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/

Printed in Japan

First Half of 2014
(26th Period – January to June 2014)

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

Profile
On September 10, 2001, Nippon Building Fund Inc. (NBF) became the first Japanese real estate
investment trust (J-REIT) to list on the J-REIT section of the Tokyo Stock Exchange. Today, NBF has thelargest market capitalization and assets under management among J-REITs.
NBF employs funds raised through unitholder subscriptions and borrowings to invest in real estate, realestate-backed securities, trust beneficiary rights and other assets with the objective of sustainable growth inportfolio value and stable profits on a medium-to-long-term basis. NBF primarily invests in office buildings in
the central business districts of Tokyo, other Greater Tokyo and other cities in Japan.
Going forward, NBF will continue its steady management for the high quality and growth befitting thenumber one J-REIT.

Contents
Introduction......................................................................2
A Track Record of Steady Growth ....................................4
Portfolio Overview ............................................................6
Location of Office Properties ...........................................7
To Our Unitholders ...........................................................8
CIO and CFO Message ..................................................10
Strategies .......................................................................12Highlights .......................................................................14
Management Team and Management Structure ............15
Investment and Distribution Policies ..............................21
Management’s Discussion and Analysis ........................28
Financial Statements ......................................................39
Notes to Financial Statements .......................................43
Independent Auditor’s Report ........................................53
Corporate Data ..............................................................54
Investors’ Information ....................................................55

NB
NBF
N
BF
BF R
Re
epo
por
p
o t Januora ary
anuaryryy – J
Jun
u
un
ne

1

Introduction(As of June 30, 2014)

An office-specialized J-REIT, sponsored by Mitsui Fudosan Co., Ltd.

NBF Policies
STRATEGIES
Portfolio Strategy• Make aggressive acquisitions andflexible dispositions• Focus on highly competitive officebuildings, primarily in Tokyo CBDs
• Expand assets• Use the Mitsui Fudosan Grouppipeline

Leasing Strategy• Use the sales capabilities of the
Mitsui Fudosan Group for leasing
and tenant retention• Maintain a high occupancy rate

Financial Strategy• Maintain a conservative LTV of
36-46% and a long-term fixed-rateinterest-bearing debt ratio of 90% or
higher to enable flexible financing
and acquisitions• Diversify debt to reduce financial
risk

Property Management Strategy• Use the comprehensive capabilitiesof the Mitsui Fudosan Group• Maintain and increase asset value
through strategic investment• Use NBF’s exclusive PM company
to deliver high-quality management

2

NBF
NB
N
BF
B
FR
Re
epor
po
orrt Janu
o
Jan
anu
nu
n
uar
ary
a
rry
y–J
Jun
un
u
ne 2
20
201
0
01
14

Increase Unitholder Value• Stable mid-to-long-term growth in distribution per unit (DPU)• Expansion of net asset value (NAV) per unit

FEATURES
Portfolio Quality

Financial Fundamentals

Focused investment in highly competitive
prime office buildings
Ratio of investment in 5 wardsof central Tokyo(Share of investment in 23 wards of Tokyo

Sound LTV control

51.5%
78.0%)High occupancy rate

97.0%

Average maturity

Unrealized gain ratio

96.4%
4.53 years(Long-term interest-bearing debt)(1H/2014 (26th Period))

Appraisal value

43.1%

Diversified Long-Term Fixed-Rate Debt
Long-term fixed-rateinterest-bearing debt ratio(Acquisition price basis)

Average occupancy rateduring the period*

LTV (Interest-bearing debt to asset* ratio)

7.1%*Average occupancy rate during the period: weighted average of month-end occupancy rate on a floor space basis

Size*Book value basis

Sponsor

The largest J-REIT¥1,040.6 billion
Market cap¥835.9 billion
Properties
73
Total rentable area
1.07 million m
Total assets*

Property acquisition pipeline from the
Mitsui Fudosan Group
Leverage the comprehensive strengthsof the Mitsui Fudosan Group
Leasing capabilities
Property management capabilities

2*Book value basis

NBF Report Januaryy – Jun
un
ne 201
20
014
01

3

A Track Record of Steady Growth(Yen)
1,000,000

Historical Unit Price & Distribution per Unit (Adjusted retroactively for the two-for-one investment unit split effective January 1, 2014)
Unit price (left scale)

750,000

Distribution per unit (left scale)
500,000
250,000〜
12,000

9,513

10,000

8,126

8,000

8,645
7,683

8,001

9,695

9,612

9,904

10,064

Jun. 30,
2006

Dec. 31,2006

Jun. 30,
2007

Dec. 31,
2007

98.7

98.4

674.3

674.3

6,743

6,743

6,743

6,743

6,743

6,743

8,446

7,291

8,523
7,592

6,000
May 23,2001

Dec. 31,2001

Jun. 30,
2002

Dec. 31,2002

Jun. 30,
2003

Dec. 31,2003

Jun. 30,
2004

Dec. 31,2004

Jun. 30,
2005

Dec. 31,
2005(Investment commencement date)

Asset Scale ( Total Acquisition Price ) & Average Occupancy Rate during the Period 1
98.3

98.3

23 wards of Tokyo

624.8

624.8

Of which 5 wards of central Tokyo

6,248

6,248

6,248

6,248

6,248

6,248

97.1

(Yen in billions)

97.3
95.5

1,200

96.9

97.0

97.2

97.9

95.1
92.4

1,100
1,000
900

Average occupancy rate during
the period (right scale)

800

Managed Assets by Area
700

(left scale)

600

539.3

Greater Tokyo
500

5,393

Other cities

393.8

400
300
200
100
0

2,265
192.1

2,265
226.5
2,265

2,265

2,265

2,265

246.0
2,460
2,460

2,460

260.2
2,602
2,602

336.1

3,938
3,938

276.0

285.6

3,361

2,760

2,856

3,361

2,760

2,856

5,393

4,141
4,141

5,393
2,602

2,760

2,856

3,361

3,938

4,141

22

24

26

28

29

33

43

43

47

52

55

55

56

56

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

May 23,2001

Dec. 31,2001

Jun. 30,
2002

Dec. 31,2002

Jun. 30,
2003

Dec. 31,2003

Jun. 30,
2004

Dec. 31,2004

Jun. 30,
2005

Dec. 31,2005

Jun. 30,
2006

Dec. 31,2006

Jun. 30,
2007

Dec. 31,
2007(Investment commencement date)Notes:
1. Average occupancy rate during the period: weighted average of month-end occupancy rate on a floor space basis
2. Data uses the new geographical categories introduced on June 30, 2014.

4

414.1

NBF Report January – June 2014

11,274

11,126 10,887
9,836
8,562

Jun. 30,
2008

Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

Jun. 30,
2010

8,427

8,645

Dec. 31,
2013

7,747

7,569

7,600

7,740

7,877

Dec. 31,2010

Jun. 30,
2011

Dec. 31,2011

Jun. 30,
2012

Dec. 31,2012

Jun. 30,
2013

97.5

97.8

8,152

Jun. 30,
2014

(%)

97.3

96.8

95.5

95.4
93.4

93.3

96.7

96.8

100

97.1

97.0

93.9

95

1,066.4 1,050.8 1,074.4

870.2

892.8

90

921.6

837.1
762.3
725.2
7,623

7,252

783.1

783.1

779.5

7,831

7,831

7,795

7,831

7,831

7,795

7,623

8,431

7,252

7,252

7,623

779.5

7,831

7,831

7,795

8,431

58

60

61

61

59

59

64

64

67

68

74

71

73

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Jun. 30,
2008

Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

Jun. 30,
2010

Dec. 31,2010

Jun. 30,
2011

Dec. 31,2011

Jun. 30,
2012

Dec. 31,2012

Jun. 30,
2013

Dec. 31,2013

Jun. 30,2014

NBF Report January – June 2014

5

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

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

6

NBF Report January – June 2014

(As of June 30, 2014)

Acquisition Price(Yen in millions)Book Value(Yen in millions)Appraisal Value(Yen in millions)

Total Rentable Area(m2)

Total Leased Area(m2)

66,66063,50057,28145,14540,75036,30035,20032,00031,00031,00028,80025,01824,54323,85622,50020,84020,26917,00016,285
14,434
13,35013,337
13,217
12,614
11,90010,400
9,126
8,800
8,630
8,350
8,000
6,770
6,667
6,250
6,100
5,365
5,200
5,075
4,940
4,850
4,695
4,428
4,050
3,700
838,196
9,320
25,82013,529
3,800
2,300
8,875
2,435
16,8162,000
15,7002,455
103,051
4,404
1,870
3,566
4,028
3,957
14,9007,232
17,81014,90014,40012,70010,500
1,914
2,930
2,215
3,310
8,000
4,500
133,138
1,074,386

68,14464,28949,94834,05137,022
36,57230,76927,961
27,59631,55628,43723,564
19,283
18,82722,70920,601
19,286
17,554
16,426
12,087
12,808
13,115
11,361
10,745
11,976
9,881
9,417
8,015
8,868
8,149
8,028
6,351
6,507
6,298
6,274
4,864
4,582
5,098
5,105
4,713
4,432
4,210
4,483
3,724
785,707
8,777
23,107
12,420
3,195
2,214
6,516
2,249
14,248
1,871
15,683
2,253
92,539
3,437
1,664
3,440
3,003
3,516
14,864
6,622
16,02815,066
10,894
12,272
7,576
1,696
2,781
1,984
3,302
7,473
4,172
119,797
998,043

74,70053,30059,30041,70030,10043,50035,50026,90055,60017,00030,60027,90031,20019,90023,40012,00025,90014,90015,90017,80014,80016,00013,70013,42012,6008,460
11,100
7,390
9,210
8,060
6,090
7,570
6,990
6,410
4,180
5,370
7,100
5,440
5,410
5,030
5,100
4,760
4,220
3,700
849,2109,650
20,80014,100
3,610
2,080
7,210
2,210
19,0001,840
10,7002,160
93,360
6,810
1,290
2,830
3,370
2,910
15,6006,920
16,50015,50013,80012,300
7,040
1,400
2,310
2,220
3,490
8,740
3,760
126,790
1,069,360

74,42527,576
41,86033,33832,02135,641
36,63824,72833,503
9,631
20,53828,29916,84821,423
16,915
6,627
16,5163,440
14,874
20,426
16,232
10,067
10,08817,307
5,392
8,504
4,033
7,481
11,073
6,166
4,999
7,084
10,458
5,258
3,428
5,991
4,871
4,577
4,805
3,298
5,642
5,127
5,332
7,232
689,711
13,762
39,83720,047
12,545
5,242
16,826
6,160
20,6983,455
22,804
4,770
166,145
11,396
5,351
7,514
13,267
10,20817,658
9,873
21,917
17,32525,31423,23014,954
3,245
5,567
3,927
5,998
14,3287,931
219,001
1,074,857

74,42527,39839,84333,32032,02135,581
36,62524,72833,503
7,380
17,21028,29916,84821,423
16,915
3,645
16,5163,440
14,79820,426
15,406
9,994
10,08817,207
5,392
7,653
4,033
5,508
11,073
4,304
4,999
7,033
8,715
5,258
3,428
5,991
4,871
4,577
4,805
3,298
5,642
5,127
5,332
6,422
670,497
13,762
38,464
19,918
11,837
5,242
16,147
6,160
20,487
3,455
19,101
4,770
159,342
10,9905,351
7,514
13,267
10,07917,658
8,928
21,33917,32524,992
22,053
14,954
3,101
5,496
3,794
5,666
14,328
7,542
214,376
1,044,216

Occupancy Rate(%)

Total Numberof Tenants

100.0
99.4
95.2
99.9
100.0
99.8
100.0
100.0
100.0
76.6
83.8
100.0
100.0
100.0
100.0
55.0
100.0
100.0
99.5
100.0
94.9
99.3
100.0
99.4
100.0
90.0
100.0
73.6
100.0
69.8
100.0
99.3
83.3
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
88.8
97.2
100.0
96.6
99.4
94.4
100.0
96.0
100.0
99.0
100.0
83.8
100.0
95.9
96.4
100.0
100.0
100.0
98.7
100.0
90.4
97.4
100.0
98.7
94.9
100.0
95.6
98.7
96.6
94.5
100.0
95.1
97.9
97.1

1
94
78
32
17
11
9
34
6
9
12
4
24
19
8
3
1
1
47
1
7
15
20
35
7
4
7
36
20
6
4
18
12
6
8
1
8
1
15
2
16
11
8
7
685
1
17
94
34
19
65
40
42
13
47
26
398
13
3
10
50
34
12
23
43
19
56
54
30
20
32
11
20
16
17
463
1,546

Location of Office Properties(As of June 30, 2014)

Kita-ku
42

Toshima-ku

Investment by Region
Arakawa-ku

41
29

Other Cities

12.4%

Taito-ku

Bunkyo-ku

Nakano-ku

Greater Tokyo

26
5

Shinjuku-ku

19

16

Imperial
PalaceSetagaya-ku

10
27

37

24
21

11
8
32 35

9

Meguro-ku

18

Minato-ku

14

33

51.5%

40

Chuo-ku

Koto-ku

2
34
22 25
13
23 38

44

17 31

5 Wards ofCentral Tokyo

43

39

Chiyoda-ku

28
20

Shibuya-ku

9.6%

Sumida-ku

4

23 Wards of Tokyo

12 7

78.0%

15
36

30

56
57

Tokyo Bay

6
3

1

Shinagawa-ku

23 Wards of Tokyo

44 Properties ¥838.2 billion
58
60

59

69 70

72

72

71

Tochigi

73
63 64 65 66 67 68

Utsunomiya

61
62

50

Ibaraki

51

Saitama52
To Omiya

53

Other Cities

18 Properties ¥133.1 billion

55

Tokyo

Chiba
45

54

Kanagawa
49

Tokyo Bay

46

48

47

Greater Tokyo

11 Properties ¥103.1 billion
NBF Report January – June 20147

To Our Unitholders

Kenichi Tanaka
President and CEO of Nippon Building Fund Management Ltd.

the government’s economic policies and bold

Improvement in both the Japanese
economy and real estate market

monetary easing by the Bank of Japan.

During the six months ended June 30, 2014 (theIn the office building leasing market, the supply-“26th Period”), the Japanese economy was affecteddemand balance is likely to continue to improveby a surge in demand ahead of an increase in the

because the supply of new office buildings remains

consumption tax and a drop in demand after theat the historical average while active demand forincrease, but continued to recover overall because

office space is expected to continue, backed byof growth in capital expenditures reflecting robust

improved corporate earnings and expansion incorporate earnings, as well as the broader effects of

employment. Under these conditions, rents for

Average Vacancy Rates in Major Central Business Districts (CBDs)

Average Asking Rents in Tokyo CBDs(%)

(Yen per tsubo*o)40,00015
Nagoya CBDs

35,000

Osaka CBDs

8.89

10

8.46

New buildings

30,00027,36325,000

6.45
5

Average asking rent
20,000Tokyo CBDs

16,607
Existing buildings

15,000
0

Dec.
2002

Dec.
2003

Dec.
2004

Dec.
2005

Dec.
2006

Dec.
2007

Dec.
2008

Dec.
2009

Dec.
2010

Dec.
2011

Source: Miki Shoji Co., Ltd.
Tokyo CBDs: Chiyoda-ku, Chuo-ku, Minato-ku, Shinjuku-ku, Shibuya-ku
Osaka CBDs: Umeda area, Minamimorimachi area, Yodayabashi &Honcho areas, Funaba area, Shinsaibashi & Nanba areas,
Shin Osaka area
Nagoya CBDs: Nagoya Station area, Fushimi area, Sakae area, Marunouchi area

8

NBF Report January – June 2014

Dec.
2012

Dec. Jun.
2013 2014

0

Dec.
2002

Dec.
2003

Dec.
2004

Dec.
2005

*tsuboo = 3.3m2
Source: Miki Shoji Co., Ltd.

Dec.
2006

Dec.
2007

Dec.
2008

Dec.
2009

16,386
Dec.
2010

Dec.
2011

Dec.
2012

Dec. Jun.
2013 2014

highly competitive prime office buildings arecompetitive office buildings are rising. With thisexpected to continue to rise.

recovery, we expect lease revenues from our existing

In the office building transaction market, theportfolio properties to stop decreasing in the firstfavorable fund procurement environment supported

half of 2015. Our policy going forward is to focus on

ongoing strong interest among major investors ininternal growth backed by high occupancy rates.

Japan and overseas. A growing number of investors

We also generated external growth by acquiring aforecast steady gains in office building prices, andtotal of three new properties (including an additionaltransactions are expected to remain brisk.

acquisition) from January to March 2014, primarily

Moreover, interest rates are at low levels becausefrom our sponsors, for ¥24.8 billion. This consisted

the Bank of Japan has maintained a policy ofof one property in the five wards of central Tokyo

aggressive monetary easing, resulting in a robust

and two properties in Osaka. We also disposed ofsupply of capital to the real estate market. However,a portion of the GSK Building site for ¥3,080 million.

NBF realizes that it must pay close attention to

In addition, we added to acquisition capacity with

future interest rate risk.

a capital increase in March 2014 to prepare foropportunities to invest in external growth.

Enhancing the quality of our portfolio

We expect our markets to remain brisk, and intend
to proactively invest in carefully selected properties.

NBF aims to increase unitholder value under abasic policy of stable growth in distribution per

Increasing unitholder value

unit over the medium-to-long term and expansion
in net asset value per unit. Initiatives in the 26th

NBF will continue to focus on increasing

Period based on this policy enhanced the quality

unitholder value by taking full advantage of itsof our portfolio.

features and strengths to achieve mid-to-long-term

In the office building leasing market, vacancy

growth in distribution per unit and expansion of net

rates have continued to improve in the Tokyo central

asset value.

business districts and asking rents for highly

Office Floor Space Supply and Demand (Net Absorption) in the 23 Wards of Tokyo(Thousand tsubo)o600
2H Actual
400

200

0
1H Actual
-400

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014
(Proj.)

2015(Proj.)

2016(Proj.)

SupplyDemandSource: Sanko Estate Co., Ltd.

NBF Report January – June 20149

CIO and CFO Message

Koji Matsufuji
CIO and CFO of Nippon Building Fund Management Ltd.

Anticipating the recovery of the office building market, in2013 we enhanced the quality of NBF’s portfolio by acquiring nine properties for ¥156.9 billion. These were primarily
high-quality, large-scale properties in the 23 wards ofTokyo. During the 26th Period, we acquired three properties
from January to March 2014. In January, we made an
additional acquisition for ¥6,200 million at SakaisujiHonmachi Center Building, a property in which NBF had
existing interests. With this additional acquisition, NBF now
owns the entire property. In March, we acquired Jingumae
M-SQUARE for ¥3,700 million from our main sponsor Mitsui
Fudosan, and Nakanoshima Central Tower for ¥14,900
million from our second major sponsor Sumitomo Life
Insurance Company.
The average NOI yield for these three properties is 5.5
percent, which is higher than the average NOI yield for
NBF’s overall portfolio. All three properties are highly

competitive and in excellent locations. Nakanoshima
Central Tower (built in 2005) is located in the Nakanoshima
area of Osaka, where a large number of office buildings areconcentrated. Jingumae M-SQUARE (built in 2009) is
located in Shibuya-ku, where vacancy rates are relatively
low relative even for the 23 wards of Tokyo. SakaisujiHonmachi Center Building (additional acquisition) is locatedin a primarily business district in the Osaka area. Moreover,having 100-percent ownership of this property will contribute to enhancing NBF’s portfolio over the medium-to-longterm in ways such as improving its competitiveness.
We made property dispositions as well as acquisitions.
Two of the three dispositions in the 25th Period were in the
Kansai area, and were replaced with acquisitions during the26th Period in the Osaka area, which enabled us tostrengthen NBF’s Kansai area portfolio. In addition, we soldthe NBF Nihonbashi Muromachi Center Building to Mitsui
Fudosan in 2013, which generated a gain on sale of overAverage Occupancy Rate and Percentage of Floor Space ofTenants Moving In and Out

Revenues from Leasing at Existing Properties(Annualized PoP Comparison)

Steadily enhancing portfolio quality(%)

Forecast

15

93.3

93.9

95.4
96.7

96.8

97.5

97.8

97.1

97.0

97.6

5.3

4.1

3.0

2.8

2.7

2.2

3.3

2.5

3.0

3.1

2.9

0

-2.3

-5

-2.7

-2.1

-2.6

-1.8

-3.4

-3.2

-3.0

-2.2

(%)

100

8

90

4

80

0

70

-4

60

-8

50

-12

Forecast

97.7

10

5

(%)

-2.9

-6.0
-10

1H/’10 2H/’10 1H/’11 2H/’11 1H/’12 2H/’12 1H/’13 2H/’13 1H/’14 2H/’14 1H/’15
18th 19th 20th
21st 22nd 23rd 24th 25th 26th 27th 28th
Period Period Period Period Period Period Period Period Period Period Period
Average occupancy rate during the period (right scale)1■ Percentage of floor space of tenants moving in (left scale)2■ Percentage of floor space of tenants moving out (left scale)3Notes :
1. Average occupancy rate during the period: weighted average of month-end occupancy rate on a floor
space basis
2. The percentage of floor space of tenants moving in divided by average of total rentable area at the endof each month
3. The percentage of floor space of tenants moving out divided by average of total rentable area at theend of each month

10

NBF Report January – June 2014

1H/’10 2H/’10 1H/’11 2H/’11 1H/’12 2H/’12 1H/’13 2H/’13 1H/’14 2H/’14 1H/’15
18th 19th 20th
21st 22nd 23rd 24th 25th 26th 27th 28th
Period Period Period Period Period Period Period Period Period Period Period■ Percentage change in revenues at existing properties

Of which tenant replacement
Of which rent revision¥4.0 billion. Also, in January 2014 we sold a portion of the
GSK Building site to the Tokyo Metropolitan Government for¥3,080 million, generating a gain on sale of ¥1.9 billion.
A portion of the gain on sale of investment properties has
been allocated to internal reserves. Consequently, internal
reserves as of June 30, 2014 totaled approximately ¥4.2
billion, or about ¥3,000 per unit.
As a result of these activities, NBF owned 73 properties
as of June 30, 2014, with total investment on an acquisition
price basis of ¥1,074.4 billion.

Securing acquisition capacity while maintaining
a solid financial base
We continue to practice conservative financial management
and maintain a financial base that allows us to respond tochanges in financial market conditions and property acquisition
opportunities. We keep the LTV ratio within a target range of 36
to 46 percent, with a maximum of 56 percent, to maintain aconstant level of acquisition capacity. Although we acquired
new properties during the 26th Period, LTV as of June 30, 2014
was 43.1 percent, compared with 43.8 percent as of December
31, 2013, due to the capital increase implemented in March
2014. Consequently, we were able to increase acquisition
capacity to ¥55.0 billion within an LTV of 46 percent, up from
¥42.0 billion as of December 31, 2013. NBF intends to use thisacquisition capacity to generate further growth.

half of 2014. We were able to promote leasing activities in afavorable leasing market. Conditions are now such that we canlook forward to internal growth from full-scale rent increases in
the future. With vacancy rates also continuing to improve, theoffice leasing market is undergoing a positive transition.
Regarding external growth, brisk activity is expected tocontinue in the real estate trading market because the supplyof new office buildings remains at the historical average while
demand for office buildings is projected to increase backed by
improved corporate results. NBF will continue to focus on
selectively investing in highly competitive properties, and will
also engage in property replacement.

Acquisitions fromJanuary to March 2014
We made three acquisitions in 2014,for ¥24.8 billion.
Sakaisuji-Honmachi Center Building(Additional acquisition)
Location
Acquisition date
Acquisition priceAppraisal value(At time of acquisition)

NOI yield

Revenues from existing properties to stabilize
in the 28th Period with replacement tenants
filling space vacated by a major tenant
Revenues from property leasing for existing properties havecontinued to decrease since the financial crisis of 2008, but therate of decrease has leveled out. Although this rate of decrease
will worsen temporarily in the 27th Period due to the impact ofdowntime caused by major tenant departures in the 25th and26th Periods, full replacement is in sight with new tenantsalready decided for approximately 90 percent of the vacatedspace. As a result, the situation has recovered to a point where
we can announce that in the 28th Period (the first half of 2015)
we expect revenues from property leasing to stop decreasingfor existing properties in our portfolio.

Improved profitability at existing properties
and continued proactive and selective
investment
We will work to improve the profitability of existing properties
and intend to increase revenues from property leasing. For
contract renewals involving rent changes, rent increases
exceeded rent decreases on a transaction basis during the first

Honmachi, Chuo-ku, Osaka
January 30, 2014
¥6,200 million¥6,530 million
5.60%
50.72%(100% after acquisition)
S.J. Office Select G.K.

Share
SellerNakanoshima Central Tower
Location
Acquisition date
Acquisition priceAppraisal value

Nakanoshima, Kita-ku, Osaka
March 31, 2014
¥14,900 million(At time of acquisition)¥15,100 million

NOI yield
Share
Seller5.13%
40%
Sumitomo Life Insurance Company

Jingumae M-SQUARE
Location
Acquisition date
Acquisition priceAppraisal value(At time of acquisition)

NOI yield
Share
SellerJingumae, Shibuya-ku, Tokyo
March 5, 2014
¥3,700 million¥3,700 million

7.17%
Land: Fixed-term subsubleasehold for businessLand
Building: Ownership
Building 100%
Mitsui Fudosan Co., Ltd.

NBF Report January – June 201411

Strategies
Portfolio• Make aggressive acquisitions and flexible dispositions• Focus on highly competitive office buildings, primarily in Tokyo CBDs
• Expand assets• Use the Mitsui Fudosan Group pipeline

Investment by Region

NBF’s J-REIT Market Share(As of June 30, 2014)(As of June 30, 2014)

Other Cities¥133.1 billion(12.4%)

23 Wards of Tokyo¥838.2 billion(78.0%)

Total Acquisitions by Seller(Yen in billions)

Other(infrastructure, seniors)(1.4%)
Hotels (2.6%)

1,200

9.0%

362.7
800

219.6

Logistics (9.9%)

Housing(17.6%)¥1,074.4 billion
73 properties
Other
Greater Tokyo¥103.1 billion(9.6%)

Total
acquisition
price¥11,934.1
billion400

Office48.0%

0Retail facilities(20.5%)

5 Wards of Central Tokyo¥552.9 billion (51.5%)

Approx.
60%*

2H/’11
21st
Period1H/’1222nd
Period2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
PeriodAcquired from Mitsui Fudosan and funds that it manages
Acquired through Mitsui Fudosan brokerage

Source: Asset management companies, compiled from publicly
available information

Not acquired from Mitsui Fudosan or one of the funds it manages
Properties acquired when NBF began managing properties*Ratio to total acquisitions since the initial public offering in September 2001

Leasing• Use the sales capabilities of the Mitsui Fudosan Group for leasing andtenant retention• Maintain a high occupancy rate

Average Occupancy Rate and Total Rentable Area
(10,000m2 )

(%)

180

100
97.3

95

96.8

96.7

95.5

97.0

93.3

90

91.2

91.0

91.1

91.5

120
105.6

85

82.8
76.4

77.0

77.0

76.3

76.3

Jun.
Dec.
2008
2008
Source: Miki Shoji Co., Ltd.

Jun.
2009

Dec.
2009

Jun.
2010

Dec.
2010

NBF Report January – June 2014

90.8

Jun.
2011

150

92.2

91.0

NBF’s total rentable floor area (right scale)
NBF’s average occupancy rate (left scale)Market average occupancy rate (Tokyo business districts; left scale)

12

97.0

93.3
91.2

92.2

0

97.1

93.9

93.7

75.1

97.8

95.4
93.4

95.8

96.8

97.5

86.1

Dec.
2011

89.3

91.4

Jun.
2012

Dec.
2012

103.8

107.4

90

Jun.
2013

Dec.
2013

Jun.
2014

0

Property
Management• Use the comprehensive capabilities of the Mitsui Fudosan Group• Maintain and increase asset value through strategic investment• Use NBF’s exclusive PM company to deliver high-quality management

Property Management Structuret'PSNVMBUFBOEFYFDVUFNBOBHFNFOUBOEPQFSBUJPOQMBOTt'PSNVMBUFBOEFYFDVUFMBSHFTDBMFSFQBJSQMBOTt"QQSPWBMGPSNBKPSJTTVFTQQK/JQQPO#VJMEJOH'VOE.BOBHFNFOU[AM exclusive to NBF]

Cooperation
C
Co
ti n
/#'0GmDF.BOBHFNFOU[PM exclusive to NBF]t/FXUFOBOUMFBTJOHHt1SPWJEFTNBOBHFNFOUBOEPQFSBUJPOFYQFSUJTFBOEPQFSBUJOHTZTUFNTt0WFSBMMNBOBHFNFOUPGTVCMFBTFEQSPQFSUJFT

Financialt0WFSBMMQSPQFSUZNBOBHFNFOUFYDMVEJOHTVCMFBTFEQSPQFSUJFT
MM QSPQFSUZ NBOBHFNFOU FYDMVEJOH
TVCMFBTFE QSPQFS
t3FTQPOETUPFYJTUJOHUFOBOUT
t6OJmFEBENJOJTUSBUJPOPGNBOBHFNFOUJOGPSNBUJPOGPSBMMPQFSBUJOHQSPQFSUJFT• Maintain a conservative LTV of 36-46% and a long-term fixed-rateinterest-bearing debt ratio of 90% or higher to enable flexible financing
and acquisitions• Diversify debt to reduce financial risk

LTV and Long-Term Fixed-Rate Interest-Bearing Debt Ratio

Debt Maturity Schedule(%)(Yen in billions)70

Long-term fixed-rate interest-bearing debt ratio: 90% or higher

100
97.5

97.7

80

94.2

95.0

94.7

99.6

96.4

60
50

60
40

92.2

Long-term debt
Investment corporation bonds
Short-term debt
Funds procured in 1H/2014 (26th Period)40

LTV: 36-46%

30
42.5

42.6

44.2

42.9

44.4

45.2

43.8

43.1

20

20
10
0

0
2H/’1019th
Period1H/’1120th
Period2H/’11
21st
Period1H/’1222nd
Period2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
Period2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
(Calendar year)(As of June 30, 2014)

NBF Report January – June 201413

Highlights
Performance
Total Operating Revenues¥36,562

Net Income

million¥12,771-1.5%

million-3.8%

Total Assets*

Average Occupancy Rate

¥1,041billion

+1.7%

97.0%
-0.1 points*Book value basis

Distribution per Unit

¥8,152¥421,123-¥493*+¥13,691**Based on adjusted figures for the 25th Period reflecting the 2-for-1 investment unit split effective January 1, 201414

NAV per Unit

NBF Report January – June 2014

Management Team and Management Structure(As of June 30, 2014)

Nippon Building Fund Inc. (NBF) is an investment corporation that takes a medium-to-long-term
perspective with the aim of generating steady asset growth and stable profits. NBF continues to do
its utmost for investors.

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

resolutions on the basis of a simple majority of the voting

established with the objective of investing in assets, primarilyrights of unitholders in attendance, unless otherwise stipu-

Designated Assets as defined by the Investment Trust Law oflated by laws, regulations or NBF’s articles of incorporation.

Japan. NBF entrusts the management of its assets to

Decisions on substantive matters such as changes in the

Nippon Building Fund Management Ltd., which is an asset

articles of incorporation require the attendance ofmanagement company.

unitholders that control a simple majority of total units issued

NBF’s primary investment objective is to achieve sustain-

and outstanding, and a two-thirds majority of the voting

able growth in portfolio value and stable profits on arights of such unitholders. In addition, any change in themedium-to-long-term basis. NBF achieves this objective byasset management policies and standards, which are stipu-

investing in real estate consisting of buildings primarily used

lated by NBF’s articles of incorporation, requires an extraor-

for offices with their underlying land located in the central

dinary resolution of unitholders as outlined above.

business districts (CBDs) of Tokyo, other Greater Tokyo andother cities in Japan. NBF also invests in securities, beneficiary certificates representing beneficial interests in trusts

Executive Directors, Supervisory Directors andthe Board of Directors
NBF’s articles of incorporation stipulate that NBF mustand other assets backed by office properties.

have one or more executive directors and four or fewer

General Meeting of Unitholders

supervisory directors, but the number of supervisory direc-

Specific matters pertaining to NBF that are subject to thetors must always be at least one greater than the number of

Investment Trust Law of Japan or the Company’s articles ofexecutive directors. As of June 30, 2014, NBF had one

incorporation are decided by resolution of the General

executive director and three supervisory directors.

Meeting of Unitholders, which convenes at least once every

NBF’s executive director is responsible for business

two years, in principle. The eighth General Meeting ofexecution and has authority for all judicial and extrajudicial

Unitholders convened on March 14, 2013. The date of theproceedings related to the operations of NBF. Supervisorynext General Meeting of Unitholders has not been set.

directors are responsible for supervising execution by the

The General Meeting of Unitholders adopts or vetoes

executive director.

General Meeting ofUnitholders

Sumitomo Mitsui
Trust Bank, Ltd.

Asset Management
Entrustment

Asset Custody
Entrustment

Asset Custody

NIPPON BUILDING FUND Inc. (NBF)

Mitsui Fudosan Co., Ltd.

Office Management
Entrustment

Board of Directors

NBF Office Management Co., Ltd.

Borrowings /Bonds and Notes
Debt Service

NIPPON BUILDINGFUND MANAGEMENT Ltd. (NBFM)

Qualified Institutional
Investors / Bondholders
Independent Auditors
KPMG AZSA LLC

Liabilities

Office Management

AssetsInvestment

Real Estate, etc.
Rent, etc.

Unitholders’EquityInvestment

Unitholder

Distribution

Unitholder

Trading

NBF Report January – June 201415

Management Team

From left: Tetsuro Tsugawa, Tsutomu Nishikawa, Yoshiyuki Hirai, Yutaka Fukaya

Name

Career Summary

Executive Director

Tsutomu Nishikawa

Supervisory Directors

Yoshiyuki Hirai
Tetsuro Tsugawa
Yutaka FukayaAppointed Executive Director of NBF in March 2011 after serving as an executive officer of
Mitsui Fudosan Co., Ltd. Reappointed in March 2013.
Appointed Supervisory Director of NBF in March 2009 and reappointed in March 2013. Real Estate Appraiser.
Appointed Supervisory Director of NBF in March 2013. Attorney.
Appointed Supervisory Director of NBF in March 2013. Certified Public Accountant and Certified Public Tax Accountant.

The Board of Directors consists of the executive andsupervisory 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 that16

The terms of office of the executive director and supervi-

The executive director serving as of June 30, 2014 was

executive and supervisory directors may not participate inelected with the consent of all unitholders on March 14,

decisions in which they have a vested interest. Executive and2013. The three supervisory directors and the substitutesupervisory directors with such financial interest shall not be

executive director were elected at the General Meeting ofincluded in the number of executive and supervisory directors

Unitholders held on March 14, 2013, and assumed office on

in attendance for such decisions.

March 17, 2013.

NBF Report January – June 2014

Management Team and Management Structure

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 aJapan. Major events in the history of NBFM are as follows.

limited liability company duly established under the laws of
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 June 30, 2014)
Numberof Shares Owned

Percent

Mitsui Fudosan Co., Ltd.

4,257

43.0%

Sumitomo Life Insurance Company

3,465

35.0

Sumitomo Mitsui Trust Bank, Limited

495

5.0

Sumitomo Mitsui Banking Corporation

495

5.0

Name

Daido Life Insurance Company

297

3.0

Mitsui Sumitomo Insurance Co., Ltd.

297

3.0

Mitsui Life Insurance Company Limited

297

3.0

Britel Fund Trustees Limited
Total

297

3.0

9,900

100.0%NBF Report January – June 201417

Management Structure
General Meeting of Shareholders
AuditorBoard of Directors

Compliance Committee

Executive Board
Risk Management Board
CEOInvestment
Review Board

Accounting Auditor

Compliance
Officer

Real EstateManagement
Team

Investment & FinanceGroup

Real Estate
Investment
Team

Research
Team

Corporate Operation
Group

Financial
Team

Fund
Operation
Team

Corporate
Planning &Administration
Team

Risk
Management& ComplianceTeam& Finance Group and the Corporate Operation Group also

Management Structure of
Nippon Building Fund Management Ltd.

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.

Nippon Building Fund Management Ltd. Management Team
Name

Title

Career Summary

Kenichi Tanaka

President and CEO

Apr. 1982
Apr. 2007
Apr. 2010

Koji Matsufuji

Director, Chief
Investment Officer,
Chief Financial Officer

Apr. 2012
Apr. 1987
Apr. 2005
Apr. 2006
Apr. 2007
Apr. 2010
Apr. 2013

18

Joined Mitsui Fudosan Co., Ltd.
General Manager, Operating Administration Department of Mitsui Fudosan Co., Ltd.
General Manager, Residential Leasing Business Department, Accommodations Business Division of
Mitsui Fudosan Co., Ltd.
Appointed President and CEO of Nippon Building Fund Management Ltd. (current position)
Joined Mitsui Fudosan Co., Ltd.
Manager, PM-II, Kansai Branch of Mitsui Fudosan Building Management Co., Ltd.
Associate General Manager, Kansai Branch of Mitsui Fudosan Building Management Co., Ltd.
Executive Manager, Development Planning Group, Regional Development Department, Retail Properties Division of
Mitsui Fudosan Co., Ltd.
General Manager of Business Promotion Department of NBF Office Management Co., Ltd.
Appointed Director, Chief Investment Officer and Chief Financial Officer of Nippon Building Fund Management Ltd.
(current position)

Masahiko Misao

Director, Chief
Operating Officer

Apr. 1980
Apr. 2003
Mar. 2008
Apr. 2012

Joined Sumitomo Life Insurance Company
General Manager, Real Property Department of Sumitomo Life Insurance Company
Director and General Manager, Commercial Operation Department, Shinagawa Intercity Management Co., Ltd.
Appointed Director and Chief Operating Officer of Nippon Building Fund Management Ltd. (current position)

Hiromu Yamanaka

Director (Part-time)

Apr. 2013

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

Hiroshi Yabuki

Director (Part-time)

Apr. 2013

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

Yasushi Akimoto

Auditor (Part-time)

Apr. 2013

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

Kenshi Ueda

Auditor (Part-time)

Apr. 2013

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

NBF Report January – June 2014

Management Team and Management Structure

Compliance Initiatives
The management of NBF and Nippon Building Fund

Nippon Building Fund Management Ltd.
Nippon Building Fund Management Ltd. formulates aManagement Ltd. conduct honest and appropriate business

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

activities while maintaining rigorous compliance by adhering toManagement Policy and an Annual Management Plan to

all relevant laws and regulations, based on a high level of corpo-

follow in managing NBF’s assets. In addition, Nippon Building

rate ethics.

Fund Management Ltd. has set Asset Management

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

Guidelines as a set of standards to follow.

of Directors’ meetings are to be held at least once every three
At Board meetings, the executive director reports on the execu-

Policy and Management System for
Dealing with Conflict of Interest Transactions

tion of his duties and supervisory directors ensure that oversightFundamental Policy on Conflict of Interest Transactions

months. In practice, NBF holds such meetings once a month.

and check-and-balance systems are functioning properly.
Nippon Building Fund Management Ltd. views compliance

Nippon Building Fund Management Ltd. is constantly
aware of its accountability to NBF and NBF’s unitholders withas a management strategy, with a fundamental complianceregard to any transactions in which the interests of NBF andpolicy of conducting operations honestly and fairly while

the interests of Nippon Building Fund Management Ltd. andmaintaining a rigorous compliance system based on a high level

its related corporations or customers may conflict. Nipponof corporate ethics. Specifically, Nippon Building Fund

Building Fund Management Ltd. follows voluntary rules stipu-

Management Ltd. has established a Compliance Committee,

lated in laws and internal bylaws to proactively prevent

consisting of the Compliance Officer, the president, the head ofconflicts of interest.

the Investment & Finance Group, the head of the Corporate

All decisions made in executing the management of NBF’s

Operation Group and an outside committee member. Initiatives

assets are subject to the approval of the president, and are

to enhance awareness of and adherence to compliance include

made after going through discussions by the Investment

the establishment of Compliance Rules and a Compliance

Review Board and Executive Board of Nippon Building Fund

Manual. In addition, a Compliance Program is formulated eachManagement Ltd. Sponsor companies are not permitted toyear to verify the progress of the execution plan for that year

intervene in the decision-making process.

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.

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.

NBF
NBF’s Risk Management Regulations define risk manage-

The voluntary rules require the Investment Division, which
initiates the transaction, as well as the Compliancement policies and procedures. The Risk Management Board

Department, the Asset Management Examination Meeting andconvenes once every three months and undertakes delibera-other units to protect NBF’s managed assets and profits bytion, monitoring and other initiatives to ensure that the

fully examining the transaction contents according to theentrusted asset managers are conducting their duties with duevoluntary rules set in the internal bylaws in the event of acare in good faith in a manner consistent with its fiduciary dutytransaction in which the interests of Nippon Building Fundto the conservation and maintenance of entrusted assets.

Management Ltd. and parties that have interests in Nippon
Building Fund Management Ltd. may conflict with the interests of NBF. These rules are designed from the standpoint ofaccountability to NBF and its unitholders.
In examining the transaction contents, Nippon Building
NBF Report January – June 201419

Management Team and Management Structure

Fund Management Ltd. solicits the opinions of attorneys,

price of each item, provided, however, that national

certified tax accountants and other third-party experts as

consumption tax, regional consumption tax and miscellaneous

needed. In addition, when purchasing real estate or othercosts of acquisition are excluded) multiplied by the following

assets from parties that have interests in Nippon Building

percentage rates will, in principle, be payable, provided,

Fund Management Ltd., the purchase price is strictly set, in

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

principle no higher than the appraised value according to acompensation may be calculated using different rates notreal estate appraiser with no vested interest.

exceeding the following rates.

Asset Management Fee Structure●

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

Operation
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
management of the general affairs of the general meeting ofunitholders 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 ofInstitutions.

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,compensation equivalent to the total amount of the acquisition
price of said Real Estate, etc. (meaning the acquisition price ofboth land and buildings, and in the event of the simultaneous
acquisition of multiple units of Real Estate, etc., the acquisition

20

NBF Report January – June 2014

Investment and Distribution Policies
Investment Policies of NBF

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

Area Analysis

Tokyo CBDs

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

23 wards of Tokyo with a focus
on the 5 central wards of
Chiyoda, Chuo, Minato,
Shinjuku and Shibuya

achieves this objective by investing in real estate consisting of buildings■

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

■

Relatively low yearly NOI yields.

■

Relatively high liquidity at the time of sale.

■

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

primarily used for offices with their underlying land located in the Tokyo

Other Greater Tokyo

central business districts (hereinafter “CBDs”), Other Greater Tokyo andrepresenting beneficial interests in trusts (hereinafter “beneficiary

Neighboring cities (see Note 1
below) such as Musashino,
Tachikawa, Yokohama, Kawasaki,
Chiba, Kashiwa, Saitama, etc.

certificates”) and other assets backed by office properties (collectively

Total of above two areas: 70% or more

Other Cities in Japan as well as securities, beneficiary certificateshereinafter “Real Estate, etc.”) (“Investment Objectives and Policies,”
Articles of Incorporation). (Reference to laws, legal documents, etc. usedas the basis or sources hereof are set forth in parenthesis herein.)

B. Investment Strategy
Nippon Building Fund Management Ltd. (“NBFM”), based on the

Other Cities
Principal regional cities such as
Sapporo, Sendai, Niigata,
Shizuoka, Hamamatsu, Nagoya,
Kyoto, Osaka, Kobe, Okayama,
Hiroshima, Takamatsu, Fukuoka,
Kumamoto, etc.

■

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

■

Relatively high yearly NOI yields.

■

Relatively low liquidity at the time of sales.

investment strategy of NBF set forth below, invests and manages the

Total of above area: 30% or lessassets of NBF. NBFM has established asset management guidelines

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

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

(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 theportfolio and on consideration of a quantitative proportion of the officestock located in the various regions of Japan.

Area Diversification
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 more of total investment assets (Real Estate,etc.) are allocated to Tokyo CBDs and Other Greater Tokyo and 30% or(2) Acquisition Strategya) Ratio of Real Estate Assets
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, 2014, NBF satisfied the criteria.
The “Designated Real Estate Ratio” means the ratio of the total
amount of Designated Real Estate to the total amount of Designated
Assets owned by NBF.
Note: Designated Real Estate includes real estate, real estate leasehold rights, superficies
and beneficiary certificates backed by real estate, land leasehold rights and superficies(as designated under Article 83.4.3.1 of the Special Taxation Measures Law of Japan).

less 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 andPolicies,” Articles of Incorporation). The details of the relevant criteria are
NBF Report January – June 201421

NBF. For this purpose, “leased/leasable assets” shall mean property with

set forth in the following table.
Though 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“leasable” thereafter (including such cases as reconstruction or large-

Scale of building

Points to be reviewed■

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

■

Desired total net rentable area is 1,650m2(approximately 500 tsubo) or more.

■

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

Construction type andspecifications of facilities■

Earthquake resistance■

Measures regarding
status of legal title

■

●

●

Tenancy characteristics■

Environmental:
condition of land, etc.

■

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

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

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

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

Ensure that construction quality exceeds
earthquake standards (meaning those required
pursuant to the Building Standards Law asamended in 1981) or standards equivalent
thereto (obtain structural appraisal/assessment (appraisal/assessment of the building
structure pursuant to the Building Standards
Law conducted by The Building Center ofJapan), etc.).

increasing occupancy rates, extending the term of leases and rendering

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

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

Measures to protect security deposits, policies and measures regarding cash reserves
for long-term renovation plans.

NBF is entitled to establish reserves for long-term renovations required

Appropriate measures regarding demands fordivision of co-owned interests or the sale ofa co-owner’s interest, etc.

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

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

a) Reserves for Long-Term Renovations

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

renovations, repairs and tenant improvements will be determined based on

From the reserves set forth above, a portion corresponding torenovation plans for each building.

b) Measures to Avoid Reductions and Fluctuations inc) Uncompleted or Unleasable Properties
In principle, NBF acquires Real Estate, etc. which are leased/leasable

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

assets at the time of closing. NBF may acquire a property which is notincome due to fire damage, withdrawal of tenants and so forth, efforts,

yet leasable at the time of closing based on consideration of the impact

such as area diversification and obtaining adequate fire and casualty

on NBF’s asset management activities after taking into account theinsurance, etc., will be exerted.

investment amount, the date of completion or of becoming leasable,
estimated revenue and so forth, provided, however, that the contract
amount of any such unleasable asset combined with the total contract
amount of previously acquired unleasable assets (but excluding
unleasable assets which thereafter become operational) will not exceed
10% of the total assets indicated on the most recent balance sheet of
22

NBF Report January – June 2014c) Disposition
In disposing of individual operating properties, selections will be madethrough comprehensive research and analysis based on the forecasted
income, actual and predicted fluctuations in asset value, future prospects
and stability of the area of location, risks of deterioration andInvestment and Distribution Policies

obsolescence of real estate and predicted costs thereof as well as thedisseminate fair and unbiased information to all its investors without

composition of the portfolio, etc. Sell/hold studies will be periodicallydelay. In addition to conducting disclosure in the style required by theundertaken with respect to all operating properties (“Investment

Investment Trust and Investment Corporation Law of Japan, the Financial

Objectives and Policies,” Articles of Incorporation).

Instruments and Exchange Law of Japan, the Tokyo Stock Exchange, theInvestment Trusts Association and other laws and organizations, NBF also

(4) Financial Policies

voluntarily discloses information it deems necessary for investora) Issuance of Unitsdecision-making.

NBF may issue units in order to undertake acquisition and renovation andso forth of assets and to provide allowance for funds required for working
capital as well as for the repayment of debt (including security deposits, borrowings and repayment of obligations regarding NBF bonds, etc.).

a) Appraisal Value, etc.
In the event that NBF undertakes asset valuation for the purpose of
disclosure in Performance Information Reports, etc. using methods andstandards different from those it has set forth, (a) the disclosure valueb) Debt Financing
NBF may raise capital (including use of the call loan market) and issue

to be used for real estate, real estate leasehold rights and superficies
will, in principle, be the appraised valuation provided by a certified real

bonds in order to undertake acquisition and renovation and so forth of

estate appraiser, and (b) the disclosure value to be used for beneficiary

assets and to provide allowance for funds required for working capital as

certificates, equity interests of tokumei kumiai and equity interests ofwell as for the repayment of debt (including security deposits, borrowings

partnerships for which respective assets are real estate, real estate

and repayment of obligations regarding NBF bonds, etc.) (“Investment

leasehold rights or superficies will be the calculated value of equity

Objectives and Policies,” Articles of Incorporation).

interests of each based on the value of their respective assets as

Borrowings are limited to those from Qualified Institutional Investors as

determined in (a) plus the fair value of any financial assets as

specified in the Financial Instruments and Exchange Law of Japan, in

determined in conformity with generally accepted accounting principles,case capital is borrowed. Further, the total limit on all such borrowings

less trust and total tokumei kumiai liabilities (Articles of Incorporation).

and issues of NBF bonds will be ¥1,000,000 million. When undertaking

The appraisal value of property with respect to the periodborrowings or when issuing NBF bonds, NBF may provide operating

commencing on the acquisition thereof and ending on the date ofassets as collateral (Article 15 of the Articles of Incorporation).

disclosure of such value with respect to the next following closure of
NBF’s accounting term shall be the acquisition price of the said propertyc) Loan-to-Value Ratio
The ratio of the total amount of borrowings and issues of NBF bonds
to the total amount of assets of NBF (loan-to-value ratio) is envisioned to(excluding miscellaneous acquisition costs, fixed assets tax, cityplanning tax and consumption tax) as stated in the sale and purchase
contract, etc. for the said property.

be limited to 56%, but may temporarily exceed 56% when acquiringcertain assets, etc. (medium-to-long-term operating asset management
policy and annual management plan established by the AssetManagement Company).

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

(5) Disclosure Policy
NBF’s policy on disclosure is to earn recognition from society byshowing itself to be an open and transparent investment company. It also
works at all times to engender an environment in which it can

NBF Report January – June 201423

Investment Objectives of NBF(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

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.

and Managed Assets principally referred to in paragraphs (1) and (2)above)(9) Beneficiary Certificates of Money Trust (limited to those the trust
assets of which are primarily invested and Managed Assets referred toin paragraph (1), (3) or (4) above, provided, however, that those thatare deemed securities are excluded)

A. Principal Investment Objectives among
Designated Assets
NBF will principally invest in the below-listed Designated Assets withthe objective of assuring steady growth and stable profits from theB. Other Investment Objectives among
Designated Assets
NBF may, in the course of efficiently managing funds or in other cases

Managed Assets.

as necessary, invest in the following Designated Assets.

(1) Real estate, real estate leasehold interests and superficies(1) Bank deposits(2) Beneficiary Certificates backed by real estate, real estate leasehold(2) Certificates of deposit issued by Japanese legal entities

rights and superficies, including inclusive trusts consisting of funds(3) Call loans

appurtenant to real estate(4) Japanese government bonds, notes and bills (meaning those(3) Tokumei kumiai ownership interests as defined by Article 535 of theCommercial Code 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)(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 2.1.1 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) Designated bonds of Special Purpose Companies (meaning thosespecified in Article 2.2.5 of the Financial Instruments and Exchange

specified in Article 2.1.4 of the Financial Instruments and Exchange

Law of Japan)

Law of Japan, provided, however, that this is limited to asset-backed(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 tosecurities principally referred to in paragraphs (1) and (2) of section
A above)(8) Monetary claims (limited to those claims that are deemed

those the assets of which are primarily invested and Managed Assets

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

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

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

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

Japan, provided, however, that this is limited to those the assets ofwhich are primarily invested and Managed Assets principally referred(1) Equity interests of partnerships, excluding assets in section A,
paragraph (4)to in paragraphs (1) and (2) above)(2) Easements(3) Trademark rights

24

NBF Report January – June 2014

Investment and Distribution Policies(4) Copyrights

the right to allow for long-term reserve for renovations, reserve for pay-

(5) Chattels

ables, reserve for cash distributions and other reserves and allowances(6) Emission credits (including emission credits for greenhouse gases) orother similar carbon dioxide equivalent quotas based on the Act onsimilar thereto which are deemed necessary for maintaining or enhancing
the assets of NBF.

Promotion of Global Warming Countermeasures of Japan (Act No. 117
of 1998, including subsequent revisions)(7) Requisite ancillary rights to Designated Assets referred to in
section A(3) Earnings retained and not allocated to cash distributions or otherwise available for distribution as of the closing date will be managed inaccordance with “Investment Objectives and Policies” in the Articles
of Incorporation.

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.

B. Distribution in Excess of Earnings
A registered investment corporation is allowed to distribute cash to its
unitholders in excess of the Distributable Amount under the Financial
Instruments and Exchange Law of Japan, although the Investment Trusts
Association of Japan has established rules such that a corporate-style
J-REIT may pay out the excess of retained earnings for the period up to a
maximum of 60% of depreciation for the period. NBF is entitled to makecash distributions of the amounts described below in excess of theDistribution Policies of NBF

Distributable Amount in the following cases, provided, however, that the
maximum amount of such distributions will be the amount set forth in the

A. Distributions of Profits
A registered investment corporation may deduct its cash dividends ofprofits from taxable income under Japanese tax regulations if it distributes to
its unitholders in excess of 90% of its taxable income and complies withother organizational and operational requirements. NBF intends to make dividend distributions that ensure that NBF satisfies those requirements.
NBF will, in principle, effect distributions in accordance with the following policies (Article 14.1 of the Articles of Incorporation).

(1) NBF’s earnings available for distributions are based on 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
assets of NBF (hereinafter, “Distributable Amount”) shall be the amount of
profit (the amount of net assets on the balance sheet less the amount of
total expenses, capital surplus reserves and estimated or equivalent variances) calculated on each closing date.

(2) The amount of cash distributions will be determined by NBF, suchamount being in excess of 90% of earnings available for dividends of NBF
set forth in Article 67.15 of the Special Taxation Measures Law of Japan(hereinafter “Distributable Earnings”), provided, however, that the maximum amount of distributions will be the Distributable Amount. NBF has

rules of the Investment Trusts Association of Japan (Article 14.2 of the
Articles of Incorporation).

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

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

NBF Report January – June 201425

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

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

14.3 of the Articles of Incorporation).

referred to in “Investment Objectives of NBF, A. Principal Investment
Objectives among Designated Assets,” paragraphs (1) and (2).

D. Prescription for Cash Distributions, etc.
NBF will be discharged from the obligation to pay distributions of

The real estate held by such funds may not include any real estate
located outside of Japan (Articles of Incorporation).

profits three calendar years from the date of commencing payment.
Interest will not accrue on unpaid distributions (Article 14.4 of the
Articles of Incorporation).

(5) Compliance with Laws and Regulations
The Managed Assets of NBF will be managed in compliance with the
Financial Instruments and Exchange Law of Japan and related regulations, the rules stipulated by the Investment Trusts Association (asInvestment Restrictions

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

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.

B. Compliance with the Financial
Instruments and Exchange Law and theInvestment Trust Law of Japan
NBF is subject to restrictions on investment under the Financial
Instruments and Exchange Law and the investment Trust Law of Japan.

(1) Investment Location and Currencies

Main restrictions are as follows.

NBF will invest neither in real estate located outside of Japan nor in
assets denominated in non-Japanese currencies (“Investment Objectives(1) Pursuant to Article 198.1 of the Investment Trust Law of Japan, aand Policies,” Articles of Incorporation).

registered investment corporation must entrust business related toasset management to an asset management company registered as a(2) Borrowing
See “Investment Policies of NBF, B. Investment Strategy, (4) Financial
Policies.”

financial instrument firm, but an asset management company isprohibited from performing certain acts related to the business ofmanaging the assets of said investment corporation. As a result, aninvestment corporation is subject to certain investment restrictions (all(3) Concentration of Investment
There is no limitation on concentration of investment. See “Investment

references in parentheses below are to the provisions of the Financial
Instruments and Exchange Law of Japan, except where stated other-

Policies of NBF, B. Investment Strategy, (1) Strategy for Creation of thewise) besides restrictions applied to a registered investment

Portfolio.”

corporation. NBF will naturally comply with such investment restrictions,a general overview of which follows.

(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 toa) 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 andExchange Law that are considered unlikely to result in failure to protect
the interests of unitholders, damage fair transactions or discredit thefinancial instruments business.

26

NBF Report January – June 2014

Investment and Distribution Policiesb) Reciprocal Transactions with Managed Assets (§ 42.2.2)(a) foreign entities including corporations for their own account (asstipulated by Cabinet Office Ordinance §126.3)

Transactions between asset management companies of investment(b) entities that hold more than 50/100 of the total amount of invest-

corporation assets are prohibited except for certain cases specified in theprovisions of the government ordinance regarding the Financial

ment securities representing underlying managed assets issued in

Instruments and Exchange Law of Japan that are considered unlikely tothe two most recent fiscal years, as defined by §2.8.1-3, §2.8.8
and §2.8.9 of the Financial Instruments and Exchange Law (limited

result in failure to protect the interests of unitholders, damage fair trans-

to investment securities that give holders rights in the said managed

actions or discredit the financial instruments business.

assets and such rights)(viii) Other activities prohibited by Cabinet Office Ordinance 130c) Transactions for the Benefit of Third Parties (§ 42.2.3)

An asset management company may not undertake transactions incertain financial instruments, indices or options based on fluctuations in theprice, index, value, or amount of consideration related to transactions in theassets of an investment corporation, without a legally valid reason, with theobjective of benefiting a third party other than NBF or said investment.
d) Transactions Harmful to the Interests of NBF (§ 42.2.4)

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(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 and outstanding 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

the interests of the investment.

accept them for the purpose of pledge, unless it acquires units issued bye) Other Transactions Defined by Cabinet
Office Ordinances

itself 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.

In addition to the above, the following activities are prohibited(§42.2.7 of the Financial Instruments and Exchange Law, Cabinet Office
Ordinance §130).
(i)

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

Transactions for the benefit of the investment management company
or third parties that would be harmful to the interests of theinvestment corporation(iii)

Transactions for the benefit of third parties that are not necessary
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)

An investment corporation (subsidiary), a majority of the units of which
is owned by another investment corporation (parent), may not acquire theunits of such parent investment corporation except in the following cases:●

when acquired from another investment corporation as the surviving
entity of a merger; or●

when purchasing units pursuant to a government ordinance regarding
the Investment Trust Law of Japan.

The sale or purchase of investment securities, or similar transactions,with the objective of unfairly inflating transaction amounts or artificiallyinflating prices(vi)(4) Restriction on Acquisition of Parent
Corporation’s Units by Subsidiary Corporation(§ 81.1.2)

Transactions between third parties and their agents (excluding specifictransactions to which rights holders have agreed pursuant to advance

C. Other Restrictions

explanation of the rationale for the transaction)

Subscription and Margin Trading of Securities(vii) When entities as specified below engage in underwriting investment
securities or other transactions, requested tenders or acquisitions of

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

investment securities when the subject investment securities to beacquired by or the amount subscribed under the tender agreement by
the said underwriter differ from the planned amounts

NBF Report January – June 201427

Management’s Discussion and Analysis
Summary of Selected Financial Data

26th Period
from January 1, 2014 toJune 30, 2014

25th Period
from July 1, 2013 to
December 31, 2013

24th Period
from January 1, 2013 toJune 30, 2013

Yen in millions, except per unit data or where otherwise indicatedOperating revenues
Note 2
Revenues from property leasing
Gain on sale of investment properties
Operating expenses
Rental expenses
Loss on sale of investment property
Ordinary income
Net income(a)Funds from operations
Note 3
Net operating income from property leasing activities Note 3
Total amount of cash distribution(b)
Depreciation and amortization
Capital expenditures
Total assets(c)Interest-bearing debt
Net assets(d)Total number of units issued (Units)*(e)
Net assets per unit (Yen/$)*(d) / (e)Distribution per unit (Yen/$)*(b) / (e)Funds from operations per unit (Yen/$)*Note 3
ROA
Note 3(Annual rate)
ROE
Note 3(Annual rate)
Loan to value (LTV)
Note 3
Capital ratio(d) / (c)Payout ratio(b) / (a), Note 4
Number of days
Number of investment properties
Note 5
Number of tenants
Note 5
Total rentable area (m2)Occupancy rate (Average)
Note 5¥36,562
34,6591,903
20,763
19,254—
12,772
12,771
17,94622,482
11,5117,077
1,646
1,040,572
448,500
534,821
1,412,000
378,768
8,152
12,8181.2%(2.5%)
2.4%(4.8%)
43.1%
51.4%
90.1%
181
73
1,546
1,074,857
97.0%¥

37,13534,8452,290
20,737
18,910286
13,27813,277
18,203
22,864
11,965
6,930
1,981
1,022,812
447,875
519,198
692,000
750,286
17,29026,304
1.3%(2.6%)
2.6%(5.1%)
43.8%
50.8%
90.1%
184
71
1,481
1,038,549
97.1%¥

35,72033,623
2,097
19,904
18,285—
12,942
12,941
17,542
22,036
11,6636,698
1,704
1,047,992
473,250
517,584
692,000
747,954
16,85425,714
1.3%(2.7%)
2.7%(5.4%)
45.2%
49.4%
90.1%
181
74
1,524
1,055,729
97.8%

26th Period
from January 1, 2014 toJune 30, 2014
U.S. dollars in thousands
except per unit data (Note 1)$ 360,995
342,210
18,785205,006
190,103—
126,108
126,098
177,189
221,982
113,652
69,876
16,252
10,274,212
4,428,318
5,280,617
3,740
80.5
126.6

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥101.28 = U.S.$1.00, the approximate exchange rate on June 30, 2014.
2. Operating revenues do not include consumption tax.
3. All valuations are calculated through the following formulas. The figures in parentheses after ROA and ROE are annualized based on the six-month figures for the period.
Funds from operations: Net income (excluding Gain and Loss on sale of investment properties) + Depreciation and amortization
Net operating income from property leasing activities: (Revenue from property leasing – Rental expenses) + Depreciation and amortization
Funds from operations per unit: (Net income (excluding Gain and Loss on sale of investment properties) + Depreciation and amortization) / Weighted average number of units issued
and outstanding during the period
ROA: 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 means gross number of tenants by building. Occupancy rate, end-tenant basis,is the ratio of gross leased area to total rentable area at the end of the period.
* Effective January 1, 2014, NBF implemented a 2-for-1 unit split of the units held by unitholders registered on the register of unitholders as of December 31, 2013.

28

NBF Report January – June 2014

Operating Environment and Results
During the six months ended June 30, 2014 (the “26th Period”), domestic demand drove economic growth in Japan in the first half of the period
as personal consumption rose sharply due to a surge in demand ahead of the consumption tax increase, while corporate capital expenditures
increased strongly, reflecting robust corporate earnings. From April 2014, demand fell in the wake of the consumption tax increase, particularly inpersonal consumption and housing investment. However, the drop in consumption and production has been gradually easing, and the moderate
recovery of the Japanese economy continued through the period. In the office building leasing market, vacancy rates in central Tokyo declined
steadily as the supply of new properties remained limited and demand associated with floor space expansions within the same properties andrelocations to larger sites was solid. The market recovered steadily, including an upturn in asking rents in Tokyo central business districts (CBDs),
which had been flat, reflecting steady improvement in the supply-demand balance. Strong demand continued in the office building transaction
market, driven by a favorable fund procurement environment along with expectations of medium-term improvement in the office building market. In
Tokyo CBDs, market activity was brisk, including movement toward sales of large-scale properties, and selling prices also continued to rise.
Under these conditions, NBF continued to manage its assets in accordance with its basic policy of investing in high-quality office buildings thatare highly competitive in terms of location, size and facilities, and are expected to generate stable cash flow from rents. During the 26th Period,
NBF acquired the Sakaisuji-Honmachi Center Building (additional acquisition, trust beneficiary interests, acquisition price of ¥6.2 billion), in January
2014, and Jingumae M-SQUARE (real property [building and fixed-term sub-subleasehold for business], ¥3.7 billion) and Nakanoshima Central
Tower (co-ownership, ¥14.9 billion) in March 2014. In addition, NBF disposed of a portion of the GSK Building site in January 2014 (disposition
price of ¥3.0 billion). For properties already in its portfolio, NBF systematically conducted property management, renovations and new construction
to further raise tenant satisfaction. NBF also worked to secure stable revenues from property leasing by setting appropriate rents for new tenants
and revising rents for tenants renewing their lease contracts while keeping abreast of market trends.
NBF’s real estate portfolio as of June 30, 2014 consisted of 73 properties. Total investment on an acquisition price basis was ¥1,074.4 billion.
Total rentable area was 1,074,857 m2. The average occupancy rate after taking master leases into account was 97.0 percent, a 0.1 percentage
point decrease from December 31, 2013 and the total number of tenants was 1,546.

Average Occupancy Rate

Total Investment(Yen in billions)

(%)

1,200

100

1,000

98

800

96

600

94
92

400

90

200
0

0
Jun. 30,
2012

Dec. 31,2012

Jun. 30,
2013

Dec. 31,2013

Jun. 30,
2014

Jun. 30,
2012

Dec. 31,2012

Jun. 30,
2013

Dec. 31,2013

Jun. 30,2014

NBF Report January – June 201429

Overview of Performance
During the 26th Period, gain on sale of investment property decreased, while property taxes and other taxes and dues increased because of
new property acquisitions in the previous year. As a result, operating revenues decreased ¥573 million, or 1.5 percent, to ¥36,562 million,
operating income from property leasing activities decreased ¥529 million, or 3.3 percent, to ¥15,405 million, operating income decreased ¥599
million, or 3.7 percent, to ¥15,799 million, ordinary income decreased ¥505 million, or 3.8 percent, to ¥12,772 million, and net income
decreased ¥505 million, or 3.8 percent, to ¥12,771 million. Distribution per unit was ¥8,152.

(Yen in millions)Operating Income From Property
Leasing Activities

40,000(Yen in millions)Operating Revenues

20,00030,00015,00020,00010,00010,00005,000
01H/’1222nd
Period2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
Period1H/’1222nd
Period2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
PeriodDistribution for the Current Period
Distribution per unit for the current period was ¥8,152. NBF expects to distribute all retained earnings at the current period end remaining after
deducting the amount appropriated to the reserve for advanced depreciation of non-current assets as stipulated in Article 64 of the Special Taxation
Measures Law of Japan to be eligible for special tax treatment (Special Taxation Measures Law of Japan Article 67-15) that allows NBF to deduct its
cash dividends of profits from taxable income.
For the six months ended
June 30, 2014

For the six months ended
December 31, 2013

For the six months ended
June 30, 2013

(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)¥12,771,238—
1,260,614
11,510,624
8,152
11,510,624
8,152
—
—

¥13,276,613—
1,311,933
11,964,680
17,29011,964,680
17,290——¥12,941,753—
1,278,785
11,662,968
16,854
11,662,968
16,854——

Notes: 1. Above cash distributions were paid after the period end.
2. Effective January 1, 2014, NBF implemented a 2-for-1 unit split of its investment units.

Distribution per Unit

Total Amount of Cash Distribution(Yen)(Yen in millions)

10,00014,00012,0008,000

10,000
8,000

6,000

6,000
4,000

4,000

2,000

0
1H/’1222nd
Period2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
PeriodAdjusted for the investment unit split. Rounded down to the nearest yen.

30

NBF Report January – June 20140

1H/’1222nd
Period2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
PeriodManagement’s Discussion and Analysis

Changes in Assets, Liabilities and Net Assets
Assets
As of June 30, 2014, total assets increased by ¥17,760 million to ¥1,040,572 million compared with December 31, 2013. Return on average
total assets (ROA) for the six months ended June 30, 2014 decreased to 1.24 percent from 1.28 percent for the previous six-month period.
Current assets decreased by ¥1,881 million to ¥35,467 million compared with December 31, 2013. Investment properties increased by¥18,908 million to ¥998,078 million compared with December 31, 2013.

Liabilities
Current liabilities increased by ¥2,932 million to ¥62,982 million compared with December 31, 2013, primarily because of an increase in shortterm loans compared with December 31, 2013.
Long-term debt decreased by ¥3,375 million to ¥395,750 million compared with December 31, 2013.
As a result, total interest-bearing liabilities increased by ¥625 million to ¥448,500 million compared with December 31, 2013. However, the ratioof long-term fixed-rate debt (for which the redemption period at the time of contract or issuance is more than one year) to total interest-bearing
liabilities decreased to 96.4 percent as of June 30, 2014 from 99.6 percent as of December 31, 2013.
The loan-to-value ratio, calculated as the ratio of interest-bearing liabilities to total assets, decreased to 43.1 percent as of June 30, 2014 from43.8 percent as of December 31, 2013.
In addition, NBF worked to diversify funding sources. In January 2013, NBF updated a shelf registration to publicly offer up to ¥200 billion inbonds. The unused limit as of June 30, 2014 is ¥190 billion.

Net assets
Net assets increased by ¥15,623 million to ¥534,821 million compared with December 31, 2013.

Total Assets

Net Assets(Yen in millions)(Yen in millions)

1,100,000

600,000
500,000

1,000,000

400,000
300,000

900,000

200,000
800,000

100,000
0

0
1H/’1222nd
Period2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
Period1H/’1222nd
Period2H/’1223rd
Period1H/’1324th
Period2H/’1325th
Period1H/’1426th
PeriodFunding
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, 2014, NBF had issued 1,412,000 units out of 4,000,000 total authorized units.
NBF’s units were listed on the J-REIT section of the Tokyo Stock Exchange in September 2001 upon the completion of a public offering. As theInvestment Trust Law of Japan does not contain any provision for the issue of more than one class of units, NBF’s units comprise the sole class ofunits authorized and issued by NBF.

NBF Report January – June 201431

Issue date

Remarks

Initial capital(private)
May 23, 2001
Private placement
September 8, 2001 Public offering
July 14, 2004
Public offering
Third
party
August 11, 2004 allocation
August 10, 2005 Public offering
March 16, 2006
Public offering
Third
party
March 29, 2006
allocation
February 4, 2008 Public offering
Third party
March 4, 2008
allocation
January 26, 2011 Public offering
party
February 22, 2011 Third
allocation
January 25, 2012 Public offering
party
February 21, 2012 Third
allocation
January 23, 2013 Public offering
January 31, 2013 Third party
allocation
January 1, 2014
Unit split
March 19, 2014
Public offering
Third
party
March 28, 2014
allocation
March 16, 2001

Units issued and outstanding
Increase
Balance(Units)Paid-in capital
Increase

Balance

Notes(Yen in millions)

200

200

100

Note 1

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

98,80049,99958,838100¥

98,900148,899
207,737

Note 2
Note 3Note 44,000

364,700

2,942

210,679

Note 558,00080,000422,700
502,700

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

508,000

5,236

346,446

Note 831,800539,800

37,159383,605

Note 92,200

542,000

2,571

386,176

Note 1034,000576,000

26,957413,133

Note 112,500

578,500

1,982

415,115

Note 1230,000608,500

18,172433,287

Note 134,500

613,000

2,726

436,013

Note 1474,000687,000

63,973499,986

Note 155,000

692,000

4,323

504,309

Note 16

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

Note 17
Note 18

1,500

1,412,000

794

519,125

Note 19

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

Market Price of Units
High/Low (closing price) of units on the TSE:

High
Low

For the six months ended
June 30, 2014

For the six months ended
December 31, 2013
(Yen)

For the six months ended
June 30, 2013

¥609,000
523,000¥623,000
533,000¥717,500
446,000

Note: As of January 1, 2014 NBF implemented a 2-for-1 unit split of its investment units. The above prices before ex-date (December 26, 2013) have been adjusted to reflect the split
for comparative purposes, dividing the price by two.

32

NBF Report January – June 2014

Management’s Discussion and Analysis

Borrowings
Borrowings from financial institutions as of June 30, 2014 are shown below.
Short-term loans
LenderBalance

Averageinterest rate (%)

Due on(Note 1)

Repayment
methodUse of
funds

Notes

July 31, 2014
July 31, 2014
July 31, 2014
July 31, 2014

Bulletpayment(Note 4)

Unsecured/unguaranteed/paripassu, See (Note 5)

Averageinterest rate (%)

Due on(Note 1)

Repayment
methodUse of
funds

Notes

1.8%
1.5%
1.8%
2.0%
2.4%
2.2%
2.2%
1.3%
1.8%
1.8%
1.5%
1.1%
0.8%
0.7%
1.0%
1.8%
1.0%
0.8%
0.6%
1.0%
1.2%
0.7%
0.9%
1.1%
1.1%
1.0%
1.0%
0.5%
0.3%
1.2%
1.1%
1.2%
1.9%
2.1%
1.7%
1.8%
1.0%
1.5%
2.3%
1.0%
0.9%
1.1%
0.9%
1.2%
1.0%
1.5%
1.0%
1.4%
1.3%
1.3%
0.9%

November 28, 2014
September 11, 2015
September 27, 2017
February 15, 2016
May 30, 2018
April 28, 2019
August 30, 2019
July 2, 2023
July 31, 2014
September 30, 2014
March 4, 2016
March 1, 2019
July 31, 2020
February 26, 2021
June 30, 2021
September 30, 2014
June 1, 2017
July 2, 2019
February 28, 2020
May 29, 2020
November 30, 2018
February 7, 2017
February 28, 2022
July 29, 2022
December 30, 2022
February 28, 2023
April 28, 2023
April 28, 2020
June 30, 2017
June 1, 2018
December 30, 2019
March 5, 2021
May 23, 2016
May 23, 2018
July 16, 2014
February 3, 2016
July 19, 2017
September 11, 2015
May 30, 2016
February 28, 2023
September 30, 2022
February 13, 2020
March 29, 2019
March 30, 2021
November 1, 2022
May 30, 2025
December 13, 2023
April 1, 2015
October 19, 2018
May 31, 2019
September 30, 2022

(Note 4)

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

(Yen in millions)

Shinsei Bank, Limited
Mizuho Bank, Ltd.
Resona Bank, Limited.
The Norinchukin Bank¥ 8,000
4,000
2,000
2,000

Total short-term loans¥16,000

0.2%
0.2%
0.2%
0.2%

Long-term loans
LenderBalance(Yen in millions)

Development Bank of Japan Inc.

¥ 4,000
10,00010,00010,00010,0003,750
7,750
10,000Mitsubishi UFJ Trust and Banking Corporation
3,000
1,000
7,000
15,00015,00010,0005,000
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
4,000
4,000
5,000
10,0007,000
Mizuho Bank, Ltd.
7,000
2,000
10,0008,000
Sumitomo Mitsui Banking Corporation
4,000
10,000
5,000
6,000
1,000
Sumitomo Mitsui Trust Bank, Limited.
10,00010,0005,000
Sumitomo Life Insurance Company
5,000
7,000
5,000
3,000
5,000
Zenkyoren (The National Mutual Insurance 10,000
Federation of Agricultural Cooperatives)
10,000Mizuho Trust Banking Co., Ltd.
10,0004,000
MITSUI LIFE INSURANCE COMPANY, LIMITED
2,000
2,000
2,000
2,000
2,000
2,000
Nippon Life Insurance Company
2,000
2,000
2,000
3,000

(Note 2)
(Note 3)

Bulletpayment

NBF Report January – June 2014

Lender

Balance

Averageinterest rate (%)

Due on(Note 1)

Repayment
method

1.0%
0.6%
0.5%
2.0%
1.0%
1.0%
1.0%
0.7%
1.7%
2.1%
2.0%
1.0%
1.0%
0.7%
1.0%
1.0%
0.6%
0.7%
0.6%
0.5%
2.0%
1.6%
0.9%
0.7%
1.8%
0.6%
0.5%
0.9%
1.1%
1.1%
1.3%
0.7%
0.6%
0.4%
0.7%
0.6%
1.5%

June 1, 2017
June 30, 2017
July 12, 2017
October 30, 2015
June 1, 2017
March 8, 2019
June 1, 2017
December 30, 2016
December 15, 2014
July 11, 2014
August 31, 2015
July 2, 2021
May 29, 2020
September 30, 2020
February 25, 2016
May 29, 2020
May 28, 2021
March 3, 2017
June 30, 2017
April 27, 2018
October 31, 2014
February 3, 2015
March 29, 2019
October 2, 2020
March 30, 2015
December 2, 2020
June 26, 2020
January 4, 2017
May 1, 2019
September 4, 2020
April 27, 2022
March 3, 2017
March 27, 2020
December 28, 2015
May 31, 2018
April 30, 2021
May 30, 2025

Use of
funds

Notes

(Note 4)

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

(Yen in millions)

THE BANK OF FUKUOKA, Ltd.

2,000
2,000
4,000
3,000
1,000
3,000
3,000
3,000
1,000
2,000
1,000
1,000
1,000
5,000
2,000
1,000
2,000
2,000
2,000
1,000
1,000
2,000
1,000
1,000
1,000
1,000
2,000
1,000
1,000
1,000
3,000
1,000
1,000
1,000
1,000
1,000
1,000

Resona Bank, Limited.
Shinkin Central BankTAIYO LIFE INSURANCE COMPANY

The Norinchukin BankThe Chugoku Bank, Limited
The Daishi Bank, Ltd.
DAIDO LIFE INSURANCE COMPANY

The Hachijuni Bank, Ltd.

The Yamaguchi Bank, Ltd.
Meiji Yasuda Life Insurance Company
The Joyo Bank, Ltd.
The Yamanashi Chuo Bank, Ltd.
The Gunma Bank, Ltd.
The Iyo Bank, LTD.
Shinsei Bank, Limited

Total long-term loans
Total borrowings (Note 6)

Bulletpayment¥372,500¥388,500

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

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years¥62,750¥24,750¥48,750¥36,250

NBF Bonds
Issue

No. 3 Unsecured Bonds
No. 7 Unsecured Bonds
No. 10 Unsecured Bonds
No. 11 Unsecured Bonds
No. 12 Unsecured Bonds
No. 13 Unsecured Bonds
Total (Note 6)
34

Issue dateJune 12, 2003
November 9, 2005
May 24, 2007
January 28, 2010
September 15, 2011
June 26, 2013

NBF Report January – June 2014

Balance as ofJune 30, 2014
(Yen in millions)¥10,000
10,00010,00010,00010,00010,000¥60,000

Coupon

2.00%
1.85%
2.04%
1.23%
0.64%
1.17%

Maturitydate

Redemption

June 12, 2018
Bullet payment
November 9, 2015 Bullet payment
May 24, 2017
Bullet payment
January 28, 2015
Bullet payment
September 15, 2016 Bullet payment
June 26, 2023
Bullet payment

Use ofproceeds

Notes

Note 1
Note 1
Note 1
Note 1
Note 1
Note 1

Notes 2 and 4
Notes 3 and 5
Notes 3 and 5
Notes 3 and 5
Notes 3 and 5
Notes 3 and 5

Management’s Discussion and Analysis

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.
(Yen in millions)

Investment
corporation bonds

Within 1 year

1 to 2 years

2 to 3 years

3 to 4 years

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

Others
NBF has security deposits totaling ¥46,237 million as of June 30, 2014.

Capital Expenditures
1. Planning
As of June 30, 2014, NBF is planning the following capital expenditures for the renovation of its properties. The amounts below
include repairs and maintenance costs that will be expensed as incurred. Moreover, in addition to a steady program of expenditures
for construction, repair and renovation of facilities, a program of renewal construction is being implemented in order to increase
competitive power in the market as well as to increase the level of tenant satisfaction based on the results of tenant satisfaction
surveys and neighboring competitive building specification surveys, etc.

Name of property

Tsukuba Mitsui Bldg.
NBF Shinkawa Bldg.

Objective

Estimated
duration

Renovation of air conditioning From July 2014 to December 2014
Renovation of power generation From July 2014 to December 2014
facilities (East Building)
Aqua Dojima NBF Tower Renovation of air conditioning From September 2014 to December 2014
NBF Shinkawa Bldg.
Renovation of power generation From January 2015 to June 2015
facilities (West Building)
Tsukuba Mitsui Bldg.
Renovation of air conditioning From January 2015 to June 2015
Yokohama ST Bldg.
Renovation of air conditioning From January 2015 to June 2015
NBF Ikebukuro East
Renovation of air conditioning From November 2014 to March 2015
NBF Ikebukuro East
Renovation of air conditioning From April 2015 to June 2015
Aqua Dojima NBF Tower Renovation of air conditioning From March 2015 to June 2015
NBF Shinkawa Bldg.
Renovation of air conditioning From February 2015 to June 2015
(East Building)
GSK Bldg.
Renovation of exterior
From September 2014 to March 2015
NBF Shinkawa Bldg.
Renovation of air conditioning From July 2014 to December 2014
(West Building)
NBF Shinkawa Bldg.
Renovation of air conditioning From July 2014 to December 2014
(East Building)
NBF Shibuya East
Renovation of air conditioning From December 2014 to March 2015
NBF Shinkawa Bldg.
Renovation of air conditioning From February 2015 to June 2015
(West Building)
Nishi-Shinjuku Mitsui Bldg. Renovation of security system From September 2014 to March 2015
Yokohama ST Bldg.
Renovation of air conditioning From July 2014 to December 2014
Sumitomo Mitsui Banking Renovation of exterior
From February 2015 to May 2015
Nagoya Bldg.
Sun Mullion NBF Tower Renovation of fire alarm system From March 2015 to June 2015
NBF Matsudo Bldg.
Renovation of air conditioning From September 2014 to December 2014
NBF Matsudo Bldg.
Renovation of air conditioning From March 2015 to June 2015
From November 2014 to November 2014
Aqua Dojima East
Renovation of restroom

Totalamounts

Estimated amounts
Payment for thecurrent period
Cumulative(from January 1, 2014 amount paid
to June 30, 2014)(Yen in millions)

¥513
317

¥—
—

¥—
—

292
289

—
—

—
—

256
253
230
230
221
185

—
—
—
—
—
—

—
—
—
—
—
—

175
162

—
—

—
—

161

—

—

150
138

—
—

—
—

136
120
104

—
—
—

—
—
—

98
88
87
23

—
—
—
—

—
—
—
—

NBF Report January – June 201435

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NBF posted ¥1,646 million in capital expenditures
together with ¥719 million for repairs and maintenance expenses.
Name of property

Objective

Expenditure(Yen in millions)

PeriodYokohama ST Bldg.

Renovation of air conditioning, renovation of fire extinguishing facilities,
renovation of mechanical parking lot facilities, etc.
NBF Shinkawa Bldg.
Renovation of air conditioning, renovation of restroom, renovation ofcommon area, etc.
Nakanosakaue Sunbright Twin Renovation of air circuit breaker, expansion of branch power board inelectrical room, etc.
Gate City Ohsaki
Renovation of signboards, renovation of tide plates, renovation of air
conditioning, etc.
NBF Matsudo Bldg.
Renovation of air conditioning, leasehold improvement, installation of
mailboxes, etc.
Parale Mitsui Bldg.
Renovation of fire extinguishing facilities, renovation of common use
department lighting equipment, leasehold improvement, etc.
Other buildings
Asset preservation construction and other renewal construction to
improve tenant satisfaction, etc.
Total

¥ 288
203
153
From January 2014
to June 2014

127
56
50
769
¥1,646

Expenses regarding Entrustment, etc.
The following table sets forth the breakdown of entrustment fees, etc. paid by NBF.
For the six months ended
June 30, 2014

For the six months ended
December 31, 2013
(Yen in millions)

For the six months ended
June 30, 2013

¥1,261
48
49
13
14
124
¥1,509¥1,282
50
48
13
14
134
¥1,541¥1,241
42
52
12
14
258
¥1,619Item

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

36

NBF Report January – June 2014

Management’s Discussion and Analysis

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 by NBF in the current period.
(Yen in millions)
Acquisitions
Name of building

Sakaisuji-Honmachi Center Bldg.
(Additional Acquisition)
Jingumae M-SQUARE
Nakanoshima Central Tower
Total

Date

Acquisition price (Note 1)

January 30, 2014

¥ 6,200

March 5, 2014
March 31, 2014

3,700
14,900¥24,800

Note: 1. “Acquisition price” does not include national consumption tax, local consumption tax and miscellaneous costs of acquisition.
(Yen in millions)
Sale
Name of building

GSK Bldg. (disposition of a portion of site area)
Total

Date

Sale price

January 10, 2014

¥3,085¥3,085

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 bankdeposits included in assets held in trust.

3. Transactions with Related Parties and Transactions with Major Shareholders of AssetManagement Company(1) Ongoing Transactions
Category

Total amount

Breakdown of transactions with related parties, etc.
Mitsui Fudosan Co., Ltd.
Sumitomo Life Insurance Company
Total

Amount of purchase price, etc. (Note 2) (Note 3)
Purchase price, etc. (Yen in millions)
Sale price, etc. (Yen in millions)¥24,800
Amount of purchasesfrom related parties, etc.
¥18,600 (75.0)¥ 3,700 (14.9)
14,900 (60.1)¥18,600 (75.0)¥ 3,085
Amount of sales from
related parties, etc.
¥ —
(—)
¥
¥

—
—
—

(—)
(—)
(—)

NBF Report January – June 201437

Management’s Discussion and Analysis(2) Fees Paid for the Period from January 1, 2014 to June 30, 2014
Description of transactions with related parties (Note 1)
Category

Total fees paid(A)
(Yen in millions)

Office management fees, etc. (Note 4) ¥1,362
Property maintenance fees

3,530

Leasing related service fees95

Amount ofpayment (B)(Yen in millions)

Paid toMitsui Fudosan Co., Ltd.
NBF Office Management Co., Ltd.
Mitsui Fudosan Facilities Co., Ltd.
Mitsui Fudosan Co., Ltd.
Mitsui Fudosan Building Management Co., Ltd.
First Facilities West Co., Ltd.
Mitsui Fudosan Housing Lease Co., Ltd.
Mitsui Fudosan Co., Ltd.
NBF Office Management Co., Ltd.
Mitsui Fudosan Realty Co., Ltd.
Mitsui Fudosan Building Management Co., Ltd.

¥1,322
40
594
477
269
152
2
23
10
3
0

B/A
(%)

97.1%
2.9
16.8
13.5
7.6
4.3
0.0
24.5
11.0
2.7
0.3

Notes: 1. “Related parties” are defined as related parties of asset management companies under asset management agreement with NBF as defined in Article 123 of Order for
Enforcement of the Law Concerning Investment Trusts and Investment Corporations, and Article 26, Section 27 of the Regulations regarding management report of theInvestment trusts and Investment corporations set by the Investment Trusts Association, Japan. “Major shareholders” are the major shareholders of asset managementcompanies as defined in Article 29, Section 4, Paragraph 2 of the Financial Instruments and Exchange Law. During the period from January 1, 2014 to June 30, 2014,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., First Facilities West Co., Ltd., Mitsui Fudosan Housing Lease Co., Ltd. and Mitsui Fudosan Realty Co., Ltd. which meet either of the said definitions, are as
described above.
2. Figures indicate contractual sales prices.
3. Figures indicate percentages of total prices.
4. In terms of properties for which NBF has not entrusted office management businesses to Mitsui Fudosan Co., Ltd. due to its master leasing (12 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., 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.
5. In addition to the above fees paid, the following have been paid to related parties for repair and maintenance work, etc.
(Yen in millions)

Mitsui Fudosan Co., Ltd.
Mitsui Fudosan Facilities Co., Ltd.
Mitsui Fudosan Building Management Co., Ltd.
First Facilities West Co., Ltd.
Mitsui Fudosan Housing Lease Co., Ltd.
Mitsui Fudosan Realty Co., Ltd.
Harajuku-no-mori Co., Ltd.
Mitsui Fudosan Retail Management Co., Ltd.

38

NBF Report January – June 2014

¥474
381
188
35
9
3
2
0

Financial Statements
Balance Sheets
NIPPON BUILDING FUND INC.
As of June 30, 2014 and December 31, 2013
As ofJune 30, 2014

As ofDecember 31, 2013
(Yen in millions)

AssetsCurrent Assets:
Cash and cash equivalents (Note 3)
Tenant receivables
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
Other Assets
Total Assets
Liabilities
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)
Tenant Security Deposits Including Trust Accounts (Note 3)
Other Liabilities
Total Liabilities
Net Assets (Note 5)
Unitholders’ Equity
Unitholders’ capital
Units authorized: 4,000,000 units
Units issued and outstanding: 1,412,000 units
Retained earnings
Total Net Assets
Total Liabilities and Net Assets¥

34,334397
736
35,467¥36,510349
489
37,348663,301
398,310
12,577(111,882)
35,772
998,078
7,027¥1,040,572

651,605
384,412
12,207(104,826)
35,772
979,170
6,294¥1,022,812¥¥

16,00036,750
4,159
4,510
1,563
62,982395,750
46,237782
505,751

2,000
46,750
4,370
4,273
2,657
60,050399,125
44,363
76503,614519,125504,30915,696534,821¥1,040,572

14,889519,198¥1,022,812

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

NBF Report January – June 201439

Statements of Income
NIPPON BUILDING FUND INC.
For the six months ended June 30, 2014, December 31, 2013 and June 30, 2013
For the six months ended
June 30, 2014

For the six months ended
December 31, 2013
(Yen in millions)

For the six months ended
June 30, 2013

Operating Revenues:
Rental (Note 7)
Other revenues related to property leasing (Note 7)
Gain on sale of investment properties (Note 8)¥31,536
3,123
1,903

¥31,424
3,421
2,290

¥30,752
2,871
2,097

Total Operating Revenues

36,562

37,13535,720Operating Expenses:
Property management fees (Note 7)
Real estate taxes (Note 7)
Repairs and maintenance (Note 7)
Insurance (Note 7)
Other rental expenses (Note 7)
Depreciation and amortization (Note 7)
Loss on sale of investment property (Note 8)
Asset management fees
Other operating expenses
Total Operating Expenses
Operating Income

4,891
3,260
719
39
3,268
7,077
—
1,261
248
20,763
15,799

4,950
2,786
739
39
3,466
6,930
286
1,282
259
20,737
16,398

4,741
2,900
1,085
37
2,824
6,698
—
1,241
378
19,904
15,816

4
—

4
—

4
255

Non-Operating Expenses:
Interest expense
Amortization of bond issuance costs
New investment units issuance costs
Other non-operating expenses, net(2,938)
(14)
(35)
(44)

(3,080)
(13)
—
(31)

(3,001)
(11)
(85)
(36)

Ordinary Income

12,772

13,27812,942

Income before Income Taxes
Current and deferred income taxes (Note 9)

12,772(1)

13,278(1)

12,942(1)

Net Income¥12,771¥13,277¥12,941

Operating Revenues and Expenses

Non-Operating Revenues and Expenses
Non-Operating Revenues:
Interest income
Property tax refund and interest on tax refund

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

40

NBF Report January – June 2014

Financial Statements

Statements of Changes in Net Assets
NIPPON BUILDING FUND INC.
For the six months ended June 30, 2014, December 31, 2013 and June 30, 2013
(Yen in millions)
Number of
Units

Unitholders’CapitalRetained
Earnings

Total

613,000¥436,013¥ 9,991¥446,004——(9,657)(9,657)Issuance of new units through public offering as of January 23, 2013

74,00063,973—

63,973Issuance of new units through allocation
to a third party as of January 31, 2013

5,000

4,323

—

4,323

—

—

12,941

12,941

692,000

504,30913,275517,584

Cash dividends declared——(11,663)(11,663)

Net income——

13,277

13,277

Balance as of December 31, 2013

692,000

504,309

14,889519,198

Unit split of its investment units as of January 1, 2014

692,000

—

—

—

—

—

(11,964)(11,964)Issuance of new units through public offering as of March 19, 2014

26,50014,022—

14,022Issuance of new units through allocation
to a third party as of March 28, 2014

1,500

794

—

794

—

—

12,771

12,771

1,412,000¥519,125¥ 15,696¥534,821

Balance as of December 31, 2012
Cash dividends declared

Net income
Balance as of June 30, 2013

Cash dividends declared

Net income
Balance as of June 30, 2014
The accompanying notes to financial statements are an integral part of these statements.

NBF Report January – June 201441

Financial Statements

Statements of Cash FlowsNIPPON BUILDING FUND INC.
For the six months ended June 30, 2014, December 31, 2013 and June 30, 2013
For the six months ended
June 30, 2014

For the six months ended
December 31, 2013
(Yen in millions)

For the six months ended
June 30, 2013

¥ 12,772
7,077
14
2,938
(48)
(295)
237
1,182
(2,897)¥ 13,278
6,930
13
3,080
51
(383)
(119)
15,382(3,221)¥ 12,942
6,698
11
3,001
(79)
62
442
11,998(2,773)

(140)
(495)
20,345

1,875
1,274
38,160(1,875)(285)
30,142(26,770)(7)
4,994(3,119)(878)(184)(25,964)(2,109)(75)
1,588(3,536)(4)(237)(4,373)(162,268)
(56)
6,465
(3,159)(6)(752)(159,776)

14,00012,000(25,375)
14,781—(11,963)3,443(2,176)36,510¥ 36,510(23,000)
24,000(26,375)—(3)(11,659)(37,037)(3,250)39,760¥ 36,510

5,000
85,000(16,375)
68,210(51)(9,655)132,129
2,495
37,265¥ 39,760

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

42

NBF Report January – June 2014

Notes to Financial Statements
NIPPON BUILDING FUND INC.
For the six months ended June 30, 2014, December 31, 2013 and June 30, 2013

Note 1

Organization and Basis of Presentation

Organization
Nippon Building Fund Inc. (hereinafter “NBF”) was formed on March 16, 2001 as an investment corporation under the Law Concerning
Investment Trusts and Investment Corporations of Japan (hereinafter the Investment Trust Law of Japan) with Mitsui Fudosan Co., Ltd.,
Sumitomo Mitsui Trust Bank, Limited., and Nippon Building Fund Management Ltd. (hereinafter “NBFM”) acting as sponsors. Registration
with the Kanto Local Finance Bureau of the Ministry of Finance was completed on May 10, 2001 and NBF started acquisition of officeproperties on May 23, 2001.
NBF is an externally managed real estate fund, formed as an investment corporation. NBFM, as NBF’s asset management company, isengaged in acquiring, managing, leasing, and renovating office properties. Mitsui Fudosan Co., Ltd. currently owns 43% of NBFM while
Sumitomo Life Insurance Company owns 35% and the remaining 22% is mainly owned by financial institutions.
On September 10, 2001, NBF had raised approximately ¥50,000 million through an initial public offering of units. Those units are listedon the J-REIT section of the Tokyo Stock Exchange.
As of June 30, 2014, NBF had ownership or beneficiary interests in 73 office properties containing approximately 1,074,857 square
meters of rentable office space. As of June 30, 2014, NBF had leased office space to 1,175 tenants engaged in a variety of businesses.
The occupancy rate for the office properties was approximately 97.9%.

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

Note 2

Summary of Significant Accounting Policies

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

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

Buildings and improvements including trust accounts
Buildings and improvements
Other tangible assets
Structures
Machinery and equipment
Tools, furniture and fixtures

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

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

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

NBF Report January – June 201443

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

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

Real Estate Taxes
Real estate taxes are imposed on properties on a calendar year basis and expensed when incurred. In terms of newly purchased
properties, NBF capitalizes a portion of the real estate taxes that relate to a period from the purchase date of each property until the end of
the calendar year as part of the acquisition cost of the relevant property. Capitalized real estate taxes amounted to ¥160 million for theperiod ended June 30, 2014, ¥2 million for the period ended December 31, 2013 and ¥741 million for the period ended June 30, 2013.

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

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

Note 3Financial Instruments

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

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

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

44

NBF Report January – June 2014

Notes to Financial Statements

Estimated Fair Value of Financial Instruments
Book value, fair value and difference between the two as of June 30, 2014 are as follows.
The financial instruments for which it is very difficult to estimate the fair value are excluded from the following table (See Note 2. below).
(Yen in millions)

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

Book value

Fair value

Difference¥ 34,334¥ 34,334¥ 34,334¥ 34,334¥¥¥ 16,000
36,750395,750¥448,500¥ 16,000
36,924
407,951¥460,875

¥

—
—

—
174
12,201¥12,375

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 aresettled 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 aresettled within a short term period.
(2) Long-term debt due within one year
Long-term debt due within one year which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)Book value
Fair value
Difference¥10,000¥10,061¥ 61(1) Investment corporation bonds(2) Long-term loans
26,75026,863
113
Total¥36,750¥36,924¥1741) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is no observable 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 the investment corporation bonds and their credit risk..
2) Long-term loans
Fair values of long-term loans are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied
if similar new loans were entered into.
(3) Long-term debt
Long-term debt which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)Book value
Fair value
Difference¥ 50,000¥ 51,841¥ 1,841(1) Investment corporation bonds(2) Long-term loans
345,750
356,110
10,360Total¥395,750¥407,951¥12,201
1) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is no observable 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 the investment corporation bonds and their credit risk.
2) Long-term loans
Fair values of long-term loans are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied
if similar new loans were entered into.

Book value, fair value and difference between the two as of December 31, 2013 are as follows.
The financial instruments for which it is very difficult to estimate the fair value are excluded from the following table (See Note 2. below).
(Yen in millions)

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

Book value

Fair value

Difference¥ 36,510¥ 36,510¥ 36,510¥ 36,510¥¥¥ 2,000
46,750399,125¥447,875¥ 20,000
47,108408,094¥457,202

¥

—
—

—
358
8,969
¥9,327

NBF Report January – June 201445

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 aresettled 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 aresettled within a short term period.
(2) Long-term debt due within one year
Long-term debt due within one year which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)Book value
Fair value
Difference(1) Investment corporation bonds¥10,000¥10,060¥ 60(2) Long-term loans
36,75037,048298
Total¥46,750¥47,108¥3581) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is no observable 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 the investment corporation bonds and their credit risk.
2) Long-term loans
Fair values of long-term loans are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied
if similar new loans were entered into.
(3) Long-term debt
Long-term debt which includes Investment corporation bonds and Long-term loans are as follows.
(Yen in millions)Book value
Fair value
Difference(1) Investment corporation bonds¥ 60,000¥ 61,833¥1,833(2) Long-term loans
339,125
346,261
7,136
Total¥399,125¥403,094¥8,9691) Investment corporation bonds
Fair values of investment corporation bonds are based on observable market value, if available. When there is no observable 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 the investment corporation bonds and their credit risk.
2) Long-term loans
Fair values of long-term loans are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied
if similar new loans were entered into.
2. Financial Instruments for Which It Is Very Difficult to Estimate the Fair Value.
As of June 30, 2014
¥46,237

Tenant security deposits including trust accounts(Yen in millions)
As of December 31, 2013
¥44,363

Security deposits from tenants are not subject to fair value disclosure because they are not marketable, and actual deposit period is not estimable as leases may becancelled, renewed or re-signed even if a lease term is set in the lease contract, that makes a reasonable estimate of future cash flows difficult.
3. Redemption Schedule for Monetary Claims as of June 30, 2014

Cash and cash equivalents

Due within
one year¥34,334

Due after one
to two years—

Due after two
to three years—

Due after three
to four years—

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

Due after two
to three years—

Due after three
to four years—

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

Due after three
to four years¥—
10,00048,750¥58,750

Due after four
to five years¥——
36,250¥36,250(Yen in millions)Due after five
years
¥
—
10,000173,250¥183,250

Due after three
to four years¥—
10,00039,750¥49,750

Due after four
to five years¥—
10,00038,750¥48,750(Yen in millions)Due after five
years
¥
—
10,000189,125¥199,125

Redemption Schedule for Monetary Claims as of December 31, 2013

Cash and cash equivalents

Due within
one year¥36,510Due after one
to two years—

4. Repayment Schedule for Loans and Investment Corporation Bonds as of June 30, 2014

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

Due within
one year¥16,000
10,00026,750¥52,750

Due after one
to two years¥—
10,00062,750¥72,750

Due after two
to three years¥—
20,00024,750¥44,750

Repayment Schedule for Loans and Investment Corporation Bonds as of December 31, 2013

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

46

NBF Report January – June 2014

Due within
one year¥ 2,000
10,00036,750¥48,750

Due after one
to two years¥—
20,00030,750¥50,750

Due after two
to three years¥—
10,00040,750¥50,750

Notes to Financial Statements

Note 4

Schedule of Tangible Assets of Investment Properties

Tangible assets as of June 30, 2014 and December 31, 2013 consisted of the following:
As of June 30, 2014

As of December 31, 2013
(Yen in millions)

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 in trust
Construction in process
Other tangible assets total
Total

Note 5

Accumulated
depreciation

Book value

Acquisition
costs

Accumulated
depreciation

Book value¥ 314,324
348,977
663,301
212,213186,097¥———(48,036)(57,713)¥314,324
348,977
663,301
164,177
128,384¥ 309,607
341,998
651,605
203,960
180,452¥———(45,382)(53,742)¥309,607
341,998
651,605
158,578
126,710398,310
3,148
1,675
1,507
2,800
1,777
1,589
81
12,577¥1,074,188(105,749)(1,390)(923)(770)(1,025)(1,113)(912)—(6,133)¥(111,882)

292,561
1,758
752
737
1,775
664
677
81
6,444
¥962,306

384,412
3,037
1,738
1,437
2,746
1,688
1,561
—
12,207¥1,048,224(99,124)(1,329)
(901)
(702)
(943)
(987)
(840)
—
(5,702)¥(104,826)

285,288
1,708
837
735
1,803
701
721
—
6,505
¥943,398

Net Assets

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

Note 6

Short-Term Loans and Long-Term Debt

Short-term loans consist of short-term notes and short-term borrowings under loan agreements. The annual interest rates on shortterm loans outstanding are floating rates and on June 30, 2014 and December 31, 2013 were at 0.20% and 0.23% respectively. Longterm debt is at fixed rates and as of June 30, 2014 and December 31, 2013 consisted of the following:
As of June 30, 2014

As of December 31, 2013
(Yen in millions)

Unsecured loans due 2014 to 2025 principally from banks and insurancecompanies with interest rates mainly ranging from 0.3% to 2.4%
1.74% unsecured bonds due 2014 (Note 1)
1.23% unsecured bonds due 2015 (Note 1)
1.85% unsecured bonds due 2015 (Note 1)
0.64% unsecured bonds due 2016 (Note 1)
2.04% unsecured bonds due 2017 (Note 1)
2.00% unsecured bonds due 2018 (Note 2)
1.17% unsecured bonds due 2023 (Note 1)
Less: amount due within one year

¥372,500—
10,00010,00010,00010,00010,00010,000432,500
36,750¥395,750¥375,875
10,00010,00010,00010,00010,00010,00010,000445,875
46,750¥399,125

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

NBF Report January – June 201447

The annual maturities of long-term debt as of June 30, 2014 were as follows:(Yen in millions)Due after one to two years
Due after two to three years
Due after three to four years
Due after four to five years
Due after five years¥ 72,750
44,75058,75036,250183,250

During the period ended June 30, 2014, NBF obtained committed credit lines of ¥60 billion with certain financial institutions to reducerefinancing risk. The unused amount of such committed credit lines was ¥60 billion on June 30, 2014.

Note 7

Rental Revenues and Expenses

Rental revenues and expenses for the periods ended June 30, 2014, December 31, 2013 and June 30, 2013 were as follows:

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

48

NBF Report January – June 2014

For the six months ended
June 30, 2014

For the six months ended
December 31, 2013
(Yen in millions)

For the six months ended
June 30, 2013

¥28,519
2,906
111
31,536¥28,440
2,872
112
31,424¥27,727
2,910
115
30,752

655
248
2,031
124
65
3,123
34,659

656
239
2,358
111
57
3,421
34,845

648
222
1,893
52
56
2,871
33,623

4,891
3,260
719
39
3,268
7,077
19,254

4,950
2,786
739
39
3,466
6,930
18,910

4,741
2,900
1,085
37
2,824
6,698
18,285¥15,405¥15,935¥15,338

Notes to Financial Statements

Note 8Gain and Loss on Sale of Investment Properties

Gain and loss on sale of investment properties for the periods ended June 30, 2014, December 31, 2013 and June 30, 2013 wereas follows.

For the six months ended June 30, 2014
GSK Bldg.
Proceeds from sale of investment property
Cost of sale of investment property
Other related sale expenses
Gain on sale of investment property(Yen in millions)¥3,0851,182—¥1,903For the six months ended December 31, 2013
NBF Nihonbashi Muromachi Center Bldg. (50% quasi co-ownership)
Proceeds from sale of investment property
Cost of sale of investment property
Other related sale expenses
Gain on sale of investment property(Yen in millions)

NBF Shijo Karasuma 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)

NBF Sakai-Higashi Bldg.
Proceeds from sale of investment property
Cost of sale of investment property
Other related sale expenses
Loss on sale of investment property(Yen in millions)¥14,100
11,9784¥ 2,118¥1,600
1,376
52
¥ 172

¥1,800
2,028
58
¥ 286

For the six months ended June 30, 2013
NBF Nihonbashi Muromachi Center Bldg. (50% quasi co-ownership)
Proceeds from sale of investment property
Cost of sale of investment property
Other related sale expenses
Gain on sale of investment property

Note 9(Yen in millions)¥14,100
11,9985¥ 2,097

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, 2014,
December 31, 2013 and June 30, 2013. The following table summarizes the significant differences between the statutory tax rates and
NBF's effective tax rates for financial statement purposes.

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

For the six months ended
June 30, 2014

For the six months ended
December 31, 2013

For the six months ended
June 30, 201336.59%(32.98)(3.61)
0.01
0.01%

36.59%(32.97)(3.62)
0.01
0.01%

36.59%(32.97)(3.62)
0.01
0.01%

NBF Report January – June 2014

NBF was established as an investment corporation under the Investment Trust Law of Japan, and as long as an investment
corporation distributes to its unitholders at least 90% of earnings available for dividends for a period and other requirements prescribed inJapanese tax regulations are met, the investment corporation is allowed to deduct total amount of dividends in calculating its taxable
income under Japanese tax regulations.
The “Act for Partial Revision of Income Tax Act, etc.” (Act No. 10 of 2014) was promulgated on March 31, 2014. In accordance withthe promulgation, the special corporate tax for reconstruction is no longer imposed at the fiscal period beginning April 1, 2014. Thischange had little impact on the deferred tax assets and the income taxes-deferred.

Note 10Per Unit Information

Information about earnings per unit for the periods ended June 30, 2014, December 31, 2013 and June 30, 2013 and net assets perunit as of June 30, 2014, December 31, 2013 and June 30, 2013 were as follows.
The computation of earnings per unit is based on the weighted average number of units outstanding during the period. The
computation of net assets per unit is based on the number of units outstanding at each period end.
Effective January 1, 2014, NBF implemented a 2-for-1 unit split of the units held by unitholders registered on the register of unitholders
as of December 31, 2013. Net asset value per unit and net income per unit have been adjusted to reflect the unit split as if it had beeneffective on January 1, 2013.

Earnings per Unit:
Net income per unit (Yen)
Weighted average number of units outstanding
Net Assets per Unit (Yen)

Note 11For the six months ended
June 30, 2014

For the six months ended
December 31, 2013

For the six months ended
June 30, 2013¥9,122
1,400,014¥9,592
1,384,000¥9,485
1,364,354

As of June 30, 2014

As of December 31, 2013

As of June 30, 2013

¥378,768¥375,143¥373,977

LeasesAs Lessor
NBF leases some of its investment properties to outside parties under non-cancelable operating leases. As of June 30, 2014 andDecember 31, 2013, future minimum rental revenues under the non-cancelable operating leases are as follows:
As of June 30, 2014

Due within one year
Due after one year
Total

¥22,208
30,223¥52,431

As of December 31, 2013
(Yen in millions)¥23,066
35,815¥58,881

As Lessee
NBF leases some of its investment properties from outside parties under non-cancelable operating leases. As of June 30, 2014 andDecember 31, 2013, future minimum rental expenses under the non-cancelable operating leases are as follows:
As of June 30, 2014

Due within one year
Due after one year
Total

50

NBF Report January – June 2014

¥ 1
—
¥ 1

As of December 31, 2013
(Yen in millions)

¥2
0
¥2

Notes to Financial Statements

Note 12

Transactions with Related Parties(1) Parent Company and Major Corporate Unitholders(For the six months ended June 30, 2014)
None applicable.
(For the six months ended December 31, 2013)
None applicable.
(For the six months ended June 30, 2013)
None applicable.
(2) Affiliates(For the six months ended June 30, 2014)
None applicable.
(For the six months ended December 31, 2013)
None applicable.
(For the six months ended June 30, 2013)
None applicable.
(3) Sister Companies(For the six months ended June 30, 2014)
None applicable.
(For the six months ended December 31, 2013)
None applicable.
(For the six months ended June 30, 2013)
None applicable.
(4) Directors and Major Individual Unitholders(For the six months ended June 30, 2014)
None applicable.
(For the six months ended December 31, 2013)
None applicable.
(For the six months ended June 30, 2013)
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)

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

For the six months ended
June 30, 2014

For the six months ended
December 31, 2013

¥ 979,217¥ 999,269

18,827
998,044¥1,069,360(20,052)
979,217¥1,035,870

Notes: 1. Carrying amounts represent acquisition cost less accumulated depreciation.
2. The major increase in the fiscal period ended June 30, 2014 was mainly due to the acquisitions of 3 properties (Sakaisuji-Honmachi Center Bldg. (Additional Acquisition),
Jingumae M-SQUARE and Nakanoshima Central Tower, ¥25,221 million) and the major decrease was mainly due to disposition of portion of site area of GSK Bldg. whichamounted to ¥1,182 million and recognition of depreciation costs.
The major decrease in the fiscal period ended December 31, 2013 was mainly due to sale of NBF Nihonbashi Muromachi Center Bldg. (50% quasi co-ownership), NBF
Sakai-Higashi Bldg. and NBF Shijo Karasuma Bldg. which amounted to ¥15,382 million and recognition of depreciation costs.
3. Fair value at end of the period is based on appraisals provided by independent real estate appraisers.

Information about profit and loss from investment and rental properties is disclosed in Note 7 (Rental Revenues and Expenses).

NBF Report January – June 201451

Notes to Financial Statements

Note 14Segment 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, 2014)
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for more than 90% of total
operating revenues.
2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of thebook value of total investment properties.
3. Information on Major Tenants(Yen in millions)

TenantOperating revenues

Related segment

Mitsui Fudosan Co., Ltd.

¥8,095

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

(For the six months ended December 31, 2013)
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for more than 90% of total
operating revenues.
2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of thebook value of total investment properties.
3. Information on Major Tenants(Yen in millions)

TenantOperating revenues

Related segment

Mitsui Fudosan Co., Ltd.

¥8,208

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

(For the six months ended June 30, 2013)
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for more than 90% of total
operating revenues.
2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of thebook value of total investment properties.
3. Information on Major Tenants(Yen in millions)

TenantOperating revenues

Related segment

Mitsui Fudosan Co., Ltd.

¥7,228

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

52

NBF Report January – June 2014

Independent Auditor’s Report

NBF Report January – June 201453

Corporate Data
(As of June 30, 2014)

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:¥519,124 million
1,412,000 units

Unitholders

16,777

Transfer 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
Tel. : +81-3-6259-8681

This document contains translations of selected information described in thetranslations or the selection of the portions of any documents translated into English. No

Securities Report (Yuka shoken hokokusho) filed on September 29, 2014 pursuant toperson has been authorized to give any information or make any representations otherthe Securities Exchange Law of Japan, and the Financial Statements and thethan as contained in this document in relation to the matters set out in this document,

Performance Information Report for the period from January 1, 2014 to June 30, 2014,

and if given or made, such information or representation must not be relied upon asof Nippon Building Fund Inc. prepared pursuant to the Investment Trust Law of Japan.

having been authorized by Nippon Building Fund Inc., Nippon Building FundThis English-language document was prepared solely for the convenience of andreference by overseas investors. It neither corresponds to the original Japaneseunitholders/shareholders, agents or affiliates.

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

The financial statements of Nippon Building Fund Inc. have been prepared in accor-

language Securities Report and the Financial Statements and the Performancedance with generally accepted accounting principles in Japan (Japanese GAAP), which

Information Report for the aforementioned period should always be referred to as

may materially differ in certain respects from generally accepted accounting principles inoriginals of this document.

other jurisdictions.

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

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

herein may not be precisely identical to the concept of the equivalent Japanese terms.

tion. We base these statements on our beliefs as well as our assumptions based solelyWith respect to any and all terms herein, including without limitation, financial state-on certain limited information currently available to us. Because these statements reflect

ments, if there exist any discrepancies in the meaning or interpretation thereof between

our current views concerning future events, these statements involve known andthe original Japanese documents and English statements contained herein, the original

unknown risks, uncertainties and assumptions. Our future performance could materiallyJapanese documents will always govern the meaning and interpretation. None of Nippon

differ from those set out in these forward-looking statements. We do not undertake andBuilding Fund Inc., Nippon Building Fund Management Ltd. or any of their respective

will not undertake to release revisions of forward-looking statements to reflect future

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

events or circumstances or of any other statements or information contained herein.

be responsible or liable for the completeness, appropriateness or accuracy of English

54

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

NBF Report January – June 2014

Investors’ Information(As of June 30, 2014)

Fiscal Periods

Unitholders

Six months ending June 30 and December 31

Other domestic corporations
417 (2.5%)

Overseas investors 406 (2.4%)
Financial institutions(Including securities companies)

217 (1.3%)

Total Number of Units Issued
26th Period (From January 1, 2014 to June 30, 2014)

1,412,000 units*

25th Period (From July 1, 2013 to December 31, 2013)

692,000 units

Total numberof unitholders:

16,777*Effective January 1, 2014, NBF implemented a 2-for-1 split of the units held by unitholders
registered on the register of unitholders as of December 31, 2013.

Individuals andothers75,026 (5.3%)

Other domestic
corporations
104,546 (7.4%)

Individuals and others
15,737 (93.8%)

Total numberof units:

Distribution per Unit

1,412,000

Confirmed distribution for the 26th Period
For the operating period from January 1, 2014 to June 30, 2014 (6 months)¥8,152 per unit

Financial institutions(Including securities companies)

Expected distribution for the 27th Period
For the operating period from July 1, 2014 to December 31, 2014 (6 months)

Overseas
investors
341,761(24.2%)

890,667 (63.1%)¥7,520 per unit

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.
Sumitomo Life Insurance Company
Nomura Bank (Luxembourg) SA
State Street Bank West Client-Treaty
State Street Bank - West Pension Fund - Clients Exempt
The Chugoku Bank, Ltd.

Number of Units Held

Percentage of Total

297,253
115,648
113,740
75,25847,63024,51222,096
20,896
18,49915,64821.1 %
8.2
8.1
5.3
3.4
1.7
1.6
1.5
1.3
1.1

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,
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

0

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

NBF Report January – June 201455

- DECEMBERNBFJANUARY- JUNE 2014
NBF REPORTREPORT JULY
2011 26TH
21STPERIODPERIODNIPPON BUILDING FUND INC.