9th

6-2-1 Ginza, Chuo Ward, Tokyo
http://www.daiwa-office.co.jp/en/

Fiscal Period Business Report(Statement of Financial Performance)
December 1, 2009 ~ May 31, 2010

I. Overview of DA Office Investment Corporation

Capturing Steady Earnings through Sustain
DA Office Investment Corporation (DA Office) is a REIT (real estate investment trust) focused oninvestment and management of office buildings in the Five Central Wards of Tokyo: Chiyoda, Chuo,
Minato, Shinjuku and Shibuya Wards through a portfolio composed of A Class buildings (total ﬂoor
area of at least 30,000m2) and B Class Buildings (total ﬂoor area of 2,000m2 ~ less than 30,000m2). DA
Office strives to earn steady revenues by meeting the diverse needs of our broad range of tenants.
Daiwa Securities Group, Inc. became the sponsor of the asset management company of DA Office inJuly 2009 and this has led to the formation of a robust financial base and has enabled us to utilize abroad group network.

Contents
I. Overview of DA Office Investment Corporation
Characteristics of DA Office ……………………………… 3
To Our Investors ………………………………………… 4
Financial and Management Highlights …………………… 5
Office Market Trends and 9th Fiscal Period Results……… 6External Growth Measures ……………………………… 8Internal Growth Measures …………………………… 10
Financial Conditions …………………………………… 11
Overview of Portfolio (portfolio distribution) …………… 12
Overview of Portfolio (portfolio list) …………………… 14
Description of Asset Manager ………………………… 15

II. Asset Management Report ……………………… 16
III. Balance Sheets …………………………………… 22
IV. Statements of Income …………………………… 24
V. Statements of Changes in Unitholders’ Equity… 25
VI. Notes to Financial Statements ………………… 26
VII. Independent Auditors’ Report ………………… 37
VIII. Statements of Cash Flows [Information Only] … 38
IX. Investor Information ……………………………… 39

2

DA Office Investment Corporation

able Growth of the Portfolio
Characteristics of DA Office
Office REIT focusing on the Five Central Wards of Tokyo
Office REIT

REIT focused on
the Five Central Wards of Tokyo

Portfolio composed of
A Class and B Class buildings

Regional
Cities 1.8%

Greater
Tokyo

7.2%

B Class

A Class

50.3%

49.7%

Five Central Wardsof Tokyo

Office buildings

100.0%

91.1%

・Clear profile of risk and return
・Concentrated investment ofmanagement resources possible
・High property liquidity(many opportunities foracquisitions and sales)・Efficient operations andmanagement possible
・Strong tenant demand・Area with especially high property
liquidity
・Relatively stable rent levels

・Fusing the merits of both property
types
・Meeting various tenant needs
・Sharpening our competitive edge
through strong management
know-how

Robust management base and capabilities based on
support of Daiwa Securities Group
Investor

Close relations

Daiwa Securities Group

Close relations

Creditworthiness・Strengthening of capital raisingcapability
・Lowering of borrowing costs
・Improvement of ratings
・Reinforcement of brandstrength

Financial Know-How

・Transparent processes
・Reinforcement of compliance・Equity finance・Debt finance・IR activities

Group Network
・Property acquisitions
・Tenant development
・Relations with financial
institutions
・Relations with investors

Financial
institutions

Wealth ofknow-how /excellent
personnel

Daiwa Real Estate
Asset Management
RobustsupportsystemInvestment
Financing

Assetmanagement

DA OfficeInvestment
Corporation

Property
management

Investment
TenantRent

Commitment and direct support as sponsor

I. Overview of DA Office Investment Corporation

3

To Our Investors
Beginning new growth following reinforcement of financial base.

During the 9th Fiscal Period (fiscal period ended May 2010), theJapanese economy showed signs of a gradual recovery. The rental
office market, which tends to lag behind the real economy, continued
to fight advances in property vacancies and a drop in office rents.
Within these conditions, DA Office assigned properties that hadreceived lease cancellation notices from tenants as properties forwhich leasing efforts would be reinforced, and worked to improve theiroccupancy rates. Despite these efforts, the occupancy rate of the
Shinjuku Maynds Tower, the main property of the DA Office portfolio,
did not completely recover and rent levels as a whole dropped.
Therefore, DA Office experienced lower period-on-period income andrevenue in the 9th Fiscal Period.
However, the fact that the Orix Jimbocho Building, which we newly
acquired, began operating in March 2010 enabled us to surpass theannounced business forecast made in the 8th Fiscal Period. Consequently, DA Office recorded net income of 2,076 million yen and a
distribution per unit of 5,246 yen.
DA Office welcomed the Daiwa Securities Group, Inc. as our new sponsor in July 2009, and since then we have worked to reinforce
the financial base backed by the sponsor’s high creditworthiness and to prepare an organization that utilizes the group network. As aresult, there has been a dramatic improvement in the financial standing of DA Office and we are confident that the foundation for new
growth has been set. Additionally, DA Office is changing the names of buildings in our portfolio centered on those that still have theold sponsor name to new names beginning with Daiwa. DA Office will also change its name to Daiwa Office Investment Corporation
to more broadly spread the fact that we are a member of the Daiwa Securities Group.
Some time is still needed for the rent levels in the office market to recover and we forecast the difficult conditions to continue in themarket for some time. However, we will aim to both expand our business and increase our EPS (earnings per unit) as we strive tomaintain revenue by reinforcing our relationships with tenants and also proactively approach the acquisition of properties.
We wish for the continued success of our investors and ask for your continued support of DA Office.

Yoshiki Nishigaki
Executive Director
DA Office Investment Corporation

4

9th Fiscal Period (fiscal period ended May 2010)

Distribution per unit (actual)

5,246 yen

10th Fiscal Period (fiscal period ending November 2010)

Distribution per unit (forecast)

3,176 yen

DA Office Investment Corporation

Financial and Management Highlights
Revenue drops due to occupancy and rent level decreases offsetting positive contribution
from new acquisitions.

• Occupancy

Despite the departure of two of our top ten tenants, occupancy held at 85.7% at theend of the 9th Fiscal Period with the contracting of new tenants, etc.

• Acquisition of new property

The Orix Jimbocho Building was acquired for 4.15 billion yen in March 2010.

• Financial management

Contracted for new loans from two regional banks.
Finished a shelf registration for investment corporation bonds and issued 5 billion
yen in publicly placed investment corporation bonds in June 2010.

9th Period

8th Period

7th Period

6th Period

5th Period(May 2010)(November 2009)(May 2009)(November 2008)(May 2008)

Operating revenue (million yen)

6,986

7,744

8,178

15,393

10,230Operating income (million yen)

2,959

3,903

4,279

11,041

6,236

Ordinary income (million yen)

1,774

2,711

2,999

9,343

3,953

Net income (million yen)

2,076

2,710

3,157

9,342

3,952

(units)395,798

395,798

343,905

343,905

205,000

Net assets per unit (yen)507,474

509,075

558,112576,098

647,477

Distribution per unit (yen)

5,246

6,847

9,179

27,165

19,277

Total assets (million yen)

283,867

286,901

275,769

272,105

296,143

25.5

25.3

25.4

22.0

49.9

Number of investment
properties

31

30

30

30

33

Total rentable area (m2)

174,928.31

171,951.76

172,135.20

172,429.29

187,220.97

85.7

92.8

97.7

97.6

98.3

Total number of unit issued

Loan-to-value (LTV)(based on total asset value) (%)

Occupancy rate (%)

I. Overview of DA Office Investment Corporation

5

Office Market Trends and 9th Fiscal Period Re
The economy is gradually recovering but the real estate rental market trails the real economy andDA Office is focusing on internal and external growth to improve performance.

Office Market Trends• Rental Office Market

In step with the economic recession, companies continued toshrink their office spaces and consolidate their offices in order
to cut costs. As a result, office vacancy rates in central Tokyo
reached 9% and rent levels also dropped precipitously over the
past year. Despite a sense that occupancy rate decreases are
beginning to hit bottom in accordance with the underlying toneof economic recovery, the real estate rental market tends to trail
the real economy and so demand deteriorated over the entire
term. It is projected that some time is still needed until a full
improvement in the market environment.

(yen)
24,000(%)
10
9
822,000

7
6

20,0005
4
3

18,0002

Office rents (Tokyo)
Vacancy rate (Tokyo)
16,000
2001

2002

2003

2004

1
2005

2006

2007

0
2008 2009 2010 (year)
Source: Miki Shoji

Since 2008, vacancy rates have continued to rise and rent levels havecontinued to drop in the Tokyo rental office market, but signs ofimprovement have emerged in occupancy.
Lending attitude DI(real estate)
Lending attitude DI(all industries)
No. of transactions

1,000

20
15
10
5
0
-5

Lending attitude DI

The Japanese economy entered a gradual recovery after
escaping from a deep economic abyss upon entering 2010 ascorporate performance began to recover. The real estate sales
market had also experienced a continual shrinking of the market
due to signs of a recovery beginning to appear since 2009 forthe recession, which started with the subprime loan issue in the
U.S., and for the number of real estate transactions, which had
dropped significantly.

No. of transactions• Real Estate Sales Market

-10
-15

500

-20
-25
-30

However, the future of the global economy remains opaque due
to such factors as monetary tightening measures in theEuropean market and in China, and there are concerns over the
impact of these factors on the recovery of the Japanese
economy.

0

2nd Half 1st Half 2nd Half 1st Half 2nd Half 1st Half 2nd Half 1st Half 2nd Half 1st Half/2005 /2006 /2006 /2007 /2007 /2008 /2008 /2009 /2009 /2010-35

Source: Urban Research Institute Corporation, Bank of JapanThe lending attitude of financial institutions toward real estate investment was
relaxed somewhat after bottoming in the first half of 2009, and opportunities toacquire assets, even from the aspect of financing, have turned to an increase.

However, corporate earnings have begun to turn for the betteras a result of the increase in exports caused by economic
growth and such in China and other emerging countries.
Recovery is also beginning to be evident in personal
consumption due to the economy’s impact. As such, theJapanese economy is gaining steam, and the Employment
Conditions DI (large enterprises) in the Bank of Japan Tankan
and the Lending Attitude DI (large enterprises) are also lesstense, and so we are able to hold expectations for
improvements in office market supply and demand hereafter.

6

35
30
25
20
15
10
5
0

Excess capacity / easy

The Japanese economy is moving towards a gradual recovery,
but a rapid recovery in rental revenues from existing portfolio
properties will be difficult because of decreases in office rents
and the penetration of “free rent” as a rental term for securing
new tenants.

Insufficient capacity / tight

Future Market Prospects

-5

-10
-15
-20
2001

Bank of Japan Tankan DI(large enterprise employment conditions)Bank of Japan Tankan DI(large enterprise lender attitude)
2002

2003

2004

2005

2006

2007

2008 2009 2010 (year)
Source: Bank of JapanThe Japanese economy is moving towards a gradual recovery with thesense that excess personnel at companies has dissipated and it is
becoming easier to borrow capital.

DA Office Investment Corporation

sults
demand is deteriorated. DA Office experienced decreases in both occupancy rates and rent levels.

Performance in the 9th Fiscal Period (fiscal period ended May 2010)• Occupancy and Rental Revenue

DA Office suffered a drop in its portfolio occupancy due tothe rapid decrease in demand within the rental officemarket. In particular, a key factor behind the decline inoccupancy was the departure at the end of January 2010 ofa major tenant from the Shinjuku Maynds Tower, the primary
property in our portfolio, due to an organizational
restructuring. DA Office has been conducting proactive
leasing activities to improve occupancy and as a result
secured many new contracts for our portfolio. Nonetheless,occupancy at the end of the 9th Fiscal Period had dropped
to 85.7%. On the other hand, the drop in rental office rents
was similar to that of occupancy and therefore became afactor behind the drop in NOI, which expresses the net
operating revenues.

(%)
100
95
90

97.0

97.4

99.0

98.2

98.3

97.6

97.7
92.8

85

85.7

80
75

80%

Occupancy

70

1st Period 2nd Period 3rd Period 4th Period 5th Period 6th Period 7th Period 8th Period 9th Period(%)
9
NOI: Rental revenues – Property-related expenses + Depreciation
88,000
NOI yield: NOI / Period average acquisition price(mm yen)
9,000

7,000

7.06

6,000

7
5.40

5.72
5.15

5,000

4.68

4.78

6,373

6,334

5

4.46
3.69

4,000

6,895

3,000
2,000

6
4.82

5,133
3,143

3,282

3,974

120%

3

5,915
4,922

2
1

1,000
0

4

1st Period 2nd Period 3rd Period 4th Period 5th Period 6th Period 7th Period 8th Period 9th Period0• Acquisition of New Properties

In March 2010, DA Office acquired the Orix Jimbocho Building (Chiyoda-ku, Tokyo) for 4.15 billion yen. The building is expected to produce
stable management performance after its acquisition because of its good location – a mere one-minute walk from the Jimbo-cho Subway
Station – in the five central wards and the steady undertone in office demand traditionally in this area. This property is also fully occupied
and contributed to raising operating revenues this fiscal period. DA Office also concluded a sales and purchase agreement to acquire the
Kyodo Building (Kudan Ichigo-kan) in the 10th Fiscal Period.
See details on page 9.

• Internal Growth Measures

The main cause of the low occupancy registered at the end of the 9th Fiscal Period is the poor performance of Shinjuku Maynds Tower, but
the building has the advantages of being relatively young, being very near the South Exit of JR Shinjuku Station and being able to rent a verylarge space on consecutive floors. In the 9th Fiscal Period DA Office took various steps to improve the property quality, including renovations
to the common areas and entrance. We will continue to strive for an early recovery in occupancy.
See details on page 10.

• Brand Strategy Promotion

A decision has been made to change the names of properties with the objective of improving
our brand. This will be done by heightening the recognition that we are a member of the
Daiwa Securities Group, instilling the “confidence” that the Daiwa Securities Group has
cultivated over many years. Therefore, we have begun changing the names of properties
from June 2010. The new names begin with “Daiwa.” For example, daVinci Ginza will
become Daiwa Ginza.

Image after the change

Changing of Investment Corporation NameDA Office is planning to change its name to Daiwa Office Investment
Corporation as part of our branding strategy. We are scheduled to change thename on September 1, 2010 after the resolution is passed at the general
meeting of investors on August 20, 2010.
I. Overview of DA Office Investment Corporation

7

External Growth Measures
Promoting new acquisitions and asset replacements to reinforce the earnings potential of theportfolio based on available borrowing capacity due to a low LTV.

External Growth Strategy
DA Office is committed to proactively acquiring properties and replacing assets to improve the quality and reinforce the earnings capacity ofour portfolio. DA Office will buy good quality properties located primarily in the Five Central Wards of Tokyo by using cash on hand andraising new funds using the available borrowing capacity that exists due to our low LTV.

Targeted Investment Area
[Distribution of Portfolio Properties and Target Area] (as of May 31, 2010)(Total floor area: m2)
120,000

Properties of DA Office

Investment Breakdown
Share
Shinjuku Maynds Tower
Five Central Wards 91.1%
7.2%
Greater Tokyo
1.8%
A Class buildings Regional Cities
Share
Classification
Presently Targeted
A Class buildings 49.7%
Investment Zone
B Class buildings 50.3%

Present Portfolio

Area

100,000
80,00060,000Investment is concentrated in the Five Central Wards of TokyoA Class building (Shinjuku Maynds Tower) and B Class buildings (Note)
Some B Class buildings are older buildings ( 2 )Acquisition Policy
DA Office will continue to invest heavily in office buildings within
the five central wards
For the time being, DA Office will focus on relatively new A Class
and B Class buildings and buildings that are less than 20 years ofage ( 1 ).
DA Office will also consider trading properties in Zone 2 forproperties in Zone 1 .

40,0001

B Class buildings

20,000

0.0

10.0

20.0

30.0

2
40.0

50.0

60.0
(Age: years)(Note) A Class buildings are buildings with a total floor area of at least 30,000m2, and B Class buildings are buildings with a total floor area of over 2,000m2 but less than 30,000m2.

Use of Low LTV(bn yen)
200.0

DA Office will aim to reinforce its earnings
capacity by using its low LTV to borrow
capital and acquire properties. The
targeted LTV ceiling for the time being will
be around 35% and DA Office will continue
to control leverage at a conservative level.

150.0Interest-bearing liabilities
59.0

54.4

LTV (based on acquisition price)

60.8
54.0

[ LTV target for the near future ]

50.0

77.0

60.3

70.0
60.0

52.2
Medium-term, upper-limit LTV target range of 40%-50%

100.0

(%)
80.0

50.0
40.0

154.9

147.9

22.6

84.2

59.4

26.4

27.4

26.9

70.0

72.5

72.4

30.0
20.0
10.0

0.0 1st Period 2nd Period 3rd Period 4th Period 5th Period 6th Period 7th Period 8th Period 9th Period 0.0

Portfolio History and Market Conditions
Subprime
Loan
Problem

Bull Period
Relaxed lending policy and intensified competition to acquire properties(bn yen)350

Adjustment Period
Both real estate prices and rents drop,
and lending standards tighten

Increase in transactions

300
287

250

279

265

265

265

269

200
150
100
50
0

8

80

IPO
Oct. 2005

111

1st Period
May 2006

130

138

2nd Period
Nov. 2006

3rd Period
May 2007

Proactive investment
for future growth
4th Period
Nov. 2007

5th Period
May 2008

6th Period
Nov. 2008

7th Period
May 2009

8th Period
Nov. 2009

9th Period
May 2010

10th Period
Nov. 2010

11th Period
May 2011

DA Office Investment Corporation

Newly Acquired Properties

Orix Jimbocho Building (acquired in 9th Fiscal Period)
This property is very competitive as it islocated in an area where further
development as an office area is expected,
is conveniently located with excellent
access to transit a mere one-minute walkfrom Jimbo-cho Station on the Tokyo Metro
Hanzomon Line and the Toei Mita andShinjuku Lines, and fronts a large avenue.
This property was acquired using the 10
billion yen in capital raised through thethird-party allotment DA Office conductedin July 2009.
Juntendo
University

Suidobashi Sta.

Tokyo Medical and
Dental University

JR Chuo Main Line
Nihon University Collegeof Economics

i Su

Toe

way
ress )Exp o line
litan kur
opo kebu
Metr te 5 (I
Rou

Nihon
University
Collegeof Law

ShinOchanomizu
Sta.

Meiji University
Central Library
ORIX Jimbocho BuildingT
Sh oei S
inj ubuk w
u L ayine

Jimbocho Sta.

Kyoritsu
Women's
Junior College

tro neMe n Likyo o
To nzom
Ha

Iwanami Shoten
Head OfficeTo
To kyozai Me
Lin troe

Kanda
Police Station

iyod
Tokyo Metro Ch a Line

Kudanshita
Sta.

Ochanomizu
Sta.

ine

Senshu University

ita L

yM

bwa

Meiji University

Address
Site area
Structure and ﬂoors
Total ﬂoor area
Rentable area
Completion
Acquisition priceOccupancy

2-4 Kanda-Jimbocho,
Chiyoda-ku, Tokyo
598.048m2
S/SRC, B1/8F
4,247.18m2
3,166.84m2
March 21, 1997
4.15 billion yen
100% (as of May 31, 2010)

Kyodo Building (Kudan Ichigo-kan) (scheduled 10th Fiscal Period acquisition) (Note)
This property is located in an area withmany office buildings and boasts a good
location with excellent access to transit amere one-minute walk from Kudanshita
Station on the Tokyo Metro Tozai and
Hanzomon Lines and the Toei Shinjuku
Line. It enjoys high visibility along a major
avenue and is competitive as renovation
work has been done to counter thebuilding’s age.
(Note) The scheduled acquisition date is a date to be
separately agreed upon by the seller and DA Office,which shall be no later than September 13, 2010.

Kitanomaru
SquareTokyo Universityof Sciencewayn Express
Metropolitaebukuro line)
Route 5 (IkHotel Grand Palace

Senshu University

ORIX
Jimbocho
BuildingeLin
Shinjuku

Toei Subway
Jimbocho Sta.
Kudanshita Sta. Kyodo Building (Kudan Ichigo-Kan)

tro
Kudan Post Officeo Me ine National
Showa
Toky zomon L
Aozora Bank Head Office
Han
Memorial Kudan
Museum Kaikan Hall
Chiyoda City OfficeKitanomaru
Park
Tokyo Legal Affairs
Ushigafuchi
Bureaumoat
Nippon Budokan

Addressoetr
oM eky LinTo zaiTo

Site area
Structure and ﬂoors
Total ﬂoor area
Rentable area
Completion
Acquisition priceOccupancy

1-5-5 Kudan-Minami,
Chiyoda-ku, Tokyo
540.67m2
SRC, 9F
3,679.70m2
3,135.95m2
March 31, 1987
4.00 billion yen
89.8% (as of May 31, 2010)

I. Overview of DA Office Investment Corporation

9

Internal Growth Measures
Occupancy of Shinjuku Maynds Tower dropped due to major tenant departure, but has
recovered to over 80% by focusing leasing efforts on utilizing property strengths.

Focus on Internal Growth
DA Office focuses on internal growth by emphasizing the two pillars of improving tenant satisfaction and reducing costs. DA Office isworking to recover and raise portfolio occupancy and secure rental revenue.
The 9th Fiscal Period saw internal growth measures implemented centering on leasing activities and renovation work for Shinjuku Maynds
Tower, which suffered a drop in occupancy due to the departure of a major tenant.

Status of Shinjuku Maynds Tower• Measures to Improve Occupancy• Advantages of Shinjuku Maynds Tower

After the departure of the major tenant, DA Office upgraded thecommon area (completed in March 2010) and renovated theentrance (completed in May 2010).

Elevator hall

Connected tothe station∙ Directly connected to Shinjuku Station on the Toei Oedo Line∙ Connected to JR Shinjuku Station’s Southern Terrace Exit bypedestrian deck

Building age∙ Strong building specs as a result of being relatively newcompared to rival buildings

Rentable area

∙ Large spaces comprising connected floors are very rare andtheir market demand is high∙ Ideal for parties needing location to serve as head office

Redevelopment ∙ Potential revitalization of surrounding area due to the planned
redevelopment at JR Shinjuku Station’s South Exit (to becompleted by 2015).

BeforeModern feel

After

• Occupancy History of Shinjuku Maynds Tower

Entrance

(%)
100

96.7

99.9

95 96.6

Changed the display
plates and raised thelevel of lighting

Received a cancellation notice from atenant. The departure resulted in about
4,000 tsubos of vacant space, and thus
the occupancy rate dropped.

85

Before
After

80

70

DA Office focused on attracting new tenant demand by utilizing
the advantages of the property (location directly connected to thesubway station, relatively young building, ability to lease a large
space, etc.).

65(Note 1)

81.4

Occupancy recovers to over
80% through renovations
and leasing activities

75• Promotion of Leasing Activities that Utilize Advantages

90.5

93.3

90

Shinjuku Maynds Tower
Average occupancy of Nishi-Shinjuku area office buildings (Note 2)

60 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
2008

2009

2010

(Note 1) As of July 1, 2010
(Note 2) Source: CBRE Institute “CREIS Japan”

Progress of Leasing Activities
In addition to Shinjuku Maynds Tower, leasing activities wereconducted for some properties and this contributed to stopping andreversing the drop in portfolio occupancy.

[daVinci Onarimon Occupancy and NOI Yield History]
(%)
100

100

Occupancy was forecasted to drop to 51% based on received
cancellation notices, but promotional campaigns, property viewings
and other focused leasing activities assisted in the occupancy
recovering to 100%.

10

(%)
8

4.6

4.9

4

End of 8th Period

End of 9th Period

87

7.0

• daVinci Onarimon (Shinbashi, Minato-ku, Tokyo)

100.0

97
6.4

75
Occupancy
NOI Yield
50

End of 6th Period

End of 7th Period0DA Office Investment Corporation

Financial Conditions
DA Office has reinforced its financial base by appropriately controlling LTV, lengthening
borrowing periods, spreading out repayment dates and diversifying lenders.

Financial Strategy
DA Office took steps to reinforce its
financial base by optimally applying thecreditworthiness and network of its
sponsor, the Daiwa Securities Group, Inc.
This has helped the company establish afinancial constitution that is robust andcan support future growth. DA Officewill be committed to focusing on stablefinancial management hereafter as well.

• Keys to the Medium-Term Strategy
Aims

Specific Targets

Stable balance sheet

Control LTV at a ceiling of 40%~50%

Spread out repayment dates

Target ceiling of 20 billion yen in repayments of liabilities dueeach fiscal period

Reduce risk of interest hikes

Target floor of long-term liabilities at 60%~70%

Diversify lenders

Diversify lenders centering on domestic financial institutions

Status of Interest-Bearing Liabilities• Achievements

February 2010of Financial
Measures

Refinanced 5.5 billion yen loan of Aozora Bank
Shizuoka Bank and Kagawa Bank joined as new lenders

June 2010 (10th Fiscal Period) Issued Second Series of Unsecured Investment Corporation Bonds (5 billion yen)

• Ratio of Long- to Short-Term Borrowings (as of June 24, 2010)
Subordinated investment
corporation bonds 4.5%

• Ratio of Fixed- to Floating-Rate Borrowings (as of June 24, 2010)

Short-termborrowings 2.9%

Investment corporation
bonds 6.5%

Floating
interest

Fixedinterest

44.6%

46.2%

Long-term borrowings

86.1%

Floating interest(capped)9.2%• Spreading Out of Repayment Dates (as of June 24, 2010)(mm yen)30,000125
25,00020,00015,000

Lenders after refinancing ofloan due in February 2010
Aozora Bank …………3,500
Shizuoka Bank ………1,000
Kagawa Bank ………1,000

19,6003,924

Second Series of Unsecured
Investment Corporation Bonds

133
3,500

10,000

3,000

121
5,000
125

5,500
0

41

133
9th Period

5,500

5,000

13,243
7,100

5,481

2,000

5,000

3,500

10th Period 11th Period 12th Period 13th Period 14th Period 15th Period 16th Period 28th Period

Loan from Aozora Bank
New loan executed in September 2009
Loan from Shinsei Bank

New loan executed in November 2009
Loan from other financial institutions
Investment corporation bonds

Pledged repayment installments

I. Overview of DA Office Investment Corporation

11

Overview of Portfolio (portfolio distribution)
DA Office is heavily investing in the Five Central Wards of Tokyo (Chiyoda, Chuo, Minato, Shinjuku(The property names indicated are old names. Please refer to page 26 for details of the new names,

Main investment area:
Five Central Wards of Tokyo
Focused investment area:
Greater Tokyo Area
Ikebukuro

28

Toshima-ku

2 daVinci Ginza Annex

3 daVinci Shibaura

Shinjuku-ku
Shinjuku

Shinjuku Maynds Tower 23

Shibuya-ku
daVinci Jingumae 7
1 daVinci Ginza

5 daVinci Sarugakucho

daVinci Minami-Aoyama 4

6 daVinci A Hamamatsucho

SHIBUYA EDGE 24
ShibuyaShibuya
SS Building
17

Tokyo
7 daVinci Jingumae

8 daVinci Shibadaimon

9 daVinci Misakicho

10 daVinci Shinbashi 510

Shinagawa-ku

12

11 BPS Square

12 daVinci Tsukiji

13 daVinci Tsukiji 616

15 Nihonbashi MS Building

16 Atlantic Building

17 Shibuya SS Building

19 daVinci Ginza 1-chome

20 daVinci Kyobashi

21 Sunline Building No. 7

25 daVinci Kodemmacho

26 Orix Jimbocho Building

27 daVinci Kinshicho

28 daVinci Higashi-Ikebukuro

29 Benex S-3

30 daVinci Shinagawa II

31 daVinci Minami-Senba

DA Office Investment Corporationand Shibuya Wards).
etc.)

daVinci Higashi-Ikebukuro

4 daVinci Minami-Aoyama

daVinci
Misakicho 9

18 daVinci Nihonbashi Honcho
26

5 daVinci Sarugakucho

Kinshicho

Orix Jimbocho Building

25 daVinci Kodemmacho

Chiyoda-ku

15 Nihonbashi MS Building

21 Sunline Building No. 7

daVinci Tsukiji
BPS Square
daVinci Ginza Annex

Atlantic Building

Minato-ku

Chuo-ku

Koto-ku

14 Shuwa Tsukishima Building

19 20 daVinci Kyobashi

daVinci Shinbashi 510

16

27 daVinci Kinshicho

18 daVinci Nihonbashi Honcho

Tokyo

2
1

daVinci Onarimon 22

Kameido

10

8

6

12
11

daVinci Ginza 1-chomedaVinci Ginza
13 daVinci Tsukiji 616
14
Shinbashi
Shuwa Tsukishima Building
daVinci A Hamamatsucho

daVinci Shibadaimon
3 daVinci Shibaura
22 daVinci Onarimon

24 SHIBUYA EDGE

JR Yamanote Line
JR Saikyo Line
JR Chuo Line

Shinagawa
30 daVinci Shinagawa II

JR Yokosuka Line andSobu Rapid Line29
31

Benex S-3
daVinci Minami-Senba

23 Shinjuku Maynds Tower

I. Overview of DA Office Investment Corporation

13

Overview of Portfolio (portfolio list)
DA Office has a portfolio comprised of one A Class building and 30 B Class buildings.

(as of May 31, 2010)

Address

Property Name (*)(Note 2)

Structure
and No.
of Floors

SRC B3/12F

July 1963

Rentable
Area (m2)Completion(Note 3)

Executionof Major
Repairs

Acquisition
Price

Appraisal
Value at End
of Period

Ownership TypePML (%)(Note 5)

mm
yen

Share

(mm yen)(Note 4)Land

Building

2003

14,1005.2

14,600Fee simple andleaseholdFee simple

12.5

2003

Five Central Wards of Tokyo (Note 1)
1 daVinci Ginza

Ginza, Chuo-ku, Tokyo

8,273.44

2 daVinci Ginza Annex

Ginza, Chuo-ku, Tokyo

2,032.52

SRC B3/8F

Aug. 1972

3,050

1.1

3,030

Fee simple

Fee simple

12.7

3 daVinci Shibaura

Shibaura, Minato-ku, Tokyo

9,626.16

SRC B1/12F

Oct. 1987

8,265

3.1

7,430

Fee simple

Fee simple

14.5

4 daVinci Minami-Aoyama

Minami Aoyama, Minato-ku, Tokyo

2,715.54 S · SRC B2/5F Sept. 1990

4,550

1.7

4,350

Fee simple

Fee simple

13.8

5 daVinci Sarugakucho

Sarugakucho, Chiyoda-ku, Tokyo

3,657.43

SRC 8F

June 1985

3,000

1.1

3,350

LeaseholdFee simple

14.6

6 daVinci A Hamamatsucho

Hamamatsucho, Minato-ku, Tokyo

3,671.25

SRC B2/10F

July 1993

2,865

1.1

2,860

Fee simple

Compartmentalized
ownership

14.6

7 daVinci Jingumae

Jingumae, Shibuya-ku, Tokyo

2,388.22

RC B1/4F

Dec. 1997

2,800

1.0

1,940

Fee simple

Fee simple

13.9

8 daVinci Shibadaimon

Shibadaimon, Minato-ku, Tokyo

2,384.70 SRC·RC B1/7F

Nov. 1996

2,578

1.0

2,812

Fee simple

Fee simple

12.5

9 daVinci Misakicho

Misakicho, Chiyoda-ku, Tokyo

2,137.53

S 8F

July 1996

2,346

0.9

2,392

Fee simple

Fee simple

13.1

10 daVinci Shinbashi 510

Shinbashi, Minato-ku, Tokyo

2,792.99

SRC B1/8F

Apr. 1974

2,080

0.8

2,560

Fee simple

Fee simple

13.4

11 BPS Square

Tsukiji, Chuo-ku, Tokyo

2,852.97

SRC 10F

Jan. 1996

1,560

0.6

1,650

Fee simple

Fee simple

12.5

12 daVinci Tsukiji

Tsukiji, Chuo-ku, Tokyo

1,487.82

SRC B1/7F

Jan. 1990

1,240

0.5

1,390

Fee simple

Fee simple

14.0

13 daVinci Tsukiji 616

Tsukiji, Chuo-ku, Tokyo

2,932.65

SRC B1/9F

Mar. 1994

2,440

0.9

2,600

Fee simple

Fee simple

13.0

14 Shuwa Tsukishima Building

Tsukishima, Chuo-ku, Tokyo

8,426.85

S 5F

July 1996

7,840

2.9

7,690

Fee simple

Fee simple

14.4

15 Nihonbashi MS Building

Nihonbashi-Horidomecho, Chuo-ku, Tokyo

2,989.56

SRC B2/7F

Apr. 1993

2,520

0.9

2,490

Fee simple

Fee simple

11.8

16 Atlantic Building

Azabudai, Minato-ku, Tokyo

1,705.44

SRC B2/9F

Apr. 1984

1,600

0.6

1,830

Fee simple

Fee simple

13.7
14.7

2006

17 Shibuya SS Building

Shibuya, Shibuya-ku, Tokyo

2,980.92 SRC · S B1/9F

July 1977

2003

3,930

1.5

3,950

Fee simple

Compartmentalized
ownership (100%)18 daVinci Nihonbashi Honcho

Nihonbashi-Honcho, Chuo-ku, Tokyo

7,419.77

SRC B1/10F

Jan. 1964

2006

7,420

2.8

8,070

Fee simple

Fee simple

12.0

19 daVinci Ginza 1-chome

Ginza, Chuo-ku, Tokyo

3,757.77

SRC B2/11F

Jan. 1962

2005

4,620

1.7

4,550

Fee simple

Fee simple

13.6

20 daVinci Kyobashi

Hatchobori, Chuo-ku, Tokyo

3,220.47

SRC B1/8F

Oct. 1974

2005

3,460

1.3

3,550

Fee simple

13.4

21 Sunline Building No. 7

Kojimachi, Chiyoda-ku, Tokyo

2,405.15

SRC B2/9F

Oct. 1987

2,680

1.0

2,450

Fee simple

22 daVinci Onarimon

Shinbashi, Minato-ku, Tokyo

11,615.37

SRC 9F

Apr. 1973

13,860

5.1

15,100Fee simple

Compartmentalized
ownership (100%)Compartmentalized
ownershipCompartmentalized
ownership (100%)Fee simple

2003(common)

14.1
14.8

23 Shinjuku Maynds Tower (Note 7)

Yoyogi, Shibuya-ku, Tokyo

45,556.73 S·SRC B3/34F Sept. 1995

133,800

49.7

106,000

Fee simple(common)

9.4

24 SHIBUYA EDGE

Udagawacho, Shibuya-ku, Tokyo

2,480.65

RC B1/9F

Aug. 2006

5,900

2.2

4,220

Fee simple

Fee simple

11.2

25 daVinci Kodenmacho

Odenmacho, Chuo-ku, Tokyo

2,379.29

SRC 8F

Mar. 1985

2,460

0.9

1,950

Fee simple andleaseholdFee simple

14.7

26 Orix Jimbocho Building

Kanda-Jimbocho, Chiyoda-ku, Tokyo

3,166.84 S · SRC B1/8F

Mar. 1997

4,150

1.5

4,290

Fee simple

Fee simple

14.3

145,058.03

Subtotal

245,114(common)217,104

Greater Tokyo Area (Note 1)
27 daVinci Kinshicho

Kameido, Koto-ku, Tokyo

5,468.85

Jan. 1992

3,653

1.4

3,542

Fee simple

Fee simple

14.9

28 daVinci Higashi-Ikebukuro

Higashi-Ikebukuro, Toshima-ku, Tokyo

4,630.94 SRC · S B1/9F June 1993

2,958

1.1

3,417

Fee simple

Fee simple

13.9

29 Benex S-3

Shin-Yokohama, Kita-ku, Yokohama City, Kanagawa

7,472.29 S·SRC B1/12F

Feb. 1994

4,950

1.8

3,380

Fee simple

Fee simple

12.9

30 daVinci Shinagawa II

Kita-Shinagawa, Shinagawa-ku, Tokyo

6,551.08

July 1991

7,710

2.9

5,710

Fee simple

Fee simple

11.9

Fee simple

Fee simple

12.5

S B1/5FSRC B1/11F

24,123.16

Subtotal

19,271

16,049

Regional Cities (Note 1)
31 daVinci Minami-Senba

5,747.12

Minami-Senba, Chuo-ku, Osaka City, Osaka

SRC B1/8F

Sept. 1986

4,810

1.8

3,500

Subtotal

5,747.12

4,810

3,500

Total

174,928.31

269,195

236,653

9.8 (Note 6)(Note 1) The Five Central Wards of Tokyo are Chiyoda, Chuo, Minato, Shinjuku and Shibuya Wards (or ku).
The Greater Tokyo Area is Tokyo (excluding the five central wards), and Kanagawa, Chiba and Saitama Prefectures.
Regional Cities are the Osaka area (Osaka, Kyoto and Hyogo Prefectures), Nagoya area (Aichi and Mie Prefectures), ordinance designated cities (Sapporo, Sendai, Niigata, Shizuoka, Hamamatsu, Okayama,
Hiroshima, Kita Kyushu and Fukuoka), and the cities of Hakodate, Asahikawa, Aomori, Morioka, Akita, Koriyama, Iwaki, Utsunomiya, Toyama, Kanazawa, Nagano, Gifu, Nara, Wakayama, Kurashiki, Fukuyama,
Shimonoseki, Takamatsu, Matsuyama, Kochi, Kurume, Nagasaki, Kumamoto, Oita, Miyazaki and Kagoshima.
(Note 2) The entries for Rentable Area are as of May 31, 2010 (end of 9th Fiscal Period).
(Note 3) Structure acronyms are S for steel, RC for reinforced concrete and SRC for steel-reinforced concrete.
(Note 4) The values entered in the Appraisal Value at End of Period volume column are the appraisal values entered in the real estate appraisal reports with a pricing point of May 31, 2010 (end of 9th Fiscal Period).
(Note 5) The figures entered for PML are the figures entered in the Portfolio Earthquake PML Assessment Report prepared by Maeda Corporation and rounded to the first decimal place.
(Note 6) The PML total shows the portfolio PML.
(Note 7) DA Office’s ownership of Shinjuku Maynds Tower is a common interest equal to 6/7 of the entrusted real estate corresponding to trust beneficiary interests for the property. DA Office acquired 3/7 of the common
interest on July 13, 2007 for 65.1 billion yen and 3/7 of the common interest on November 26, 2007 for 68.7 billion yen. The figure shown for the Rentable Area is an amount equivalent to 6/7 of the total
rentable area of the entire building.
(*) The property names indicated are old names. Please refer to page 26 for details of the new names, etc.

14

DA Office Investment Corporation

Description of Asset Manager
Daiwa Real Estate Asset Management promotes reliable asset management by executing
a high degree of professionalism based on the support of Daiwa Securities Group.

Organization of Asset Manager• Description• Directors and Auditor

Name

Daiwa Real Estate Asset Management Co., Ltd.

President and Representative Director

Akira Yamanouchi

Address

6-2-1 Ginza, Chuo-ku, Tokyo

Vice President and Representative Director

Yoshiki Nishigaki

Established

October 21, 2004

Vice President and Representative Director

Yuji Shinozuka (Head of Business Planning Dept.)

Paid-in capital

200 million yen

Director

President and Representative Director

Akira Yamanouchi

Atsuko Takahashi(Head of Investment Management Dept.)

Directors

9 (6 executives, 2 non-executives, 1 auditor)

Director

Naoyuki Owa (Head of Administrative Dept.)

Employees

28 (as of May 31, 2010)

Director

Yoji Ueda (Head of Finance Dept.)

Registered Financial Instruments Firm

No. 355 (Financial Instruments), Director, Kanto Finance Bureau

Director (non-executive)

Toshihiro Matsui

Director (non-executive)

Hikaru Sakagami

Auditor

Shigeharu Tominaga

Building Lots and Buildings
Transaction Business License

No. (2)-83920, Governor of Tokyo

Discretionary Agent for Real EstateTransaction Approval

No. 34, Minister of Land, Infrastructure, Transport andTourism
Member of the Investment Trusts Association, Japan• Organizational Chart

Unitholders’ Meeting
Auditors
Board of Directors
Compliance Committee
Investment Committee

Compliance Officer
President and Representative Director
Internal Control Office

Investment Management Department

Administrative Department

Business Planning Department

Acquisitions Team

Operation of DA Office’s General
Meeting of Investors and Boardof Directors
Operation of General Meeting ofUnitholders, Board of Directors
and Committees
Labor and human resources
matters
Submission of applications forvarious permits, licenses,
approvals, registrations, etc.
stipulated by laws andregulations

Analysis of real estate market
and retail industry trends
Research and analysis of realestate investment trust market
Matters relating to thedevelopment of annual asset
management plans andmedium-term asset
management plans
Development and revision of theInvestment Guidelines

Asset acquisition and disposal
Formulation of investment
policies

Asset Management Team
Asset leasing and management
Formulation of asset leasing
and management policies

Investment Planning Team
Budget and performance
management of portfolio

Finance Department

Advisory Department

Finance and IR Team

Matters relating to advisoryconcerning formulation of
replacement, disposal or income
and expense plans for customers’
assetsMatters relating to advisoryconcerning management,
operation, leasing, andmaintenance and renovation ofcustomers’ assets
Agency or intermediary ontransactions or leasing, etc. of
assets by customers (excluding
businesses pertaining to Type II
Financial Instruments Businesses)
Matters relating to reporting andother duties being conducted forinvestors of private funds

Matters relating to financing
and asset liability management
Formulation of IR strategies

Accounting TeamManagement of budget andperformance
Matters relating to financial
results and accounting

Support System Backed by Sponsor Cooperation
Sponsor Support

100%
ownership

Sponsor support
agreement
Assetmanagement
contract

Asset Manager

Daiwa Real Estate
Asset Management
Instruction

Real Estate Managers

Daiwa
Securities Group

Optimal application of financial market
know-how possessedby Daiwa Securities Group

13.11% ownership
Investment Corporation

Borrowings

DA OfficeInvestment Corporation

Interest

Listed on TSE REIT Market
Code: 8976

Investment
Distributions

Management
contract
Manager of Investor
Registry, etc.
Chuo-Mitsui
Trust and Banking

Financial institutions

Individual investors
Institutional investors

General Administrator
Asset Custodian
Sumitomo
Trust and Banking

I. Overview of DA Office Investment Corporation15

II. Asset Management Report
1. Management Status and Other Performance Highlights of DAO
Settlement Period(1) Operating Performance
Operating revenues
Rental revenues
Operating expenses
Property-related expenses
Operating income
Ordinary income
Net income(2) Properties, etc. (as of end of period)
Total assets[period-on-period percentage change]
Interest-bearing liabilities
Net assets[period-on-period percentage change]
Unitholders’ capital(3) Distributions
Total distribution amount
Dividend payout(4) Per Unit Information
Total number of units issued (units)
Net assets per unit (yen)Distribution per unit (yen)Distribution amount from earnings per unit (yen)Distribution amount in excess of earnings per unit
(5) Financial Indicators
ROA[annual rate]
ROE[annual rate]
Capital ratio[period-on-period basis points change]
LTV (loan to value)
Property leasing cash flows (NOI)(6) Other Referential Information
Number of investment properties
Number of tenants
Total rentable area (m2)Occupancy rate
Depreciation
Capital expenditures(Note 1)
(Note 2)
(Note 3)(Note 4)(Note 5)(Note 6)(Note 7)16(

9th Period
From Dec. 1, 2009
To May 31, 2010)(

8th Period
From June 1, 2009
To Nov. 30, 2009)(

7th Period
From Dec. 1, 2008
To May 31, 2009)(

6th Period
From June 1, 2008
To Nov. 30, 2008

(Millions of yen, except per unit data or where otherwise indicated)
6,986
7,744
8,178
15,393
6,610
7,652
8,063
8,349
4,027
3,841
3,899
4,352
3,249
3,010
3,025
3,270
2,959
3,903
4,279
11,041
1,774
2,711
2,999
9,343
2,076
2,710
3,157
9,342

Notes 2
and 3
Notes 3and 4Note 5Note 6Note 7)(

5th Period
From Dec. 1, 2007
To May 31, 2008)

10,230
8,611
3,995
3,058
6,236
3,953
3,952

283,867[−1.1%]
72,409200,857[−0.3%]
198,781286,901[4.0%]
72,531
201,491[5.0%]
198,781

275,769[1.3%]
70,023
191,938[−3.1%]
188,781272,105[−8.1%]
59,771
198,123[49.3%]
188,781

296,143[−2.1%]
147,896
132,733[−0.3%]
128,7812,076
100.0%

2,710
100.0%

3,157
100.0%

9,342
100.0%

3,952
100.0%

395,798
507,475
5,246
5,246
–

395,798
509,075
6,847
6,847
–

343,905
558,113
9,179
9,179
–

343,905
576,099
27,165
27,165–205,000
647,478
19,277
19,277–0.6%[1.2%]
1.0%[2.1%]
70.8%[0.6%]
25.5%
4,546

1.0%
[1.9%]
1.4%[2.7%]
70.2%[0.6%]
25.3%
5,822

1.1 %
[2.2%]
1.6%[3.2%]
69.6%[−3.2%]
25.4%
6,220

3.3%
[6.6%]
5.6%[11.3%]
72.8%[28.0%]
22.0%
6,304

1.3%
[2.6%]
3.0%[5.9%]
44.8%[0.8%]
49.9%
6,827

31
298
174,928.31
85.7%
1,185
568

30
288
171,951.76
92.8%
1,180
302

30
294
172,135.20
97.7%
1,182
538

30
294
172,429.29
97.6%
1,225
441

33
321
187,220.97
98.3%
1,275
815

Operating revenues, etc. do not include consumption taxes, etc.
ROA: Ordinary income ÷ [(Total assets at beginning of period + Total assets at end of period) ÷ 2] × 100
Figures for the 5th Fiscal Period are the annualized figures calculated based on 183 days of management.
Figures for the 6th Fiscal Period are the annualized figures calculated based on 183 days of management.
Figures for the 7th Fiscal Period are the annualized figures calculated based on 182 days of management.
Figures for the 8th Fiscal Period are the annualized figures calculated based on 183 days of management.
Figures for the 9th Fiscal Period are the annualized figures calculated based on 182 days of management.
ROE: Net income ÷ [(Net assets at beginning of period + Net assets at end of period) ÷ 2] × 100
Property leasing cash flows (NOI): Rental revenues − Property-related expenses + Depreciation
Number of tenants is the number of end tenants. When there is a tenant occupying multiple buildings, the concerned tenant iscounted and stated for each individual building.
Occupancy rate: Total leased area ÷ Total rentable area

DA Office Investment Corporation

2. Developments in Asset Management in the Fiscal Period under Review(1) Brief History of the Investment Corporation
DA Office Investment Corporation (the “Investment Corporation”) was established on July 11, 2005 inaccordance with the Act on Investment Trusts and Investment Corporations (Act No. 198 of 1951; including
amendments thereto) with K.K. daVinci Select (the “Asset Manager”; currently, Daiwa Real Estate AssetManagement Co., Ltd.) as the organizer. After its establishment, the Investment Corporation implemented an
additional issuance of investment units through a public offering (99,600 units) on October 18, 2005 and thenlisted on the Tokyo Stock Exchange, Inc. (“TSE”) Real Estate Investment Trust Section (securities code: 8976)
on the following day.
Subsequent activities, such as the additional acquisition of properties and replacement of portfolio
properties, resulted in the assets under management amounting to 269,195 million yen (sum total ofacquisition prices) as of the last day of May 2010.
The Investment Corporation strives to secure stable revenues and maximize returns for unitholders basedon a clear portfolio development policy of specializing in investment in office buildings, with a particular focus
on investment in A Class buildings (refers to buildings with a total floor area of 30,000m2 or more) and B Classbuildings (refers to buildings with a total floor area of 2,000m2 or more, but less than 30,000m2) situated in
downtown Tokyo, as well as through dedicated efforts to heighten tenant satisfaction levels.
(2) Investment Environment and Management Performance(A) Investment Environment (December 2009 to May 2010)
In the fiscal period under review (9th Fiscal Period (December 1, 2009 to May 31, 2010)), the Japanese
economy was on the road to steady recovery. This was evident, for example, by the increase in exports
and turnaround in corporate earnings backed by such factors as the economic growth of China and otheremerging countries, and a rebound in personal consumption thanks to economic measures.
On the other hand, employment-related indicators remain harsh and the economy is in a state ofdeflation, albeit moderate. In addition, overseas economies centering on Europe faced downward risks.
These, among other factors, left the economy in a state in which future economic uncertainty failed to be
fully eliminated.
In spite of the described prolonged severe economic environment, the office leasing market is marking
a break in the upward trend of vacancy rates and is on the road to recovery, albeit moderate. This was
confirmed, for example, by the downward trend in corporate downsizing efforts to consolidate or relocate
offices, as well as corporate moves to expand floor area or newly occupy space. In addition, signs ofrecovery in vacancy rates suggest that the fall in newly advertised rent levels is also ceasing.
Meanwhile, rent levels at which tenants renew their lease agreements are on a downward trend due to
disparities between newly advertised rents and current rents.
In the office transaction market, while transaction volume was on a weak note at the beginning of the
9th Fiscal Period, there were several cases of REITs acquiring properties in correlation with capitalincreases or issuances of investment corporation bonds, as well as private funds and real estatecompanies acquiring large properties from around March 2010. Consequently, both transaction volume
and transaction amount are on the road to recovery. This is thought to be primarily attributable toimprovements in the financing environment, as indicated by initiatives to sell properties with little disparity
between newly advertised rent and current rent levels and thus regarded as being relatively easy tocontract being implemented by sellers in light of corporate financial performance and fund redemption
deadlines, and the Diffusion Index of Lending Attitude of Financial Institutions (large enterprises in the realestate industry) in the Bank of Japan’s Short-Term Economic Survey of Enterprises in Japan improvingfrom −26 as of June 2009 to −11 as of June 2010.

II. Asset Management Report17(B) Management Performance
In view of increasing the long-term EPS (EPS after deducting gain on sales of properties (net income perunit)) over the medium and long term, the Investment Corporation worked on “external growth,” whichaims to boost revenue through acquiring and selling properties, and “internal growth,” which aims tomaximize income generated from existing properties. Notably, recognizing that the environment is one inwhich internal growth is difficult and thus external growth is imperative to restore the long-term EPS level,
the Investment Corporation proactively engaged in property acquisition activities and purchased the ORIX
Jimbo-cho Building (acquisition price: 4.15 billion yen).
As a result, the Investment Corporation’s assets under management as of the end of the 9th Fiscal
Period (May 31, 2010) totaled 31 properties, the sum total of acquisition prices of which amounted to269,195 million yen. Moreover, this results in investments in the five central wards of Tokyo, which theInvestment Corporation positions as a top priority investment area, accounting for 91.1% of the entire
portfolio (based on acquisition price).
Concerning internal growth, on the other hand, occupancy rate at the end of the 9th Fiscal Period
reflected the severe office leasing market conditions with a drop to 85.7%. In order to avoid further
worsening of the occupancy rate, the Investment Corporation proactively engaged in leasing, such ascontinuing to pursue heightened tenant satisfaction levels and strengthening collaboration with leasing
brokers and property managers. As a result, the Investment Corporation has paved the way for achievinga recovery in the occupancy rate in the next fiscal period (10th Fiscal Period (June 1, 2010 to November
30, 2010)) to a certain degree.
(3) Overview of Capital Procurement
On February 26, 2010, the Investment Corporation borrowed 5,500 million yen in total from Aozora Bank,
Ltd., The Kagawa Bank, Ltd. and The Shizuoka Bank, Ltd. to fund the repayment of a loan borrowed from
Aozora Bank, Ltd. with its principal repayment due on said date (5,500 million yen). In addition, a contractual
repayment of 37.5 million yen was made to Development Bank of Japan Inc. on the same date.
Moreover, on May 31, 2010, contractual repayments of 84.375 million yen in total were made to Sumitomo
Mitsui Banking Corporation, The Sumitomo Trust and Banking Co., Ltd., Development Bank of Japan Inc.,The Chuo Mitsui Trust and Banking Company, Limited, Taiyo Life Insurance Company and The Gunma Bank,Ltd.
As a result, the balance of interest-bearing liabilities outstanding as of the end of the 9th Fiscal Periodstood at 72,408.75 million yen (long-term loans payable: 68,908.75 million yen; subordinated investment
corporation bonds: 3,500 million yen). Furthermore, of long-term loans payable, the balance of the portion ofinterest-bearing liabilities outstanding due within one year stood at 2,258.75 million yen (including 258.75
million yen in contractual repayments).
In addition, for the purpose of hedging the risks of rises in interest rates, of the loans with floating interest
rates, the interest rate has been capped for the 7,100 million yen loan whose principal repayment is due on
February 20, 2012.

18

DA Office Investment Corporation(4) Capital Expenditures During the 9th Period
The following summarizes the primary construction work that constitutes capital expenditures implemented
during the 9th Fiscal Period. Capital expenditures for the 9th Fiscal Period amounted to 569 million yen and,
when combined with the 429 million yen in repair expenses charged to 9th Fiscal Period expenses, totals 998
million yen in construction work implemented.
Name ofReal Estate Property(location)

Construction
Amount Paid
(millions of yen)

Purpose

PeriodShinjuku Maynds Tower(Shibuya-ku, Tokyo)

Construction work for new installation ofcold-water heat exchanger

From: June 2009
To: Apr. 2010

255

Shinjuku Maynds Tower(Shibuya-ku, Tokyo)

Construction work for renovation of
6~13F

From: Oct. 2009
To: Mar. 2010103

Shinjuku Maynds Tower(Shibuya-ku, Tokyo)

Construction work for replacement ofcold-water coil in air-conditioning systemon each floor

From: Nov. 2009
To: Jan. 201036

Shinjuku Maynds Tower(Shibuya-ku, Tokyo)

Construction work for replacement ofcold-water coil in air-conditioning systemon each floor

From: Apr. 2010
To: May 201022

Shuwa Tsukishima Building(Chuo-ku, Tokyo)

Construction work for servicing of
air-conditioning system

From: Mar. 2010
To: Mar. 201018

Shinjuku Maynds Tower(Shibuya-ku, Tokyo)

Construction work for renovation of 1F
entrance lobby and elevator lobby

From: Mar. 2010
To: May 201013

daVinci Kyobashi(Chuo-ku, Tokyo)

Construction work for renovation of
outdoor steel-framed stairs

From: Mar. 2010
To: May 201012

daVinci Kyobashi(Chuo-ku, Tokyo)

Construction work for maintenance ofmulti-level parking equipment

From:
To:

Apr. 2010
Apr. 201010

From: Dec. 2009
To: May 2010

100

Other
Total

569

(5) Overview of Financial Performance and Distributions
As a result of the management described above, the Investment Corporation posted financial performancefor the 9th Fiscal Period of 6,986 million yen in operating revenues, 2,959 million yen in operating income,
1,774 million yen in ordinary income and 2,076 million yen in net income.
Concerning distributions, to ensure that the amount equivalent to distributions from earnings would be
included in the amount of tax-deductible expenses based on application of special provisions for taxation of
corporation tax (Article 67-15 of the Act on Special Measures Concerning Taxation (Act No. 26 of 1957;
including amendments thereto; the “Special Taxation Measures Act”)), the Investment Corporation decided to
distribute the entire amount of unappropriated retained earnings, excluding fractions of the distribution
amount per unit that are less than 1 yen. Accordingly, the Investment Corporation declared a distribution
amount per unit of 5,246 yen.
II. Asset Management Report193. Future Management Policy and Tasks(1) Investment Environment
Going forward, the Japanese economy is expected to remain on the road to recovery, backed by the
economic growth of emerging countries and impact of economic measures. On the other hand, with concernsof the worsening employment situation, deteriorating overseas economies centering on Europe, the stock
market slump and increasing appreciation of the yen, among other factors, there are also corresponding risksof downward pressures on the economy.
Under such prospects, the office leasing market is expected to see an increase in leasing demand andimprovement in market conditions, backed by the recovery in the Japanese economy. Meanwhile, withconstruction of several new buildings scheduled to be completed in the next few years, there will be a needto pay heed to concerns of oversupply and other downward pressures.
In the office transaction market, amid improvements in the financing environment, the gap between thetarget price of sellers and buyers is expected to narrow and thereby boost transaction volume. Meanwhile,the stock market slump and corporate bond market modulation could possibly cause the financing
environment to deteriorate.
(2) Management Policy and Tasks(A) Strategy for Managing Existing Properties
Under such office leasing market conditions, the tenant side is also expected to become more selectivewith properties. Consequently, the Investment Corporation will carry out operational management under
the following policy in an aim to enhance the competitiveness of existing properties and thereby increase
the long-term EPS over the medium and long term.
(a) Achieve recovery in occupancy rates
Strive to achieve recovery in occupancy rates through the provision of office environments of hightenant satisfaction levels by maintaining the quality of buildings and equipment and proactively
implementing renovations, etc. of common-use areas and thereby lowering vacancy risks.
(b) Maintain and raise profitability
Aim to secure stable revenues over the medium and long term through further strengthening of good
relationships with existing tenants, as well as proactively tapping the needs of new tenants bydiscerning the market environment.
(c) Lower operational management costs
Strive to lower operational management costs based on maintaining office environments of hightenant satisfaction levels through the implementation of efficient operational management and review
of systematic construction work by optimally leveraging the economies of scale achieved fromproactively realizing external growth.
(B) Investment Strategy for New Properties
In light of the real estate transaction market conditions described above, the Investment Corporation willconcentrate its investment in Tokyo, with a particular focus on A Class and B Class buildings in the five
central wards of Tokyo, by maintaining a balance with the financing situation and based on various
external growth strategies.
As pipeline support, in addition to expanding its own information-sourcing channels, the Investment
Corporation will search for properties that meet its investment criteria by proactively gathering real estatetransaction market information through greater collaboration with the Asset Manager and Sponsor Groupand utilizing the Group’s extensive network of clients, partners, etc.
During the 9th Fiscal Period, the Investment Corporation acquired the ORIX Jimbo-cho Building, which
is situated in the five central wards of Tokyo. The Investment Corporation believes acquisition of thisproperty will contribute to further stabilization and enhancement of the portfolio, and it will continue to
strive to acquire properties that are in line with the investment strategy hereafter.

20

DA Office Investment Corporation(C) Financial Strategy
The Investment Corporation will conduct disciplined financial management based on a medium-term
financial strategy of the following basic content.
(a) Keep leverage down at a ratio of interest-bearing liabilities within the range of 40% to 50% at
maximum.
(b) Diversify repayment deadlines, targeting 20.0 billion yen as the maximum amount of interest-bearing
liabilities that shall become due during any single fiscal period.
(c) Aim to have long-term loans account for at least 60% to 70% of total loans.
(d) Achieve diversification of lenders, which shall mainly be Japanese financial institutions.
(e) Pursuant to its fund management rules, maintain stability in its financial standing by managing
necessary funds, such as the amount equivalent to distributions paid, separately from working capital.
While the Investment Corporation will continue to conduct disciplined financial management based on
the medium-term financial strategy, the ratio of interest-bearing liabilities will be kept down at aconservative level of around 35% at maximum in the 10th Fiscal Period.
The Investment Corporation will also continue to diversify lenders, which shall mainly be Japanesefinancial institutions.
(D) Schedule of Capital Expenditures
The following are the principal capital expenditures arising from renovation construction work, etc.
currently planned for existing portfolio properties. Please note that the expected construction amountincludes costs that are recognized as expenses.
Expected Construction
Amount (millions of yen)

Name ofReal Estate
Property(location)

PurposeScheduled
Implementation
PeriodShinjuku Maynds Tower(Shibuya-ku, Tokyo)

Construction work to replacecold-water coil in air-conditioning
system

From: July 2010
To: Nov. 2010

111

–

–

daVinci Ginza 1-chome(Chuo-ku, Tokyo)

Construction work to upgrade
package air-conditioning system

From: Oct. 2010
To: Nov. 2010

30

–

–

daVinci Ginza 1-chome(Chuo-ku, Tokyo)

Construction work to addressleasing

From: Aug. 2010
To: Sept. 2010

25

–

–

Shinjuku Maynds Tower(Shibuya-ku, Tokyo)

Construction work to replace
outdoor lighting fixtures

From: July 2010
To: Nov. 2010

17

–

–

daVinci Shimbashi 510(Minato-ku, Tokyo)

Construction work to convert
B1F into office space

From: June 2010
To: June 2010

15

–

–

AmountTotal
paid
amountTotal
during alreadyamount current
paid
periodII. Asset Management Report21III. Balance Sheets
As of May 31, 2010 and November 30, 2009
(Thousands of yen)

[Information Only]
As of
November 30, 2009

As of
May 31, 2010
AssetsCurrent Assets:
Cash and cash equivalents

16,003,639

22,222,364

Tenant receivables

142,102

193,973

Consumption taxes refundable

32,530–Prepaid expenses

766,104

808,963

Deferred tax assets

23

17

234,102

246,497

17,178,500

23,471,814

Land

212,726,824

209,399,115

Buildings and structures

55,779,330

54,595,175

Machinery and equipment

702,855

431,805

Tools, furniture and fixtures

43,564

41,628Construction in progress

11,191

5,103

Other

9,759

9,759

Less: accumulated deprecation(8,372,174)(7,187,186)

Leasehold rights

4,970,291

4,970,291

265,871,640

262,265,690

1,518

1,652

Lease and guarantee deposits in trust

113,684

113,684

Long-term prepaid expenses

654,268

993,833

Deferred investment corporation bond issuance costs

24,73827,606

Other

22,42727,091

816,635

1,163,866

283,866,775

286,901,370

Other
Total Current Assets
Investment Properties, at cost: [Notes 3 and 4]

Total Investment Properties, net
Other Assets:
Right of trademark

Total Other Assets
Total Assets

22

DA Office Investment Corporation(Thousands of yen)

[Information Only]
As of
November 30, 2009

As of
May 31, 2010
Liabilities
Current Liabilities:
Operating accounts payable

510,813699,617

2,258,750

5,751,250

269,094

280,927

663

788

Accrued consumption taxes

40,751

114,112

Rent received in advance652,719

706,815

Other

150,080

102,758

3,882,870

7,656,267

Investment corporation bonds

3,500,000

3,500,000

Long-term debt [Notes 4 and 6]

66,650,000

63,279,375

Tenant security deposits

8,967,480

10,963,304

8,980

11,419Total Long-Term Liabilities

79,126,460

77,754,098

Total Liabilities

83,009,330

85,410,365

Unitholders’ capital

198,780,951

198,780,951

Retained earnings

2,076,494

2,710,054

Total Unitholders’ Equity

200,857,445

201,491,005

Total Net Assets

200,857,445

201,491,005

Total Liabilities and Net Assets

283,866,775

286,901,370

Long-term debt due within one year [Note 4 and 6]
Accounts payable – other
Income taxes payable

Total Current Liabilities
Long-Term Liabilities:

Other

Net Assets [Note 5]
Unitholders’ Equity:

Units authorized: 2,000,000 units
Units issued and outstanding: 395,798 units

III. Balance Sheets

23

IV. Statements of Income
For the six months ended May 31, 2010 and November 30, 2009
(Thousands of yen)

For the six months ended
May 31, 2010

[Information Only]
For the six months ended
November 30, 2009

6,610,025

7,651,615

375,937

92,865

6,985,962

7,744,480

Property-related expenses

3,248,662

3,009,750

Asset management fees

560,093613,794

Asset custody fees

14,252

14,235Administrative service fees

84,371

82,249Trust fees

25,56725,464

Directors’ compensation

4,200

4,200

Other operating expenses

89,491

91,749Total Operating Expenses

4,026,636

3,841,441

Operating Income

2,959,326

3,903,039

Interest income

4,792

2,215

Reversal of distribution payable

1,981

3,227

Operating Revenues and Expenses
Operating Revenues:
Rental revenues
Other revenues related to property leasing
Total Operating Revenues
Operating Expenses:

Non-Operating Revenues and Expenses
Non-Operating Revenues:

82

4,094

6,855

9,536

768,934

741,763–

27,594

420,565

429,110

2,868

3,181

Total Non-Operating Expenses

1,192,367

1,201,648

Ordinary Income

1,773,814

2,710,927

Settlements received

45,844–Gain on donation of investment property

257,880–

Total Extraordinary Income

303,724–

Income Before Income Taxes

2,077,538

2,710,927

Income taxes – current

1,075

956

Income taxes – deferred

(6)

2

1,069

958

2,076,469

2,709,969

Retained Earnings Brought Forward

25

85

Retained Earnings at End of Period

2,076,494

2,710,054

Other income
Total Non-Operating Revenues
Non-Operating Expenses:
Interest expenses
New investment unit issuance expenses
Borrowing expenses
Other

Extraordinary Income:

Total Income Taxes
Net Income

24

IV. Statements of Income

DA Office Investment Corporation

V. Statements of Changes inUnitholders’ Equity
For the six months ended May 31, 2010 and November 30, 2009
[Information Only](Thousands of yen)

Number of
Units
Balance as of May 31, 2009

Total

188,780,911

3,156,788

191,937,699––(3,156,703)(3,156,703)

51,893

10,000,040–

10,000,040––

2,709,969

2,709,969

395,798

198,780,951

2,710,054

201,491,005

Net income
Balance as of November 30, 2009

Retained
Earnings

343,905

Cash dividends declaredIssuance of new units

Unitholders’Capital(Thousands of yen)

Number of
Units
Balance as of November 30, 2009

Unitholders’CapitalRetained
Earnings

Total

395,798

198,780,951

2,710,054

201,491,005

Cash dividends declared––(2,710,029)(2,710,029)

Net income––

2,076,469

2,076,469

395,798

198,780,951

2,076,494

200,857,445

Balance as of May 31, 2010

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

V. Statements of Changes in Unitholders’ Equity

25

VI. Notes to Financial Statements
For the six months ended May 31, 2010 and November 30, 2009

Note 1 – Organization and Basis of Presentation
Organization
DA Office Investment Corporation (hereinafter, “DAO”) was formed on July 11, 2005 as an investment corporation
under the Law Concerning Investment Trusts and Investment Corporations of Japan (hereinafter, the “Investment
Trust Law of Japan”) by the founder (the former daVinci Select; presently, Daiwa Real Estate Asset Management(hereinafter, “DREAM”)).
DAO is an externally managed real estate fund, formed as an investment corporation. DREAM, as DAO’s
asset management company, is engaged in acquiring, managing, leasing and renovating office properties. Daiwa
Securities Group Inc. currently owns 100% of DREAM.
On October 18, 2005, DAO had raised approximately ¥49,498 million through an initial public offering of units.
Those units are listed on the J-REIT section of the Tokyo Stock Exchange.
As of May 31, 2010, DAO had ownership or beneficiary interests in 31 office properties containing
approximately 174,928 square meters of rentable office space. As of May 31, 2010, DAO had leased office space
to 298 tenants engaged in a variety of businesses. The occupancy rate for the office properties wasapproximately 85.7%.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with the provisions set forth in theInvestment Trust Law of Japan and its related accounting regulations, and in conformity with accounting
principles generally accepted in Japan (hereinafter, “Japanese GAAP”), which are different in certain respects as
to application and disclosure requirements from International Financial Reporting Standards.
The accompanying financial statements have been restructured and translated into English from the financial
statements of DAO prepared in accordance with Japanese GAAP. 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. DAO does not prepare consolidated financial statements, as DAO has
no subsidiaries.

Note 2 – Summary of Significant Accounting Policies
Investment Properties
Investment properties are recorded at cost, which includes the allocated purchase price, related costs andexpenses for acquisition of the office properties and the beneficiary interests of properties in trust. Property andequipment balances are depreciated using the straight-line method over the estimated useful lives. The
estimated useful lives of the principal tangible fixed assets (including assets held in trust) are as follows:
Buildings and structures
Machinery and equipment
Tools, furniture and fixtures

2-50 years
2-22 years
3-18 years

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

26

DA Office Investment Corporation

Investment Corporation Bond Issuance Costs
Deferred investment corporation bond issuance costs are amortized using the straight-line method over therespective terms of the bonds.
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, DAO capitalizes a portion of the real estate taxes that relate to a period from thepurchase date of each property until the end of the calendar year as part of the acquisition cost of the relevant
property. DAO incurred no capitalized real estate taxes for the period ended November 30, 2009. Capitalized realestate taxes amounted to ¥18 million for the period ended May 31, 2010.
Revenue Recognition
Operating revenues consist of rental revenues including base rents and common area charges, and otherrevenues related to property leasing including utility charge reimbursements, parking space rental revenues andother income. Rental revenues are generally recognized on an accrual basis over the life of each lease. Utility
charge reimbursements are recognized when earned and their amounts are reasonably estimated.
Hedge Accounting
DAO conducts derivative transactions in order to hedge against risks defined in its Articles of Incorporation
based on its risk management policy. DAO uses derivative financial instruments such as interest rate caps only
for the purpose of avoiding future risks of interest rate increases relating to loans, and does not enter into suchtransactions for speculative or trading purposes. Since the interest rate cap currently used qualifies for hedge
accounting and meets certain matching criteria, the cap is not recorded at fair value but rather the differential
paid or received under the cap agreement is recognized and included in interest expenses. In addition,assessment of the effectiveness of the hedge has been omitted because the rate meets the matching criteria, as
permitted under the Japanese GAAP.
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 andincome statement accounts.
Consumption Taxes
Consumption taxes received and paid are not included in the accompanying statements of income.

VI. Notes to Financial Statements

27

Note 3 – Schedule of Tangible Assets of Investment Properties
Investment properties as of May 31, 2010 and November 30, 2009 consisted of the following:(Thousands of yen)

[Information Only]
As of November 30, 2009

As of May 31, 2010
Acquisition
costs

Accumulated
depreciation

Book value

Acquisition
costs

Accumulated
depreciation

Book valueLand

212,726,824–

212,726,824

209,399,115–

209,399,115

Buildings andstructures

55,779,330(8,154,652)

47,624,678

54,595,175(6,999,968)

47,595,207

Machinery andequipment

702,855(193,111)

509,744431,805(166,131)

265,674

Tools, furnitureand fixtures

43,564(14,652)

28,912

41,628(11,328)

30,300Construction inprogress

11,191–

11,191

5,103

–

5,103

Other

9,759

(9,759)–9,759(9,759)–Total

269,273,523(8,372,174)

260,901,349

264,482,585(7,187,186)

257,295,399

Note 4 – Schedule of Pledged Assets and Secured Liabilities
Pledged assets and secured liabilities as of May 31, 2010 and November 30, 2009 consisted of the following:
Pledged assets(Thousands of yen)

As of
May 31, 2010
Land

190,766,118

190,766,118

Buildings and structures

43,322,750

44,121,375

Machinery and equipment

454,356

253,548

Tools, furniture and fixtures

28,56829,782

Construction in progress

11,1904,996

4,970,291

4,970,291

239,553,273

240,146,110

Leasehold rights
Total

28

[Information Only]
As of
November 30, 2009DA Office Investment Corporation

Secured liabilities(Thousands of yen)

[Information Only]
As of
November 30, 2009

As of
May 31, 2010
Long-term debt due within one year

2,258,750

5,751,250

Long-term debt

66,650,000

63,279,375

Total

68,908,750

69,030,625

Note 5 – Net Assets
DAO issues only non-par value units in accordance with the Investment Trust Law of Japan and all of the issue
prices of new units are designated as stated capital. DAO maintains at least ¥50 million as the minimum amountof net assets, as required by the Investment Trust Law of Japan.

Note 6 – Long-Term Debt
Long-term debt as of May 31, 2010 and November 30, 2009 consisted of the following:(Thousands of yen)

[Information Only]
As of
November 30, 2009

As of
May 31, 2010
Unsecured loans due from 2010 to 2013, principally frombanks and insurance companies with interest rates mainly
ranging from 1.5% to 2.7%

68,908,750

69,030,625

3.0% unsecured bonds due in 20193,500,000

3,500,000

72,408,750

72,530,625

The annual maturities of long-term debt as of May 31, 2010 were as follows:(Thousands of yen)

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

38,958,750
22,691,250
5,000,000
3,500,000

VI. Notes to Financial Statements

29

Note 7 – Operating Revenues and Property-Related Expenses
Operating revenues and property-related expenses for the periods ended May 31, 2010 and November 30, 2009were as follows:(Thousands of yen)A.

For the six months ended
May 31, 2010

[Information Only]
For the six months ended
November 30, 2009

6,610,025

7,651,615

375,937

92,865

6,985,962

7,744,480

Consignment expenses

469,843497,289

Utilities expenses

522,664

585,395

Taxes and dues

573,865

540,356

Non-life insurance expenses

12,946

13,487

Repair expenses

429,305

138,797

1,184,843

1,180,326

55,196

54,100Total property-related expenses

3,248,662

3,009,750

Operating income from property leasing [A – B]

3,737,300

4,734,730

Operating revenues
Rental revenues
Other revenues related to property leasing
Total operating revenues

B.

Property-related expenses

Depreciation
Other property-related expenses
C.

Note 8 – Income Taxes
DAO is subject to income taxes in Japan. The effective tax rate on DAO’s income based on applicable Japanese
tax law was estimated as 0.05% for the period ended May 31, 2010 and 0.04% for the period ended November
30, 2009. The following table summarizes the significant differences between the statutory tax rates and DAO’s
effective tax rates for financial statement purposes.

30

For the six months ended
May 31, 2010

[Information only]
For the six months ended
November 30, 2009

Statutory tax rate

39.33%

39.33%

Deductible dividends(39.31)(39.32)Others0.03

0.03

Effective tax rate

0.05%

0.04%

DA Office Investment Corporation

Note 9 – Financial Instruments*Effective from the fiscal year under review, DAO adopted the “Accounting Standard for Financial Instruments”(Accounting Standards Board of Japan (hereinafter, “ASBJ”) Statement No. 10 revised on March 10, 2008) andthe “Guidance on Disclosures about Fair Value of Financial Instruments” (ASBJ Guidance No. 19 issued on
March 10, 2008).
(1) Status of Financial Instruments(A) Policies on financial instruments
DAO uses various financing methods (such as bank borrowings, investment corporation bonds, equity
finance) for the acquisition and repair of investment properties, the payments of dividends and thereimbursement of bank borrowings.
As for debt finance, DAO focuses on lengthening maturities, fixing interest rates, and dispersing
maturity dates.
DAO manages surplus funds through safe and highly liquid money claims and securities (in principle,
deposits).
Derivative transactions are limited to hedge operations which hedge against interest rate risks.
(B) Contents and risk of financial instruments and policies and systems for risk management
DAO uses proceeds from the financing of debts and bonds for the acquisition of investment properties
and the reimbursement of current debts and bonds.
DAO is subject to liquidity risk. DAO manages the risk by maintaining a low interest-bearing debt ratio
level, dispersing maturity dates, maintaining a high long-term liabilities to interest-bearing debt ratio level,and diversifying lenders with a central focus on domestic financial institutions.
DAO is also subject to interest rate risk. DAO manages the risk by using derivative instruments (IRS).
DAO receives tenant security deposits from tenants. DAO is subject to liquidity risk and reduces therisk by pooling funds to a certain degree.
DAO manages surplus funds by deposits and is subject to credit risk of counterparties (financial
institutions). DAO reduces the risk by limiting the terms to short durations.
(C) Supplementary explanation for the fair value of financial instruments
The fair values of financial instruments are based on their market prices. The fair values of financial
instruments with no available market prices are determined by using prices calculated in a reasonable
manner. However, as various factors are incorporated into these calculations, the resulting values may
differ if different assumptions are provided.
(2) Fair Value of Financial Instruments
The book value, fair value and difference of financial instruments as of May 31, 2010 were as follows. Items
for which the fair value is extremely difficult to determine are excluded.

VI. Notes to Financial Statements

31

(Thousands of yen)Book Value

Fair Value

Difference

Cash and cash equivalents

16,003,639

16,003,639–

Total assets

16,003,639

16,003,639–

Long-term debt due within one year

2,258,750

2,250,427(8,323)

Investment corporation bonds

3,500,000

3,500,000–

Long-term debt

66,650,000

66,725,181

75,181

72,408,750

72,475,608

66,858

11,427545(10,882)

Total liabilities
Derivative transactions
Notes:

1. Method of fair value measurement of financial instruments
Assets(1) Cash and cash equivalents
As these instruments are settled within a short term and their fair values and book values are nearly identical,
their book values are assumed as their fair values.
Liabilities(1) Long-Term Debt
For long-term debt with floating interest rates, as their fair values and book values are nearly identical, theirbook values are assumed as their fair values.
For long-term debt with fixed interest rates, the fair value is determined by discounting the total amount ofprincipal and interest at the assumed interest rate on new debt of the same type.
(2) Investment Corporation Bonds
The bonds issued by DAO have floating interest rates. Therefore, as their fair values and book values arenearly identical, their book values are assumed as their fair values.
Derivatives(1) Derivatives to Which Hedge Accounting Is Not Applied
There are no derivative transactions to which hedge accounting is not applied.
(2) Derivatives to Which Hedge Accounting Is Applied
Interest rate cap trading(Thousands of yen)

Method of Hedge Accounting

Special treatment for interest
rate cap trading

Hedging
Instrument
Interest rate cap
trading*The fair value is provided by the financial institution.

32

Hedging Item

Notional
Principal
Amount(over one year)

Fair Value(*)

Long-term debt

7,100,000(7,100,000)

545

DA Office Investment Corporation

2. Financial instruments for which there is no fair value and for which the fair value is extremely difficult todetermine
Tenant security deposits (\8,967 million) do not have a market value and the fair value is extremely difficult todetermine. They are not included in the above table.
3. Redemption schedule of money claims(Thousands of yen)

Within1 yearCash and cash equivalents
Total

Within2 years,
but over1 yearWithin3 years,
but over2 years

Within4 years,
but over3 years

Within5 years,
but over4 years

16,003,639

–

–

–

–

16,003,639

–

–

–

–

4. Redemption schedule of investment corporation bonds and long-term debt
(Thousands of yen)

Within2 years,
but over1 yearWithin1 yearLong-term debt due
within one year

Within3 years,
but over2 years

Within4 years,
but over3 years

Within5 years,
but over4 years

2,258,750

–

–

–

–

–

Investment corporation
bonds

–

–

–

–

–

3,500,000

Long-term debt–

38,958,750

22,691,250

5,000,000

–

–

Total

2,258,750

38,958,750

22,691,250

5,000,000–

3,500,000

Note 10 – Fair Value of Investment Properties*Effective from the fiscal year ended May 31, 2010, DAO adopted the “Accounting Standard for Disclosuresabout Fair Value of Investment and Rental Property” (ASBJ Statement No. 20 issued on November 28, 2008) andthe “Accounting Standard for Disclosures about Fair Value of Investment and Rental Property” (ASBJ Guidance
No. 23 issued on November 28, 2008) for the years ending on or after May 31, 2010.
The book value and fair value of investment properties in the balance sheets were as follows:(Thousands of yen)Book Value
Balance at end of
November 30, 2009
262,260,120

Amount of increase(decrease)during current period
3,600,030

Balance at end of
May 31, 2010
265,860,150

Fair value at end of
May 31, 2010
236,653,000(Note 1) The Book Value is the amount after accumulated depreciation is deducted from the cost of acquisition.
(Note 2) Of the Amount of increase (decrease) during current period, the amount of increase is mainly attributable to the acquisition of the ORIX
Jimbo-cho Building (4,150 million yen) and the amount of decrease is mainly attributable to depreciation (1,185 million yen).
(Note 3) The Fair value at end of May 31, 2010 shows the appraisal value as appraised by an independent real estate appraiser.

The income (loss) related to investment properties for the period ended May 31, 2010 is presented in thestatements of income.
VI. Notes to Financial Statements

33

Note 11 – Transactions with Related Parties(December 1, 2009 - May 31, 2010)(1) Parent Company, Major Corporate Unitholders and Others
Classification
Name of company, etc.
Location
Capital stockBusiness description
Percentage of voting rights, etc. heldby related party (held in DAO)
Relationship with related party

Other affiliated company
Daiwa Securities Group Inc.
Chiyoda-ku, Tokyo
247.3 billion yen
Holding company
13.11% directly held in DAO [20.21%] (Note 1)
Provision of capital.
Payment of interest expenses on investment corporationbond (Note 2)
52,599Investment corporation
Other (current liabilities)bonds
3,500,000
21,240Nature of transaction
Amount of transaction (thousands of yen)Account
Balance at end of period (thousands of yen)

(Note 1) The ratio of voting rights owned by the other party who agrees to exercise voting rights as with the party is presented separately in [ ].
(Note 2) Conditions of the investment corporation bond were decided by analyzing the spread of similar bonds, the spread difference between
senior bonds and subordinated bonds, and the track record of similar bonds.

(2) Subsidiaries and Related Companies, and Others
Not applicable.
(3) Companies, etc. with the Same Parent Company and Subsidiaries, etc. of Other Affiliated Companies
Not applicable.
(4) Directors and Major Unitholders, and Others
Not applicable.
(June 1, 2009 - November 30, 2009 ) [Information Only](1) Parent company, major corporate unitholders and others
Classification
Name of company, etc.
Location
Capital stockBusiness description
Percentage of voting rights,
etc. held by related party(held in the Investment Corporation)

Other affiliated company
Daiwa Securities Group Inc.
Chiyoda-ku, Tokyo
247.3 billion yen
Holding company
13.11%
Issuance of investment
corporation bond (Note 2)

Payment of interest
expenses on investment
corporation bonds (Note 2)

10,000,040

3,500,000

43,337

Account–

Investment corporation
bonds

Other (current liabilities)

Balance at end of period(thousands of yen)–

3,500,000

21,668Nature of transaction
Amount of transaction(thousands of yen)

Allocation of new units
to a third party (Note 1)

Transaction terms, and policy for determining transaction terms(Note 1)
(Note 2)34

Due to allocation of new units to a third party.
Conditions of the investment corporation bond were decided by analyzing the spread of similar bonds, the spread difference
between senior bonds and subordinated bonds, and the track record of similar bonds.

DA Office Investment Corporation(2) Subsidiaries and Related Companies, and Others
Not applicable.
(3) Companies, etc. with the Same Parent Company and Subsidiaries, etc. of Other Affiliated Companies
Not applicable.
(4) Directors and Major Unitholders, and Others
Not applicable.

Note 12 – Per Unit Information
Information about earnings per unit for the periods ended May 31, 2010 and November 30, 2009 and net assets
per unit as of May 31, 2010 and November 30, 2009 were as follows. The computation of earnings per unit isbased 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.
[Information Only]
As of
November 30, 2009

As of
May 31, 2010
Net asset value per unit

507,475 yen

509,075 yen

Net income per unit

5,246.28 yen

6,997.26 yen

Net income per unit was calculated by dividing the net income by the daily weighted average number ofinvestment units issued and outstanding. The diluted net income per unit is not stated as there are no diluted
investment units.
(Note) The basis for calculating the net income per unit is as follows.

[Information Only]
As of
November 30, 2009

As of
May 31, 2010
Net income (thousands of yen)

2,076,469

2,709,969

Amount not available to ordinary unitholders(thousands of yen)––

Net income available to ordinary unitholders(thousands of yen)

2,076,469

2,709,969

Average number of units during period (units)395,798

387,290

VI. Notes to Financial Statements

35

Note 13 – Significant Subsequent Events
Acquisition of Investment Property
On June 14, 2010, DAO decided to acquire a trust beneficiary interest in real estate as follows.
Summary of Asset to Be Acquired(1) Type of asset: Trust beneficiary interest in real estate(2) Property name: Kyodo Building (Kudan Ichigo-kan)(3) Location: 1-5-5 Kudan Minami, Chiyoda-ku, Tokyo(4) Acquisition price: 4.0 billion yen(excluding acquisition costs, consumption tax, and other)(5) Date of execution of agreement: June 14, 2010
(6) Date of delivery (scheduled): A date no later than September 13, 2010 to be separately agreed upon by the
Seller and DAO.
(7) Seller: Shining Nova the Fifth B TMK
Issuance of Investment Corporation Bond
Based on a comprehensive resolution on the issuance of investment corporation bonds adopted at a meeting of
its board of directors held on May 17, 2010, DAO issued an investment corporation bond on June 24, 2010 as
described below to fund the future acquisition of specified assets, payment of repairs, etc., repayment of loans,and expenditure of working capital.
Overview of the Investment Corporation Bond
(1) Name of the bond: DA Office Investment Corporation Second Series of Unsecured Investment Corporation
Bond (ranking pari passu with specified investment corporation bond)(2) Total issue amount: 5.0 billion yen(3) Issue price: 100 yen with par value of 100 yen(4) Redemption value: 100 yen with par value of 100 yen(5) Interest rate: 1.87% per annum(6) Collateral, and other: The bond was issued on an unsecured, unguaranteed basis and without withholding
any specific assets.
(7) Redemption method and redemption date: The total amount of the bond will be redeemed on June 24, 2013.
(8) Interest payment dates: June 24 and December 24 each year36VII. Independent Auditors’ Report

DA Office Investment Corporation

VII. Independent Auditors’ Report37

VIII. Statements of Cash Flows[Information Only]
For the six months ended May 31, 2010 and November 30, 2009
(Thousands of yen)

For the six months
ended
May 31, 2010

For the six months
ended
November 30, 2009

Income before income taxes

2,077,538

2,710,927

Depreciation and amortization

1,184,843

1,182,187

2,868

1,182

Interest expenses

768,934

741,763(Increase) Decrease in tenant receivables

51,871(32,454)

Increase (Decrease) in accounts payable(151,031)

109,173

Increase (Decrease) in rent received in advance(54,096)(59,790)

Cash payments of interest expenses(743,715)(729,997)(Increase) Decrease in consumption taxes refundable(32,530)

162,295

Other, net

89,265621

3,193,947

4,085,907(4,582,664)(636,594)

Proceeds from tenant security deposits

671,652

644,469

Payments for tenant security deposits(2,667,475)(1,219,392)(6,578,487)(1,211,517)

Proceeds from long-term debt

5,500,000

17,900,000

Repayments of long-term debt

(5,621,875)(18,891,875)

Proceeds from investment corporation bonds–

3,500,000

Payments for bond issuance costs–(28,788)

Proceeds from issuance of investment units–

9,972,447(2,712,310)(3,160,209)

Net Cash Provided by ( Used in ) Financing Activities(2,834,185)

9,291,575

Net Change in Cash and Cash Equivalents(6,218,725)

12,165,965

Cash and Cash Equivalents at Beginning of Period

22,222,364

10,056,399

Cash and Cash Equivalents at End of Period

16,003,639

22,222,364

Cash Flows from Operating Activities:

Amortization of bond issuance costs

Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Payments for purchases of investment properties

Net Cash Used in Investing Activities
Cash Flows from Financing Activities:

Payment of dividends

The statements of cash flows are not audited by any independent auditor.
Summary of Significant Accounting Policies [Information Only]
Cash and Cash Equivalents
DAO considers all highly liquid investments with original maturity of three months or less to be cash and cash
equivalents.

38

VIII. Statements of Cash Flows [Information Only]DA Office Investment Corporation

IX. Investor Information• Investor Memo
End of ﬁscal period

May 31 and November 30 of each year

General Meeting of Investors

Held at least once every two years

Date for ﬁnalizing investors with voting rights for the
General Meeting of Investors

Date publicly announced beforehand

Reference date for ﬁnalizing payment of distributions

May 31 and November 30 of each year (distributions are paid within three months of this reference date)

Listed ﬁnancial product exchangeTokyo Stock Exchange (securities code: 8976)

Newspaper in which notice is posted

Nihon Keizai Shimbun

Manager of investor registry, etc.

The Chuo Mitsui Trust and Banking Co., Ltd., 3-33-1 Shiba, Minato-ku, Tokyo 105-8574• IR Calendar
July 13, 2010

・Announcement of financial results forperiod ended in May 2010

August 5, 2010 ・Sending of Japanese version Business
Report for 9th Fiscal Period(semi-annual report)

End of fiscal period

August・Dispatch of Convocation notice for theUnitholders’ Meeting

August 6, 2010 ・Start paying distributions for period
ended in May 2010
August 20, 2010 ・Holding of the Unitholders’ Meeting

May

July

February 2011 ・Sending of Japanese version Business
Report for 10th Fiscal Period(semi-annual report)
February

February 2011 ・Start paying distributions for period
ending in November 2010

January
NovemberJanuary 2011

End of fiscal period

・Announcement of financial results forperiod ending in November 2010

• Top Ten Investors (as of May 31, 2010)
Name of Investor

Number of Units Owned

Percentage Share (Note)

1. K.K. Columbus

138,905

35.09

2. Daiwa Securities Group, Inc.

51,89313.11

3. NCT Trust and Banking Corporation (investment trust account)

29,7497.52

4. Japan Trustee Services Bank, Ltd. (trust account)

29,593

7.48

5. Trust & Custody Services Bank, Ltd. (securities investment trust account)

20,905

5.28

6. The Nomura Trust and Banking Co., Ltd. (investment trust account)

13,0503.30

7. The Master Trust Bank of Japan, Ltd. (investment trust account)

12,376

3.13

8. Goldman Sachs International

9,774

2.47

9. The Fuji Fire and Marine Insurance Co., Ltd.

5,599

1.41

10. Osamu Kaneko (individual)

2,926

0.74

314,770

79.53

Total
Note: The percentage share ﬁgures are rounded to the second decimal place.

Provision of Information via Website
DA Office Investment Corporation completed the renewal of its website
in June 2010. The design was completely revised based on the
keywords of “viewability,” “easy to understand” and “easy to search.”
DA Office Investment Corporation Website

http://www.daiwa-office.co.jp/en/
IX. Investor Information

39