22nd Period
NBF Report
January – June 2012

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 the largest market
capitalization and assets under management among J-REITs.
NBF employs funds raised through unitholder subscriptions and borrowing 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
Building on Our Strengths.......................................................... 2

Portfolio Overview .................................................................... 18

Financial Highlights .................................................................... 3

Management Team and Management Structure........................ 20

To Our Unitholders ..................................................................... 4

Management’s Discussion and Analysis ................................. 24

Condition of the Market and NBF .............................................. 6

Financial Statements ............................................................... 34

NBF’s Operating Policy ............................................................... 8

Independent Auditor’s Report.................................................. 48

A Track Record of Steady Growth ............................................. 10

Appendix .................................................................................. 49

Acquisition in the 23rd Period.................................................. 12

Investment and Distribution Policies ....................................... 51

Acquisitions in the 22nd Period ............................................... 13

Corporate Data......................................................................... 58

Location of Office Properties ................................................... 16

Investors’ Information .............................................................. 59

NBF Report January – June 2012 1

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

NBF’s Strengths
Japan’s Largest J-REIT
Scale of Managed Assets(Total acquisition price)¥892.8 billion *¥921.6billion(Including NBF COMODIO Shiodome, as of
September 30, 2012)

Total Market Capitalization¥515.5billion(As of September 30, 2012)

Strong Portfolio
Occupancy Rate

97.7%

NBF owns office buildings in Tokyo’s central business districts(CBDs). We have also diversified our investment into Greater Tokyoand regional cities, and maintain a high occupancy rate.

*

Sound Finances
R&I

AA

*

Standard &Poor’s(Issuer rating)A+*

Moody’s(Long-term corporate)

A2*(Issuer rating)Stable Returns
Distribution per Unit for the 22nd Period
Over the 22 periods since our listing, we have steadily
distributed profits to unitholders.

Outlook for the 23rd Period

Strategic Partnership with Mitsui Fudosan
Strategic Partnership with Mitsui Fudosan
NBF achieves steady growth using the office building management and property information collection capabilities of Mitsui
Fudosan Co., Ltd., Japan’s leading real estate company, and byacquiring the properties it has developed.
* As of June 30, 2012

2 NBF Report January – June 2012

¥15,480¥15,500

Financial Highlights

22nd Period
from January 1, 2012 toJune 30, 2012

21st Periodriod
20th Period
from July 1, 2011 toto from January 1, 2011 to
December 31, 20112011
June 30, 2011

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

U.S. dollars in thousands
except per unit data (Note 1)

Yen in millions, except per unit data or where otherwise indicatedOperating revenues

Note 222nd Period
from January 1, 2012 toJune 30, 2012

¥ 30,244¥ 29,773¥ 28,081¥ 27,314$

378,947

Income before income taxes

9,490

9,128

8,758

8,400

118,913

Net income

9,489

9,127

8,757

8,399

118,899

Funds from operations

Note 3

15,62815,226

14,291

13,570195,814

Net operating income
from property leasing activities

Note 3

19,857

19,53018,664

17,661

248,809

Total amount of cash distribution

(a)

9,489

8,793

8,757

8,398

118,898

Total assets

871,140

852,855

823,705

765,203

10,915,178

Interest-bearing debt

374,000

377,375

350,750

325,125

4,686,130

445,836424,242423,872

394,575

5,586,224

Net assets(b)

LTV (Loan to value)

Note 3

Total number ofunits issued (units)(c)613,000

578,500

578,500

542,000

Net assets per unit (Yen/$)(b) / (c)727,302733,348732,709727,996

9,113

Distribution per unit (Yen/$)(a) / (c)15,48015,20015,13815,495

194

Funds from operations
per unit (Yen/$)Note 325,713

26,32024,93725,036

322

46.8%

48.2%

46.5%

46.3%

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥79.81 = U.S.$1.00, the approximate exchange rate on June 30, 2012.
2. Operating revenues do not include consumption taxes.
3. Funds from operations: Net income (excluding Gain and Loss on sale of investment properties) + Depreciation and amortization
Net operating income from property leasing activities: (Revenue from property leasing – Rental expenses) + Depreciation and amortization
Loan to value: (Interest-bearing debt + Deposits under management) / Total assets
Funds from operations per unit: (Net income (excluding Gain and Loss on sale of investment properties) + Depreciation and amortization) /Weighted average number of units issued and outstanding during the period

Operating Revenues

Net Income(Yen in millions)(Yen in millions)

Distribution per Unit
(Yen)

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

10,00015,00010,000

5,000

5,000
0

0

18th 19th 20th 21st 22nd
Period Period Period Period Period

0

18th 19th 20th 21st 22nd
Period Period Period Period Period

18th 19th 20th 21st 22nd
Period Period Period Period Period

NBF Report January – June 2012 3

To Our Unitholders

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

Profile1982

Joined Mitsui Fudosan Co., Ltd.

2006

Manager of the Strategy Planning and
Administration Department,
Accommodations Business Division,
Mitsui Fudosan Co., Ltd.

2007

Business Administration Manager
of Mitsui Fudosan Co., Ltd.

2010

Rental Housing Business Manager,
Accommodation Business Departmentof Mitsui Fudosan Co., Ltd.

2012

Seconded to Nippon Building Fund Management Ltd.

2012

Appointed President and CEOof Nippon Building Fund Management Ltd.

4 NBF Report January – June 2012

Performance during the Six Months Ended June 30, 2012
As the market begins to show signs of recovery, we will accurately identify
upcoming growth opportunities.
In April 2012, I was appointed President and CEO of Nippon Building FundManagement Ltd., which manages NBF’s assets. Going forward, I shall do myutmost to meet all of your expectations.
In the 22nd Period, both revenues and income increased compared withthe previous period, despite a downward trend in revenues from existing
properties. Operating revenues increased ¥470 million, or 1.6 percent, to¥30,244 million, operating income increased ¥259 million, or 2.1 percent, to¥12,446 million, and net income increased ¥362 million, or 4.0 percent, to¥9,489 million. As a result, distribution per unit was ¥15,480, an increase of¥280 from the previous period. (See Management’s Discussion and Analysis on
page 24 for details.) NBF acquired five properties (including additional
acquisitions) at a total cost of ¥22.6 billion after completing equity financing inJanuary 2012.
The office building leasing market is beginning to show signs of recovery. In
response, while maintaining high occupancy rates, we will work to ensure that
we accurately grasp changing trends in the rental market after the peak invacancy rates. Achieving external growth will also be important to accurately
identify growth opportunities. (See pages 6–9 for details.)
Under these circumstances, the performance outlook for our 23rd and 24th
Periods is as shown in the table below. We will maintain an accurate grasp of
market conditions for flexible management of assets. We look forward to yourcontinued support as we work to consistently increase value for unitholders.

Performance Outlook (As of August 14, 2012)(Yen in millions)Operating revenues
Net income
Distribution per unit (Yen)
Occupancy rate (End of period)

23rd Period (Projected)
from July 1, 2012 to
December 31, 2012

24th Period (Projected)
from January 1, 2013 toJune 30, 2013*¥31,277
9,501
15,50098.1%¥30,618
9,256
15,10097.5%* For reference only.

NBF Report January – June 2012 5

Condition of the Market and NBF

Market vacancy rates are likely to peak in the second halfof 2012, followed by a recovery in market asking rents in thesecond half of 2013. However, demand will recover earlier forcompetitive buildings.

Market Conditions

In the office building leasing market, vacancy rates had been in the 8 to 9
percent range since the bankruptcy of Lehman Brothers in 2008. However, theAs signs of recovery appear
in the rental market, activity
has also been gradually
picking up in the property
sales market.

average vacancy rate in Tokyo’s central business districts (CBDs) rose to a highof over 9 percent in 2012, largely due to a surge in new supply, particularly frombuildings that were completed with space still available. Asking rents remained ata low level due to the high vacancy rate.
However, vacancy rates in Tokyo’s CBDs are expected to peak in the second
half of 2012. This is because the bulk of the supply of new office buildings wasconcentrated in the first half of the year, and supply in the second half andbeyond will be limited. Rents are projected to begin to recover in the second halfof 2013, lagging the recovery in vacancy rates by about one year.
Under these conditions, there are concerns about a further drop in demandfor properties that are inferior in terms of location or earthquake resistance. On
the other hand, at buildings where rents have been adjusted to reflect favorable
locations and specifications, such as proximity to train stations, spacious floorarea and recent construction, vacancy rates are expected to improve and rents
are expected to recover ahead of other buildings.
In the real estate brokerage market, demand currently exceeds supply andboth the volume and value of transactions are increasing. Prices are rising inparticular for medium-sized properties in good locations, but sales of large-scale
properties, NBF’s target, remain few and the number of market players is limited.

Office Building Vacancy Rates in CBDs (Three Cities)

Average Asking Rents in Tokyo CBDs(%)

(Yen per tsubo*)o

15

40,000Osaka

12Nagoya

11.25
9.91
9.17

9

New buildings

35,00030,00025,000

6

Average asking rent
23,041

Tokyo

3
0

Dec.
2002

Dec.
2003

Dec.
2004

Dec.
2005

Dec.
2006

Dec.
2007

Dec.
2008

Dec.
2009

20,000Dec.
2010

Dec. Aug.
2011 2012

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

6 NBF Report January – June 2012

15,00016,733
16,613

Existing buildings
Jun. Dec.
2003 2003

Dec.
2004

Dec.
2005

Dec.
2006

Dec.
2007

Dec.
2008

Dec.
2009

Dec.
2010

Dec. Aug.
2011 2012*1 tsuboo = 3.3m2
Source: Miki Shoji Co., Ltd.

NBF’s Condition

The occupancy rate of NBF’s leased buildings remained at a high level of 97.7
percent at the end of the 22nd Period.

The effects of the new officebuilding supply are temporary.

Declining revenues from existing properties, partly reflecting the effects of thecurrent large volume of new supply, are factored into the outlook for the 23rdand 24th Periods. However, we plan to offset this decline with new property
acquisitions. The performance outlook also reflects the results of tenantnegotiations, but we believe their effect will only be temporary. The trend is
improving overall, with about 80 percent of tenant rent revision negotiations in
the first half of 2012 resulting in unchanged rents.
In the real estate acquisition market, we are seeing more transactions not only
by J-REITs but also by other players such as business firms and foreign funds.
Activity is also increasing for properties priced at several billion yen.
The volume of information NBF received on properties for sale increased 20
to 30 percent compared with 2011, and the number of investment targets is also
gradually increasing. These trends indicate growing acquisition opportunities
such as NBF COMODIO Shiodome, a property in a Tokyo CBD that we acquiredin July 2012 for ¥28.8 billion. The large-scale office building sector is not yet
overheated as the number of players is currently limited, and we believe there
are still ample opportunities for new acquisitions.

Trends in the Supply of New Office Buildings(Thousand tsubo* )600

Forecast

500
400
300
200
100
0
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Three central wards of Tokyo (Chuo, Minato, Chiyoda)
Remaining twenty wards of Tokyo*1 tsubo = 3.3m2

Source: Mori Building Co., Ltd.

NBF Report January – June 2012 7

NBF’s Operating Policy

We will take a balanced approach to achieve strong growthwhen the market recovers.

Internal
GrowthExternal
Growththan a decade since its listing, NBF has
accumulated assets of ¥921.6 billion (asof September 30, 2012), making it the

Accurately perceiving market trends,
we will pursue an appropriate
strategy while maintaining highoccupancy rates.

largest J-REIT. We plan to takeLooking toward market
recovery, we plan to invest in
central Tokyo properties withhigh growth potential.

advantage of our scale and continue to
use various approaches to expand ourportfolio. We will also reshuffle ourportfolio to enhance its quality. For thispurpose, we will strengthen collection ofWith the leasing market forecast to

property information from various

recover, our policy for external growthchannels while taking advantage of ourwill be to proactively make carefully

pipeline with Mitsui Fudosan Co., Ltd.,

selected investments in high-potential

which is NBF’s sponsor and a leading

properties in central Tokyo. Over more

real estate company in Japan.

Maintaining High Occupancy Rates
Bankruptcy ofLehman Brothers
(%)

100

Scale of Managed Assets by Acquisition Channel
Approx. 70% of acquisitions
are from or via Mitsui Fudosan.

(Yen in billions)
1,000

800

Acquisitions from Mitsui Fudosan and Mitsui Fudosan funds
Acquisitions through mediation by Mitsui Fudosan
Acquisitions from other than Mitsui Fudosan
Properties acquired since investment commencement date

95

90

85

600

400

200

0

Investment 1st 2nd 3rd
4th
5th
6th
7th
8th
9th 10th 11th 12th 13th 14th 15th 16th 17th 18th 19th 20th 21st 22ndcommencement Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Period Perioddate

8 NBF Report January – June 2012

Jun.
Dec.
Jun.
2007 2007 2008
Tokyo CBDs
Other cities

Dec.
Jun.
Dec.
2008 2009 2009
Other Greater Tokyo
Total

external and internal growth initiatives.

Finances

Under our conservative financial strategy,
we have set a target loan-to-value (LTV)
ratio of 40 to 50 percent, with a maximum

For internal growth, NBF will focus on
maintaining occupancy rates at theircurrent high level. With the recovery of the

To achieve external and internal
growth, we will maintain soundfinances to ensure flexible
financial management.

of 60 percent, and a long-term fixed-rateinterest-bearing debt ratio of 80 to 90
percent. In addition, we are taking

real estate leasing market now in sight,

measures including shifting short-term

we will work to ensure that we accurately

loans to longer-term debt and raisinggrasp changing market trends after

long-term funds with new borrowing to

The soundness of our finances, which

vacancy rates peak. To that end, we will

partly stems from fund procurement at

prepare for flexible management oftake the initiative with proactive renovation

low interest rates (total average cost offinances.

of properties to strengthen theirdebt at the end of the 22nd Period:

competitiveness and enhance tenant

1.49%), will be the foundation of thesesatisfaction.

Stable Financial Track Record
(%)
100

84.8

Long-term fixed-rate debt ratio

80

46.8

60
40

Forecast
97.7 98.1

20
0

97.5

LTV (loan-to-value ratio)

Dec.
2001

Dec.
2003

Dec.
2005

Dec.
2007

Dec.
2009

Dec. Jun.
2011 2012

Diversified Maturities of Interest-Bearing Debt
Number of lenders: 25
Average years remaining on
long-term ﬁxed-rate interest-bearing debt: 4.09

(Yen in billions)
600
500

Jun.
2010

Dec.
2010

Jun.
2011

Dec.
2011

Jun.
2012

Dec.
2012

Jun.
2013

400
300
200
100
0

2012

2013

Long-term debt
Short-term loans

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Bonds
Long-term debt since July 2012

NBF Report January – June 2012 9

A Track Record of Steady GrowthDistribution per Unit
(Yen)

25,00019,391

19,02620,00016,003

16,25315,367

15,00014,582

17,291

16,893

17,046

97.5

98.1

98.7

15,185

10,000

Historical Unit Price(Yen)

2,000,000
1,500,000
1,000,000

Start of TSE
REIT Index

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

Removal of ban on J-REIT
holdings by investment trusts

500,000
0

Occupancy Rate and Scale of Managed Assets by Area
(Yen in billions)

1,000

97.5

96.9

97.7

97.4
95.0

94.8
92.3

900

Occupancy Rate
(Right scale)

700

Equity financing
Equity financingg

Resolution of NBF’s “2003
Problem” (departure of tenantsfrom Shiba NBF Tower and otherbuildings)

800

Target of ¥500
billion in assetss
achieved

Managed Assets by Area
(Left scale)

600

Other Cities
Other Greater Tokyo
Tokyo CBDs

500

539.33539
Equity financing

393.88
393

400

300

Equity financing

226.5
226
200

100

0

192.1
2,265
2,265
2,265

2,265
2,265

2,265

246.0
2,460
2,460

2,460

260.2
2,602
2,602

2,602

98.7

336.1

3,938
3,938

276.0

285.6

3,361

2,760
2,760

2,856

3,361

2,856

5,393

414.1

2,856

3,361

3,938

624.88
624
6,248

6,248

5,393

4,141
4,141

5,393
2,760

Exchange of JFE
Building for 5
buildings

6,248

4,141

22

24

26

28

29

33

43

43

47

52

55

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

Investment( commencement
date )

10 NBF Report January – June 2012

22,549
19,22419,80922,252

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

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

15,13815,200

15,480D
Decisionby Bank of Japan topurchaseunits and bonds ofpinvestment corporations

Subprime loan
problem surfaces

Great East Japan
Earthquake

Bankruptcy ofLehman Brothers

(%)

97.8

99.0

98.6

97.4

96.8

95.4

96.6
94.8

97.1

783.1

783.1

779.5

7,831

7,831

7,795

7,831

7,831

7,795

7,623

7,831

7,831

7,795

725.2
725 2
624.8

674.3

6,743

6,743

870.2

837.1

Equity financing

762.3
7,623

97.7

Equity financing 92
921.6*

94.5
Equity financing

674.3

98.1

100

95

8892.8
90

779.5

7,252
8,431

6,248

7,623
7,252
6,743

6,743

6,248

8,431

6,248

6,743

6,743

7,252

55

56

56

58

60

61

61

59

59

64

64

67
(68*)

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Buildings

Dec. 31,2006

Jun. 30,
2007

Dec. 31,2007

Jun. 30,
2008

Dec. 31,2008

Jun. 30,
2009

Dec. 31,2009

Jun. 30,
2010

Dec. 31,2010

Jun. 30,
2011

Dec. 31,2011

Jun. 30,
2012*Including acquisitions in the 23rd Period, as of September 30, 2012

NBF Report January – June 2012 11

Acquisition in the 23rd Period

68 NBF COMODIO Shiodome●

Location:
Completion date:
Acquisition date:
Acquisition price:

14-1, Higashi-Shinbashi 2-chome, Minato-ku, Tokyo
July 10, 2006
July 2, 2012
¥28,800 million

12 NBF Report January – June 2012

Acquisitions in the 22nd Period

22 Higashi Gotanda Square●

Location:
Completion date:
Acquisition date:
Acquisition price:

10-2, Higashi-Gotanda 2-chome, Shinagawa-ku, Tokyo
April 30, 2009
February 1, 2012
¥8,350 million

NBF Report January – June 2012 13

65 NBF Matsuyama Nichigin-mae Building●

Location:
Completion date:
Acquisition date:
Acquisition price:

34 Ryukakusan Building●

Location:
Completion date:
Acquisition date:
Acquisition price:

5-12, Higashi-Kanda 2-chome, Chiyoda-ku, Tokyo
November 30, 1991
February 1, 2012
¥4,050 million

14 NBF Report January – June 2012

9-6, Sanbancho 4-chome, Matsuyama, Ehime
March 11, 2009
March 30, 2012
¥3,310 million

Acquisitions in the 22nd Period

40 Shin-Kawasaki Mitsui Building (Additional Acquisition)●

Location:
Completion date:
Acquisition date:
Acquisition price:890-12, Kashimada, Saiwai-ku, Kawasaki, Kanagawa
May 22, 1989
March 30, 2012
¥5,520 million

64 Hiroshima Fukuromachi Building (Additional Acquisition)●

Location:
Completion date:
Acquisition date:
Acquisition price:

5-25, Fukuromachi, Naka-ku, Hiroshima, Hiroshima
January 30, 2002
April 13, 2012
¥1,380 million

NBF Report January – June 2012 15

Location of Office Properties (As of June 30, 2012)
Tokyo Central Business Districts (CBDs)
1 NBF Hibiya Building
2 Nishi-Shinjuku Mitsui Building
3 Gate City Ohsaki
4 Mitsubishi Heavy Industries Head Office Building
5 Shiba NBF Tower
6 NBF Platinum Tower
7 NBF Minami-Aoyama Building
8 Toranomon Kotohira Tower
9 NBF Nihonbashi Muromachi Center Building
10 Nakameguro GT Tower
11 Mitsuiseimei Ochanomizu Building
12 NBF Ginza Street Building
13 Shinjuku Mitsui Building No. 2
14 GSK Building
15 River City M-SQUARE
16 NBF Toranomon Building
17 Kowa Nishi-Shinbashi Building B
18 NBF Shinkawa Building(Name changed in October 2012)
19 NBF Alliance
20 Yotsuya Medical Building
21 Shibuya Garden Front
22 Higashi Gotanda Square
23 NBF Shibuya East
24 NBF Shibakouen Building
25 NBF Takanawa Building
26 NBF Akasaka Sanno Square
27 NBF Shibakouen Daimon Street Building
28 Sumitomo Densetsu Building
29 NBF Higashi-Ginza Square
30 NBF Ogawamachi Building
31 Nihonbashi Kabuto-cho M-SQUARE
32 NBF Ikebukuro Tower
33 NBF Ikebukuro City Building
34 Ryukakusan Building
68 NBF COMODIO Shiodome(Acquired in July 2012)

1 NBF Hibiya Building●

3 Gate City Ohsaki●

16 NBF Report January – June 2012

Kita-ku

Arakawa-ku

33 32

Toshima-ku
Taito-ku

Bunkyo-ku

Nakano-ku

38
35

Sumida-ku
11

Shinjuku-ku

2

34

30

Chiyoda-ku

13

9

20
Imperial
Palace

14

8 16
17

7
19
21 23

10

68
5

24

27

6

29

18
15
37 36

25
28

Meguro-ku

12Minato-ku

Setagaya-ku

Koto-ku

1

26

Shibuya-ku

31

Chuo-ku

22

Tokyo Bay

4
3

Shinagawa-ku

5 Shiba NBF Tower●

6 NBF Platinum Tower●

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

TOCHIGI44

UTSUNOMIYA

45

IBARAKITo Omiya46

SAITAMA
47

TOKYO

49

CHIBA

38

35

37 36

39

48

Other Cities
40

Tokyo Bay

50 Sapporo L-Plaza
51 NBF Sapporo Minami Nijo Building

42

41

43

50 51

KANAGAWA

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

54

52
53

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

62
66
67

64 63
65

55

62 NBF Shijo Karasuma Building
63 NBF Hiroshima Tatemachi Building

56 57 58 59

64 Hiroshima Fukuromachi Building

60 61

65 NBF Matsuyama Nichigin-mae Building
66 Hakata Gion M-SQUARE
67 NBF Kumamoto Building

35 Nakanosakaue●

Sunbright Twin

36 NBF Toyosu Canal Front●

37 NBF Toyosu Garden Front●

56 Aqua Dojima NBF Tower●
61 Aqua Dojima East●

57 Shinanobashi Mitsui Building●

NBF Report January – June 2012 17

Portfolio Overview
NBF’s properties as of June 30, 2012 are as follows:
Name of Building

Investment
Type

Type of Ownership

Percentageof OwnershipYear Built

Acquisition
Price

(%)

Book Value(Yen in millions)Tokyo Central Business Districts (CBDs)

1 NBF Hibiya Building●
2 Nishi-Shinjuku Mitsui Building●
3 Gate City Ohsaki●
4 Mitsubishi Heavy Industries Head Office Building●
5 Shiba NBF Tower●
6 NBF Platinum Tower●
7 NBF Minami-Aoyama Building●
8 Toranomon Kotohira Tower●
9 NBF Nihonbashi Muromachi Center Building●
10 Nakameguro GT Tower●
11 Mitsuiseimei Ochanomizu Building●
12 NBF Ginza Street Building●
13 Shinjuku Mitsui Building No. 2●
14 GSK Building●
15 River City M-SQUARE●
16 NBF Toranomon Building●
17 Kowa Nishi-Shinbashi Building B●
18 NBF Shinkawa Building●
19 NBF Alliance●
20 Yotsuya Medical Building●
21 Shibuya Garden Front●
22 Higashi Gotanda Square●
23 NBF Shibuya East●
24 NBF Shibakouen Building●
25 NBF Takanawa Building●
26 NBF Akasaka Sanno Square●
27 NBF Shibakouen Daimon Street Building●
28 Sumitomo Densetsu Building●
29 NBF Higashi-Ginza Square●
30 NBF Ogawamachi Building●
31 Nihonbashi Kabuto-cho M-SQUARE●
32 NBF Ikebukuro Tower●
33 NBF Ikebukuro City Building●
34 Ryukakusan Building●

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

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

100.0
85.4
18.6
18.1
100.0
100.0
100.0
100.0
100.0
93.1
100.0
100.0
100.0
100.0
100.0
100.0
83.0
100.0
100.0
100.0
50.0
38.4
100.0
100.0
100.0
100.0
87.0
100.0
100.0
83.8
100.0
100.0
100.0
89.0

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

63,50045,002
41,73136,30032,00031,00031,00024,54323,94523,856
20,84017,00016,285
15,616
13,35013,337
13,217
12,614
9,126
8,800
8,700
8,350
8,000
6,770
6,667
6,250
6,100
5,365
5,200
4,940
4,850
4,695
4,428
4,050

64,492
34,75735,06837,323
28,86028,574
31,48019,87624,144
19,81721,017
17,577
16,45913,59813,29913,302
11,587
10,936
9,442
8,253
7,896
8,406
8,107
6,444
6,492
6,356
6,318
4,834
4,720
5,153
4,842
4,562
4,280
4,163

Ownership/Trust
Trust
Ownership
Ownership
Ownership
Ownership
Trust
Ownership
Ownership
Trust
Ownership
Ownership
Ownership
Ownership
Ownership

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

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

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

40,75035,20025,018
10,4009,320
25,82013,529
3,800
2,300
8,876
2,435
16,8162,000
15,7002,455

37,29731,742
24,172
10,294
9,209
23,777
12,280
3,210
2,232
6,897
2,378
14,687
1,913
15,813
2,194

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

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

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

4,404
1,870
3,566
4,029
3,958
7,232
17,81014,40010,500
6,500
2,227
1,914
1,627
2,930
2,215
3,310
8,000
4,500

3,648
1,718
3,538
3,065
3,596
6,876
16,296
11,236
7,927
6,095
1,964
1,729
1,386
2,848
2,074
3,435
7,882
4,381

892,840

830,226

Other Greater Tokyo

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

Other Cities

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

Total

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

18 NBF Report January – June 2012

Revenue

Percentage ofTotal Revenues

Probable
Maximum Loss

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

(PML)
(%)

88
1
1
12
31
6
7
1
14
1
1
1
46
1
8
13
2
2
6
1
1
1
5
6
6
5
6
1
8
1
1
14
10
9

1,363
1,126
1,231
Note 2
1,013
1,536
393
903
834
850
Note 2
Note 2552
Note 2614
457
Note 2
Note 2261
243
Note 2
251
196
301
307
144
119
Note 2
232
169
Note 2
174
165
199

4.5
3.7
4.1
Note 2
3.4
5.1
1.3
3.0
2.8
2.8
Note 2
Note 2
1.8
Note 22.0
1.5
Note 2
Note 20.9
0.8
Note 2
0.8
0.7
1.0
1.0
0.5
0.4
Note 20.8
0.6
Note 2
0.6
0.6
0.7

1.6
1.8
1.5
1.7
2.3
1.5
4.7
1.6
4.8
1.2
5.8
8.2
1.6
0.8
4.0
8.4
2.0
3.5
7.3
5.6
3.4
2.0
4.4
5.9
5.3
9.9
2.8
5.2
3.1
4.2
6.4
3.9
9.9
4.4

97.7
100.0
96.6
100.0
100.0
100.0
96.2
100.0
90.8
96.7
100.0
94.0
100.0
95.3
92.7

9
9
4
6
1
1
94
1
17
61
40
39
13
41
23

1,054
1,046
961
293
Note 2
1,041
641
283
112
440
128
697
104
576
125

3.5
3.5
3.2
1.0
Note 2
3.4
2.1
0.9
0.4
1.5
0.4
2.3
0.3
1.9
0.4

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

11,396
5,351
7,095
13,267
10,134
9,876
21,33925,314
14,027
10,182
5,071
3,129
3,332
5,351
3,927
6,012
14,328
7,872

100.0
100.0
94.1
99.5
99.3
100.0
97.4
100.0
93.8
89.0
96.5
96.5
84.7
96.1
100.0
100.0
100.0
99.3

12
3
9
49
33
24
47
1
29
44
22
19
15
31
17
17
16
16

321
107
169
275
204
258
669
564
364
247
104
83
70
126
73
92
399
192

1.1
0.4
0.6
0.9
0.7
0.9
2.2
1.9
1.2
0.8
0.3
0.3
0.2
0.4
0.2
0.3
1.3
0.6

0.3
1.0
2.1
2.9
4.9
6.7
3.3
4.9
1.6
3.6
6.6
3.4
1.6
3.9
3.1
3.6
Less than 0.1
3.0872,923

97.7

1,080

30,244100.0%

1.6

Appraisal Value

Rentable
Area

Leased Area at
End of Period

Occupancy Rate at
End of Period(Yen in millions)

(m2)

(m2)

(%)

54,60044,10040,90039,30025,80051,40016,90030,70026,70020,40012,30014,50014,70020,90013,80016,60015,70013,340
10,2007,430
13,800
8,350
6,490
8,170
7,670
6,490
4,320
4,930
7,220
5,540
4,870
5,000
4,910
4,130

27,57633,09229,92435,641
24,72833,503
9,631
16,84816,30821,4236,627
3,440
14,874
20,426
16,232
10,067
10,08817,307
4,033
7,481
8,258
6,166
4,993
7,087
10,458
5,258
3,428
5,991
4,871
4,805
3,298
5,652
5,127
5,332

25,97433,09229,92435,641
24,56233,503
7,372
16,84816,30821,4236,627
3,440
14,28920,426
16,232
8,805
10,061
17,307
3,695
7,481
8,258
6,166
4,993
7,087
10,458
3,853
2,446
5,991
4,871
4,805
3,137
5,205
4,758
5,332

94.2
100.0
100.0
100.0
99.3
100.0
76.5
100.0
100.0
100.0
100.0
100.0
96.1
100.0
100.0
87.5
99.7
100.0
91.6
100.0
100.0
100.0
100.0
100.0
100.0
73.3
71.3
100.0
100.0
100.0
95.1
92.1
92.8
100.0

30,30035,70028,7008,660
9,300
20,70013,300
3,540
2,110
6,960
2,110
17,9001,780
11,5002,050

32,082
36,63828,3198,504
13,762
39,837
20,03012,545
5,242
16,842
6,160
20,6983,455
22,832
4,770

31,35836,62527,3638,504
13,762
39,837
19,26812,545
4,759
16,2796,160
19,453
3,455
21,764
4,420

6,620
1,310
2,990
3,270
3,070
7,230
18,20013,400
7,870
6,390
1,610
1,770
1,230
2,430
2,320
3,490
8,090
3,710

11,396
5,351
7,539
13,32910,208
9,876
21,91725,314
14,954
11,435
5,255
3,243
3,932
5,567
3,927
6,012
14,328
7,931

871,770

893,203

Total Number ofTenants at
End of Period

NBF Report January – June 2012 19

Management Team and Management Structure (As of June 30, 2012)
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.

on the basis of a simple majority of the voting rights of unitholders in

Nippon Building Fund Inc.

attendance, unless otherwise stipulated by laws, regulations or NBF’s
Nippon Building Fund Inc. is an investment corporation estab-

articles of incorporation. Decisions on substantive matters such as

lished with the objective of investing in assets, primarilychanges in the articles of incorporation require the attendance of

Designated Assets as defined by the Investment Trust Law ofunitholders that control a simple majority of total units issued andJapan. NBF entrusts management of its assets to Nippon Building

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

Fund Management Ltd., which is an asset management company.

unitholders. In addition, any change in the asset management policies

NBF’s primary investment objective is to achieve sustainable

and standards, which are stipulated by NBF’s articles of incorporation,

growth in portfolio value and stable profits on a medium-to-long-term

requires an extraordinary resolution of unitholders as outlined above.

basis. NBF achieves this objective by investing in real estate consist-

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

Executive Directors, Supervisory Directors andthe Board of Directors

Tokyo and other cities in Japan. NBF also invests in securities, benefi-

NBF’s articles of incorporation stipulate that NBF must haveciary certificates representing beneficial interests in trusts and otherone or more executive directors and three or fewer supervisory

assets backed by office properties.

directors (but the number of supervisory directors must always be

ing of buildings primarily used for offices with their underlying land

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

General Meeting of Unitholders

June 30, 2012, NBF has one executive director and three

Specific matters pertaining to NBF that are subject to the Investment

supervisory directors.

Trust Law of Japan or the Company’s articles of incorporation are

NBF’s executive directors are responsible for business execution,

decided by resolution of the General Meeting of Unitholders, which

and have authority for all judicial and extrajudicial proceedings related

convenes at least once every two years, in principle. The seventh

to the operations of NBF. Supervisory directors are responsible forGeneral Meeting of Unitholders convened on March 10, 2011. The datesupervising execution by the executive directors.
The Board of Directors consists of the executive and supervisoryof the next General Meeting of Unitholders has not been set.
The General Meeting of Unitholders adopts or vetoes resolutions

directors. Its responsibilities include authorizing business execution andGeneral Meeting ofUnitholders

Sumitomo Mitsui
Trust Bank, Ltd.

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.

NIPPON BUILDINGFUND MANAGEMENT Ltd. (NBFM)

Borrowings /Bonds and Notes
Debt Service

Qualified Institutional
Investors / Bondholders
Independent Auditors
KPMG AZSA LLC

Liabilities

Office Management

AssetsInvestment

Real Estate, etc.
Rent, etc.

20 NBF Report January – June 2012

Asset Management
Entrustment

Unitholders’EquityInvestment

Unitholder

Distribution

Unitholder

TradingManagement Team

From left: Sadao Kamiyama, Tsutomu Nishikawa, Hatsuo Komatsu, Yoshiyuki Hirai

Name

Background Summary

Executive Director

Tsutomu Nishikawa

Supervisory Directors

Hatsuo Komatsu
Sadao Kamiyama

Appointed Executive Director of NBF in March 2011 after serving as an executive officer of
Mitsui Fudosan Co., Ltd.
Attorney. Appointed Supervisory Director of NBF in March 2007.
Certified Public Accountant. Certified Public Tax Accountant. Appointed Supervisory Director
of NBF in March 2007.
Appointed Supervisory Director of NBF in March 2009. Real Estate Appraiser.

Yoshiyuki Hirai

supervising the performance of the executive directors. Resolutions bydirectors and supervisory directors selected to fill a vacancy or to

the Board of Directors require a simple majority with more than half ofincrease the number of directors expire at the same time as the remain-

the members of the Board in attendance.

ing terms of their predecessors or the current directors.

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

The executive director serving as of June 30, 2012 was elected withand supervisory directors may not participate in decisions in which

the consent of all unitholders on March 10, 2011. The three supervisory

they have a vested interest. Executive and supervisory directors withdirectors and the substitute supervisory director were elected at thesuch financial interest shall not be included in the number of executive

General Meeting of Unitholders held on March 10, 2011, and assumed

and supervisory directors in attendance for such decisions.

office on March 17, 2011.

The terms of office of executive directors and supervisory directors
are two years from the time they assume office. The terms of executive

NBF Report January – June 2012 21

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

Management Structure
General Meeting of Shareholders
AuditorCompliance Committee

Matters Entrusted to
Nippon Building Fund Management Ltd.

Board of Directors
Executive Board

Risk Management BoardCEOAs the asset management company required by the Investment

Investment
Review Board

Accounting Auditor

Trust Law of Japan, Nippon Building Fund Management Ltd. manages
NBF’s assets in accordance with the asset management objectives andCompliance
Officer

Investment & FinanceGroup

Corporate OperationGroup

policies stipulated by NBF’s articles of incorporation. In addition, in
accordance with the manager of general administration contract designating Nippon Building Fund Management Ltd. as the institutional man-Real EstateManagement
Team

Real Estate
Investment
Team

Research
Team

Financial
Team

Fund
Operation
Team

Corporate
Risk
Planning &Management
Administration & Compliance
Team
Team

ager of NBF’s assets, Nippon Building Fund Management Ltd. also
executes certain responsibilities in connection with the operation of theGeneral Meeting of Unitholders and the Board of Directors as manager
Investment & Finance Group and the Corporate Operation Group alsoof general administration.

serve as directors, and oversee their respective divisions under theManagement Structure of
Nippon Building Fund Management Ltd.

direction and oversight of the president. Corporate auditors conduct
accounting audits and operational audits of Nippon Building Fund

The Board of Directors makes decisions on the basic management

Management Ltd. The Compliance Officer oversees compliance forpolicies of Nippon Building Fund Management Ltd. and oversees exe-

the asset management company and is responsible for internal

cution of the duties of the representative director. The president, who

administration in connection with internal audits at the asset manage-

is the representative director, supervises and executes the operations

ment company.

of Nippon Building Fund Management Ltd. The heads of the

Nippon Building Fund Management Ltd. Management Team
Name

Title

Career Summary

Kenichi Tanaka

President and CEO

Apr. 1982
Apr. 2007
Apr. 2010

Yasushi Akimoto

Director, Head ofInvestment &Finance Group

Apr. 2011

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

Masahiko Misao

Director, Head ofApr. 1980

Joined Sumitomo Life Insurance Company

Corporate Operation

Apr. 2003
Mar. 2008

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

Apr. 2012Group

Apr. 1983
Apr. 1998
Apr. 2006
Apr. 2008

Mar. 2012

Joined Mitsui Fudosan Co., Ltd.
Business Administration Manager of Mitsui Fudosan Co., Ltd.
Rental Housing Business Manager, Accommodation Business Department of Mitsui Fudosan Co., Ltd.
(current position)
Appointed President and CEO of Nippon Building Fund Management Ltd. (current position)

Masato Shikata

Director (Part-time)

Apr. 2009

Fukuhisa Kumada

Director (Part-time)

Sep. 2010

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

Toru Suzuki

Auditor (Part-time)

Apr. 2008

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

Hideo Yoshimura

Auditor (Part-time)

Jul. 2011

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

22 NBF Report January – June 2012

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

Management Team and Management Structure

Compliance Initiatives

for management, acquisition and sale of assets; financial guidelines forfund procurement and management policies; accounting guidelines for

The management of NBF and Nippon Building Fund Management
Ltd. conduct honest and appropriate business activities while maintaining

tax accounting and dividend distribution policies; and guidelines on transactions with potential conflicts of interest.

rigorous compliance by adhering to all relevant laws and regulations,based on a high level of corporate ethics.
The bylaws of NBF’s Board of Directors stipulate that Board of
Directors meetings are to be held at least once every three months. In
practice, NBF holds such meetings once a month. At Board meetings,
executive directors report on the execution of their duties and supervisory
directors ensure that oversight and check-and-balance systems are functioning properly.
Nippon Building Fund Management Ltd. views compliance as a management strategy, with a fundamental compliance policy of conducting
operations honestly and fairly while maintaining a rigorous compliancesystem based on a high level of corporate ethics. Specifically, Nippon
Building Fund Management Ltd. has established a Compliance
Committee, consisting of the Compliance Officer, the president, the headof the Investment & Finance Group, the head of the Corporate Operation
Group and an outside committee member. Initiatives to enhance awareness of and adherence to compliance include the establishment ofCompliance Rules and a Compliance Manual. In addition, a Compliance
Program is formulated each year to verify the progress of the execution
plan for that year and identify any problem areas.

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

Voluntary Rules for Conflict of Interest
Transactions Stipulated in Internal Bylaws
Nippon Building Fund Management Ltd. has set voluntary rules in its
internal bylaws to address transactions with parties, including sponsor

Risk Management System
NBF and Nippon Building Fund Management Ltd. have establishedcompanies that have interests in Nippon Building Fund Management Ltd.
The voluntary rules require the Investment Division, which initiates thethe following risk management system to avoid and minimize risks relatedtransaction, as well as the Compliance Department, the Asset

to investments.

Management Examination Meeting and other units to protect NBF’s

NBF

managed assets and profits by fully examining the transaction contents

NBF’s Risk Management Regulations define risk management policies

according to the voluntary rules set in the internal bylaws in the event of aand procedures. The Risk Management Board convenes once every threetransaction in which the interests of Nippon Building Fund Managementmonths and undertakes deliberation, monitoring and other initiatives toLtd. and parties that have interests in Nippon Building Fund Management

ensure that the entrusted asset manager is conducting its duties with due

Ltd. may conflict with the interests of NBF. These rules are designed fromcare in good faith in a manner consistent with its fiduciary duty to the con-the standpoint of accountability to NBF and its unitholders.

servation and maintenance of entrusted assets.

Nippon Building Fund Management Ltd.
Nippon Building Fund Management Ltd. formulates a Management

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

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

ing real estate or other assets from parties that have interests in Nippon

Annual Management Plan to follow in managing NBF’s assets. In addition,

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

Nippon Building Fund Management Ltd. has set Asset Management

ciple no higher than the appraised value according to a real estate

Guidelines as a set of standards to follow.

appraiser with no vested interest.

The Asset Management Guidelines consist of management guidelines

NBF Report January – June 2012 23

Management’s Discussion and Analysis
Summary of Selected Financial Data

22nd Period
from January 1, 2012 toJune 30, 2012

21st Period
from July 1, 2011 to
December 31, 2011

20th Period
from January 1, 2011 toJune 30, 2011

Yen in millions, except per unit data or where otherwise indicatedOperating revenues
Note 2
Revenue from property leasing activities
Operating expenses
Rental expenses
Loss on sale of investment property
Income before income taxes
Net income(a)Funds from operations
Note 3
Net operating income from property leasing activities Note 3
Total amount of cash distribution(b)
Depreciation and amortization
Capital expenditures
Total assets(c)Interest-bearing debt
Net assets(d)Total number of units issued (units)(e)
Net assets per unit (Yen/$)(d) / (e)Distribution per unit (Yen/$)(b) / (e)Funds from operations per unit (Yen/$)Note 3
ROA
Note 3(Annual rate)
ROE
Note 3(Annual rate)
LTV (Loan to value)
Note 3
Capital ratio(d) / (c)Payout ratio(b) / (a) Note 4
Number of days
Number of investment properties
Note 5
Number of tenants
Note 5
Total rentable area (m2)Occupancy rate
Note 5¥ 30,244
30,244
17,798
16,525
—
9,490
9,489
15,62819,857
9,489
6,139
2,137
871,140
374,000
445,836
613,000
727,302
15,48025,713
1.1%(2.2%)
2.2%(4.4%)
46.8%
51.2%
100.0%
182
67
1,080
893,203
97.7%¥ 29,773
29,773
17,587
16,145
197
9,128
9,127
15,226
19,530
8,793
5,902
1,975
852,855
377,375
424,242
578,500
733,348
15,20026,3201.1%(2.2%)
2.2%(4.3%)
48.2%
49.7%
96.3%
184
64
1,042
861,153
98.1%¥ 28,081
28,081
16,162
14,951
—
8,758
8,757
14,291
18,664
8,757
5,534
1,695
823,705
350,750
423,872
578,500
732,709
15,13824,9371.1%(2.3%)
2.1%(4.3%)
46.5%
51.5%
100.0%
181
64
1,011
828,491
97.1%

22nd Period
from January 1, 2012 toJune 30, 2012
U.S. dollars in thousands
except per unit data (Note 1)$

378,947
378,947
223,006
207,053—
118,913
118,899
195,814
248,809
118,898
76,91526,782
10,915,178
4,686,130
5,586,224
9,113
194
322

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥79.81 = U.S. $1.00, the approximate exchange rate on June 30, 2012.
2. Operating revenues do not include consumption tax.
3. All valuations are calculated through the following formulas. The figures in parentheses after ROA and ROE are annualized based on the six-month figures for the period.
Funds from operations: Net income (excluding Gain and Loss on sale of investment properties) + Depreciation and amortization
Net operating income from property leasing activities: (Revenue from property leasing – Rental expenses) + Depreciation and amortization
Funds from operations per unit: (Net income (excluding Gain and Loss on sale of investment properties) + Depreciation and amortization) / Weighted average number of units issued
and outstanding during the period
ROA: Income before income taxes / (Initial total assets + Total assets at end of period) ÷ 2
ROE: Net income / (Initial net assets + Net assets at end of period) ÷ 2
Loan to value: (Interest-bearing debt + Deposits under management) / Total assets
4. 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 is the ratio of grossleased area to total rentable area at the end of the period.

24 NBF Report January – June 2012

Operating Environment and Results
The Japanese economy recovered gradually during the six months ended June 30, 2012 (the “22nd Period”) with the emergence of demand
related to restoration of facilities damaged by the Great East Japan Earthquake of March 2011. Capital investment increased as corporate earnings
improved, and personal consumption was also firm, reflecting factors including the government’s policy of subsidizing purchases of eco-cars. Exports
and production showed signs of improvement despite the continuing deceleration of overseas economies in general.
In the office building leasing market, office demand itself was firm, and strong-performing companies made forward-looking relocations to
upgraded or larger offices, or moved to high-quality properties with superior anti-seismic features. However, vacancy rates remained high due to atemporary oversupply of new buildings in the central business districts (CBDs) of Tokyo.
In the real estate acquisition market, the value of office building transactions by J-REITs trended upward, primarily in Tokyo CBDs, reflecting
ongoing adjustments in the office building rental market and a strong fund procurement environment that included increases in the amounts of newloans to the real estate industry and public offerings of J-REITs.
Under these conditions, NBF continued to manage its assets in accordance with its basic policy of investing in high-quality office buildings that arehighly competitive in terms of their location, size and infrastructure, and are expected to have stable cash flow from rents. During the 22nd Period, after
careful deliberation in accordance with this policy, NBF acquired Higashi Gotanda Square (acquisition price of ¥8,350 million) and the Ryukakusan
Building (acquisition price of ¥4,050 million) in February 2012, the Shin-Kawasaki Mitsui Building (additional acquisition of ¥5,520 million) and NBF
Matsuyama Nichigin-mae Building (acquisition price of ¥3,310 million) in March, and the Hiroshima Fukuromachi Building (additional acquisition of ¥1,380
million) in April. In June, NBF also made the decision to acquire NBF COMODIO Shiodome (acquisition price of ¥28,800 million).
For existing properties, NBF systematically conducted property management, renovations and new construction to further increase tenantsatisfaction. NBF also worked to secure stable rental revenue by maintaining a sound grasp of market movements, setting appropriate rents for new
tenants and revising rents for tenants renewing their lease contracts.
NBF’s real estate portfolio as of June 30, 2012 totaled 67 properties. Total investment on an acquisition price basis was ¥892,840 million. Total
rentable area was 893,203m2. The occupancy rate decreased 0.4 percentage points from December 31, 2011 to 97.7 percent. The number oftenants totaled 1,080.

Occupancy Rate

Total Investment(Yen in billions)

(%)

900

100

800

98

700

96

600
500

94

400

92

300

90

200
100
0

0
Jun. 30,
2010

Dec. 31,2010

Jun. 30,
2011

Dec. 31,2011

Jun. 30,
2012

Jun. 30,
2010

Dec. 31,2010

Jun. 30,
2011

Dec. 31,2011

Jun. 30,
2012

NBF Report January – June 2012 25

Overview of Performance
In addition to new operation of the five properties acquired during the six months ended June 30, 2012 (including additional acquisitions),
properties acquired in the previous period were in operation for the full period. On the other hand, revenue from existing buildings was in a
downward trend. As a result, operating revenues for the six months ended June 30, 2012 increased ¥470 million, or 1.6 percent, to ¥30,244 million.
Operating income increased ¥259 million, or 2.1 percent, to ¥12,446 million. Net income increased ¥362 million, or 4.0 percent, to ¥9,489 million.
Distribution per unit was ¥15,480.

(Yen in millions)Operating Income From Property
Leasing Activities

35,000(Yen in millions)Operating Revenues

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

5,000

5,000
0

18th

19th

20th

21st

22nd

PeriodPeriodPeriodPeriodPeriod018thPeriod19th
Period20th
Period21stPeriod22nd
PeriodDistribution for the Current Period
Distribution per unit for the current period was ¥15,480. NBF expects to distribute almost all retained earnings at the current period end to beeligible for special tax treatment (Special Taxation Measures Law of Japan Article 67-15) that allows NBF to deduct its cash dividends of profits fromtaxable income.
For the six months ended
June 30, 2012

For the six months ended
December 31, 2011

For the six months ended
June 30, 2011

(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)¥9,489,337
97—
9,489,240
15,4809,489,240
15,480——¥9,127,289—
334,089
8,793,200
15,2008,793,200
15,200——¥8,757,477
144—
8,757,333
15,1388,757,333
15,138——

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

Distribution per Unit

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

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

5,000
0

0

18th
Period19th
Period20th
Period26 NBF Report January – June 2012

21st
Period22nd
Period18th
Period19th
Period20th
Period21stPeriod22nd
PeriodManagement’s Discussion and Analysis

Changes in Assets, Liabilities and Net Assets
Assets
As of June 30, 2012, total assets increased by ¥18,285 million to ¥871,140 million compared with December 31, 2011. Return on average total
assets (ROA) for the six months ended June 30, 2012 increased to 1.10 percent from 1.09 percent for the previous six-month period.
Current assets decreased by ¥1,118 million to ¥35,300 million compared with December 31, 2011. Investment properties increased by¥19,204 million to ¥830,202 million compared with December 31, 2011.

Liabilities
Current liabilities decreased by ¥8,282 million to ¥66,110 million compared with December 31, 2011, primarily because of a decrease in longterm debt due within one year compared with December 31, 2011.
Long-term debt increased by ¥4,625 million to ¥317,250 million compared with December 31, 2011.
As a result, total interest-bearing liabilities decreased by ¥3,375 million to ¥374,000 million compared to December 31, 2011. However, theratio of long-term fixed-rate debt (less amounts due within one year) to total interest-bearing liabilities increased to 84.8 percent as of June 30,
2012 from 82.8 percent as of December 31, 2011.
The loan-to-value ratio, calculated as the ratio of interest-bearing liabilities plus deposits under management to total assets, decreased to46.8 percent as of June 30, 2012 from 48.2 percent as of December 31, 2011.
In addition, NBF worked to diversify funding sources. In January 2011, NBF updated a shelf registration to publicly offer up to ¥200 billion
in bonds.

Net assets
Net assets increased by ¥21,594 million to ¥445,836 million compared with December 31, 2011.

Net Assets

Total Assets(Yen in millions)(Yen in millions)

1,000,000

500,000
400,000

800,000

300,000

600,000

200,000
400,000
100,000
00Jun. 30,
2010

Dec. 31,2010

Jun. 30,
2011

Dec. 31,2011

Jun. 30,
2012

Jun. 30,
2010

Dec. 31,2010

Jun. 30,
2011

Dec. 31,2011

Jun. 30,
2012

Funding
Balance of Paid-in Capital
NBF was established on March 16, 2001 with initial paid-in capital of ¥100 million. NBF began investing activities in May 2001 after ¥98,800
million was raised through private placements. As of June 30, 2012, NBF had issued 613,000 units out of 2,000,000 total authorized units. NBF’sunits 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 2012 27

Issue date

Units issued and outstanding
Increase
Balance(Units)Remarks

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

200

200

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

4,000

Paid-in capital
Increase

Balance

Notes(Yen in millions)

¥

100

¥

100

Note 1

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

Note 2
Note 3Note 4

364,700

2,942

210,679

Note 558,00080,000422,700
502,700

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

508,000

5,236

346,446

Note 831,800539,800

37,159383,605

Note 92,200

542,000

2,571

386,176

Note 1034,000576,000

26,957413,133

Note 112,500

578,500

1,982

415,115

Note 1230,000608,500

18,172433,287

Note 134,500

613,000

2,726

436,013

Note 14

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.

Market Price of Units
High/Low (closing price) of units on the TSE:
For the six months ended
June 30, 2012

For the six months ended
December 31, 2011
(Yen)

For the six months ended
June 30, 2011

¥809,000
629,000¥830,000
620,000¥871,000
735,000

High
Low

Borrowings
Borrowings from financial institutions as of June 30, 2012 are shown below.
Short-term loans
LenderBalance

Averageinterest rate (%)

Due on(Note 1)

Repayment
methodUse of
funds

Notes

(Note 4)

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

Mitsubishi UFJ Trust and Banking Corporation ¥15,000
Sumitomo Mitsui Trust Bank, Limited
7,000
The Gunma Bank, Ltd.
2,000
The 77 Bank, Ltd.
2,000
Shinkin Central Bank
1,000
The Joyo Bank, Ltd.
1,000
The Chugoku Bank, Limited
1,000
Total short-term loans
28 NBF Report January – June 2012

¥29,000

0.3%
0.3%
0.5%
0.5%
0.5%
0.5%
0.5%

July 31, 2012
July 31, 2012
July 31, 2012
August 31, 2012
July 31, 2012
August 31, 2012
September 28, 2012

Bulletpayment

Management’s Discussion and Analysis

Long-term loans
LenderBalance

Averageinterest rate (%)

Due on(Note 1)

1.8%
1.5%
1.8%
2.0%
2.4%
2.2%
2.2%
1.6%
1.2%
1.1%
1.2%
1.8%
1.8%
1.5%
1.1%
2.1%
1.9%
1.7%
1.8%
1.0%
1.5%
1.8%
1.5%
1.9%
1.8%
1.5%
2.3%
1.7%
1.2%
0.7%
1.6%
1.8%
1.0%
1.6%
1.6%
2.0%
1.9%
1.1%
0.9%
1.2%
1.8%
1.0%
0.7%
2.0%
1.0%
1.0%
1.9%
1.0%
1.4%
1.3%
1.3%
2.0%
1.4%
1.6%
0.9%
1.4%
1.8%
1.8%
1.7%
1.0%
1.7%
2.1%
2.0%
1.3%

November 28, 2014
September 11, 2015
September 27, 2017
February 15, 2016
May 30, 2018
April 28, 2019
August 30, 2019
September 30, 2013
June 1, 2018
December 30, 2019
March 5, 2021
July 31, 2014
September 30, 2014
March 4, 2016
March 1, 2019
May 23, 2018
May 23, 2016
July 16, 2014
February 3, 2016
July 19, 2017
April 30, 2013
June 27, 2013
December 28, 2012
April 28, 2014
June 30, 2014
September 11, 2015
May 30, 2016
July 31, 2013
November 30, 2018
February 7, 2017
September 30, 2013
September 30, 2014
June 1, 2017
November 1, 2012
December 13, 2013
May 30, 2013
May 29, 2014
February 13, 2020
March 29, 2019
March 30, 2021
June 27, 2013
June 1, 2017
December 30, 2016
October 30, 2015
June 1, 2017
March 8, 2019
July 12, 2012
June 1, 2017
April 1, 2015
October 19, 2018
May 31, 2019
October 31, 2014
October 4, 2013
February 3, 2015
March 29, 2019
December 2, 2013
June 26, 2014
March 30, 2015
May 29, 2014
February 25, 2016
December 15, 2014
July 11, 2014
August 31, 2015
April 27, 2022

Repayment
methodUse of
funds

Notes

(Note 4)

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

(Yen in millions)

Development Bank of Japan Inc.

¥

4,000
10,00010,00010,00010,0004,250
8,750
Sumitomo Mitsui Trust Bank, Limited
5,000
10,00010,0005,000
Mitsubishi UFJ Trust and Banking Corporation 3,000
1,000
7,000
15,000Sumitomo Life Insurance Company
7,000
5,000
5,000
3,000
5,000
Sumitomo Mitsui Banking Corporation
5,000
5,000
4,000
6,000
1,000
Zenkyoren (The National Mutual Insurance 10,000
Federation of Agricultural Cooperatives)
10,000Mizuho Corporate Bank, Ltd.
8,000
7,000
2,000
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
8,000
4,000
4,000
MITSUI LIFE INSURANCE COMPANY, LIMITED 2,000
3,000
2,000
3,000
2,000
2,000
2,000
Shinkin Central Bank
4,000
3,000
3,000
Resona Bank, Limited.
3,000
1,000
3,000
THE BANK OF FUKUOKA, Ltd.
4,000
2,000
Nippon Life Insurance Company
2,000
2,000
2,000
DAIDO LIFE INSURANCE COMPANY
1,000
1,000
2,000
1,000
The Hachijuni Bank, Ltd.
1,000
2,000
1,000
The Chugoku Bank, Limited
2,000
2,000
TAIYO LIFE INSURANCE COMPANY
1,000
2,000
1,000
Meiji Yasuda Life Insurance Company
3,000(Note 2)
(Note 3)

Bulletpayment

NBF Report January – June 2012 29

Lender

Balance

Averageinterest rate (%)

Due on(Note 1)

Repayment
method

0.9%
1.1%
1.1%
0.7%
1.1%
1.9%
0.7%

January 4, 2017
May 1, 2019
September 4, 2020
March 3, 2017
December 28, 2012
April 30, 2014
March 3, 2017

Use of
funds

Notes

(Note 4)

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

(Yen in millions)

The Yamaguchi Bank, Ltd.

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

The Daishi Bank, Ltd.
The Yamanashi Chuo Bank, Ltd.
The Iyo Bank, LTD.
The Joyo Bank, Ltd.

Total long-term loans
Total borrowings (Note 6)

Bulletpayment¥285,000¥314,000

Notes: 1. With respect to the date of repayment in case of more than one short-term loan from the same lender, the earliest date of repayment for all such loans coming due is given.
2. Scheduled for repayment of ¥125 million at six-month intervals and ¥2,625 million at the final maturity date.
3. Scheduled for repayment of ¥250 million at six-month intervals and ¥5,250 million at the final maturity date.
4. Use of funds for the above includes acquisition of real estate or beneficiary interests, repayment of borrowings and working capital.
5. A special agreement attached to “Loan Agreement” entered into between NBF and each financial institution provides that the above borrowings from all financial institutions
rank pari passu to each other.
6. The total amount of long-term loans (i.e. excluding those expected to be repaid within one year) repayable within 5 years of the date of the balance sheet 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¥41,750¥26,750¥61,750¥19,750

NBF Bonds
Issue

No. 3 Unsecured Bonds
No. 7 Unsecured Bonds
No. 9 Unsecured Bonds
No. 10 Unsecured Bonds
No. 11 Unsecured Bonds
No. 12 Unsecured Bonds
Total (Note 6)

Balance as ofJune 30, 2012
(Yen in millions)Issue dateJune 12, 2003
November 9, 2005
May 24, 2007
May 24, 2007
January 28, 2010
September 15, 2011

¥10,000
10,00010,00010,00010,00010,000¥60,000

CouponMaturitydate

Redemption

Use ofproceeds

Notes

2.00%
1.85%
1.74%
2.04%
1.23%
0.64%

June 12, 2018
November 9, 2015
May 23, 2014
May 24, 2017
January 28, 2015
September 15, 2016

Bullet payment
Bullet payment
Bullet payment
Bullet payment
Bullet payment
Bullet payment

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

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

Investment
corporation bonds

Within 1 year

1 to 2 years

2 to 3 years

3 to 4 years

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

Others
NBF has security deposits totaling ¥41,864 million as of June 30, 2012.

Capital Expenditures
1. Planning
As of June 30, 2012, 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 tenantsatisfaction surveys and neighboring competitive building specification surveys, etc.

30 NBF Report January – June 2012

Management’s Discussion and Analysis

Name of property

Estimated
duration

Total amounts

Estimated amounts
Payment for thecurrent period(from January 1, 2012
to June 30, 2012)(Yen in millions)

From January 2013 to June 2013
From September 2012 to November 2012
From July 2012 to December 2012
From July 2012 to December 2012
From January 2013 to June 2013
From July 2012 to March 2013
From January 2013 to April 2013
From July 2012 to November 2012
From January 2013 to May 2013
From September 2012 to February 2013
From October 2012 to December 2012
From July 2012 to December 2012
From March 2013 to May 2013
From March 2013 to May 2013
From March 2013 to June 2013
From April 2013 to May 2013
From March 2013 to May 2013
From September 2012 to September 2012
From April 2013 to May 2013

¥342
236
142
130
130
128
126
119
112
110
101
93
83
69
58
32
25
20
18

¥—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

Objective

Nippon Steel Building No.2 Renovation of air conditioning
Ryukakusan Bldg.
Renovation of air conditioning
Sumitomo Densetsu Bldg. Renovation of air conditioning
Shinjuku Mitsui Bldg. No. 2 Renovation of air conditioning
Shinjuku Mitsui Bldg. No. 2 Renovation of air conditioning
Nishi-Shinjuku Mitsui Bldg. Renovation of common area
Aqua Dojima NBF Tower
Renovation of air conditioning
Nakanosakaue Sunbright Twin Renovation of automatic control
GSK Bldg.
Renovation of air conditioning
Shin-Kawasaki Mitsui Bldg. Renovation of exterior
Aqua Dojima NBF Tower
Renovation of air conditioning
NBF Takanawa Bldg.
Renovation of air conditioning
Shibuya Garden Front
Renovation of air conditioning
Ryukakusan Bldg.
Renovation of air conditioning
NBF Sakai-Higashi Building Renovation of air conditioning
NBF Unix Bldg.
Renovation of air conditioning
NBF Sakai-Higashi Building Renovation of exterior
NBF Shijo Karasuma Bldg. Renovation of car parking tower
NBF Shijo Karasuma Bldg. Renovation of air conditioning

Cumulative
amount paid

¥—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NBF posted ¥2,137 million in capital expenditures
together with ¥731 million for repairs and maintenance expenses.
Name of property

Aqua Dojima NBF Tower
Shinjuku Mitsui Bldg. No. 2
Shin-Kawasaki Mitsui Bldg.
NBF Hibiya Bldg.
GSK Bldg.
Sumitomo Densetsu Bldg.
NBF Akasaka Sanno Square
NBF Atsugi Bldg.
Aqua Dojima East
NBF Utsunomiya Bldg.
NBF Sapporo
Minami Nijo Bldg.
NBF Shijo Karasuma Bldg.
NBF Sakai-Higashi Building
Other buildings
Total

Objective

Expenditure(Yen in millions)

PeriodRenovation of air conditioning, renovation of automatic fire information facilities,
renovation of guide light, etc.
Renovation of air conditioning, renovation of restroom, renovation of lighting
equipment, etc.
Renovation of heating equipment, renovation of common use department guide light,
renovation of restroom, etc.
Renovation of guide light, renovation of surveillance camera facilities, renovation of air
conditioning, etc.
Renovation of hot and chilled water generator, attachment of multi-purpose restroom,
renovation of elevator, etc.
Renovation of air conditioning, attachment of stairs handrail, renovation of hot andchilled water generator, etc.
Renovation of restroom, renovation of battery facilities, renovation of mechanical parking
From January 2012
lot facilities, etc.
to June 2012
Renovation of air conditioning, renovation of mechanical parking lot facilities, renovationof fire extinguishing facilities, etc.
Renovation of central monitoring board, renovation of access control system, renovationof guide light, etc.
Attachment of heat shield window shade, renovation of elevator, pavement of asphalt, etc.
Renovation of air conditioning, renovation of all heat exchangers, renovation of parking
lot facilities, etc.
Renovation of fire extinguishing facilities, renovation of automatic fire information
facilities, renovation of common use department lighting equipment, etc.
Renovation of air conditioning, construction of parking lot, renovation of air
conditioning, etc.
Asset preservation construction and other renewal construction to improve tenantsatisfaction.

¥ 216
178
137
134
107
101
85
57
40
39
36
24
24
959
¥2,137

NBF Report January – June 2012 31

3. Cash Reserve for Capital Improvements
NBF accumulates cash reserves from cash flows to prepare for large-scale mid-term to long-term capital improvements andrepairs and maintenance that will be conducted in accordance with NBF’s business plan for each property.
As of June 30, 2012

As of December 31, 2011
(Yen in millions)

Reserve balance at the beginning of the period
Amount accumulated in the current period
Withdrawal from reserves in the current period
Amount carried forward¥1,6302,884
3,337¥1,177¥2,755
1,817
2,942¥1,630Notes: 1. The reserve figures represent only the amount of reserves attributable to NBF’s ownership interest; the amount of reserves attributable to other owners has been excluded.
2. In addition to the above reserves, there are other reserves set up, based on maintenance needs and contracts with organizations responsible for management of properties,
for the purpose of retaining funds to be used for future repair and maintenance. This reserve is not included in the above reserves and accumulated to ¥5,039 million as ofJune 30, 2012.

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, 2012

For the six months ended
December 31, 2011
(Yen in millions)

For the six months ended
June 30, 2011

¥1,050
40
47
14
14
108
¥1,273¥1,027
39
46
16
13
104
¥1,245

¥ 973
36
51
17
13
121
¥1,211

Item

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

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

Higashi Gotanda Square
Ryukakusan Bldg.
Shin-Kawasaki Mitsui Bldg. (additional acquisition)
NBF Matsuyama Nichigin-mae Bldg.
Hiroshima Fukuromachi Bldg. (additional acquisition)
Total

Date

Acquisition price (Note 1)

February 1, 2012
February 1, 2012
March 30, 2012
March 30, 2012
April 13, 2012

¥ 8,350
4,050
5,520
3,310
1,380
¥22,610

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

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

32 NBF Report January – June 2012

Management’s Discussion and Analysis

3. Transactions with Related Parties and Transactions with Major Shareholders ofAsset Management Company(1) Ongoing Transactions
None. (No purchases, or sales or other transactions involving interested parties.)(2) Fees Paid for the Period from January 1, 2012 to June 30, 2012
Description of transactions with related parties (Note 1)
Category

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

Leasing related service fees

Total fees paid(A)
(Yen in millions)¥1,267
3,109

38

Amount ofpayment (B)(Yen in millions)

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

¥1,227
34
524
357
185
120
11
2
10
5
0

B/A

96.8%
2.7%
16.8%
11.5%
6.0%
3.9%
0.3%
0.1%
26.9%
12.7%
1.1%

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 July 1, 2011 to December 31, 2011,transactions with and fees paid to, Mitsui Fudosan Co., Ltd., NBF Office Management Co., Ltd., First Facilities Co., Ltd., First Facilities West Co., Ltd., Mitsui Fudosan
Building Management Co., Ltd., First Facilities Yokohama Co., Ltd., Mitsui Fudosan Housing Lease Co., Ltd., and Mitsui Real Estate Sales Co., Ltd. which meet either of thesaid definitions, are as described above.
2. Figures indicate contractual sales prices.
3. Figures indicate percentages of total prices.
4. Properties that have not entrusted office management businesses through such means as master leasing by Mitsui Fudosan Co., Ltd. (11 properties: Nishi-Shinjuku Mitsui
Bldg., Gate City Ohsaki, Nakameguro GT Tower, Toranomon Kotohira Tower, Higashi Gotanda Square, NBF Ogawamachi Bldg., Shin-Kawasaki Mitsui Bldg., Parale Mitsui
Bldg., Shinanobashi Mitsui Bldg., Sakaisuji-Honmachi Center Bldg. and Yotsuya Medical Bldg.) have entrusted them to NBF Office Management Co., Ltd. as business
representative of the property owners or lessors.
5. In addition to the above fees paid, the following have been paid to related parties for repair and maintenance work.

(Yen in millions)First Facilities Co., Ltd.
First Facilities West Co., Ltd.
Mitsui Fudosan Building Management Co., Ltd.
Mitsui Fudosan Co., Ltd.
Mitsui Designtec Co., Ltd.
Mitsui Fudosan Housing Lease Co., Ltd.
Uniliving Co., Ltd.
Mitsui Fudosan Realty Co., Ltd.
LaLaport Management Co., Ltd.

¥601
323
303
296
19
12
1
0
0

NBF Report January – June 2012 33

Balance Sheets
NIPPON BUILDING FUND INC.
As of June 30, 2012 and December 31, 2011

As ofJune 30, 2012

As of
December 31, 2011
(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, 14)
Buildings and improvements including trust accounts (Notes 4, 14)
Other tangible assets (Notes 4, 14)
Less: accumulated depreciation (Notes 4, 14)Leasehold rights in trust accounts and other intangible assets (Note 14)
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: 2,000,000 units
Units issued and outstanding: 613,000 units as of June 30, 2012 and
578,500 units as of December 31, 2011
Retained earnings
Total Net Assets
Total Liabilities and Net Assets
The accompanying notes to financial statements are an integral part of these statements.

34 NBF Report January – June 2012

¥ 34,484296
520
35,300¥ 35,486
294
638
36,418542,002329,703
10,578(87,730)
35,649830,2025,638¥871,140

530,202316,673
10,073(81,601)
35,651810,998
5,439¥852,855¥ 29,000
27,750
4,195
3,830
1,335
66,110317,250
41,86480
425,304¥ 22,000
42,750
3,889
3,795
1,958
74,392
312,625
41,51086
428,613436,013415,1159,823
445,836¥871,140

9,127
424,242¥852,855

Statements of Income
NIPPON BUILDING FUND INC.
For the six months ended June 30, 2012, December 31, 2011 and June 30, 2011

For the six months ended
June 30, 2012

For the six months ended
December 31, 2011
(Yen in millions)

For the six months ended
June 30, 2011¥27,7102,534
30,244¥27,041
2,732
29,773¥25,773
2,308
28,081

4,346
2,785
732
34
2,489
6,139
—
1,050
223
17,79812,446

4,217
2,645
836
34
2,511
5,902
197
1,027
218
17,587
12,186

3,947
2,678
579
32
2,181
5,534
—
973
238
16,162
11,9194

4

4(2,863)
(11)
(47)
(39)
9,490

(3,006)
(9)
—
(47)
9,128

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

—
—
9,490
(1)
¥ 9,489

—
—
9,128
(1)
¥ 9,127

(163)
(43)
8,758
(1)
¥ 8,757

Operating Revenues and Expenses
Operating Revenues:
Rental (Note 7)
Other revenues related to property leasing (Note 7)
Total Operating Revenues
Operating 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
Non-Operating Revenues and Expenses
Non-Operating Revenues:
Interest income
Non-Operating Expenses:
Interest expense
Amortization of bond issuance costs
New investment units issuance costs
Other non-operating expenses, net
Ordinary Income
Extraordinary Loss:
Loss on disaster (Note 9)
Provision for loss on disaster (Note 9)
Income before Income Taxes
Current and deferred income taxes (Note 10])Net Income
The accompanying notes to financial statements are an integral part of these statements.

NBF Report January – June 2012 35

Statements of Changes in Net Assets
NIPPON BUILDING FUND INC.
For the six months ended June 30, 2012, December 31, 2011 and June 30, 2011

(Yen in millions)
Number of
Units

Unitholders’CapitalRetained
Earnings

Total

Balance as of December 31, 2010

542,000¥386,176¥8,399¥394,575

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

2,500
—

1,982
—

—
8,757

1,982
8,757

Balance as of June 30, 2011

578,500

415,115

8,757

423,872————(8,757)9,127(8,757)
9,127

Balance as of December 31, 2011

578,500

415,1159,127

424,242

Cash dividends declaredIssuance of new units through public offering as of January 25, 2012
Issuance of new units through allocation to a third party as ofFebruary 21, 2012
Net income—
30,000—18,172(8,793)—(8,793)
18,172

4,500
—

2,726
—

—
9,489

2,726
9,489

Balance as of June 30, 2012

613,000¥436,013¥9,823¥445,836

Cash dividends declared
Net income

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

36 NBF Report January – June 2012

Statements of Cash FlowsNIPPON BUILDING FUND INC.
For the six months ended June 30, 2012, December 31, 2011 and June 30, 2011

For the six months ended
June 30, 2012

For the six months ended
December 31, 2011
(Yen in millions)

For the six months ended
June 30, 2011

¥ 9,490
6,139
11
—
2,863
(2)
304
35
—
(2,937)¥ 9,128
5,902
9
(43)
3,006
(8)
272
147
3,319
(3,004)¥ 8,758
5,534
5
43
2,861
(6)
(162)
300
—
(2,864)—(381)
15,522

1,102
690
20,520(1,102)(272)
13,095(25,276)
2,113(1,759)(10)(275)(25,207)(39,809)
2,663(1,481)(8)(208)(38,843)(60,042)
5,039(1,348)(10)(517)(56,878)

7,000
21,000(31,375)
20,851—(8,793)8,683(1,002)35,486¥ 34,484

14,00047,000(34,375)—(53)(8,758)17,814(509)
35,995¥ 35,486—
32,000(6,375)28,881—(8,396)
46,1102,327
33,668¥ 35,995

Cash Flows from Operating Activities:
Income before income taxes
Depreciation and amortization
Amortization of bond issuance costs
Increase (Decrease) in provision for loss on disaster
Interest expense
Increase in tenant receivables
Increase (Decrease) in accounts payable
Increase in rents received in advance
Decrease in investment properties due to sale
Cash payments of interest expense(Increase) Decrease in consumption tax
refund receivable
Others, net
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Payments for purchases of investment properties
Proceeds from tenant security deposits
Payments for tenant security deposits
Payments for security deposits paid to lessors
Others, net
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Net proceeds from 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 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.

NBF Report January – June 2012 37

Notes to Financial Statements
NIPPON BUILDING FUND INC.
For the six months ended June 30, 2012, December 31, 2011 and June 30, 2011

Note 1

Organization and Basis of Presentation

Organization
Nippon Building Fund Inc. (hereinafter “NBF”) was formed on March 16, 2001 as an investment corporation under the Law Concerning
Investment Trusts and Investment Corporations of Japan (hereinafter the Investment Trust Law of Japan) with Mitsui Fudosan Co., Ltd.,The Chuo Mitsui Trust and Banking Co., Ltd., and Nippon Building Fund Management Ltd. (hereinafter “NBFM”) acting as sponsors.
Registration with the Kanto Local Finance Bureau of the Ministry of Finance was completed on May 10, 2001 and NBF started acquisitionof office properties on May 23, 2001.
NBF is an externally managed real estate fund, formed as an investment corporation. NBFM, as NBF’s asset management company, isengaged in acquiring, managing, leasing, and renovating office properties. Mitsui Fudosan Co., Ltd. currently owns 43% of NBFM while
Sumitomo Life Insurance Company owns 35% and the remaining 22% is mainly owned by financial institutions.
On September 10, 2001, NBF had raised approximately ¥50,000 million through an initial public offering of units. Those units are listedon the J-REIT section of the Tokyo Stock Exchange.
As of June 30, 2012, NBF had ownership or beneficiary interests in 67 office properties containing approximately 893,203 square
meters of rentable office space. As of June 30, 2012, NBF had leased office space to 1,080 tenants engaged in a variety of businesses.
The occupancy rate for the office properties was approximately 97.7%.

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
Structures
Machinery and equipment
Tools, furniture and fixtures

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

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

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

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

38 NBF Report January – June 2012

Provision for Loss on Disaster
Provision for loss on disaster is recorded at the amount reasonably estimated at the period-end to provide for repair costs for assets
damaged by the Great East Japan Earthquake.

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

Real Estate Taxes
Real estate taxes are imposed on properties on a calendar year basis and expensed when incurred. In terms of newly purchased
properties, NBF capitalizes a portion of the real estate taxes that relate to a period from the purchase date of each property until the endof the calendar year as part of the acquisition cost of the relevant property. Capitalized real estate taxes amounted to ¥133 million for theperiod ended June 30, 2012, ¥66 million for the period ended December 31, 2011 and ¥293 million for the period ended June 30, 2011.

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.

Additional Information
Effective from the accounting changes and corrections of past errors to be conducted after the beginning of the fiscal period ended
December 31, 2011, NBF adopted the “Accounting Standard for Accounting Changes and Error Corrections” (Accounting Standards
Board of Japan (ASBJ) Statement No. 24 issued on December 4, 2009) and the “Guidance on Accounting Standard for Accounting
Changes and Error Corrections” (ASBJ Guidance No. 24 issued on December 4, 2009).

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.

NBF Report January – June 2012 39

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

Estimated Fair Value of Financial Instruments
Book value, fair value and difference between the two as of June 30, 2012 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¥ 34,484¥ 34,484¥ 34,484¥ 34,484¥¥¥ 29,000
27,750317,250¥374,000¥ 29,000
27,960328,862¥385,822

¥

—
—

—
210
11,612¥11,822

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
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¥ 61,965¥ 1,965(2) Long-term loans
257,250
266,897
9,647
Total¥317,250¥328,862¥11,6121) 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 arecalculated based on the present value of principal and interest cash flows discounted at the current interest rate that is estimated by taking into consideration theremaining 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, 2011 are as follows.
The financial instruments for which it is very difficult to estimate the fair value are excluded from the following table (See Note 2. below).
(Yen in millions)

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

Book value

Fair value

Difference¥ 35,486¥ 35,486¥ 35,486¥ 35,486¥¥¥ 22,000
42,750312,625¥377,375¥ 22,000
42,932322,838¥387,770

¥

—
—

—
182
10,213¥10,395

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.

40 NBF Report January – June 2012

Notes to Financial Statements

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¥10,020¥ 20(2) Long-term loans
32,75032,912
162
Total¥42,750¥42,932¥1821) 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 arecalculated based on the present value of principal and interest cash flows discounted at the current interest rate that is estimated by taking into consideration theremaining 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¥ 61,860¥ 1,860(2) Long-term loans
252,625
260,978
8,353
Total¥312,625¥322,838¥10,213(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 arecalculated based on the present value of principal and interest cash flows discounted at the current interest rate that is estimated by taking into consideration theremaining 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, 2012
Tenant Security Deposits Including Trust Accounts¥41,864(Yen in millions)
As of December 31, 2011
¥41,510

Security deposits from tenants are not subject to fair value disclosure because they are not marketable, and actual deposit period is not estimable as leases may be cancelled, renewed or re-signed even if a lease term is set in the lease contract, that makes a reasonable estimate of future cash flows difficult.
3. Redemption Schedule for Monetary Claims as of June 30, 2012

Cash and cash equivalents

Due within
one year¥34,484

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¥—
10,00061,750¥71,750

Due after four
to five years¥—
20,00019,750¥39,750(Yen in millions)Due after five
years
¥
—
10,000107,250¥117,250

Due after three
to four years¥—
20,00029,750¥49,750

Due after four
to five years¥—
10,00040,750¥50,750(Yen in millions)Due after five
years
¥
—
20,000102,625¥122,625

Redemption Schedule for Monetary Claims as of December 31, 2011

Cash and cash equivalents

Due within
one year¥35,486

Due after one
to two years—

4. Repayment Schedule for Loans and Investment Corporation Bonds as of June 30, 2012

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

Due within
one year¥29,000—
27,750¥56,750

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

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

Repayment Schedule for Loans and Investment Corporation Bonds as of December 31, 2011

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

Due within
one year¥22,000
10,00032,750¥64,750

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

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

NBF Report January – June 2012 41

Note 4

Schedule of Tangible Assets of Investment Properties

Tangible assets as of June 30, 2012 and December 31, 2011 consisted of the following:
As of June 30, 2012

As of December 31, 2011
(Yen in millions)

Acquisition
costs

Land
Land in trust
Land including trust total
Buildings and improvements
Buildings and improvements in trust
Building and improvements including
those in trust 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
Construction in process in trust
Other tangible assets total
Total

Note 5

Accumulated
depreciation

Book value

Acquisition
costs

Accumulated
depreciation

Book value¥257,613
284,389
542,002
182,270
147,433¥———(35,623)(47,441)¥257,613
284,389
542,002
146,647
99,992¥245,812
284,390
530,202170,556
146,117¥———(32,492)(44,833)¥245,812
284,390
530,202138,064
101,284

329,703
2,817
1,562
1,199
2,066
1,621
1,297
13
3
10,578¥882,283(83,064)(1,114)
(680)
(517)
(786)
(866)
(703)
—
—
(4,666)¥(87,730)

246,639
1,703
882
682
1,280
755
594
13
3
5,912
¥794,553

316,673
2,684
1,432
1,098
2,047
1,589
1,214
9
—
10,073¥856,948(77,325)(1,025)
(612)
(462)
(732)
(792)
(653)
—
—
(4,276)¥(81,601)

239,348
1,659
820
636
1,315
797
561
9
—
5,797
¥775,347

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, 2012 and December 31, 2011 ranged from 0.33% to 0.49%. Long-term debt is
at fixed rates and as of June 30, 2012 and December 31, 2011 consisted of the following:
As of June 30, 2012

As of December 31, 2011
(Yen in millions)

Unsecured loans due 2012 to 2022 principally from banks and insurancecompanies with interest rates mainly ranging from 0.7% to 2.4%
1.48% unsecured bonds due 2012 (Note 1)
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)
Less: amount due within one year
Notes: 1. Subject to provision of collateral restrictions.
2. Subject to provision of collateral and financial restrictions pursuant to material decline in credit rating.

42 NBF Report January – June 2012

¥285,000—
10,00010,00010,00010,00010,00010,000345,000
27,750¥317,250¥285,375
10,00010,00010,00010,00010,00010,00010,000355,375
42,750¥312,625

Notes to Financial Statements

The annual maturities of long-term debt as of June 30, 2012 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¥ 51,750
36,75071,75039,750117,250

During the period ended June 30, 2012, 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, 2012.

Note 7

Rental Revenues and Expenses

Rental revenues and expenses for the periods ended June 30, 2012, December 31, 2011 and June 30, 2011 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

Note 8For the six months ended
June 30, 2012

For the six months ended
December 31, 2011
(Yen in millions)

For the six months ended
June 30, 2011¥24,957
2,640
113
27,710¥24,359
2,568
114
27,041¥23,061
2,598
114
25,773

578
181
1,636
46
93
2,534
30,244

566
175
1,719
219
53
2,732
29,773

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

4,346
2,785
732
34
2,489
6,139
16,525

4,217
2,645
836
34
2,511
5,902
16,145

3,947
2,678
579
32
2,181
5,534
14,951¥13,719¥13,628¥13,130

Loss on Sale of Investment Property

Loss on sale of investment property for the period ended December 31, 2011 was as follows. No investment properties were soldduring the periods ended June 30, 2012 and June 30, 2011.

NBF Sudacho Verde Building
Proceeds from sale of investment property
Cost of sale of investment property
Other related sale expenses
Loss on sale of investment property(Yen in millions)¥3,250
3,319
128
¥ 197

NBF Report January – June 2012 43

Note 9Extraordinary Loss

Repair costs for assets damaged by the Great East Japan Earthquake were recognized as extraordinary loss for the period ended
June 30, 2011.

Note 10

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, 2012,
December 31, 2011 and June 30, 2011. 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
Others
Effective tax rate

For the six months ended
June 30, 2012

For the six months ended
December 31, 2011

For the six months ended
June 30, 201139.33%(39.33)0.01
0.01%

39.33%(37.89)(1.43)
0.01%

39.33%(39.33)0.01
0.01%

NBF was established as an investment corporation under the Investment Trust Law of Japan, and as long as an investment
corporation distributes to its unitholders at least 90% of earnings available for dividends for a period and other requirements prescribed 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 to Revise the Income Tax Act, etc., in Order to Construct a Tax System Addressing Changes in the Socio-Economic Structure(Act No. 114 of 2011) and the Act on Special Measures for Securing Necessary Financial Resources to Implement Measures to Rebuild
Areas Devastated by the Great East Japan Earthquake (Act No. 117 of 2011) were promulgated on December 2, 2011. In accordancewith the promulgation, the corporation tax rate fell and special corporate tax for reconstruction was imposed at the fiscal period beginning
April 1, 2012. These changes had little impact on the deferred tax assets and the income taxes-deferred.

Note 11Per Unit Information

Information about earnings per unit for the periods ended June 30, 2012, December 31, 2011 and June 30, 2011 and net assets perunit as of June 30, 2012, December 31, 2011 and June 30, 2011 were as follows.
The computation of earnings per unit is based on the weighted average number of units outstanding during the period. The
computation of net assets per unit is based on the number of units outstanding at each period end.

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

Note 12For the six months ended
June 30, 2012

For the six months ended
December 31, 2011
(Yen)

For the six months ended
June 30, 2011¥15,613607,783¥15,777
578,500¥15,280
573,086

As of June 30, 2012

As of December 31, 2011

As of June 30, 2011

¥727,302¥733,348¥732,709

LeasesAs Lessor
NBF leases some of its investment properties to outside parties under non-cancelable operating leases. As of June 30, 2012 andDecember 31, 2011, future minimum rental revenues under the non-cancelable operating leases are as follows:
As of June 30, 2012

Due within one year
Due after one year
Total

44 NBF Report January – June 2012

¥19,263
26,382¥45,645

As of December 31, 2011
(Yen in millions)¥23,687
36,864¥60,551

Notes to Financial Statements

As Lessee
NBF leases some of its investment properties from outside parties under non-cancelable operating leases. As of June 30, 2012 andDecember 31, 2011, future minimum rental expenses under the non-cancelable operating leases are as follows:
As of June 30, 2012

Due within one year
Due after one year
Total

Note 13

As of December 31, 2011
(Yen in millions)

¥2
2
¥4

¥2
3
¥5

Transactions with Related Parties(1) Parent Company and Major Corporate Unitholders(For the six months ended June 30, 2012)
None applicable.
(For the six months ended December 31, 2011)
None applicable.
(For the six months ended June 30, 2011)
None applicable.
(2) Affiliates(For the six months ended June 30, 2012)
None applicable.
(For the six months ended December 31, 2011)
None applicable.
(For the six months ended June 30, 2011)
None applicable.
(3) Sister Companies(For the six months ended June 30, 2012)
None applicable.
(For the six months ended December 31, 2011)
None applicable.
(For the six months ended June 30, 2011)
None applicable.
(4) Directors and Major Individual Unitholders(For the six months ended June 30, 2012)
Classification

Director
and/or close
relative

Name

Koichi
Nishiyama

Principal business or
occupation

Nature of transaction

Executive Director
of NBF and
President & CEO
of NBFM(Note 1) (Note 3)

Payment of asset
management fees
to NBFM (Note 1)
Payment of fees to
NBFM for the provisionof general administration
services relating
to organizational
management (Note 3)

Amount oftransaction
Yen in millions

Account

Balance at
end of period
Yen in millions¥1,163(Note 2) (Note 4)

Accounts
payable¥314(Note 4)¥2(Note 4)

Accounts
payable¥1(Note 4)

Notes: 1. Koichi Nishiyama resigned from this investment company’s corporate executive officer on March 31, 2012. He entered into this transaction as a former representative(retirement as of March 31, 2012) of a third party (NBFM), and the fee amount is subject to the conditions set forth in the by-laws of NBF.
2. The amount of asset management fees includes ¥113 million for management related to acquisition of properties included in the book value of each investment property, etc.
3. Koichi Nishiyama resigned from this investment company’s corporate executive officer on March 31, 2012. He entered into this transaction as a former representative(retirement as of March 31, 2012) of a third party (NBFM), and the fee amount is set forth in the “General Administration Agreement Regarding the Management ofInstitutions” concluded between NBF and NBFM.
4. Consumption taxes are not included in transaction amounts. Consumption taxes are included in the balance at the end of the period.

NBF Report January – June 2012 45

(For the six months ended December 31, 2011)
Classification

Director
and/or close
relative

Name

Koichi
Nishiyama

Principal business or
occupation

Nature of transaction

Executive Director
of NBF and
President & CEO
of NBFM

Payment of asset
management fees
to NBFM (Note 1)
Payment of fees to
NBFM for the provisionof general administration
services relating
to organizational
management (Note 3)

Amount oftransaction
Yen in millions

Account

Balance at
end of period
Yen in millions¥1,120(Note 2) (Note 4)

Accounts
payable¥296(Note 4)¥2(Note 4)

Accounts
payable¥1(Note 4)

Notes: 1. Koichi Nishiyama entered into this transaction as a representative of a third party (NBFM), and the fee amount is subject to the conditions set forth in the by-laws of NBF.
2. The amount of asset management fees includes ¥94 million for management related to acquisition of properties included in the book value of each investment property, etc.
3. Koichi Nishiyama entered into this transaction as a representative of a third party (NBFM), and the fee amount is set forth in the “General Administration Agreement
Regarding the Management of Institutions” concluded between NBF and NBFM.
4. Consumption taxes are not included in transaction amounts. Consumption taxes are included in the balance at the end of the period.

(For the six months ended June 30, 2011)
Classification

Director
and/or close
relative

Name

Koichi
Nishiyama

Principal business or
occupation

Nature of transaction

Executive Director
of NBF and
President & CEO
of NBFM

Payment of asset
management fees
to NBFM (Note 1)
Payment of fees to
NBFM for the provisionof general administration
services relating
to organizational
management (Note 3)

Amount oftransaction
Yen in millions

Account

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

Accounts
payable¥285(Note 4)

¥7(Note 4)

Accounts
payable¥1(Note 4)

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

Note 14

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, 2012

For the six months ended¥811,032¥780,381

19,194
830,226¥871,770

30,651
811,032¥856,690

December 31, 2011

Notes: 1. Carrying amounts represent acquisition cost less accumulated depreciation.
2. The major increase in the fiscal period ended June 30, 2012 was mainly due to the acquisitions of 5 properties (Higashi Gotanda Square, Ryukakusan Bldg., Shin-Kawasaki
Mitsui Bldg. (Additional Acquisition), NBF Matsuyama Nichigin-mae Bldg., and Hiroshima Fukuromachi Bldg. (Additional Acquisition), ¥23,118 million) and the major
decrease was mainly due to recognition of depreciation costs.
The major increase in the fiscal period ended December 31, 2011 was mainly due to the acquisitions of 2 properties (Mitsubishi Heavy Industries Head Office Bldg. andNishi-Shinjuku Mitsui Bldg. (additional acquisition), ¥37,746 million) and the major decrease was mainly due to sale of NBF Sudacho Verde Bldg. which amounted to ¥3,319
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) andNote 8 (Loss on Sale of Investment Property).

Note 15

Segment Information

Segment Information
Segment information has been omitted as NBF has only one segment, which is real estate leasing business.
46 NBF Report January – June 2012

Notes to Financial Statements

Related Information(For the six months ended June 30, 2012)
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for more than 90% of total
operating revenues.
2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of the bookvalue of total investment properties.
3. Information on Major Tenants(Yen in millions)

TenantOperating revenues

Related segment

Mitsui Fudosan Co., Ltd.

¥6,727

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 December 31, 2011)
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for more than 90% of total
operating revenues.
2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of the bookvalue of total investment properties.
3. Information on Major Tenants(Yen in millions)

TenantOperating revenues

Related segment

Mitsui Fudosan Co., Ltd.

¥6,388

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, 2011)
1. Information by Products and Services
Disclosure of this information has been omitted as NBF has a single product/service line that accounts for more than 90% of total
operating revenues.
2. Information by Geographic Areas(1) Operating revenues
Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total operating revenues.
(2) Investment properties
Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of the bookvalue of total investment properties.
3. Information on Major Tenants(Yen in millions)

TenantOperating revenues

Related segment

Mitsui Fudosan Co., Ltd.

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

Note 16Significant Subsequent Events

None applicable
NBF Report January – June 2012 47

Independent Auditor’s Report

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

We have audited the accompanying financial statements of Nippon Building Fund Inc. (a Japanese Real Estate Investment Trust),
which comprise the balance sheets as at June 30, 2012 and December 31, 2011, and the statements of income, statements ofchanges in net assets and statements of cash flows for each of the six months ended June 30, 2012, December 31, 2011 and June30, 2011, and a summary of significant accounting policies and other explanatory information expressed in Japanese yen.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting
principles generally accepted in Japan, and for such internal control as management determines is necessary to enable thepreparation of the financial statements that are free from material misstatements, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordancewith auditing standards generally accepted in Japan. Those standards require that we comply with ethical requirements and plan andperform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s
preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in thecircumstances, while the objective of the financial statement audit is not for the purpose of expressing an opinion on the effectivenessof the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonablenessof accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the financial statements present fairly, in all material respects, the financial position of Nippon Building Fund Inc. as atJune 30, 2012 and December 31, 2011, and their financial performance and cash flows for each of the six months ended June 30,
2012, December 31, 2011 and June 30, 2011, in accordance with accounting principles generally accepted in Japan.

Tokyo, Japan
October 12, 2012

48 NBF Report January – June 2012

Appendix

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

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

In the event that Real Estate, etc. is newly acquired,assets and undertakes management of the institutions of NBF. As ofcompensation equivalent to the total amount of the acquisition price

June 30, 2012, NBFM has been entrusted as an asset managementof said Real Estate, etc. (meaning the acquisition price of both land

company only by NBF.

and buildings, and in the event of the simultaneous acquisition ofmultiple units of Real Estate, etc., the acquisition price of each item,

Operation■

provided, however, that national consumption tax, regional

Undertakes asset management of NBF pursuant to an Assetconsumption tax and miscellaneous costs of acquisition areManagement Entrustment Agreement based on an entrustment

excluded) multiplied by the following percentage rates will, infrom NBF in accordance with the Articles of Incorporation of NBF

principle, be payable, provided, however, that with the approval ofand the Investment Objects and Policies set forth therein.

the directors of NBF, compensation may be calculated using different
rates not exceeding the following rates.

■

Undertakes management of the general affairs of the general●

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

0.5%

meeting of unitholders and the Board of Directors as●

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

0.2%

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

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

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

Management of Institutions.

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

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

NBF Report January – June 2012 49

Appendix

History of NBFM

Directors and Staff

NBFM is an Asset Management Company which is a limited

As of June 30, 2012, the directors and corporate auditors of

liability company duly established under the laws of Japan. Major

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

NBFM is comprised of 17 persons.

September 19, 2000 Established

Name of Directors and Auditors

Title

November 17, 2000

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

Kenichi Tanaka

President & CEO (standing)

Yasushi Akimoto

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

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

Masahiko Misao

Director, Head of Administration Group(standing)

February 15, 2001

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

Masato Shikata

Director

Fukuhisa Kumada

Director

Hideo Yoshimura

Corporate Auditor

Toru Suzuki

Corporate Auditor

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

Outline of Financial Condition

May 23, 2001

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

Outline of principal assets and liabilities for the most recent

June 16, 2001

Increased capital from ¥198 million to ¥495 million

March 14, 2003

Changed name (from “Office Building FundManagement Japan Limited” to “Nippon Building FundManagement Ltd.”)

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

An outline of the financial condition of NBFM is as follows.
fiscal year:
As of March 31, 2012

Numberof Shares Owned

Percent

Mitsui Fudosan Co., Ltd.

4,257

43.0%

Sumitomo Life Insurance Company

Name

3,465

35.0

The Chuo Mitsui Trust andBanking Co., Ltd.

495

5.0

Sumitomo Mitsui Banking
Corporation

495

5.0

Daido Life Insurance Company

297

3.0

Mitsui Sumitomo
Insurance Co., Ltd.

297

3.0

Mitsui Life Insurance
Company Limited

297

3.0

Britel Fund Trustees Limited

297

3.0

9,900

100.0%Total

50 NBF Report January – June 2012

¥2,006

Total Liabilities

408

Total Net assets

1,598

Profit and loss for the most recent fiscal year:
Year ended March 31, 2012

List of Shareholders (as of June 30, 2012)(Yen in millions)

Total Assets(Yen in millions)Operating Income¥2,273

Ordinary Profit

1,529

Net Income

895

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

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

achieves this objective by investing in real estate consisting of buildings
primarily used for offices with their underlying land located in the Tokyo

Other Greater Tokyo

central business districts (hereinafter “CBDs”), Other Greater Tokyo andOther 14 wards of Tokyo andneighboring cities (see Note 1
below) such as Musashino,
Tachikawa, Yokohama, Kawasaki,
Chiba, Kashiwa, Saitama, etc.

Other Cities in Japan as well as securities, beneficiary certificates
representing beneficial interests in trusts (hereinafter “beneficiary
certificates”) and other assets backed by office properties (collectively
hereinafter “Real Estate, etc.”) (“Investment Objectives and Policies,”
Articles of Incorporation). (Reference to laws, legal documents, etc. usedas the basis or sources hereof are set forth in parenthesis herein.)■

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

■

Relatively low yearly NOI yields.

■

Relatively high liquidity at the time of sale.

■

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

Total of above two areas: 70% or more
Other Cities■

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

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

assets of NBF. NBFM has established asset management guidelines based

Total of above area: 30% or less

B. Investment Strategy
Nippon Building Fund Management Ltd. (“NBFM”), based on theon the Articles of Incorporation of NBF and in accordance with theinvestment strategy of NBF.

(1) Strategy for Creation of the Portfolio

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).

The goal of the portfolio is to generate steady growth and stable profits
on a medium-to-long-term basis. The selection criteria of investment(2) Acquisition Strategy

assets is based on the composition of investment assets in the portfolioa) Ratio of Real Estate Assets

and on consideration of a quantitative proportion of the office stock locatedin the various regions of Japan.

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, 2012, NBF satisfied the criteria.

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% orless to Other Cities. The purpose of this area diversification is to mitigate
cash flow risks such as earthquakes, risk of vacancies and so forth(“Investment Objectives and Policies,” Articles of Incorporation).

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

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

NBF Report January – June 2012 51

Certificates backed by such office properties) (“Investment Objectives andunleasable assets which thereafter become operational) will not exceed

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

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

set forth in the following table.

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

respect to which the construction of the building has been completed

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

NBF and have become operational at some point shall be deemed

Item“leasable” thereafter (including such cases as reconstruction or large-

Points to be reviewed

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

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

■

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

■

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

Construction type andspecifications of facilities■

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 toEarthquake resistance■

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

Scale of building

Measures regarding
status of legal title

■

●

●

Articles of Incorporation).

2

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

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

Tenancy characteristics■

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

a) Reserves for Long-Term Renovations

Environmental:
condition of land, etc.

■

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

renovations, repairs and tenant improvements will be determined based on

From the reserves set forth above, a portion corresponding torenovation plans for each building. As of June 30, 2012, foreseen reserves
provided from July 2012 to June 2013 are as follows:
Itemc) Uncompleted or Unleasable Properties

ReasonReserves forlong-term renovations■

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

Expenses of providing “free access floor”■

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

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

Reserves for tenant improvements (reserves for future
construction expenses required
for spaces leased to tenants)

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

Total Foreseen Amount (annual basis): ¥3,704 million

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

52 NBF Report January – June 2012

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

Investment and Distribution Policies

2. The amount of reserves set forth above is the total amount of reserves with respect
to the 67 properties owned by NBF as of June 30, 2012.

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

c) Disposition
In disposing of individual operating properties, selections will 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 obsolescence of real estate and predicted costs thereof as well as the composition of the portfolio, etc. Sell/hold studies will be periodically undertakenwith respect to all operating properties (“Investment Objectives andPolicies,” Articles of Incorporation).

(4) Financial Policiesa) Issuance of Units
NBF may issue units in order to undertake acquisition and renovation andtemporarily exceed 60% when acquiring certain assets, etc. (medium-tolong-term operating asset management policy and annual management
plan established by the Asset Management Company).

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

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

a) Appraisal Value, etc.

so forth of assets and to provide allowance for funds required for working

In the event that NBF undertakes asset valuation for the purpose ofcapital as well as for the repayment of debt (including security deposits, bor-

disclosure in Performance Information Reports, etc. using methods androwings and repayment of obligations regarding NBF bonds, etc.).

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

c) Loan-to-Value Ratio
The ratio of the total amount of borrowings, issues of NBF bonds
and lease deposits under management to the total amount of assets of

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

NBF (loan-to-value ratio) is envisioned to be limited to 60%, but may

NBF Report January – June 2012 53

Investment Objectives of NBF

Financial Instruments and Exchange Law of Japan, provided, however,that this is limited to those the assets of which are primarily invested
and Managed Assets principally referred to in paragraphs (1) and (2)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.

A. Principal Investment Objectives among
Designated Assets
NBF will principally invest in the below-listed Designated Assets withthe objective of assuring steady growth and stable profits from theManaged Assets.

above)(9) Beneficiary Certificates of Money Trust (limited to those the trust assetsof which are primarily invested and Managed Assets referred to inparagraph (1), (3) or (4) above, provided, however, that those that are
deemed securities are excluded)

B. Other Investment Objectives among
Designated Assets
NBF may, in the course of efficiently managing funds or in other cases
as necessary, invest in the following Designated Assets.
(1) Bank deposits(1) Real estate, real estate leasehold interests and superficies(2) Certificates of deposit issued by Japanese legal entities(2) Beneficiary Certificates backed by real estate, real estate leasehold(3) Call loansrights and superficies, including inclusive trusts consisting of funds
appurtenant to real estate(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 partnership(4) Japanese government bonds, notes and bills (meaning thosespecified in Article 2.1.1 of the Financial Instruments and Exchange
Law of Japan)(5) Regional treasury bonds, notes and bills (meaning those specified in
Article 2.1.2 of the Financial Instruments and Exchange Law of Japan)(6) Commercial paper (meaning that specified in Article 2.1.15 of the
Financial Instruments and Exchange Law of Japan)(7) Designated bonds of Special Purpose Companies (meaning thoseassets primarily referred to in paragraphs (1) and (2) above that are

specified in Article 2.1.4 of the Financial Instruments and Exchange

specified in Article 2.2.5 of the Financial Instruments and Exchange

Law of Japan, provided, however, that this is limited to asset-backed

Law of Japan)

securities principally referred to in paragraphs (1) and (2) of section(5) Preferred Investment Certificates of Special Purpose Companies(meaning those specified in Article 2.1.8 of the Financial Instruments

A above)(8) Monetary claims (limited to those claims that are deemedand Exchange Law of Japan, provided, however, that this is limited to

Designated Assets under the Investment Trust Law of Japan other

those the assets of which are primarily invested and Managed Assets

than those referred to in section A and above)

principally referred to in paragraphs (1) and (2) above)(6) Special Purpose Beneficiary Certificates (meaning those specified in
Article 2.1.13 of the Financial Instruments and Exchange Law of Japan,(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)

provided, however, that this is limited to those the assets of which areprimarily 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 cases
as necessary, invest in the following assets.

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

to in paragraphs (1) and (2) above)(3) Trademark rights

in Article 2.1.10 of the Financial Instruments and Exchange Law of(8) Investment Securities (meaning those specified in Article 2.1.11 of the
54 NBF Report January – June 2012

(4) Copyrights

Investment and Distribution Policies(5) Chattels

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

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

J-REIT may pay out the excess of retained earnings for the period up 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
the right to allow for long-term reserve for renovations, reserve for payables, reserve for cash distributions and other reserves and allowances
similar thereto which are deemed necessary for maintaining or enhancing
the assets of NBF.

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

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

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.

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

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

NBF Report January – June 2012 55

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

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

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

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.
Main restrictions are as follows.

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

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

Transactions between an asset management company and its direc-

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

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

128 of the government ordinance regarding the Financial Instruments andDesignated Assets referred to in “Investment Objectives, A. Principal

Exchange Law that are considered unlikely to result in failure to protect

Investment Objectives among Designated Assets.” NBF invests in rights tothe interests of unitholders, damage fair transactions or discredit thefinancial derivatives transactions solely to hedge against risks, including

financial instruments business.

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

Transactions between asset management companies of investment

Beneficiary Certificates) is limited mainly to those the assets of which arecorporation assets are prohibited except for certain cases specified in thereferred to in “Investment Objectives of NBF, A. Principal Investment

provisions of the government ordinance regarding the Financial

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

Instruments and Exchange Law of Japan that are considered unlikely to

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

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

located outside of Japan (Articles of Incorporation).

actions or discredit the financial instruments business.

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

The Managed Assets of NBF will be managed in compliance with the

An asset management company may not undertake transactions in

Financial Instruments and Exchange Law of Japan and related regulations,certain financial instruments, indices or options based on fluctuations in the

56 NBF Report January – June 2012Investment and Distribution Policies

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

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

An investment corporation may not acquire the same units issued by acorporation in excess of 50/100 of total number of said issued and out-d) Transactions Harmful to the Interests of NBF (§ 42.2.4)

standing units.

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

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

In addition to the above, the following activities are prohibited

accept them for the purpose of pledge, unless it acquires units issued byitself in the following cases:●

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.

(§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 of(4) Restriction on Acquisition of Parent
Corporation’s Units by Subsidiary Corporation(§ 81.1.2)

assets under management, or market conditions
(iv)
(v)

An investment corporation (subsidiary), a majority of the units of which

Asset management that introduces unfair restrictions or other limitations

is owned by another investment corporation (parent), may not acquire thefrom external entities

units of such parent investment corporation except in the following cases:

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

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

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

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

NBF Report January – June 2012 57

Corporate Data

(As of June 30, 2012)

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

Date of Inception:

March 16, 2001

Capital:Contributed capital and units issued and outstanding:¥436,013 million
613,000 units

Unitholders:

15,220Transfer Agent:

Sumitomo Mitsui Trust Bank, Ltd.
4-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo, 100-0005, Japan

Business Office of the Transfer Agent:

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

Independent Auditors:

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

Investor Relations:

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

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

Securities Report (Yuka shoken hokokusho) filed on September 27, 2012 pursuant to theinto English. No person has been authorized to give any information or make any repre-

Securities Exchange Law of Japan, and the Financial Statements and the Performancesentations other than as contained in this document in relation to the matters set out inInformation Report for the period from January 1, 2012 to June 30, 2012, of Nippon

this document, and if given or made, such information or representation must not be

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

relied upon as having been authorized by Nippon Building Fund Inc., Nippon BuildingThis English language document was prepared solely for the convenience of andreference by overseas investors. It neither corresponds to the original Japanese documents nor is intended to constitute a disclosure document. The JapaneseFund Management Ltd. or any of their respective directors, officers, employees, partners, unitholders/shareholders, agents or affiliates.
The financial statements of Nippon Building Fund Inc. have been prepared inlanguage Securities Report and the Financial Statements and the Performanceaccordance with generally accepted accounting principles in Japan (Japanese GAAP),

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

originals of this document.

principles in other jurisdictions.

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

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

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

mation. We base these statements on our beliefs as well as our assumptions based

With respect to any and all terms herein, including without limitation, financial state-solely on certain limited information currently available to us. Because thesements, if there exist any discrepancies in the meaning or interpretation thereof between

statements reflect our current views concerning future events, these statements involvethe original Japanese documents and English statements contained herein, the original

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

Japanese documents will always govern the meaning and interpretation. None of

could materially differ from those set out in these forward-looking statements. We do

Nippon Building Fund Inc., Nippon Building Fund Management Ltd. or any of their

not undertake and will not undertake to release revisions of forward-looking statements

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

to reflect future events or circumstances or of any other statements or information con-affiliates will be responsible or liable for the completeness, appropriateness or accuracy

tained herein.

58 NBF Report January – June 2012Investors’ Information (As of June 30, 2012)
Fiscal Periods

Unitholders

Six months ending June 30 and December 31

Other domestic corporations
363 (2.4%)

Overseas investors 360 (2.3%)
Financial institutions(Including securities companies)

190 (1.2%)

Total numberof unitholders:

Total Number of Units Issued
22nd Period (From January 1, 2012 to June 30, 2012)

613,000 units

21st Period (From July 1, 2011 to December 31, 2011)

578,500 units

15,558

Individuals and others
14,645 (94.1%)

Individuals andothers38,397 (6.3%)

Other domestic
corporations
49,258 (8.0%)

Total numberof units:

613,000

Distributions
Financial institutions

Expected distribution for the 23rd Period (ending December 2012)
For the operating period from July 1, 2012 to December 31, 2012 (6 months)(Including securities companies)¥15,500 per unit

Overseas
investors
171,322(28.0%)

354,023 (57.7%)

Confirmed distribution for the 22nd Period (ended June 2012)
For the operating period from January 1, 2012 to June 30, 2012 (6 months)¥15,480 per unit

Major Unitholders
NameJapan Trustee Services Bank, Ltd. (Trust Account)
Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account)
The Nomura Trust and Banking Co., Ltd. (Trust Account)
Mitsui Fudosan Co., Ltd.
The Master Trust Bank of Japan, Ltd. (Trust Account)
Nomura Bank (Luxembourg) SA
Sumitomo Life Insurance Company
Deutsche Securities Inc.
The Chugoku Bank, Ltd.
Mellon Bank NA as Agent for Its Client Mellon Omnibus US Pension

Number of Units Held

Percentage of Total

98,93747,58941,996
21,815
20,224
19,39912,256
10,210
7,636
7,283

16.1%
7.8
6.9
3.6
3.3
3.2
2.0
1.7
1.2
1.2

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

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

2,500

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

1,500

1,000
800,000
500
400,000

0
Sep. 10, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, Dec. 31, Jun. 30, 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

NBF Report January – June 2012 59

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