewed“leasable” thereafter (including such cases as reconstruction or large-

Scale of building

Exclusive floor area (overall exclusive floor area inthe concerned property) and exclusive floor area
on a standard floor (exclusive floor area per floor).

scale renovation of a building) (“Investment Objectives and Policies,”

■

■

	
Desired total exclusive floor area is 1,650m2(approximately 500 tsubo) or more.
	Exclusive floor area on a standard floor is
330m2 (approximately 100 tsubo) or more.

Construction type andspecifications of facilities

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

Earthquake resistanceComply with new earthquake standards (meaning
standards based on the Building Standards Act
revised in 1981) or secure performance equivalent
to or above that level (obtaining structure rating/structure evaluation (rating/evaluation on building
structure conducted by The Building Center ofJapan based on the Building Standards Act), etc.)

Measures regarding
status of legal title

In cases such as co-ownership, condominium
interest ownership, a building erected on leased
land, etc. where NBF will not obtain complete
ownership of a building, the following matters areappropriately treated.
■■

Tenancy characteristics

Environmental;
condition of land, etc.

	
Measures to protect security deposits, measures to complement its ability to bear renovation costs.
	
Appropriate measures regarding demands fordivision of co-ownership interests or the disposition of a co-owner's interest, etc.

Acceptable creditworthiness of tenants, purposes
of use by tenants, configuration, and condition ofcollectibility of rents etc.
No use of harmful substances such as asbestos
or existence of measures to respond to such.
Soil contamination conditions comply with environmental standards, etc.

Articles of Incorporation).

(3) Management and Disposition Policies
Regarding acquired Real Estate, etc., the goal is to obtain steady
growth of operating profits on a medium-to-long-term basis by planningto maintain and improve asset value and competitive ability throughinvestment in facilities and by expanding income (increasing rents, etc.,
increasing occupancy rates, extending the term of leases and rendering
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
monies may be received and said monies will be managed in accordancewith 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 forpayables, reserves for cash distributions and any other similar reserves,etc. (Article 14.1 (2) of the Articles of Incorporation).

a) Reserves for Long-Term Renovations
From the reserves set forth above, a portion corresponding toc) Uncompleted or Unleasable Properties
In principle, NBF acquires Real Estate, etc. which are leased/leasable

renovations, repairs and tenant improvements will be determined based onrenovation plans for each building.

assets at the time of closing. NBF may acquire a property which is not
yet leasable at the time of closing based on consideration of the impactb) Measures to Avoid Reductions and Fluctuations in

on NBF’s asset management activities after taking into account the

Operating Income

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

In order to avoid large-scale reductions and fluctuations in operating

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

income due to fire damage, withdrawal of tenants and so forth, efforts,

amount of any such unleasable asset combined with the total contractsuch as area diversification and obtaining adequate fire and casualty

amount of previously acquired unleasable assets (but excluding

insurance, etc., will be exerted.

unleasable assets which thereafter become operational) will not exceed

NBF Report January – June 201723c) Disposition
In disposing of individual operating properties, selections will be madeFurthermore, NBF raises capital mainly through long-term liabilities
with fixed interest rates and pays attention on dispersing repayment dates

through comprehensive research and analysis based on the forecasted

in order to prepare for turmoil in the financial market and to contribute toincome, actual and predicted fluctuations in asset value, future prospects

asset management stability. Borrowings are limited to those fromand stability of the area of location, risks of deterioration andQualified Institutional Investors (Act on Special Measures Concerning

obsolescence of real estate and predicted costs thereof as well as theTaxation Article 67-15, hereinafter referred to as “Special Provisions forcomposition of the portfolio, etc. Sell/hold studies will be periodically

Taxation on Investment Corporation”) as specified in the Financial

undertaken with respect to all operating properties (“Investment

Instruments and Exchange Law of Japan, in case capital is borrowed.

Objectives and Policies,” Articles of Incorporation).

Further, the limit on all such borrowings and issuance of NBF bonds shallbe ¥1,000,000 million, respectively and the sum total shall not exceed(4) Financial Policies
Concerning fund procurement, methods are comprehensively judged
by taking into consideration status of cash on hand, market environment¥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).

concerning respective fund procurement method, impact on distribution
per unit, profitability enhancement effect through leveraging, level ofleverage after fund procurement and other factors in order to enhance
profitability of NBF.
Furthermore, the ratio of outstanding interest-bearing debts (totalc) Loan-to-Value Ratio
The loan-to-value ratio is envisioned to be limited to 56%, but may
temporarily exceed 56% when acquiring certain assets, etc. (stipulations
established by the Asset Management Company).

amount of outstanding borrowings and outstanding issues of NBF bonds)
to the total amount of assets of NBF (loan-to-value ratio) shall be mainly
used as an index for appropriately controlling the leverage level, and thusd) Derivative Transactions
NBF may invest rights in derivative transactions solely to hedge

leverage is controlled conservatively by taking asset management

against risks, including risks of fluctuation in interest rates for debt, as set

stability into consideration.

out in Article 2.20 of the Financial Instruments and Exchange Law ofJapan (“Investment Objectives and Policies,” Articles of Incorporation).

a) Equity Financing
NBF issues new units after taking into consideration the amount andperiod of funds required for its operation such as undertaking acquisition and(5) Disclosure Policy
NBF’s policy on disclosure is to earn recognition from society byrenovation and so forth of assets, as well as for the repayment of debts

showing itself to be an open and transparent investment company. It also(including repayments of security deposits, borrowings and redemption ofworks at all times to engender an environment in which it can

NBF bonds), trends of the J-REIT market, NBF unit price and capital market,

disseminate fair and unbiased information to all its investors withoutalong with impact on distribution per unit and other factors.

delay. In addition to conducting disclosure in the style required by theInvestment Trust and Investment Corporation Law of Japan, the Financialb) Debt Financing
NBF borrows funds (including use of the call market) and issues bonds

Instruments and Exchange Law of Japan, the Tokyo Stock Exchange, theInvestment Trusts Association and other laws and organizations, NBF also(including short-term investment corporation bonds, the same applies

voluntarily discloses information it deems necessary for investor

hereunder) in order to undertake acquisition and renovation and so forth­decision-making.

of assets, payment of distributions and to provide funds required for its
operation as well as for the repayment of debts (including repayments of
security deposits, borrowings and redemption of NBF bonds) (“Investment
Objectives and Policies,” Articles of Incorporation).

24

NBF Report January – June 2017a) Appraisal Value, etc.
In the event that NBF undertakes asset valuation for the purpose of
disclosure in Performance Information Reports, etc. using methods andInvestment and Distribution Policies

standards different from those it has set forth, (a) the disclosure value

those the assets of which are primarily invested and Managed Assets

to be used for real estate, real estate leasehold rights and superficies

principally referred to in paragraphs (1) and (2) above)

will, in principle, be the appraised valuation provided by a certified realestate appraiser, and (b) the disclosure value to be used for beneficiary
certificates, equity interests of tokumei kumiai and equity interests ofpartnerships for which respective assets are real estate, real estateleasehold rights or superficies will be the calculated value of equity
interests of each based on the value of their respective assets asdetermined in (a) plus the fair value of any financial assets asdetermined in conformity with generally accepted accounting principles,less trust and total tokumei kumiai liabilities (Articles of Incorporation).
The appraisal value of property with respect to the period
commencing on the acquisition thereof and ending on the date of(4)	Equity interests in partnerships as defined by Article 667 of the Civil
Code of Japan (limited to leased, operating and managed partnershipassets primarily referred to in paragraphs (1) and (2) above that are
specified in Article 2.2.5 of the Financial Instruments and Exchange
Law of Japan)(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 tothose the assets of which are primarily invested and Managed Assets
principally referred to in paragraphs (1) and (2) above)

disclosure of such value with respect to the next following closure of(6)	Special Purpose Beneficiary Certificates (meaning those specified in

NBF’s accounting term shall be the acquisition price of the said property

Article 2.1.13 of the Financial Instruments and Exchange Law of(excluding miscellaneous acquisition costs, fixed assets tax, city-

Japan, provided, however, that this is limited to those the assets ofplanning tax and consumption tax) as stated in the sale and purchasewhich are primarily invested and Managed Assets principally referred

contract, etc. for the said property.

to in paragraphs (1) and (2) above)(7)	Beneficiary Certificates of investment trusts (meaning those specified
in Article 2.1.10 of the Financial Instruments and Exchange Law ofInvestment Objectives of NBF
Investment Restrictions in Articles ofIncorporation
The Investment Objectives of NBF specified in the Articles ofIncorporation are as follows. Please also refer to “B. Investment Strategy”
of “Investment Policies of NBF” herein.

Japan, provided, however, that this is limited to those the assets ofwhich are primarily invested and Managed Assets principally referred
to in paragraphs (1) and (2) above)(8)	Investment Securities (meaning those specified in Article 2.1.11 of the
Financial Instruments and Exchange Law of Japan, provided, however,that this is limited to those the assets of which are primarily invested
and Managed Assets principally referred to in paragraphs (1) and (2)A. Principal Investment Objectives among
Designated Assets

above)(9)	Beneficiary Certificates of Money Trust (limited to those the trust

NBF will principally invest in the bellow-listed Designated Assets withassets of which are primarily invested and Managed Assets referred tothe objective of achieving steady growth of its assets under managementin paragraph (1), (3) or (4) above, provided, however, that those thatand securing stable profits from the Managed Assets.

are deemed securities are excluded)(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 theB. Other Investment Objectives among
Designated Assets
NBF may, in the course of efficiently managing funds or in other cases
as necessary, invest in the following Designated Assets.
(1) Bank deposits

Commercial Code of Japan (provided, however, that this is limited to

NBF Report January – June 201725

(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 and Exchange
Law of Japan)(5)	Regional treasury bonds, notes and bills (meaning those specified in
Article 2.1.2 of the Financial Instruments and Exchange Law of Japan)(6)	Commercial paper (meaning that specified in Article 2.1.15 of the
Financial Instruments and Exchange Law of Japan)(7)	Requisite ancillary rights to Designated Assets referred to in
section A

D. In the event that securities with “rights to
be indicated on securities” as specified
in Article 2.2 of the Financial Instruments
and Exchange Law of Japan are notissued, such rights shall be deemed
securities to which sections A through C
above are applicable.

(7)	Designated bonds of Special Purpose Companies (meaning thosespecified in Article 2.1.4 of the Financial Instruments and Exchange
Law of Japan, provided, however, that this is limited to asset-backed
securities principally referred to in paragraphs (1) and (2) of section

Distribution Policies of NBF

A above)(8) Monetary claims (limited to those claims that are deemed
		 Designated Assets under the Investment Trust Law of Japan other		 than those referred to in section A and above)(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)(11)	Renewable energy power generation facilities (meaning those specified

A. Distributions of Profits
NBF will, in principle, effect distributions in accordance with the following
policies (Article 14.1 of the Articles of Incorporation).

(1) NBF’s earnings available for distributions are based on accounting of
profits prepared in accordance with the Investment Trust Law and in
conformity with generally accepted accounting principles in Japan.
The distributable amount which results from operation of managed

in Article 3.11 of the Order for Enforcement of the Investment Trust Act

assets of NBF (hereinafter, “Distributable Amount”) shall be the amount of(Cabinet Order No. 480 of 2000, including amendments thereto)

profit (the amount of net assets on the balance sheet less the amount of

C. Assets Other than Designated Assets

unitholders’ capital and capital surplus reserves) calculated on eachclosing date.

NBF may, in the course of efficiently managing funds or in other cases
as necessary, invest in the following assets.

(2) The amount of cash distributions will be determined by NBF, such(1)	Equity interests of partnerships, excluding assets in section A,

amount being in excess of 90% of earnings available for dividends of NBF

paragraph (4)(2) Easements(3) Trademark rights(4) Copyrights(5) Chattels

in Article of the Special Taxation Measures Law of Japan (hereinafter“Distributable Earnings”), provided, however, that the maximum amount of
distributions will be the Distributable Amount. NBF has the right to allow
for long-term reserve for renovations, reserve for payables, reserve forcash distributions, reserve for advanced depreciation, retained earnings(6)	Emission credits (including emission credits for greenhouse gases) orfor temporary difference adjustment and other reserves and allowances

other similar carbon dioxide equivalent quotas based on the Act onsimilar thereto which are deemed necessary for maintaining or enhancing

Promotion of Global Warming Countermeasures of Japan (Act No. 117

the assets of NBF.

of 1998, including subsequent revisions)26

set forth in the Special Provisions for Taxation on Investment Corporation

NBF Report January – June 2017

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

B. Distribution in Excess of Earnings
NBF is entitled to make cash distributions in excess of theDistributable Amount in the following cases, provided, however, that the
maximum amount of such distributions will be the amount set forth in therules of the Investment Trusts Association of Japan (Article 14.2 of the
Articles of Incorporation).

(1) If NBF determines it appropriate considering trends inmacroeconomic environments, real estate markets and leasing markets
as well as its portfolio, financial and other status.

(2) If NBF utilizes retained earnings for temporary difference adjustment,
etc. at the amount determined by NBF for reducing its tax burden.
As for distribution in excess of earnings, NBF may make distributions
in excess of earnings in association with the distribution policies above
when distribution in excess of earning is deemed necessary by the Boardof Directors of NBF with the purpose of fulfilling requirement of inclusion
in deductible expenses,etc.

C. Method of Distributions
Distributions falling under either A or B above will be made in cash, inprinciple, within three months from the closing date, to such unitholders
or registered pledgees as are listed 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
specified in A and B above of profits after a lapse of three calendar years
from the date of commencing payment. Interest will not accrue on
unpaid distributions (Article 14.4 of the Articles of Incorporation).

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

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

(2) Borrowing
See “Investment Policies of NBF, B. Investment Strategy, (4) Financial
Policies.”(3) Concentration of Investment
There is no limitation on concentration of investment. See “Investment
Policies of NBF, B. Investment Strategy, (1) Strategy for Creation of thePortfolio.”(4) Investment Objectives
NBF does not invest aggressively in the Monetary Claims andSecurities referred to in “Investment Objectives, B. Other Investment
Objectives among Designated Assets.” Rather, NBF takes into accounttheir stability and liquidity based on the extent of their relationship with
Designated Assets referred to in “Investment Objectives, A. Principal
Investment Objectives among Designated Assets.” NBF invests in rights tofinancial derivatives transactions solely to hedge against risks, including
risks of fluctuation in interest rates for debt (“Investment Objectives andPolicies,” Articles of Incorporation).
Moreover, investment in other funds (investment securities orBeneficiary Certificates) is limited mainly to those the assets of which arereferred to in “Investment Objectives of NBF, A. Principal Investment
Objectives among Designated Assets,” paragraphs (1) and (2).
The real estate held by such funds may not include any real estate
located outside of Japan (Articles of Incorporation).

NBF Report January – June 201727

(5) Compliance with Laws and Regulations
The Managed Assets of NBF will be managed in compliance with theresult in failure to protect the interests of unitholders, damage fairtransactions or discredit the financial instruments business.

Financial Instruments and Exchange Law of Japan and related
regulations, the rules stipulated by the Investment Trusts Association (asc) T ransactions for the Benefit of Third Parties (§ 42.2.3)

amended), as well as “Investment Objectives and Policies” of the Articles

An asset management company may not undertake transactions inof Incorporation.

certain financial instruments, indices or options based on fluctuations in theprice, index, value, or amount of consideration related to transactions in the

B.	Compliance with the Financial
Instruments and Exchange Law and theInvestment Trust Law of Japan

assets of an investment corporation, without a legally valid reason, with the

NBF is subject to restrictions on investment under the Financiald) Transactions Harmful to the Interests of NBF (§ 42.2.4)

Instruments and Exchange Law and the investment Trust Law of Japan.
Main restrictions are as follows.

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

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 to(1) Pursuant to Article 198.1 of the Investment Trust Law of Japan, athe interests of the investment.

registered investment corporation must entrust business related toasset management to an asset management company registered as ae) O ther Transactions Defined by Cabinet

financial instrument firm, but an asset management company is

Office Ordinances

prohibited from performing certain acts related to the business of

In addition to the above, the following activities are prohibitedmanaging the assets of said investment corporation. As a result, an(§42.2.7 of the Financial Instruments and Exchange Law, Cabinet Office

investment corporation is subject to certain investment restrictions (allOrdinance §130).

references in parentheses below are to the provisions of the Financial
Instruments and Exchange Law of Japan, except where stated(i)	Transactions among the auditors, officers and employees of an asset
management company

otherwise) besides restrictions applied to a registered investment
corporation. NBF will naturally comply with such investment restrictions,a general overview of which follows.

(ii)Transactions for the benefit of the investment management company
or third parties that would be harmful to the interests of theinvestment corporationa) Internal Transactions (§ 42.2.1)

Transactions between an asset management company and its
directors or officers are prohibited except for certain cases specified in
Article 128 of the government ordinance regarding the Financial
Instruments and Exchange Law that are considered unlikely to result in
failure to protect the interests of unitholders, damage fair transactions or
discredit the financial instruments business.

(iii)	Transactions for the benefit of third parties that are not necessary
according to investment management policies, the financial condition ofassets 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,with the objective of unfairly inflating transaction amounts or artificiallyinflating pricesb) R eciprocal Transactions with Managed Assets (§ 42.2.2)

Transactions between asset management companies of investment
corporation assets are prohibited except for certain cases specified in theprovisions of the government ordinance regarding the Financial
Instruments and Exchange Law of Japan that are considered unlikely to28

NBF Report January – June 2017(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 of

Investment and Distribution Policies

investment securities when the subject investment securities to beunits of such parent investment corporation except in the following cases:

acquired by or the amount subscribed under the tender agreement by●	when acquired from another investment corporation as the surviving

entity of a merger; or

the said underwriter differ from the planned amounts(a) foreign entities including corporations for their own account (asstipulated by Cabinet Office Ordinance §126.3)

	when purchasing units pursuant to a government ordinance regarding●

the Investment Trust Law of Japan.

(b)	entities that hold more than 50/100 of the total amount ofinvestment securities representing underlying managed assets

C.	Other Restrictions

issued in the two most recent fiscal years, as defined by §2.8.1-3,

Subscription and Margin Trading of Securities§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

Pursuant to the guidelines set by its asset management company, NBF
may not subscribe to, or conduct margin trading of, securities.

managed assets and such rights)(viii)	Other activities prohibited by Cabinet Office Ordinance 130(2) Limitation on Acquisition of the Same Issueof Units (§ 194 of the Investment Trust Law)
An investment corporation may not acquire the same units issued by acorporation in excess of 50/100 of total number of said issued andoutstanding units.

(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, or
accept them for the purpose of pledge, unless it acquires units issued byitself in the following cases:●	when acquired from another investment corporation as the surviving

entity of a merger;●

when purchasing units pursuant to the provisions of the Investment

		 Trust Law of Japan; or●	when purchasing units pursuant to a government ordinance regarding

the Investment Trust Law of Japan.

(4) Restriction on Acquisition of Parent
Corporation’s Units by Subsidiary Corporation(§ 81.1.2)
An investment corporation (subsidiary), a majority of the units of which
is owned by another investment corporation (parent), may not acquire the

NBF Report January – June 201729

Management’s Discussion and Analysis

Summary of Selected Financial Data
32nd Period
from January 1,
2017 to June 30,2017㻌

31st Period
from July 1, 2016
to December 31,
2016

30th Period
from January 1,
2016 to June 30,
2016

32nd Period
from January 1,
2017 to June 30,
2017
U.S. dollars in

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

¥ 36,410¥ 35,849¥ 35,671$323,930

36,19035,84934,719321,973

220

－

952

1,957

Operating expenses

21,296

21,245

20,660189,465

Rental expenses

19,747

19,743

19,155

175,685

13,111

12,521

12,809116,642

Operating revenues

Note 2

Revenues from property leasing
Gains on sales of investment
properties

Ordinary income(a)13,11012,52012,808116,635

Note 3

20,137

19,69018,931

179,156

Note 3

23,69023,276

22,639210,766(b)

Net income
Funds from operations
Net operating income from property
leasing activities

12,89012,52011,857

114,681

Depreciation and amortization

7,248

7,170

7,075

64,480Capital expenditures

3,229

2,220

2,232

28,725

1,023,901

1,030,435

1,029,045

9,109,438

425,250

431,625

433,000

3,783,363(d)537,003

536,413535,749

4,777,605

Total amount of cash distribution

Total assets(c)Interest-bearing debt
Net assets(e)1,412,000

1,412,000

1,412,000

Net assets per unit (Yen/$)(d) / (e)380,314379,896

379,425

3,384

Distribution per unit (Yen/$)(b) / (e)

9,129

8,867

8,397

81

Note 3

14,261

13,945

13,407

127

Total number of units issued (Units)

Funds from operations per unit
(Yen/$)
ROA

Note 3(Annual rate)
ROE

Note 3(Annual rate)

1.3%

1.2%

1.3%

(2.6%)(2.4%)(2.5%)

2.4%

2.3%

2.4%

(4.9%)(4.7%)(4.8%)

Loan to value (LTV)

Note 3

41.5%

41.9%

42.1%

Capital ratio(d) / (c)

52.4%

52.1%

52.1%

98.3%

99.9%

92.5%

181

184

182

Payout ratio(b) / (a),Note 4

Number of days
Number of investment properties

Note 574

75

73

Number of tenants

Note 5

1,590

1,614

1,583

1,094,812

1,098,022

1,083,893

98.7%

98.2%

97.9%

Total rentable area (m2)Occupancy rate (Average)

Notes:

Note 5

1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥112.4 = U.S. $1.00, the approximate
exchange rate on June 30, 2017.
2. Operating revenues do not include consumption tax.

30

NBF Report January – June 2017- 17 -

3. All valuations are calculated through the following formulas. The figures in parentheses after ROA and ROE are
annualized based on the six-month figures for the period.
Funds from operations: Net income (excluding Gains on sales 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 Gains on sales of investment properties) + Depreciation andamortization) / Weighted average number of units issued and outstanding during the period
ROA: Ordinary income / (Initial total assets + Total assets at end of period) ÷ 2
ROE: Net income / (Initial net assets + Net assets at end of period) ÷ 2
LTV: Interest-bearing debt / Total assets
4. Payout ratio figures are calculated to one decimal place only.
5. Number of investment properties means units generally perceived to be one office building. Number of tenants meansgross number of tenants by building. Occupancy rate, end-tenant basis, is the ratio of gross leased area to total rentable areaat the end of the period.

- 18 -NBF Report January – June 201731

Management’s Discussion and Analysis
1. Distribution for the Current Period
Distribution per unit for the current period was ¥9,129. NBF expects to distribute almost all retained
earnings at the current period end remaining after deducting the amount appropriated to the reserve foradvanced depreciation of replacing specified assets as stipulated in Article 65-7 of the Act on Special
Measures Concerning Taxation to be eligible for special tax treatment (Article 67-15 of the Act on Special
Measures Concerning Taxation) that allows NBF to deduct its cash dividends of profits from taxable income.
For the six months
ended June 30,
2017

For the six months
ended December 31,
2016

For the six months
ended June 30,
2016(Yen in thousands, except per unit amounts)
Retained earnings
Undistributed earnings
Reserve for advanced depreciation
Total cash distribution（Cash distribution per unit）
Distribution of accumulated earnings（Distribution of accumulated earnings per unit）
Cash distribution in excess of accumulated earnings（Per unit）¥13,110,702
572
219,981
12,890,148
9,129
12,890,148
9,129
—
—

¥12,521,124
920—
12,520,204
8,867
12,520,204
8,867
—
—

¥12,809,073
663
951,846
11,856,564
8,397
11,856,564
8,397
—
—

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

2. Changes in Assets, Liabilities and Net Assets
Assets
As of June 30, 2017, total assets decreased by ¥6,534 million to ¥1,023,901 million compared with
December 31, 2016. Return on average total assets (ROA) for the six months ended June 30, 2017 increased to
1.3 percent from 1.2 percent for the previous six-month period.
Current assets decreased by ¥620 million to ¥12,516 million compared with December 31, 2016. Investment
properties decreased by ¥5,534 million to ¥1,004,660 million compared with December 31, 2016.
Liabilities
Current liabilities increased by ¥12,385 million to ¥82,207 million compared with December 31, 2016,
primarily because of an increase in long-term debt due within one year compared with December 31, 2016.
Long-term debt decreased by ¥19,375 million to ¥354,500 million compared with December 31, 2016.
As a result, total interest-bearing liabilities decreased by ¥6,375 million to ¥425,250 million compared with- 33 32

NBF Report January – June 2017

Management’s Discussion and Analysis

December 31, 2016. The ratio of long-term debt (for which the redemption period at the time of contract orissuance is more than one year) to total interest-bearing liabilities decreased 97.2 percent as of June 30, 2017from 98.4 percent as of December 31, 2016.
The loan-to-value ratio, calculated as the ratio of interest-bearing liabilities to total assets, decreased 41.5
percent as of June 30, 2017 from 41.9 percent as of December 31, 2016.

Net assets
Net assets increased by ¥590 million to ¥537,003 million compared with December 31, 2016.

3. Funding
Balance of Paid-in Capital
NBF was established on March 16, 2001 with initial paid-in capital of ¥100 million. NBF began investing
activities in May 2001 after ¥98,800 million was raised through private placements. As of June 30, 2017, NBF
had issued 1,412,000 units out of 4,000,000 total authorized units. NBF’s units were listed on the J-REIT sectionof the Tokyo Stock Exchange in September 2001 upon the completion 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.

Issue date

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

Remarks
Initial capital(private)
Privateplacement
Public offering
Public offering
Third party
allocation
Public offering
Public offering
Third party
allocation
Public offering
Third party
allocation
Public offering
Third party
allocation
Public offering
Third party
allocation
Public offering

Units issued andoutstanding
Increase
Balance(units)200

200

197,600

197,800

82,90080,000Paid-in capital
Increase
Balance(Yen in millions)100

Note 1

98,80098,900Note 2

280,700
360,700

49,99958,838148,899
207,737

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

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

2,942
51,491
79,0405,236

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

Note 5Note 6Note 7Note 831,800539,800

37,159383,605

Note 92,200

542,000

2,571

386,176

Note 1034,000576,000

26,957413,133

Note 112,500

578,500

1,982

415,115

Note 1230,000608,500

18,172433,287

Note 134,500

613,000

2,726

436,013

Note 1474,000687,000

63,973499,986

Note 15- 34 -

¥

100

¥

Notes

NBF Report January – June 201733

January 31, 2013
January 1, 2014
March 19, 2014
March 28, 2014

Third party
allocation
Unit split
Public offering
Third party
allocation

5,000

692,000

4,323

504,309

Note 16

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

Note 17
Note 18

1,500

1,412,000

794

519,125

Note 19

Notes: 1. NBF was established with initial capital of ¥500,000 per unit.
2. Follow-on private offering at ¥500,000 per unit to raise funds for acquisition of 22 properties.
3. Public offering of new units for ¥625,000 per unit (excluding underwriting fee: ¥603,125) to repay debt and to fundproperty acquisition.
4. Public offering of new units for ¥759,500 per unit (excluding underwriting fee: ¥735,475) to repay debt, etc.
5. Additional issue of new units (third party allocation) for ¥735,475 per unit undertaken pursuant to the public offering in
Note 4.
6. Public offering of new units for ¥916,300 per unit (excluding underwriting fee: ¥887,782) to repay debt and to fundproperty acquisition.
7. Public offering of new units for ¥1,019,200 per unit (excluding underwriting fee: ¥988,000) to repay debt and to fundproperty acquisition.
8. Additional issue of new units (third party allocation) for ¥988,000 per unit undertaken pursuant to the public offering in
Note 7.
9. Public offering of new units for ¥1,205,400 per unit (excluding underwriting fee: ¥1,168,500) to repay debt and to fundproperty acquisition.
10. Additional issue of new units (third party allocation) for ¥1,168,500 per unit undertaken pursuant to the public offering in
Note 9.
11. Public offering of new units for ¥818,025 per unit (excluding underwriting fee: ¥792,855) to repay debt and to fundproperty acquisition.
12. Additional issue of new units (third party allocation) for ¥792,855 per unit undertaken pursuant to the public offering in
Note 11.
13. Public offering of new units for ¥624,975 per unit (excluding underwriting fee: ¥605,745) to repay debt and to fundproperty acquisition.
14. Additional issue of new units (third party allocation) for ¥605,745 per unit undertaken pursuant to the public offering in
Note 13.
15. Public offering of new units for ¥891,800 per unit (excluding underwriting fee: ¥864,500) to repay debt and to fundproperty acquisition.
16. Additional issue of new units (third party allocation) for ¥864,500 per unit undertaken pursuant to the public offering in
Note 15.
17．Effective January 1, 2014, NBF implemented a 2-for-1 unit split of its investment units.
18．Public offering of new units for ¥545,860 per unit (excluding underwriting fee: ¥529,150) to repay debt and to fundproperty acquisition.
19．Additional issue of new units (third party allocation) for ¥529,150 per unit undertaken pursuant to the public offering in
Note 18.

34

NBF Report January – June 2017

- 35 -

Management’s Discussion and Analysis

Market Price of Units

High/Low (closing price) of units on the TSE: 㻌
For the six months ended
June 30, 2017

High
Low

For the six months ended
December 31, 2016

For the six months ended
June 30, 2016

(Yen)
¥658,000
591,000¥655,000
574,000¥701,000
554,000

Borrowings

Borrowings from financial institutions as of June 30, 2017 are shown below.㻌
Short-term loans
LenderBalance

Averageinterest
rate (%)

Due on(Note1)

Use of
funds

Notes

Bulletpayment(Note 4)

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

Repayment
methodUse of
funds

Notes

Repayment
method(Yen in millions)
Sumitomo Mitsui Trust Bank, Limited¥4,0000.05000% July 12, 2017

Shinkin Central Bank

3,000

0.05000% July 12, 2017

Resona Bank, Limited.

2,000

0.05000% July 12, 2017

Mizuho Bank, Ltd.

2,000

0.05000% July 10, 2017

1,000

0.05000% July 12, 2017

The Yamanashi Chuo Bank, Ltd.
Total short-term loans¥ 12,000

Long-term loans
LenderDevelopment Bank of Japan Inc.

Mitsubishi UFJ Trust and Banking Corporation

Balance

Averageinterest
rate (%)

Due on(Yen in millions)
10,000 1.82125% September 27, 2017
10,000 2.41750% May 30, 2018
3,000 2.17000% April 28, 2019
6,250 2.21000% August 30, 201910,000 1.26375% July 2, 2023
13,000 0.74750% September 10, 2027
10,000 0.35750% February 15, 2028
10,000 0.25630% April 8, 2026
5,000 0.25000% June 1, 2026
5,000 0.38750% September 14, 2028
15,000 1.06000% March 1, 201915,000 0.78125% July 31, 2020
10,000 0.73125% February 26, 2021
5,000 1.04000% June 30, 2021
0.07943%
3,000
July 31, 2019

（Note 2）
（Note 3）

Bulletpayment(Note 4)

Unsecured/unguaranteed/pari passu,
See (Note 5)(Note 6)

Sumitomo Mitsui Trust Bank, Limited

Sumitomo Mitsui Banking Corporation

7,000 0.35880% June 1, 2028
10,000 1.16125% June 1, 2018
10,000 1.13000% December 30, 2019
5,000 1.17625% March 5, 2021
5,000 0.16500% January 25, 2019
3,000 0.20250% January 27, 2020
6,000 0.17000% September 11, 2019
4,000 1.12375% December 30, 2022
10,000 0.98250% February 28, 2023
5,000 0.95875% April 28, 2023
6,000 0.52375% April 28, 2020

- 36 -NBF Report January – June 201735

0.15000%
June 1, 2029
(Note 6)1,000 0.14830% June 30, 2021
7,000 1.24750% November 30, 2018
10,000 0.85625% February 28, 2022
8,000 1.07000% July 29, 2022
7,000 2.13375% May 23, 2018
5,000 0.96500% July 19, 2017
5,000 0.52250% July 16, 2021
3,000 0.30000% February 3, 2026
5,000 0.25000% May 22, 2026
5,000 0.75625% July 2, 201910,000 0.61125% February 28, 2020
7,000 0.95875% May 29, 2020
10,000 0.98250% February 28, 2023
4,000 0.94750% September 30, 2022
2,000 1.12875% February 13, 2020
2,000 0.94250% March 29, 2019
2,000 1.23000% March 30, 2021
2,000 1.03375% November 1, 2022
2,000 1.48625% May 30, 2025
2,000 1.04750% December 13, 2023
5,000 0.25000% September 14, 2026
3,000 0.38130% December 30, 2026
3,000 0.35630% June 1, 2027
4,000 0.54250% July 12, 2017
2,000 0.54875% June 30, 2023
2,000 0.23880% May 31, 2024
2,000 0.17750% June 30, 2022
2,000 1.27500% October 19, 2018
2,000 1.34375% May 31, 2019
3,000 0.94750% September 30, 2022
5,000 0.72125% September 30, 2020
1,000 0.49875% April 27, 2018
2,000 0.25750% March 1, 2024
2,000 0.24500% June 28, 2024
3,000 1.04375% March 8, 20190.11000%
1,000
June 1, 2027
(Note 6)1,000 0.94250% March 29, 2019
1,000 0.70625% October 2, 2020
1,000 0.45625% June 30, 2022
1,000 0.41750% September 11, 2023
1,000 0.99750% July 2, 2021
1,000 0.95875% May 29, 2020
2,000 0.53250% July 9, 2021
1,000 0.63875% December 2, 2020
2,000 0.46500% June 26, 2020
1,000 0.95875% May 29, 2020
2,000 0.60500% May 28, 2021
1,000 0.63120% April 30, 2021
0.03793%
1,000
January 27, 2022
(Note 6)0.08643%
1,000
June 30, 2025
(Note 6)1,000 1.08750% May 1, 2019
1,000 1.10750% September 4, 2020
1,000 0.47750% January 10, 2029
3,000 1.27750% April 27, 2022
1,000 0.56250% March 27, 2020
1,000 0.38630% March 3, 2027
0.06643%
2,000
June 30, 2023
(Note 6)1,000 0.69125% May 31, 2018
1,000 1.53375% May 30, 2025
0.02793%
1,000
January 27, 2021
(Note 6)
11,000Mizuho Bank, Ltd.
Sumitomo Life Insurance Company

The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Mizuho Trust & Banking Co., Ltd.
MITSUI LIFE INSURANCE COMPANY
LIMITED

Shinkin Central Bank
THE BANK OF FUKUOKA, Ltd.

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

The Yamaguchi Bank, Ltd.
Meiji Yasuda Life Insurance Company
The Joyo Bank, Ltd.
The 77 Bank, Ltd.
The Gunma Bank, Ltd.
Shinsei Bank, Limited
The Hiroshima Bank, Ltd.
Total long-term loans (Note 7)
Total borrowings
36

NBF Report January – June 2017

¥383,250¥395,250- 37 -

Bulletpayment(Note 4)

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

Management’s Discussion and Analysis

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.㻌 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, etc.
5. A special agreement attached to “Loan Agreement” entered into between NBF and each financial institution provides that theabove borrowings from all financial institutions rank pari passu to each other.
6. This loan is a floating rate loan. Other long-term loans are all fixed rate loans.
7. The total amount of long-term loans (i.e. excluding those expected to be repaid within one year) repayable within 5 years of thedate of the balance sheet and expected to be repaid by specific year(s) is as follows.

(Yen in millions)
1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥41,250¥62,250¥50,000¥25,000

Issue date

Balance as ofJune 30,
2017(Yen in millions)

CouponNo. 3 Unsecured Bonds

June 12, 2003

¥10,000

No. 13 Unsecured Bonds

June 26, 2013

No. 14 Unsecured Bonds
No. 15 Unsecured Bonds

Long-term loans

NBF Bonds

Redemption

Use offunds

2.00000% June 12, 2018

Bullet payment

Note 1

10,0001.16800% June 26, 2023

Bullet payment

Note 1

June 9, 2016

5,000

1.00000% June 8, 2046

Bullet payment

Note 1Notes
3 and 5

May 22, 2017

5,000

0.91400% May 22, 2037

Bullet payment

Note 1Notes
3 and 5

Issue

Total㻌 (Note 6)

Maturity
date

Notes
Notes
2 and 4Notes
3 and 5¥30,000

Notes:
1. Use of funds includes acquisition of real estate, repayment of borrowings and investment corporation bonds, etc.
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.


Investment
corporation bonds













(Yen in millions)

Within 1 year

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥10,000

―

―

―

―

Others

NBF has security deposits totaling ¥50,123 million as of June 30, 2017.

- 38 NBF Report January – June 201737

■ Capital Expenditures
1. Planning
As of June 30, 2017, 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 ofrenewal construction is being implemented in order to increase competitive power in the market as well as toincrease the level of tenant satisfaction based on the results of tenant satisfaction surveys and neighboring
competitive building specification surveys, etc.
Estimated amounts
Name of property

Objective

Estimated
duration

Totalamounts

Payment for thecurrent period(from January 1, 2017
to June 30, 2017)

Cumulative
amount paid

(Yen in millions)
Sun Mullion NBF Tower
Shiba NBF Tower
Shiba NBF Tower
Shin-Kawasaki Mitsui
Bldg.
Sun Mullion NBF Tower
NBF Utsunomiya Bldg.
NBF Utsunomiya Bldg.
NBF Ikebukuro East
Nishi-Shinjuku Mitsui
Bldg.
Shinjuku Mitsui Bldg. No.2
Shinjuku Mitsui Bldg. No.2
Nakanosakaue SunbrightTwin
Nakanosakaue SunbrightTwin
NBF Shibakouen Daimon
Street Bldg.
Tsukuba Mitsui Bldg.
NBF Akasaka Sanno
SquareNBF Urawa Bldg.

Renovation of air
conditioning①
Renovation of air
conditioning①
Renovation of air
conditioning②
Renovation of
emergency power
generators
Renovation of air
conditioning②
Renovation of air
conditioning①
Renovation of air
conditioning②
Renovation ofsanitation
Renovation of fire
alarm system
Renovation ofelevator①
Renovation ofelevator②
Renovation of
security system①
Renovation of
security system②
Renovation ofsanitation
Renovation of
security system
Renovation of air
conditioning
Renovation of
restroom

From July 2017
to December 2017
From July 2017
to December 2017
From January 2018
to June 2018
From July 2017
to February 2018
From January 2018
to June 2018
From July 2017
to December 2017
From January 2018
to June 2018
From January 2018
to June 2018
From August 2017
to March 2018
From January 2018
to June 2018
From July 2017
to December 2017
From February 2017
to August 2017
From November 2017
to March 2018
From January 2018
to June 2018
From July 2017
to December 2017
From September 2017
to November 2017
From April 2018
to June 2018
- 39 -

38

NBF Report January – June 2017

514

－

－

352

－

－

246

－

－

221

－

－

214

－

－

159

－

－

153

－

－

150

－

－

140

－

－

116

－

－

112

－

－

100

－

－

100

－

－

97

－

－

97

－

－

76

－

－

28

－

－

Management’s Discussion and Analysis

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NBF posted ¥4,162 million incapital expenditures together with ¥933 million for repairs and maintenance expenses.

Name of property

Objective

PeriodExpenditure(Yen in millions)

Gate City Ohsaki

Renovation of emergency power generators,
renovation of air conditioning, renovation oflighting equipment, etc.

¥530

Shiba NBF Tower

Renovation of air conditioning, renovation of
lighting control panel, renovation ofcondenser, etc.

432

Tsukuba Mitsui Bldg.

Renovation of air conditioning, renovation ofwater pipes, business continuity planningcountermeasure work, etc.

226

Yokohama ST Bldg.

Renovation of air conditioning, renovation of
restroom, renovation of clean water pump,
etc.

212

Nishi-Shinjuku Mitsui Bldg.

Renovation of emergency power generators,
renovation of air conditioning, renovation ofelevator, etc.

169

NBF Shin-Urayasu Tower

Renovation of air conditioning, renovation oflighting equipment in car parking, renovationof adjustment machine in car parking, etc.

NBF Shinkawa Bldg.

Renovation of water supply equipment (East
Building), renovation of emergency elevator(West Building), renovation of fire alarmsystem (West Building), etc.

132

Nakanosakaue Sunbright Twin

Renovation of coil unit, renovation of
security system, renovation of parking
equipment, etc.

113

NBF Utsunomiya Bldg.

Renovation of air conditioning, renovation ofcar parking tower, renovation of watt-hourmeter, etc.

113

Celestine Shiba Mitsui Bldg.

Renovation of high ceiling, renovation of
restroom, renovation of electronic water
heater, etc.

101

NBF Akasaka Sanno Square

Renovation of air conditioning, renovation of
parking lot facilities, renovation of watt-hourmeter, etc.

81

From January 2017
to June 2017167

- 40 NBF Report January – June 201739

NBF Niigata Telecom Bldg.

Renovation of disaster preventationequipment, renovation of air conditioning,
renovation of lighting equipment in rental
room, etc.

64

Parale Mitsui Bldg.

Renovation of emergency power generators,
renovation of elevator, renovation ofcondenser, etc.

44

Other buildings

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

845

Total

¥3,229■ Expenses regarding Entrustment, etc.
The following table sets forth the breakdown of entrustment fees, etc. paid by NBF.

Item

For the six months
ended June 30,
2017

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

For the six months
ended December 31,
2016¥1,31050(Yen in millions)¥1,283
50

52
13
14
110
¥1,54946
13
14
96¥1,502For the six months
ended June 30,
2016¥1,264
49
47
13
14
118
¥1,505■ Trading Activities during the Current Period
1. Trading of Real Estate and Real Estate Held in Trust

The following table shows a summary of real estate and real estate held in trust, acquired or sold by NBF in
the current period.

Acquisitions
Name of building

Kowa Nishi-Shinbashi Bldg.B（Additional
Acquisition）(Yen in millions)
Acquisition price(Note 1)

Date

April 28, 2017

¥38

Total

¥38

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

Sale
Name of building

Aqua Dojima East
Total

40

NBF Report January – June 2017

Date

March 31, 2017

- 41 -(Yen in millions)
Sale price¥1,910¥1,910Management’s Discussion and Analysis

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

3. Transactions with Related Parties of Asset Management Company(1) Ongoing Transactions
None. (No purchases, or sales or other transactions involving related parties.)(2)㻌 Fees Paid for the Period from January 1, 2017 to June 30, 2017
Description of transactions with related parties (Note 1)

Category

Office management fees,
etc.

Total fees paid
(A)

Paid to1,499

Mitsui Fudosan Co., Ltd.

(Yen in millions)(Note 2)

Property maintenance fees

Leasing related service fees

3,649

65

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

Amount ofpayment (B)(Yen in millions)

B/A

1,458

97.3%

41
651
483

2.7%
17.8%
13.2%

247

6.8%

236
1
25
20
4

6.5%
0.0%
38.9%
31.1%
5.6%

Notes:
1. “Related parties” are defined as related parties of asset management companies under asset management agreementwith NBF as defined in Article 123 of Order for Enforcement of the Law Concerning Investment Trusts andInvestment Corporations, and Article 26, Section 27 of the Regulations regarding management report of theInvestment trusts and Investment corporations set by the Investment Trusts Association, Japan. During the period fromJanuary 1, 2017 to June 30, 2017, transactions with and fees paid to, Mitsui Fudosan Co., Ltd., NBF Office
Management Co., Ltd., Mitsui Fudosan Facilities Co., Ltd., Mitsui Fudosan Building Management Co., Ltd., Mitsui
Fudosan Facilities West Co., Ltd., Mitsui Fudosan Residential Lease Co.,Ltd. and Mitsui Fudosan Realty Co., Ltd.
which meet either of the said definitions, are as described above.
2. In terms of properties for which NBF has not entrusted office management businesses to Mitsui Fudosan Co., Ltd. due
to its master leasing (13 properties: Gate City Ohsaki, Nishi-Shinjuku Mitsui Bldg., Toranomon Kotohira Tower,
Nakameguro GT Tower, Celestine Shiba Mitsui Bldg., Yotsuya Medical Bldg., Higashi Gotanda Square, PanasonicTokyo Shiodome Bldg., NBF Ogawamachi Bldg., Osaki Bright Core - Bright Plaza, Shin-Kawasaki Mitsui Bldg.,
Parale Mitsui Bldg. and Shinanobashi Mitsui Bldg.), NBF has entrusted them to NBF Office Management Co., Ltd. as
business representative of the property owners or lessors.

- 42 NBF Report January – June 201741

Management’s Discussion and Analysis

3. In addition to the above fees paid, the following have been paid to related parties for repair and maintenance work, etc.

42㻌

(Yen in millions)

Mitsui Fudosan Building Management Co., Ltd¥485

Mitsui Fudosan Co., Ltd.

477

Mitsui Fudosan Facilities West Co., Ltd.

92

MITSUI Designtec Co.,Ltd.

12

Mitsui Fudosan Facilities Co., Ltd.

10

Harajuku-no-mori Co.,Ltd.

4

Mitsui Fudosan Residential Lease Co.,Ltd.

4

Mitsui Fudosan Realty Co., Ltd.

0

Daiichi Engei Co., Ltd.

0

NBF Report January – June 2017

- 43 -

Financial Statements

NIPPON BUILDING FUND INC.
BALANCE SHEETSAs of June 30, 2017 and December 31, 2016

As ofJune 30, 2017㻌㻌
AssetsCurrent Assets:
Cash and cash equivalents（Note 3）
Tenant receivables
Prepaid expenses
Other current assets
Total current assets
Investment Properties:
Land including trust accounts（Notes 4,13）
Buildings and improvements including trust accounts（Notes 4,13）
Other tangible assets（Notes 4,13）
Less: accumulated depreciation（Notes 4,13）
Leasehold rights in trust accounts and other intangible assets（Note 13）
Total investment properties, net
Long-term Prepaid Expenses（Note 13）
Other Assets
Total Assets
Liabilities㻌
Current Liabilities:
Short-term loans（Notes 3,6）
Long-term debt due within one year（Notes 3,6）
Accounts payable
Rents received in advanceAccrued expenses and other liabilities
Total current liabilities
Long-term Debt（Notes 3,6）㻌
Tenant Security Deposits Including Trust Accounts（Note 3）
Other Liabilities
Total Liabilities
Net Assets（Note 5）㻌
Unitholders' Equity
Unitholders' capital
Units authorized: 4,000,000 units
Units issued and outstanding: 1,412,000 units
Retained earnings
Total Net Assets㻌
Total Liabilities and Net Assets㻌

As ofDecember 31, 2016

(Yen in millions)¥ 11,377
377
613
149
12,516¥ 12,039
353
633
111
13,136685,133
422,313
13,666(152,397)
35,945
1,004,660
28
6,697

686,138
420,237
13,530(145,676)
35,965
1,010,194
32
7,073¥1,023,901¥1,030,435¥ 12,000
58,750
4,643
4,975
1,839
82,207354,500
50,123
68
486,898¥ 7,000
50,750
5,360
4,948
1,764
69,822373,875
50,25768
494,022

519,125

519,125

17,878537,003

17,288536,413¥1,023,901¥1,030,435

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

- 17 -NBF Report January – June 201743

NIPPON BUILDING FUND INC.
STATEMENTS OF INCOME
For the six months ended June 30, 2017, December 31, 2016 and June 30, 2016㻌For the six months
ended June30, 2017㻌

For the six months
ended December
31, 2016㻌

For the six months
ended June30, 2016㻌

(Yen in millions)㻌
Operating Revenues and Expenses㻌
Operating Revenues:㻌㻌㻌

Rental（Note 7）㻌

¥33,130¥32,570¥31,748

Other revenues related to property leasing（Note 7）

3,060

3,279

2,971

Gains on sales of investment properties（Note 8）

220

—

952

36,41035,84935,671

Property management fees（Note 7）㻌

5,106

5,171

4,986

Real estate taxes（Note 7）㻌

3,455

3,343

3,386

Repairs and maintenance（Note 7）㻌

933

857

657

Insurance（Note 7）

38

39

39

Other rental expenses（Note 7）㻌

2,967

3,163

3,012

Depreciation and amortization（Note 7）㻌

7,248

7,170

7,075

Asset management fees㻌

1,310

1,283

1,264

Other operating expenses㻌

239

219

241

Total Operating Expenses㻌

21,296

21,245

20,660Operating Income㻌

15,114

14,60415,011

Interest income㻌

0

0

1

Other non-operating revenues

3

4

2

(1,958)(2,036)(2,158)

Total Operating Revenues㻌㻌Operating Expenses:㻌

Non-Operating Revenues and Expenses
Non-Operating Revenues:

Non-Operating Expenses:
Interest expense㻌
Amortization of bond issuance costs㻌

(4)

(6)

(8)

Other non-operating expenses

(44)

(45)

(39)

Ordinary Income

13,111

12,521

12,809

Income before Income Taxes㻌

13,111

12,521

12,809

(1)

(1)

(1)

12,520¥ 12,808

Current and deferred income taxes（Note 9）㻌
Net Income㻌¥

13,110

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

44

NBF Report January – June 2017- 18 -¥

Financial Statements

NIPPON BUILDING FUND INC.
STATEMENTS OF CHANGES IN NET ASSETSFor the six months ended June 30, 2017, December 31, 2016 and June 30, 2016㻌㻌㻌

(Yen in millions)㻌

Number of Unitholders’Units
Capital㻌

Balance as of December 31, 2015 . . . . . . . . . . . . . . . . . . . . 1,412,000

Retained
Earnings

Total¥ 519,125¥ 15,163¥ 534,288

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

——(11,347)(11,347)

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

——12,80812,808. . . . . . . . . . . . . . . . . . . . 1,412,000

519,125

16,624535,749

Balance as of June 30, 2016

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

——(11,856)(11,856)

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

——12,52012,520

Balance as of December 31, 2016 . . . . . . . . . . . . . . . . . . . . 1,412,000

519,125

17,288536,413

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

——(12,520)(12,520)

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

——13,11013,110. . . . . . . . . . . . . . . . . . . . 1,412,000¥ 519,125¥ 17,878¥ 537,003

Balance as of June 30, 2017

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

- 19 -NBF Report January – June 201745

Financial Statements

NIPPON BUILDING FUND INC.㻌
STATEMENTS OF CASH FLOWSFor the six months ended June 30, 2017, December 31, 2016 and June 30, 2016㻌For the six
months ended
June 30,2017㻌
Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
Amortization of bond issuance costs
Interest expense(Increase) Decrease in tenant receivables
Increase (Decrease) in accounts payable
Increase in rents received in advance
Decrease in investment properties due to sales
Cash payments of interest expense
Others, net
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Payments for purchases of investment properties
Payments for purchases of intangible assets
Proceeds from tenant security deposits
Payments for tenant security deposits
Payments for security deposits paid to lessors
Others, net
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Net proceeds from (repayment of) short-term loans
Proceeds from long-term debt
Repayment of long-term debt
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

NBF Report January – June 2017- 20 -For the six
months ended
June 30,
2016(Yen in millions)¥ 13,111
7,248
4
1,958
(24)
(712)
27
1,683
(2,004)
118
21,409¥ 12,521
7,170
6
2,036
8
647
50
—
(2,141)570
20,867¥ 12,809
7,075
8
2,158
(32)
(781)
84
5,440
(2,201)(556)
24,004(2,697)—
1,281(1,415)(12)(300)(3,143)(14,879)—
2,612(1,729)(5)(203)(14,204)(23,750)
(111)
2,960
(1,515)(8)(220)(22,644)

5,000
20,000(31,375)(36)(12,517)(18,928)(662)
12,039¥ 11,377(1,000)13,000(13,375)(1)(11,854)(13,230)(6,567)
18,606¥ 12,039(4,000)56,000(37,375)(38)(11,347)
3,240
4,600
14,006¥ 18,606

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

46

For the six
months ended
December 31,
2016Notes to Financial Statements

NIPPON BUILDING FUND INC.
Notes To Financial Statements
For the six months ended June 30, 2017, December 31, 2016 and June 30, 2016㻌
Note 1 – Organization and Basis of Presentation㻌

Organization

Nippon Building Fund Inc. (hereinafter "NBF") was formed on March 16, 2001 as an investment corporation
under the Law Concerning Investment Trusts and Investment Corporations of Japan (hereinafter the Investment
Trust Law of Japan) with Mitsui Fudosan Co., Ltd., Sumitomo Mitsui Trust Bank, Limited., and Nippon
Building Fund Management Ltd. (hereinafter "NBFM") acting as sponsors. Registration with the Kanto Local
Finance Bureau of the Ministry of Finance was completed on May 10, 2001 and NBF started acquisition of
office properties on May 23, 2001.
NBF is an externally managed real estate fund, formed as an investment corporation. NBFM, as NBF’s asset
management company, is engaged in acquiring, managing, leasing, and renovating office properties. Mitsui
Fudosan Co., Ltd. currently owns 46% of NBFM while Sumitomo Life Insurance Company owns 35% and theremaining 19% is mainly owned by financial institutions.㻌
On September 10, 2001, NBF had raised approximately ¥50,000 million through an initial public offering ofunits. Those units are listed on the J-REIT section of the Tokyo Stock Exchange.
As of June 30, 2017, NBF had ownership or beneficiary interests in 74 office properties containing
approximately 1,094,812 square meters of rentable office space. As of June 30, 2017, NBF had leased officespace to 1,590 tenants engaged in a variety of businesses. The occupancy rate for the office properties wasapproximately 98.8%.

㻌Basis of Presentation

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

- 21 NBF Report January – June 201747

Note 2 – Summary of Significant Accounting Policies

㻌Cash and Cash Equivalents

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

Investment Properties㻌

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

Investment Corporation Bond Issuance Costs

Deferred investment corporation bond issuance costs are amortized using the straight-line method over therespective terms of the bonds.
㻌Income Taxes

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

Real Estate Taxes Real estate taxes are imposed on properties on a calendar year basis and expensed when incurred. In terms of
newly purchased properties, NBF capitalizes a portion of the real estate taxes that relate to a period from thepurchase date of each property until the end of the calendar year as part of the acquisition cost of the relevant
property. Capitalized real estate taxes amounted to ¥41 million for the period ended June 30, 2017, ¥18 million
for the period ended December 31, 2016 and ¥22 million for the period ended June 30, 2016.

Revenue Recognition

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

Accounting Treatment of Beneficiary Interests in Trust Assets including Real Estate

For trust beneficiary interests in real estate, all accounts of assets and liabilities within assets in trust as well
as all income generated and expenses incurred from assets in trust are recorded in the relevant balance sheet
and income statement accounts.

48

NBF Report January – June 2017- 22 -

Notes to Financial Statements

Note 3 – Financial InstrumentsNote
3 –ofFinancial
Instruments
StatusFinancial
Instruments
Status of Financial Instruments
Policy for Financial Instruments
Policy for Financial Instruments
NBF procures funds for acquisition of assets and repayment of debt, which includes repayment of tenant
NBF procures funds for acquisition of assets and repayment of debt, which includes repayment of tenantsecurity deposits, loans and investment corporation bonds, through issuance of new investment units, bank loans
security deposits, loans and investment corporation bonds, through issuance of new investment units, bank loans
and issuance of investment corporation bonds, with the aim of ensuring steady asset growth and stable earnings
and issuance of investment corporation bonds, with the aim of ensuring steady asset growth and stable earnings
from a mid- and long-term angle.
from a mid- and long-term angle.
As a general rule NBF invests surplus funds in deposits considering safety of the investments.
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
NBF may enter into derivative transactions solely for the purpose of reducing interest rate risks and otherrisks arising from liabilities. NBF does not engage in speculative transactions. Currently NBF is not engaged inrisks arising from liabilities. NBF does not engage in speculative transactions. Currently NBF is not engaged inany derivative transactions.
any derivative transactions.
Financial Instruments, Their Risks and Risk Management System
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
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 inbankruptcy of the depository financial institutions. NBF limits credit risk by using only short-term deposits infinancial institutions with high credit ratings.
financial institutions with high credit ratings.
Proceeds from loans and investment corporation bonds are used mainly to acquire real estate properties andProceeds from loans and investment corporation bonds are used mainly to acquire real estate properties andrepay outstanding loans and bonds. While these loans and bonds are exposed to liquidity risk, such risk is
repay outstanding loans and bonds. While these loans and bonds are exposed to liquidity risk, such risk ismanaged in the following ways such as diversifying the means of funding and lending institutions, dispersing
managed in the following ways such as diversifying the means of funding and lending institutions, dispersing
repayment dates, establishing committed credit line, keeping sufficient liquidity in hand, and monitoring cash
repayment dates, establishing committed credit line, keeping sufficient liquidity in hand, and monitoring cash
flows projected monthly.
flows projected monthly.
Floating rate loans are exposed to interest-rate fluctuation. NBF limits the impact of such risks by maintaining
Floating rate loans are exposed to interest-rate fluctuation. NBF limits the impact of such risks by maintaining
the ratio of interest-bearing liabilities to total assets low and the level of long-term fixed-rate debt high.
theTenantratio ofsecurity
interest-bearing
liabilities
toto
total
assetsrisk
low arisingand thefrom
levelvacatingof long-term
fixed-rate
high.
deposits are
exposedliquidityof properties
bydebttenants
due to the
Tenant security deposits are exposed to liquidity risk arising from vacating of properties by tenants due to thetermination of contract. NBF manages this risk by monitoring forecasted cash flows on a monthly basis totermination of contract. NBF manages this risk by monitoring forecasted cash flows on a monthly basis toensure it has sufficient funds.
ensure it has sufficient funds.
Supplemental Explanation regarding Fair Values of Financial Instruments
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
The fair value of financial instruments is based on their observable market value, if available. When there isno observable market value available, fair value is based on a price that is reasonably estimated. Since various
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
factors are reflected in estimating the fair value, different assumptions and factors could result in a different
value.
value.

Estimated Fair Value of Financial Instruments
Estimated Fair Value of Financial Instruments
Book value, fair value and difference between the two as of December 31, 2016 are as follows.
Book value, fair value and difference between the two as of June 30, 2017 are as follows.
The financial instruments for which it is very difficult to estimate the fair value are excluded from the
The financial instruments for which it is very difficult to estimate the fair value are excluded from thefollowing table (See Note 2. below).
following table (See Note 2. below).


(1)
(1)
(1)
(1)
(2)
(2)
(3)
(3)




AssetsAssetsCash and cash equivalents
Cash and cash equivalents
Total
Total
Liabilities
Liabilities
Short-term loans
Short-termloansdue within
Long-term debt
Long-term
one year debt due withinone
year debt
Long-termLong-term
debt
Total
Total

Book value
Book value

Fair value
Fair value(Yen in millions)(Yen in millions)Difference
Difference¥ 12,039¥ 11,377¥ 12,039¥ 11,377¥ 12,039¥ 11,377¥ 12,039¥ 11,377

¥
¥
¥
¥

－
－
－
－

¥ 7,000¥ 12,000¥ 7,000¥ 12,000¥¥－－

50,75058,750373,875
354,500¥431,625¥425,250

51,04559,412
381,962
360,888¥440,007¥432,300- 23 - 23 -

295
662
8,087
6,388
¥8,382¥7,050NBF Report January – June 201749

Notes:1. Methods to Estimate Fair Value of Financial Instruments
Assets:(1) Cash and cash equivalents
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate
fair values because these instruments are settled within a short term period.
Liabilities:(1) Short-term loans
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate
fair values because these instruments are settled within a short term period.
(2) Long-term debt due within one year Long-term debt due within one year which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)


(1)
(2)

Book value¥10,000
48,750¥58,750

Investment corporation bonds
Long-term loans
Total

Fair value¥10,176
49,236¥59,412Difference
¥ 176
486
¥662

(1) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is noobservable market value available, fair values are calculated based on the present value of principal and interest cash
flows discounted at the current interest rate that is estimated by taking into consideration the remaining term of theinvestment corporation bonds and their credit risk.
(2) Long-term loans
Fair values of floating rate long-term loans are based on the book values because the market interest rates arereflected within a short term period and the book values are considered to approximate fair values. Fair values of fixed
rate long-term loans are based on the present value of principal and interest cash flows discounted at the current interest
rate estimated to be applied if similar new loans were entered into.
(3) Long-term debt
Long-term debt which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)


(1)
(2)

Book value¥20,000
334,500¥354,500

Investment corporation bonds
Long-term loans
Total

Fair value¥19,881
341,007¥360,888

Difference¥ (119)
6,507¥6,388(1) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is noobservable market value available, fair values are calculated based on the present value of principal and interest cash
flows discounted at the current interest rate that is estimated by taking into consideration the remaining term of theinvestment corporation bonds and their credit risk.
(2) Long-term loans
Fair values of floating rate long-term loans are based on the book values because the market interest rates arereflected within a short term period and the book values are considered to approximate fair values. Fair values of fixed
rate long-term loans are based on the present value of principal and interest cash flows discounted at the current interest
rate estimated to be applied if similar new loans were entered into.
50

NBF Report January – June 2017- 24 -

Notes to Financial Statements

Book value, fair value and difference between the two as of December 31, 2016 are as follows.
The financial instruments for which it is very difficult to estimate the fair value are excluded from thefollowing table (See Note 2. below).
(Yen in millions)Book value



(1)

(1)
(2)
(3)

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

Fair value

Difference¥ 12,039¥ 12,039¥ 12,039¥ 12,039¥¥－－¥ 7,000¥ 7,000¥－

50,750373,875¥431,625

51,045
381,962¥440,007

295
8,087¥8,382

Notes:
1. Methods to Estimate Fair Value of Financial Instruments
Assets:(1) Cash and cash equivalents
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate
fair values because these instruments are settled within a short term period.
Liabilities:(1) Short-term loans
Book values of those instruments are used to determine their fair values, as the book values are considered to approximate
fair values because these instruments are settled within a short term period.
(2) Long-term debt due within one year Long-term debt due within one year which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)


(1)
(2)

Book value¥10,000
40,750¥50,750

Investment corporation bonds
Long-term loans
Total

Fair value¥10,081
40,964¥51,045

Difference
¥ 81
214
¥295

(1) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is noobservable market value available, fair values are calculated based on the present value of principal and interest cash
flows discounted at the current interest rate that is estimated by taking into consideration the remaining term of theinvestment corporation bonds and their credit risk.
(2) Long-term loans
Fair values of floating rate long-term loans are based on the book values because the market interest rates arereflected within a short term period and the book values are considered to approximate fair values. Fair values of fixed
rate long-term loans are based on the present value of principal and interest cash flows discounted at the current interest
rate estimated to be applied if similar new loans were entered into.
(3) Long-term debt
Long-term debt which includes Investment corporation bonds and Long-term loans are as follows.

- 25 -NBF Report January – June 201751

(Yen in millions)


(1)
(2)

Book value¥25,000
348,875¥373,875
Investment corporation bonds
Long-term loans
Total

Fair value¥25,269
356,693¥381,962

Difference¥ 2697,818¥8,087(1) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is noobservable market value available, fair values are calculated based on the present value of principal and interest cash
flows discounted at the current interest rate that is estimated by taking into consideration the remaining term of theinvestment corporation bonds and their credit risk.
(2) Long-term loans
Fair values of floating rate long-term loans are based on the book values because the market interest rates arereflected within a short term period and the book values are considered to approximate fair values. Fair values of fixed
rate long-term loans are based on the present value of principal and interest cash flows discounted at the current interest
rate estimated to be applied if similar new loans were entered into.

2. Financial Instruments for Which It Is Very Difficult to Estimate the Fair Value.
(Yen in millions)

As of June 30, 2017
Tenant security deposits
including trust accounts

As of December 31, 2016

¥50,123¥50,257

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

3. Redemption Schedule for Monetary Claims as of June 30, 2017
(Yen in millions)
Cash and cash
equivalents

Due within
one year

Due after one
to two years

Due after two
to three years

Due after
three to fouryears

Due after four
to five years

Due after fiveyears

¥11,377

－

－

－

－

－

Due after four
to five years

Due after five
years

－

－

Redemption Schedule for Monetary Claims as of December 31, 2016
(Yen in millions)
Cash and cash
equivalents

52

NBF Report January – June 2017

Due within
one year

Due after one
to two years

Due after two
to three years

Due after
three to four
years

¥12,039－－－- 26 -

Notes to Financial Statements

4. Repayment Schedule for Loans and Investment Corporation Bonds as of June 30, 2017

Short-term
loans
Investment
corporationbonds
Long-term
loans
Total

Due within
one year¥12,000

Due after
one to twoyears

Due after
two to threeyears

Due after
three to four
years

¥

¥

¥

－

－

－

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

－

¥

－

10,000－－－－20,00048,75041,25062,25050,00025,000156,000¥70,750¥41,250¥62,250¥50,000¥25,000¥176,000

Repayment Schedule for Loans and Investment Corporation Bonds as of December 31, 2016

Short-term
loans
Investment
corporationbonds
Long-term
loans
Total

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

Due after
one to twoyears

Due after
two to threeyears

Due after
three to fouryears

¥7,000¥¥¥10,00010,000－－－15,00040,75038,75061,12556,00034,000159,000¥57,750¥48,750¥61,125¥56,000¥34,000¥174,000

Due within
one year

－

－

－

¥

－

¥

－

Note 4– Schedule of Tangible Assets of Investment Properties
Tangible assets as of June 30, 2017 and December 31, 2016 consisted of the following:
As of June 30, 2017

As of December 31, 2016

Book
value

Acquisition costs¥339,584
345,549
685,133
231,914

Accumulated
depreciation¥———(69,279)¥339,557
346,581686,138
230,228

Accumulated
depreciation¥———(65,539)¥339,584
345,549
685,133
162,635¥339,557
346,581686,138
164,689

190,399(74,808)

115,591

190,009(72,164)

117,845422,313
3,319
2,004
1,879
2,806

(144,087)(1,810)(1,331)(1,149)(1,405)278,226
1,509
673
730
1,401

420,237
3,270
1,997
1,824
2,818

(137,703)(1,738)(1,262)(1,086)(1,351)

282,534
1,532
735
738
1,467

1,977

(1,420)

557

1,957

(1,375)582

1,681
13,666¥1,121,112(1,195)(8,310)¥(152,397)

486
5,356
¥968,715

1,664
13,530¥1,119,905(1,161)(7,973)¥(145,676)

503
5,557
¥974,229

Acquisition costs
Land
Land in trust
Land including trust total
Buildings and improvements
Buildings and improvements
in trust
Buildings and improvements
including those in trust total
Structures
Machinery and equipment
Tools, furniture and fixtures
Structures in trust
Machinery and equipment in
trust
Tools, furniture and fixtures intrust
Other tangible assets total
Total(Yen in millions)- 27 -Book
value

NBF Report January – June 201753

Note 5 – Net Assets

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

Note 6 – Short-Term Loans and Long-Term Debt

Short-term loans consist of short-term notes and short-term borrowings under loan agreements. The annualinterest rates on short-term loans outstanding are floating rates and on June 30, 2017 and December 31, 2016 were
at 0.05% respectively. Long-term debt as of June 30, 2017 and December 31, 2016 consisted of the following:
As ofJune 30, 2017

Unsecured loans due 2017 to 2029 principally from banks andinsurance companies with interest rates mainly ranging from 0.0%
to 2.4%.............................................................................................
2.04% unsecured bonds due 20172.00% unsecured bonds due 2018
1.17% unsecured bonds due 2023
0.91% unsecured bonds due 2037
1.00% unsecured bonds due 2046

(Note 1) ......................................
(Note 2) ......................................
(Note 1) ......................................
(Note 1) ......................................
(Note 1) ......................................

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

As ofDecember 31,
2016(Yen in millions)¥383,250—
10,00010,0005,000
5,000
413,250
58,750¥354,500¥389,625
10,00010,00010,000—5,000
424,625
50,750¥373,875

Notes: 1. Subject to provision of collateral restrictions.
2. Subject to provision of collateral and financial restrictions pursuant to material decline in credit rating.
The annual maturities of long-term debt as of June 30, 2017 were as follows:㻌(Yen in millions)㻌
㻌㻌
Due after one to two years㻌 ……………………………………㻌
¥ 41,250
Due after two to three years ……………………………………
62,250Due after three to four years㻌 㻌 㻌……………………………………
50,000Due after four to five years㻌 㻌 㻌 㻌……………………………………
25,000Due after five years……………………………………
㻌㻌㻌
176,000㻌During the periods ended June 30, 2017 and December 31, 2016, NBF had commitment credit line contracts of¥60 billion with several financial institutions to reduce refinancing risk. The unused amount of such committed
credit lines was ¥60 billion as of June 30, 2017.

54

NBF Report January – June 2017

- 28 -

Notes to Financial Statements

Note 7 – Rental Revenues and Expenses

Rental revenues and expenses for the periods ended June 30, 2017, December 31, 2016 and June 30, 2016 wereas follows:
For the six
For the six
For the six㻌months ended
months ended
months ended㻌June 30, 2017

㻌
Revenues from Property Leasing:
Rental:Rental revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common area charges. . . . . . . . . . . . . . . . . . . . . . . . .
Others㻌. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal㻌 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .㻌Other revenues related to property leasing:
Parking lots㻌. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .㻌Facility charge㻌. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incidental income㻌. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellation fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous income㻌. . . . . . . . . . . . . . . . . . . . . . . .
Subtotal㻌. . . . . . . . . . . . . . . . . . . . . . . . . . . .㻌Total revenues from property leasing. . . . . . . . . . . . .
Rental Expenses:
Property management fees. . . . . . . . . . . . . . . . . . . . . .
Real estate taxes㻌 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repairs and maintenance㻌. . . . . . . . . . . . . . . . . . . . . .
Insurance㻌 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other rental expenses㻌 . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization㻌. . . . . . . . . . . . . . . . . .
Total rental expenses㻌. . . . . . . . . . . . . . . . . .. . . . . . . . . .
Operating Income from Property Leasing Activities. . .㻌December 31,
2016

June 30, 2016

(Yen in millions)㻌

㻌㻌
¥30,357
2,660
113
33,130㻌㻌¥29,761
2,696
113
32,570㻌㻌¥28,956
2,680
112
31,748

684
280
1,953
63
80
3,060
36,190

691
261
2,201
52
74
3,279
35,849

675
270
1,895
62
69
2,971
34,719

5,106
3,455
933
38
2,967
7,248
19,747¥16,443

5,171
3,343
857
39
3,163
7,170
19,743¥16,106

4,986
3,386
657
39
3,012
7,075
19,155¥15,564

Note 8 – Gains on Sales of Investment Properties

Gains on sales of investment properties for the periods ended June 30, 2017 and June 30, 2016 were as follows.
No investment properties were sold during the period ended December 31, 2016.
For the six months ended June 30, 2017
Aqua Dojima East
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)¥1,910
1,683
7
¥ 220

For the six months ended June 30, 2016
NBF Atugi Bldg.
Proceeds from sale of investment property
Cost of sale of investment property
Other related sale expenses
Gain on sale of investment property(Yen in millions)¥2,750
2,122
53
¥ 575

- 29 -NBF Report January – June 201755

NBF Sendai Honcho Bldg.
Proceeds from sale of investment property
Cost of sale of investment property
Other related sale expenses
Gain on sale of investment property(Yen in millions)¥3,700
3,319
5
¥ 376

Note 9 – Income Taxes

NBF is subject to income taxes in Japan. The effective tax rate on NBF's income was 0.01% for the periods
ended June 30, 2017, December 31, 2016 and June 30, 2016. The following table summarizes the significant
differences between the statutory tax rates and NBF's effective tax rates for financial statement purposes.

For the six months
ended June 30,
2017

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

31.74%(31.21)(0.53)
0.00
0.01%

For the six months
ended December 31,
2016

31.74%(31.74)
—
0.00
0.01%

㻌
㻌
㻌
㻌
㻌

For the six months
ended June 30,
2016

32.31%(29.91)(2.40)
0.00
0.01%

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

Note 10 – Per Unit Information

Information about earnings per unit for the periods ended June 30, 2017, December 31, 2016 and June 30,
2016 and net assets per unit as of June 30, 2017, December 31, 2016 and June 30, 2016 were as follows.㻌
The computation of earnings per unit is based on the weighted average number of units outstanding during theperiod. The computation of net assets per unit is based on the number of units outstanding at each period end.㻌㻌
For the six months
ended June 30,
2017㻌

For the six months
ended December 31,
2016

For the six months
ended June 30,2016㻌

¥9,285¥8,867¥9,0701,412,000

1,412,000

1,412,000

Earnings per Unit:㻌
Net income per unit (Yen)
Weighted average number of 㻌units outstanding㻌
As ofJune 30, 2017

Net Assets per Unit (Yen)56

NBF Report January – June 2017

¥380,314- 30 -

As ofDecember 31, 2016

㻌¥379,896

As ofJune 30, 2016

¥379,425

Notes to Financial Statements

Note 11 – Leases

As Lessor

NBF leases some of its investment properties to outside parties under non-cancelable operating leases. As ofJune 30, 2017 and December 31, 2016, future minimum rental revenues under the non-cancelable operating leases
are as follows:㻌㻌㻌㻌
As of June 30, 2017
As of December 31, 2016
(Yen in millions)Due within one year .....................
¥ 20,697¥ 22,066
Due after one year........................
30,86536,145
Total .........................................
¥ 51,562¥ 58,211As Lessee
NBF leases some of its investment properties from outside parties under non-cancelable operating leases. As ofJune 30, 2017 and December 31, 2016, future minimum rental expenses under the non-cancelable operating leases
are as follows:㻌㻌㻌㻌
As of June 30, 2017
As of December 31, 2016
(Yen in millions)Due within one year .....................
¥2¥2
Due after one year........................
2
3
Total .........................................
¥4¥5

Note 12 – Transactions with Related Parties(1) Parent Company and Major Corporate Unitholders(For the six months ended June 30, 2017)
None applicable.
(For the six months ended December 31, 2016)
None applicable.
(For the six months ended June 30, 2016)
None applicable.
(2) Affiliates(For the six months ended June 30, 2017)
None applicable.
(For the six months ended December 31, 2016)
None applicable.
(For the six months ended June 30, 2016)
None applicable.
(3) Sister Companies(For the six months ended June 30, 2017)
None applicable.
- 31 -NBF Report January – June 201757

(For the six months ended December 31, 2016)
None applicable.
(For the six months ended June 30, 2016)
None applicable.
(4) Directors and Major Individual Unitholders(For the six months ended June 30, 2017)
None applicable.
(For the six months ended December 31, 2016)
None applicable.
(For the six months ended June 30, 2016)
None applicable

Note 13 – Investment and Rental Property

NBF owns office buildings (including land) for rent in Tokyo and other areas. The carrying amounts, net changes
in the carrying amounts and the fair value of the investment and rental properties are as follows.
(Yen in millions)
For the six months ended
For the six months ended
June 30, 2017
December 31, 2016
Carrying amount
Balance at beginning¥ 1,010,223¥ 1,002,390of the Fiscal Period
Amount of increase(decrease) during(5,536)
7,833
current period
Balance at end of the
1,004,687
1,010,223
Fiscal Period
Fair value at end of the¥ 1,194,070¥ 1,188,820
periodNotes:
1. Carrying amounts represent acquisition cost less accumulated depreciation.
2. The major increase in the fiscal period ended June 30, 2017 was mainly due to the acquisitions of aproperty (Kowa Nishi-Shinbashi Bldg. B (additional acquisition), ¥39 million) and the major decrease
was mainly due to sale of Aqua Dojima East which amounted to ¥ 1,683 million and recognition ofdepreciation costs.
The major increase in the fiscal period ended December 31, 2016 was mainly due to the acquisitionsof 3 properties (Nishi-Shinjuku Mitsui Bldg. (additional acquisition), Toyo-cho Center Bldg. andOsaki Bright Core - Bright Plaza (sectional ownership and co-ownership of sectional ownership),¥12,762 million) and the major decrease was mainly due to recognition of depreciation costs.
3. Fair value at end of the period is based on appraisals provided by independent real estate appraisers.
Information about profit and loss from investment and rental properties is disclosed in Note 7 (Rental Revenues
and Expenses) and Note 8 (Gains on Sales of Investment Properties).

58

NBF Report January – June 2017

- 32 -

Notes to Financial Statements

Note 14 – Segment Information
Segment Information

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

Related Information(For the six months ended June 30, 2017)
1. Information by Products and Services

Disclosure of this information has been omitted as NBF has a single product/service line that accounts for morethan 90% of total operating revenues.

2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of 
total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for morethan 90% of the book value of total investment properties.

3. Information on Major Tenants(Yen in millions)
TenantOperating revenues
Related segment
Mitsui Fudosan
Real estateCo., Ltd.
¥8,188leasing businessNote: NBF leases properties to Mitsui Fudosan Co., Ltd. under a master lease agreement, and Mitsui
Fudosan Co., Ltd. subleases such properties to subtenants.

(For the six months ended December 31, 2016)
1. Information by Products and Services

Disclosure of this information has been omitted as NBF has a single product/service line that accounts for morethan 90% of total operating revenues.

2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of 
total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for morethan 90% of the book value of total investment properties.

3. Information on Major Tenants(Yen in millions)
TenantOperating revenues
Related segment
Mitsui Fudosan
Real estateCo., Ltd.
¥7,878leasing businessNote: NBF leases properties to Mitsui Fudosan Co., Ltd. under a master lease agreement, and Mitsui
Fudosan Co., Ltd. subleases such properties to subtenants.

- 33 -NBF Report January – June 201759

(For the six months ended June 30, 2016)
1. Information by Products and Services

Disclosure of this information has been omitted as NBF has a single product/service line that accounts for morethan 90% of total operating revenues.

2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of 
total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for morethan 90% of the book value of total investment properties.

3. Information on Major Tenants(Yen in millions)
TenantOperating revenues
Related segment
Mitsui Fudosan
Real estateCo., Ltd.
¥7,693
leasing businessNote: NBF leases properties to Mitsui Fudosan Co., Ltd. under a master lease agreement, and Mitsui
Fudosan Co., Ltd. subleases such properties to subtenants.

Note 15 – Significant Subsequent Events
None applicable.

60

NBF Report January – June 2017

- 34 -

Notes to Financial Statements

Ⅲ Appendix■ Major Interested Parties
Nippon Building Fund Management Ltd. (Asset Management Company and Administrative
Agent regarding the Management of Institutions, herein "NBFM")
NBFM, as Asset Management Company provided for in the Investment Trust Law of Japan, performs
management of NBF's assets and undertakes management of the institutions of NBF. As of June 30, 2017,
NBFM has been entrusted as an asset management company only by NBF.

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

Fees for the Asset Management Operation

Management Fees 1
The amount equivalent to 2.5% effective from July 1, 2003 of the amount of the revenue arising from
Real Estate, etc. as calculated on each closing date (provided, however, that revenues from the sale of Real
Estate, etc. and other Managed Assets will be excluded) will be payable.
Management Fees 2
The amount equivalent to 3% of income before income tax (provided, however, that in the event a loss iscarried forward, then the amount of income before income taxes remaining after such loss has been covered)prior to deduction of Management Fees 2 as calculated on each closing date will be payable.
Management Fees 3
In the event that Real Estate, etc. is newly acquired (in the event of merger, succession of status bymerger), compensation equivalent to the total amount of the acquisition price of said Real Estate, etc.
(meaning the acquisition price of both land and buildings, in the event of the simultaneous acquisition ofmultiple units of Real Estate, etc., the acquisition price of each item, and in the event of merger, the appraisedvalue of Real Estate, etc. succeeded by NBF at the time of the merger, provided, however, that national
consumption tax, regional consumption tax and miscellaneous costs of acquisition are excluded) multiplied by
the following percentage rates will, in principle, be payable, provided, however, that with the approval of thedirectors of NBF, compensation may be calculated using different rates not exceeding the following rates.
・The portion up to and including ¥10,000 million ………………………………… 0.5％
・The portion exceeding ¥10,000 million up to and including ¥30,000 million …… 0.2％
・The portion exceeding ¥30,000 million up to and including ¥50,000 million …… 0.05％
・The portion exceeding ¥50,000 million …………………………………………. nothing- 35 -NBF Report January – June 201761

History of NBFM

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

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

List of Shareholders (as of June 30, 2017)
Numberof Shares Owned
4,554
3,465
495
495
297
297
297
9,900

Name

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

Percent
46.0%
35.0
5.0
5.0
3.0
3.0
3.0
100.0%

 
Directors and Staff

As of June 30, 2017, the directors and corporate auditors of NBFM are as follows. The staff other thandirectors and auditors of NBFM is comprised of 26 persons.
Name of Directors and Auditors
Title
Kenichi Tanaka
President & CEO (standing)Morio Shibata
Director, Head of Investment & Finance Group (standing)
Miki Takahashi
Director, Head of Administration Group (standing)
Hiromu Yamanaka
Director
Fuminori Tamura
Director
Yoichi Kunikane
Corporate Auditor
Kenshi Ueda
Corporate Auditor.

62

NBF Report January – June 2017

- 36 -

Notes to Financial Statements

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, 2017
Total Assets
Total Liabilities
Total Net Assets(Yen in millions)¥2,476441
2,035- 37 -NBF Report January – June 201763

Independent Auditor’s Report64

NBF Report January – June 2017

Response to Article 23 of the European Alternative Investment Fund Managers Directive

DISCLAIMER
This document has been prepared solely for the purpose of providing U.K. and Dutch
investors with certain information under Article 23 of the European Alternative Investment
Fund Managers Directive (European Directive 2011/61/EU) as implemented in theirrespective jurisdictions, and does not constitute an offer to sell or a solicitation of any offer
to buy the units of Nippon Building Fund Inc. (“NBF” or the “AIF”). Accordingly, you should
not use this document for any other purpose.
Netherlands
The units of NBF are being marketed in the Netherlands under Section 1:13b of the Dutch
Financial Supervision Act (Wet op het financieel toezicht, or the “Wft”). In accordance withthis provision, Nippon Building Fund Management Ltd. (the “AIFM”) has notified the Dutch
Authority for the Financial Markets certain matters in accordance with the AIFMD. The units
of NBF will not, directly or indirectly, be offered, sold, transferred or delivered in the
Netherlands, except to or by individuals or entities that are qualified investors(gekwalificeerde beleggers) within the meaning of Article 1:1 of the Wft, and as aconsequence neither the AIFM nor NBF is subject to the license requirement pursuant to
the Wft. Consequently, neither the AIFM nor NBF is subject to supervision of the Dutch
Central Bank (De Nederlandsche Bank, “DNB”) or the Netherlands Authority for Financial
Markets (Autoriteit Financiële Markten, the “AFM”) and this Article 23 AIFMD prospectus is
not subject to approval by the AFM. No approved prospectus is required to be published in
the Netherlands pursuant to Article 3 of the European Directive 2003/71/EC (the EU
Prospectus Directive) as amended and implemented in Netherlands law. The AIFM istherefore solely subject to limited ongoing regulatory requirements as referred to in Article
42 of the AIFMD.
United Kingdom
Units of NBF are being marketed in the United Kingdom pursuant to Article 59 of the United
Kingdom Alternative Investment Fund Managers Regulations 2013. In accordance with thisprovision, the AIFM has notified the Financial Conduct Authority (the “FCA”) certain mattersin accordance with the AIFMD.
For the purposes of the United Kingdom Financial Services and Markets Act 2000 (“FSMA”)
NBF is an unregulated collective investment scheme which has not been authorized by the
FCA.
Accordingly, any communication of an invitation or inducement to invest in NBF may bemade to persons in the United Kingdom only if the communication falls within one or moreof the categories of exempt financial promotions under the Financial Services and Markets

NBF Report January – June 201765

Act (Financial Promotion) Order 2005 (the “Order”), such as financial promotions
communicated to:(1) persons who are investment professionals, as defined in article 19 of the Order;(2) persons who are high net worth companies, unincorporated associations, or otherentities listed in article 49 of the Order,
or if the communication is made to persons to whom such an invitation or inducement mayotherwise lawfully be communicated. The distribution of this document to any person in the
United Kingdom in circumstances not falling within one of the above categories is not
permitted and may contravene FSMA. No person falling outside those categories should
treat this document as constituting a promotion to him, or act on it for any purposes
whatever.
In relation to each Member State of the European Economic Area (the “EEA”) which has
implemented the Prospectus Directive (each, a Relevant Member State), with effect fromand including the date on which the Prospectus Directive is implemented in that Relevant
Member State (the Relevant Implementation Date) no offer of units of NBF may be made to
the public in that Relevant Member State except in circumstances falling within Article 3(2)of the Prospectus Directive, provided that no such offer of units shall require the publicationof a prospectus pursuant to Article 3 of the Prospectus Directive, or a supplement to aprospectus pursuant to Article 16 of the Prospectus Directive.
For the purposes of this provision, the expression “an offer of units to the public” in relation
to any units in any Relevant Member State means the communication in any form and by
any means of sufficient information on the terms of the offer and the units to be offered so
as to enable an investor to decide to purchase or subscribe the units, as the same may bevaried in that Member State by any measure implementing the Prospectus Directive in that
Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (andamendments thereto, including the 2010 PD Amending Directive, to the extent
implemented in the Relevant Member State), and includes any relevant implementing
measure in the Relevant Member State and the expression “2010 PD Amending Directive”
means Directive 2010/73/EU.
The units of NBF are not intended, from 1 January 2018, to be offered, sold or otherwise
made available to and, with effect from such date, should not be offered, sold or otherwise
made available to any retail investor in the EEA. For these purposes, a retail investor
means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article
4(1) of Directive 2014/65/EU (as amended, “MiFID II”); (ii) a customer within the meaning of
Directive 2002/92/EC (as amended, “IMD”), where that customer would not qualify as aprofessional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified
investor as defined in the Prospectus Directive. Consequently no key information

66

NBF Report January – June 20172

Response to Article 23 of the European Alternative Investment Fund Managers Directive

document required by Regulation (EU) No 1286/2014 (the “PRIIPs Regulation”) for offeringor selling the units of NBF or otherwise making them available to retail investors in the EEA
has been prepared and therefore offering or selling the units of NBF or otherwise making
them available to any retail investor in the EEA may be unlawful under the PRIIPs
Regulation.
Japan
This document is not an offer to sell or a solicitation of any offer to buy the units of NBF in
Japan.

3

NBF Report January – June 201767

Article 23 (1)(a)Objectives of the

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

AIF.

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

Investment

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

strategy.

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

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

AIF may invest in.

and other assets.

Techniques it may

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

employ and all

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

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

68

NBF Report January – June 20174

Response to Article 23 of the European Alternative Investment Fund Managers Directive(c) Risks concerning market price fluctuations of the investment units orinvestment corporation bonds(d) Risks concerning changes to treatment of investment corporations under legal,
taxation and other systems(e) Risks concerning dilution of per-unit value through the issuance of new
investment units(f) Risks concerning merger of investment corporations(2) Risks Related to Product Structure and Affiliates of NBF(a) Risks concerning investment units or investment corporation bonds as financial
products(b) Risks concerning fluctuations in revenues, expenditures and cash flow(c) Risks concerning loan-to-value ratio(d) Risks concerning borrowings and investment corporation bonds(e) Risks concerning insider trading(f) Risks concerning the asset manager(g) Risks concerning office management service providers(h) Risks concerning dependency on NBF’s affiliates(i) Risks concerning conflict of interests between NBF and other corporations
involved with the management of NBF(j) Risks concerning changes to NBF’s investment policy(k) Risks concerning tenant leasehold deposits and security deposits(l) Risks of NBF going bankrupt or its registration being cancelled(m) Risks arising from bankruptcy of the seller of properties(3) Risks Related to Real Estate(a) Risks concerning illiquidity in the real estate market and transactional costs(b) Risks concerning the defective title, design, construction (such as piles andbeams), quality of materials or other defects or problems in the properties(c) Risks concerning competition in acquisition of properties(d) Risks concerning competition in seeking tenants(e) Risks concerning co-owned properties(f) Risks concerning compartmentalized ownership of buildings(g) Risks concerning properties on leased lands(h) Risks concerning leased properties(i) Risks concerning properties not in operation (including properties underdevelopment)(j) Risks concerning hazardous materials and radioactive contamination

5

NBF Report January – June 201769

(k) Risks concerning strict environmental liabilities for the properties(l) Risks concerning reliance on expert appraisals and engineering, environmental
and seismic reports as well as industry and market data(m) Risks concerning lease contracts in Japan(n) Risks concerning building damage and loss due to fire, explosion, lightning, wind,
hail, snow, floods, electrical and mechanical hazards and other unexpected
accidents(o) Risks concerning building damage and loss due to fire, explosion and collapse
caused by earthquakes and other disasters such as eruptions, tsunami andliquefaction(p) Risks concerning the concentration of properties in the portfolio in certain areas(q) Risks concerning tenants’ financial status and insolvency(r) Risks concerning fluctuation of profits due to a limited number of tenants(s) Risks concerning subleases(t) Risks concerning ownership liabilities related to real estate(u) Risks concerning repair and maintenance costs related to real estate(v) Risks concerning liability as the seller of properties(w) Risks related to holding partnership interests(x) Risks concerning complexity of ownership and other interests of properties andinaccuracy of real estate registration(y) Risks concerning administrative rules and regulations and prefectural or municipal
ordinances for real estate(z) Risks concerning establishment of new or revisions of existing laws andregulations(aa) Risks concerning conclusion of post-dated sale agreements (forward
commitment contracts)(4) Risks Related to Trust Beneficiary Rights(a) Risks concerning investments in trust beneficiary interests(b) Risks concerning liquidity of beneficiary interests(c) Risks concerning insolvency of the trustee(5) Risks Related to Taxation(a) Risks of failure to satisfy pass-through requirements due to inability to pay
dividends and other reasons(b) Risks of failure to satisfy pass-through requirements due to excessive amount oftax burden(c) Risk of additional tax liability as a result of a tax audit, which could, among other70

NBF Report January – June 20176

Response to Article 23 of the European Alternative Investment Fund Managers Directive

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

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

investment

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

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

Circumstances in

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

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

use leverage.

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

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

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

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

7

NBF Report January – June 201771

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

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

leverage.

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

Any restrictions on

No applicable arrangements.

collateral and asset
reusearrangements.
Maximum level of

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

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

employ on behalf

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

acquisitions or other events.

Article 23(1) (b)Procedure by

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

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

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

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

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

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

Article 23(1) (c)Description of the

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

main legal

72



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

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

properties to subtenants;

NBF Report January – June 20178

Response to Article 23 of the European Alternative Investment Fund Managers Directive

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

Purchase and sale agreements regarding certain NBF assets originally held by Mitsui
Fudosan Co., Ltd., and management contracts with regard to such assets; andthe purpose ofinvestment,
including

Agreements for the development of certain properties.

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



A custody agreement regarding NBF’s assets;

applicable law, and

A transfer agent agreement regarding the units;

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

not of any legal

Agreements establishing Sumitomo Mitsui Trust Bank, Limited as the trustee forcertain trust beneficiary rights held by NBF; andinstruments
providing for therecognition andVarious agreements related to our investment corporation bond offerings.

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

enforcement ofLoan agreements over certain of our long-term loans;judgments in theLease agreements for certain properties with Sumitomo Life Insurance Company astenant; andterritory where the
AIF is established.



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

All of the above agreements are governed by Japanese law.
NBF is not involved in or threatened by any legal arbitration, administrative or otherproceedings, the results of which might, individually or in the aggregate, be material.
NBF is a corporate-type investment trust in the form of investment corporation (toshi hojin)
provided for under the ITA. Therefore, the relationship between NBF and its unitholders isgoverned by NBF’s articles of incorporation (as opposed to individual agreements), which canbe amended from time to time upon resolution of a general unitholders’ meeting. NBF’s
articles of incorporation stipulate rules relating to general unitholders meetings, including theconvocation, setting of record date, exercise of voting rights, resolutions and election of NBF’s
directors.
The relationship between NBF and its unitholders is also governed by, and is subject to theprovisions of, Japanese law, including the ITA.
The courts in Japan would recognize as a valid judgment any final and conclusive civil
judgment for monetary claims (which, for this purpose, are limited to those of a purely civil
nature and do not include monetary claims of the nature of criminal or administrative
sanction, such as punitive damages, even though they take the form of civil claims) against
NBF obtained in a foreign court provided that (i) the jurisdiction of such foreign court isadmitted under the laws of Japan, (ii) NBF has received service of process for the9

NBF Report January – June 201773

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

AIFM, AIF's

 Auditor: KPMG AZSA LLC

depositary, auditor Custodian and Transfer Agent: Sumitomo Mitsui Trust Bank, Ltd.

and any otherService providers owe contractual obligations under their respective agreements with the AIF

service providers

or AIFM, as the case may be. In addition, the FIEA provides that an asset manager owes a

and a description

J-REIT a fiduciary duty and must conduct its activities as the asset manager in good faith. Theof their duties and

FIEA also prohibits an asset manager from engaging in certain specified conduct, including

the investors' rights entering into transactions outside the ordinary course of business or with related parties ofthereto.

the asset manager that are contrary to or violate the J-REIT’s interests. Pursuant to the ITA,
the unitholders have the right to approve the execution or termination of the asset
management agreement at a general meeting of unitholders.

Article 23(1) (e)Description of how

Not applicable.

the AIFM complies
with therequirements tocover professional
liability risks (ownfunds /
professional
indemnity
insurance).
Article 23(1) (f)Description of any

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

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

safekeeping activities.

function such as
portfolio
management orrisk management

74

NBF Report January – June 201710

Response to Article 23 of the European Alternative Investment Fund Managers Directive

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

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

AIF’s valuation

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

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

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

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

valuation.

assets.
Regarding hard to value assets, such assets comprise tenant security deposits including trust
accounts. Security deposits from tenants are not subject to fair value disclosure because they
are not marketable, and actual deposit period is not estimable as leases may be cancelled,
renewed or re-signed even if a lease term is set in the lease contract. This makes a reasonableestimate of future cash flows difficult. Valuation of such hard to value assets is included in thenotes to our financial statements.
If asset valuation methods other than those mentioned in the paragraphs above are to be
used in order to determine values for asset management reports, etc., valuation shall be
conducted in the following manner.
(1) Real estate, real estate leasehold rights and surface rights
In principle, valuation shall be based on the appraisal by a real estate appraiser.
(2) Trust beneficiary interests and equity interests in anonymous associations and voluntary
associations
Valuation shall be made by calculating the value of the equity interests in anonymous
associations or voluntary associations in relation to real estate, real estate leasehold rights or

11

NBF Report January – June 201775

surface rights, or the value of the trust beneficiary interests obtained by subtracting theamount of liabilities from the aggregate value of assets after (i) determining valuation as
described in (1) above with respect to trust assets or the assets of anonymous associations
composed of real estate, real estate leasehold rights or surface rights and (ii) determining
valuation in accordance with general accepted accounting principles in Japan with respect totrust assets or the assets of anonymous associations or voluntary associations composed offinancial assets.
Article 23(1) (h)Description of the

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

AIF’s liquidity risk

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

entered into credit lines in the amount of 60 billion yen as of June 30, 2017, and has entered

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

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

exceptional

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

circumstances andexisting

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

redemption of their investment.

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

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

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

maximum amountofficer and each of the supervisory officers.

which is directly /indirectly borne by

the investors.

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

Management Fees 1 – The amount equivalent to 2.5% of theamount of the revenue arising from real estate, real estate-related and real estate-backed
assets (“Real Estate”) as calculated on each closing date (provided, however, that revenues
from the sale of Real Estate and other managed assets will be excluded) will be payable.
Management Fees 2 – The amount equivalent to 3% of income before income tax(provided, however, that in the event a loss is carried forward, then the amount of income
before income taxes remaining after such loss has been covered) prior to deduction ofManagement Fees 2 as calculated on each closing date will be payable.

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NBF Report January – June 201712

Response to Article 23 of the European Alternative Investment Fund Managers Directive

Management Fees 3 – In the event that Real Estate is newly acquired (or acquired inconnection with a merger executed by NBF), compensation equivalent to the total amount of
the acquisition price of said Real Estate (meaning the acquisition price of both land andbuildings, and in the event of the simultaneous acquisition of multiple units of Real Estate, theacquisition price of each item, provided, however, that national consumption tax, regional
consumption tax and miscellaneous costs of acquisition are excluded) multiplied by thefollowing percentage rates will, in principle, be payable, provided, however, that with theapproval of the officers of NBF, compensation may be calculated using different rates notexceeding the following rates.
The portion up to and including ¥10,000 million .........................

0.5%

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

0.2%

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

0.05%

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

nothing

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

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

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

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

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

420 yen

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

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

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

260 yen13

NBF Report January – June 201777

More than 100,001.........................................

225 yen

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

Auditor Fee:

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

Accounting Service Fee

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

800,000 yen per property

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

600,000 yen per property

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

400,000 yen per property

Miscellaneous

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

Property control;oReferral of tenants;o

Office management;oProperty transfer;oProperty development;ooTax administration; andAdministration for investment corporation bonds governance

Article 23(1) (j)78

Description of theUnder Article 77 paragraph 4 of the ITA, which applies the requirements of Article 109

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

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

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

NBF Report January – June 201714

Response to Article 23 of the European Alternative Investment Fund Managers Directive

details of any

Article 158 of the ITA.

preferential
treatment received
by investors,
including detailingthe type ofinvestors and theirlegal or economic
links with the AIF
or AIFM.
Article 23(1) (k)The latest annual

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

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

Article 23(1) (l)The procedure and

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

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

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

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

Article 23(1) (m)Latest net asset

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

financial information vendors at

latest market price

http://www.reuters.com/finance/stocks/overview?symbol=8951.Tof the unit or shareof the AIF.
Article 23(1) (n)Details of the

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

historical

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

performance of the

Fiscal period (six months

Total Assets

Total Net Assets

Net Assets per unit

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

June 30, 2017

1,023,900

537,002380,313

December 31, 2016

1,030,434

536,413379,896

June 30, 2016

1,029,045

535,749

379,425

15

NBF Report January – June 201779

December 31, 2015

1,012,708

534,287

378,390

June 30, 2015

1,022,385

534,306

378,403

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

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

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

its Internet website and semi-annual report.

disclosures will bemade in relation toleverage, liquidity
and risk profile of
the assets,pursuant to Articles
23(4) and 23(5).
Article 23(2)The AIFM shallNot applicable.

inform theinvestors before

80

NBF Report January – June 201716

Response to Article 23 of the European Alternative Investment Fund Managers Directive

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

Not applicable.

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

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

their illiquid nature.

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

There are no such special arrangements.

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

There are no such special arrangements.

assets which are subject to sucharrangements.
How management and performance

There are no such special arrangements.

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

Any new arrangements or change in applicable arrangements will be

the liquidity of the AIF.

disclosed at an appropriate time.

For each AIF that the AIFM manages

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

disclosed at an appropriate time.

AIF, notify to investors whenever they17

NBF Report January – June 201781

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

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

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

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

disclosed at an appropriate time.

arrangements.
Terms of redemption and

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

entitled to request the redemption of their investment.

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

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

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

82

The current risk profile of the AIF and

The appropriateness and effectiveness of the risk management structure

the risk management systems

are regularly evaluated and enhanced by the AIFM.

NBF Report January – June 201718

Response to Article 23 of the European Alternative Investment Fund Managers Directive

employed by the AIFM to manage
those risks.

Deposits are exposed to risks of failure of the financial institution holding
the deposit and other credit risks, but such risks are controlled by striving todiversify the financial institutions holding the deposits.
Funds from debts and investment corporation bonds are mainly used for
asset acquisition or debt repayment, etc. While loans and investment
corporation bonds are exposed to liquidity risk, such risk is managed inways such as by diversifying the means of funding and lending institutions,dispersing repayment dates, establishing committed credit lines, andkeeping sufficient liquidity in hand. Our credit line is in the amount of 60
billion yen; no amount has been drawn down as of June 30, 2017.
Debt with a floating interest rate is exposed to interest rate fluctuation
risks, but the impact that interest rate rises have on the operations islimited by maintaining the proportion of debt that is long-term fixed-rate
debt at high levels, and setting a procurement limit depending on theeconomic and financial environment, terms of lease agreements withtenants, asset holding period and other factors.
Furthermore, derivative transactions (interest rate swap transactions) areavailable as hedging instruments to mitigate the risks of rises in floatinginterest rates.
Tenant security deposits are exposed to liquidity risk arising from vacatingof properties by tenants due to the termination of contract.
NBF manages this risk by monitoring forecasted cash flows on a monthly
basis to ensure it has sufficient funds.

Measures to assess the sensitivity of

No such measures have been implemented.

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

No such situation has occurred.

been or are likely to be exceeded andwhere these risk limits have been
exceeded a description of thecircumstances and the remedial
measures taken.

19

NBF Report January – June 201783

Response to Article 23 of the European Alternative Investment Fund Managers Directive

Article 23(5)(a)Any changes to the maximum amountAny new arrangements or change in applicable arrangements will beof leverage which the AIFM may

disclosed at an appropriate time.

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

No such right or guarantee exists.

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

Any new arrangements or change in applicable arrangements will be

providers relating to the above.

disclosed at an appropriate time.

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

The aggregate amount of debt with interest is JPY 425,250 million as ofleverage employed by the AIF

June 30, 2017.

calculated in accordance with thegross and commitment methods.

84

NBF Report January – June 201720

Investors’ Information (As of June 30, 2017)

Fiscal Periods

Unitholders

Six months ending June 30 and December 31

Financial institutions
205 (1.5%)

Total Number of Units Issued
32nd Period (From January 1, 2017 to June 30, 2017)

1,412,000 units

31st Period (From July 1, 2016 to December 31, 2016)

1,412,000 units

Other domestic corporations 349 (2.5%)
Overseas investors 506 (3.6%)
Securities companies 20 (0.1%)

Total numberof unitholders:

Individuals and others
12,959 (92.3%)

14,039Securities companies
26,718 (1.9%)

Distribution per Unit

Overseas investors
394,639 (27.9%)

Confirmed distribution for the 32nd Period
For the operating period from (January 1, 2017 to June 30, 2017) (6 months)¥9,129 per unit

Expected distribution for the 33rd Period
For the operating period from (July 1, 2017 to December 31, 2017) (6 months)

Other domestic corporations
87,809 (6.2%)¥9,210 per unit

Individuals and others
60,882 (4.3%)

Total numberof units:

1,412,000

Financial institutions
841,952 (59.6%)

Top 10 Unitholders
NameJapan Trustee Services Bank, Ltd.
Trust & Custody Services Bank, Ltd.
The Master Trust Bank of Japan, Ltd.
The Nomura Trust and Banking Co., Ltd.
Mitsui Fudosan Co., Ltd.
STATE STREET BANK WEST CLIENT - TREATY 505234
STATE STREET BANK - WEST PENSION FUND CLIENTS - EXEMPT 505233
Sumitomo Life Insurance Company
STATE STREET BANK AND TRUST COMPANY 505012
STATE STREET BANK AND TRUST COMPANY 505223

Number of Units Held

Percentage of Total

294,957
127,650
127,11454,38747,63026,68526,492
24,512
23,532
21,340

20.9
9.0
9.0
3.9
3.4
1.9
1.9
1.7
1.7
1.5

Historical Unit Price(Yen)
1,000,000(Points)
3,000

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

2,500

800,000
2,000
600,000

1,500
1,000

400,000
500
200,000

Sep. 10, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, 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 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017

0

Adjusted retroactively for the two-for-one investment unit split effective as of January 1, 2014.

NBF Report January – June 201785

Corporate Data (As of June 30, 2017)86

Corporate Office38th Floor, GranTokyo North Tower, 9-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-6738, Japan+81-3-6259-8681
http://www.nbf-m.com/nbf_e/

Date of Inception

March 16, 2001

CapitalContributed capital and units issued and outstanding:¥519,125 million
1,412,000 units

Unitholders

14,039Transfer Agent

Sumitomo Mitsui Trust Bank, Ltd.
4-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8233, Japan

Business Office of the Transfer Agent

Stock Transfer Agency Department of Sumitomo Mitsui Trust Bank, Ltd.
8-4, Izumi 2-chome, Suginami-ku, Tokyo 168-0063, Japan+81-3-3323-7111

Independent Auditors

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

Investor Relations

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

NBF Report January – June 2017

Disclaimer
This document contains translations of selected information

accuracy of English translations or the selection of the portions of any

described in the Securities Report (Yuka shoken hokokusho) filed on

documents translated into English. No person has been authorized to

September 28, 2017 pursuant to the Securities Exchange Law ofgive any information or make any representations other than as

Japan, and the Financial Statements and the Performance Information

contained in this document in relation to the matters set out in thisReport for the period from January 1, 2017 to June 30, 2017, ofdocument, and if given or made, such information or representation

Nippon Building Fund Inc. prepared pursuant to the Investment Trust

must not be relied upon as having been authorized by Nippon Building

Law of Japan.

Fund Inc., Nippon Building Fund Management Ltd. or any of theirThis English-language document was prepared solely for theconvenience of and ­reference by overseas investors. It neither

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

corresponds to the original Japanese documents nor is intended to

The financial statements of Nippon Building Fund Inc. have been

constitute a disclosure document. The Japanese-language Securities

prepared in accordance with generally accepted accounting principles

Report and the Financial Statements and the Performance Informationin Japan (Japanese GAAP), which may materially differ in certain

Report for the aforementioned period should always be referred to as

respects from generally accepted accounting principles in­originals of this document.

other jurisdictions.

English terms for Japanese legal, accounting, tax and business

Many provisions of this document contain forward-looking

concepts used herein may not be precisely identical to the concept ofstatements and information. We base these statements on our beliefs

the equivalent Japanese terms. With respect to any and all terms

as well as our assumptions based solely on certain limited information

herein, including without limitation, financial statements, if there exist

currently available to us. Because these statements reflect our current

any discrepancies in the meaning or interpretation thereof between theviews concerning future events, these statements involve known andoriginal Japanese documents and English statements contained herein,

unknown risks, uncertainties and assumptions. Our future performancethe original Japanese documents will always govern the meaning andcould materially differ from those set out in these forward-looking

interpretation. None of Nippon Building Fund Inc., Nippon Building Fundstatements. We do not undertake and will not undertake to release

Management Ltd. or any of their respective directors, officers,

revisions of forward-looking statements to reflect future events or

employees, partners, unitholders/shareholders, agents or affiliates will

circumstances or of any other statements or information

be responsible or liable for the completeness, appropriateness orcontained herein.

NBF Report January – June 201787

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/