Financial Section

Contents
Independent Auditor’s ReportF

Balance Sheets

G

Statements of Income and Retained Earnings /Statements of Changes in Net Assets
H
Notes to Financial Statements

I

Statements of Cash Flows (Unaudited)S

Financial Summary (Unaudited)
Historical Operating Trends
For the 10th–14th Fiscal Periods

PeriodUnit

10th Period(as of Apr. 30, 2010)

11th Period(as of Oct. 31, 2010)

12th Period(as of Apr. 30, 2011)

13th Period(as of Oct. 31, 2011)

14th Period(as of Apr. 30, 2012)

Operating revenues

mn yen

8,067

8,358

8,136

9,044

(Rental revenues)

mn yen

8,067

8,242

8,136

8,498

9,090

Operating expenses

mn yen

4,329

4,522

4,427

4,618

5,004

(Property-related expenses)

mn yen

3,714

3,817

3,767

3,961

4,284

Operating income

mn yen

3,738

3,835

3,709

4,425

4,086

Ordinary income

mn yen

2,568

2,608

2,346

3,040

2,551

Net income (a)mn yen

2,567

2,607

2,309

3,052

2,540

Total assets (b)mn yen251,566

251,080

261,928

274,973

303,284(+6.5)(-0.2)(+4.3)(+5.0)(+10.3)102,968

102,567

112,715

110,914137,372(Period-on-period change)

Interest-bearing debt (c)%mn yen(Period-on-period change)%

Unitholders’ equity (d)mn yen(Period-on-period change)%

Unitholders’ capitalmn yen9,090(+5.9)(-0.4)(+9.9)(-1.6)(+23.9)135,689

135,732

135,505150,272

150,063(+6.8)(+0.0)(-0.2)(+10.9)(-0.2)

133,129

133,129

133,129

147,153

147,153(Period-on-period change)%(+6.5)

(0.0)

(0.0)

(+10.5)(0.0)

Number of investment units issued andoutstanding (e)unit

233,550

233,550

233,550

286,550

286,550
523,668

Unitholders’ equity per unit (d)/(e)yen

580,987

581,170

580,199

524,419mn yen

2,567

2,541

2,310

2,749

2,683

yen

10,993

10,881

9,891

9,596

9,364

(Earnings distributed per unit)

yen

10,993

10,881

9,891

9,596

9,364

(Distribution in excess of earnings per unit)

yen

—

—

—

—

—

Return on assets (annualized) (Notes 1 and 2)%

1.1 (2.1)

1.0 (2.1)

0.9 (1.8)

1.1 (2.2)

0.9 (1.8)

Return on net assets (annualized) (Notes 2 and 3)%

2.0 (3.9)

1.9 (3.8)

1.7 (3.4)

2.1 (4.2)

1.7 (3.4)

53.9

54.1

51.7

54.6

49.5

(+0.2)(+0.1)(-2.3)(+2.9)(-5.2)

40.9

40.9

43.0

40.3

45.3

Total distribution (f)Distribution per unit (f)/(e)Net assets ratio at end of period (d)/(b)(Period-on-period change)

Interest-bearing debt ratio at end of period (c)/(b)(Period-on-period change)

Payout ratio (Note 4) (f)/(a)%%%(-0.2)(-0.1)(+2.2)(-2.7)(+5.0)

99.9

97.4

100.0

90.0

105.6

Other reference
Number of properties

properties

Total leasable floor aream2

Occupancy at end of period

70

67

71

74

83

271,260.81

267,737.33

286,237.93

300,016.89

340,589.96

%

94,4

93.6

94.6

94.7

95.4

Depreciation expenses for the period

mn yen

1,477

1,440

1,406

1,442

1,578

Capital expenditures for the period

mn yen

330

312

574

674

918

Leasing NOI (Net Operating Income) (Note 5)

mn yen

5,830

5,864

5,776

5,980

6,384

FFO (Funds From Operation) (Note 6)

mn yen

4,044

3,995

3,716

3,950

4,119

yen

17,318

17,106

15,914

13,786

14,374

FFO per unit (Note 7)

Notes: 1. Return on assets = Ordinary income/(Total assets at beginning of period + Total assets at end of period)/2 × 100
2. Annualized values for the 10th Fiscal Period are calculated based on a period of 181 days, 184 days for the 11th Period, 181 days for the 12th Fiscal Period, 184 days
for the 13th Fiscal Period and 182 days for the 14th Fiscal Period.
3. Return on net assets = Net income/(Total net assets at beginning of period + Total net assets at end of period)/2 × 100
4. Payout ratio is rounded down to the first decimal place.
5. Leasing NOI = Rental revenues – Rental expenses + Depreciation expenses for the period
6. FFO = Net income + Depreciation expenses for the period – Profit on sale of trust beneficiary interests in real estate or real estate + Loss on sale of trust beneficiaryinterests in real estate or real estate
7. FFO per unit = FFO/Number of investment units issued and outstanding (figures below ¥1 rounded down)
8. Where applicable, figures are rounded down to the nearest million.

Kenedix Realty Investment Corporation 15

16 Kenedix Realty Investment Corporation

Balance Sheets
Kenedix Realty Investment Corporation
As of April 30, 2012 and October 31, 2011

In thousands of yen

ASSETS
Current assets:
Cash and bank deposits (Note 12)
Rental receivables
Consumption tax refundable
Other current assets (Note 7)
Total current assets
Property and equipment, at cost: (Notes 3,11 and 13)
Land
Buildings and structures (Note 5)
Machinery and equipment
Tools, furniture and fixtures
Construction in progressLess-accumulated depreciation
Net property and equipment
Other assets:
Ground leasehold (Notes 11 and 13)
Investment securities (Note 12)
Corporate bond issuance costs
Unit issuance costs
Other assets (Notes 11 and 13)
Total assets
LIABILITIES AND NET ASSETS
Liabilities
Current liabilities:
Trade and other payables
Current portion of corporate bonds (Notes 4 and 12)
Short-term debt and current portion of long-term debt (Notes 4 and 12)
Deposits received
Rents received in advance
Provision for loss due to disaster
Other current liabilities
Total current liabilities
Corporate bonds (Notes 4 and 12)Long-term debt (Notes 4 and 12)
Leasehold and security deposits received
Total liabilities
Net Assets
Unitholders’ equity
Unitholders’ capital
Units authorized: 2,000,000 units
Units issued and outstanding: 286,550 units
As of April 30, 2012 and October 31, 2011, respectively
Surplus
Voluntary retained earnings
Reserve for reduction entry
Retained earnings
Total surplus
Total unitholders’ equity
Total net assets (Note 8)
Total liabilities and net assets

As of April 30, 2012

As of October 31, 2011

¥ 14,019,939
176,474
220,72970,447
14,487,589¥ 18,338,535
173,773—
77,564
18,589,872

201,938,266
97,166,954
1,540,138
429,679
6,894(15,326,838)
285,755,093

177,220,871
89,329,995
1,354,493
406,173
1,874(13,751,870)
254,561,536

358,655
896,655
39,40583,991
1,662,657¥303,284,045

359,429—
30,906111,272
1,320,426¥274,973,441¥

775,125—
26,580,000
27,2491,887,967—
220,298
29,490,639
6,000,000
104,792,500
12,937,903
153,221,042¥

147,153,820

147,153,820

368,796
2,540,387
2,909,183
150,063,003
150,063,003¥303,284,045

65,796
3,052,838
3,118,634
150,272,454
150,272,454¥274,973,441

802,437
9,000,000
24,050,000
2,814
1,281,807
2,334
272,91335,412,305
4,500,000
73,364,000
11,424,682
124,700,987

See accompanying notes to the financial statements.
Kenedix Realty Investment Corporation 17

Statements of Income and Retained Earnings
Kenedix Realty Investment Corporation
For the period from November 1, 2011 to April 30, 2012 and the period from May 1, 2011 to October 31, 2011

In thousands of yen
From November 1, 2011 to April 30, 2012

From May 1, 2011 to October 31, 2011

¥9,090,653—
9,090,653¥8,498,949
545,282
9,044,231

4,284,757
491,073
80,726
147,751
5,004,307
4,086,346

3,961,611
487,406
81,852
88,0394,618,908
4,425,323

1,058,930
444,047
27,282
9,001(4,723)
1,534,537
2,551,809

1,036,388
298,043
27,282
6,881
16,322
1,384,916
3,040,407—

13,97010,0002,541,809
1,526
2,540,283
104¥2,540,387—
3,054,377
1,560
3,052,817
21¥3,052,838

Operating revenues:
Rental revenues (Notes 10 and 11)
Gain on sale of real estate property (Note 10)
Total operating revenues
Operating expenses:
Property-related expenses (Notes 10 and 11)
Asset management fees
Administrative service and custodian fees
Other operating expenses
Total operating expenses
Operating income
Non-operating expenses:
Interest expense
Financing-related expenses
Amortization of unit issuance costs
Amortization of corporate bond issuance costs
Others, net
Total non-operating expenses
Ordinary income
Extraordinary income
Gain on donation of noncurrent assets
Extraordinary losses
Litigation settlement
Income before income taxes
Income taxes (Note 7)
Net income
Retained earnings at the beginning of period
Retained earnings at the end of period
See accompanying notes to the financial statements.

Statements of Changes in Net Assets
Kenedix Realty Investment Corporation
For the period from November 1, 2011 to April 30, 2012 and the period from May 1, 2011 to October 31, 2011

In thousands of yen
Unitholders’ Equity
Surplus

Balance as of April 30, 2011
Changes during the fiscal period
New unit issuance
Payments of dividends
Net income
Total changes during the fiscal period
Balance as of October 31, 2011
Changes during the fiscal period
Provision of reserve for reduction entry
Payments of dividends
Net income
Total changes during the fiscal period
Balance as of April 30, 2012
See accompanying notes to the financial statements.

18 Kenedix Realty Investment Corporation

Unitholders’capitalVoluntary retained
earnings
Reserve for
reduction entry

Retainedearnings

Total
surplusTotal
unitholders’equityTotal¥133,129,755¥ 65,796¥2,310,063¥2,375,859¥135,505,614¥135,505,614

14,024,065——
14,024,065
147,153,820————
65,796—(2,310,042)
3,052,817
742,775
3,052,838—(2,310,042)
3,052,817
742,775
3,118,634

14,024,065(2,310,042)
3,052,817
14,766,840
150,272,454

14,024,065(2,310,042)
3,052,817
14,766,840
150,272,454————¥147,153,820

303,000——
303,000¥368,796(303,000)(2,749,734)
2,540,283(512,451)¥2,540,387—(2,749,734)
2,540,283(209,451)¥2,909,183——(2,749,734)(2,749,734)
2,540,283
2,540,283(209,451)(209,451)¥150,063,003 ¥150,063,003

Notes to Financial Statements
Kenedix Realty Investment Corporation
For the period from November 1, 2011 to April 30, 2012 and the period from May 1, 2011 to October 31, 2011

1.

ORGANIZATION AND BASIS OF PRESENTATIONORGANIZATION
Kenedix Realty Investment Corporation (”the Investment Corporation”) was established on May 6, 2005 under the Act on Investment
Trusts and Investment Corporations of Japan (“the Investment Trust Act”). On July 21, 2005, the Investment Corporation was listed on
the Real Estate Investment Trust Market of the Tokyo Stock Exchange with a total of 75,400 investment units issued and outstanding.
(Securities Code: 8972). Subsequently, the Investment Corporation raised funds through public offerings and other means including
three global offerings. Most recently, the Investment Corporation additionally issued 51,400 investment units on July 20, 2011 throughpublic offerings including global offerings, and 1,600 investment units on August 8, 2011 by way of third-party allotment. As a result, asof April 30, 2012, the end of the fourteenth fiscal period, the number of investment units issued and outstanding totaled 286,550 units.
The Investment Corporation is externally managed by Kenedix REIT Management, Inc. (“the Asset Management Company”) as its
asset management company. In concert with the Asset Management Company, the Investment Corporation strives to maximize cash
distribution to investors by securing stable earnings and sustainable investment growth. To this end, the Investment Corporation adopts
a dynamic and flexible investment stance that accurately reflects its environment and market trends, and endeavors to ensure a timely
response to each and every opportunity. The Investment Corporation endeavors to develop a diversified investment portfolio named“KENEDIX Selection,” adopting a three-point investment criteria based on property type, area and size.
During the period ended April 30, 2012, the Investment Corporation acquired four office buildings (total acquisition price of ¥15,470
million) located in the Tokyo Metropolitan Area, four office buildings (total acquisition price of ¥15,205 million) and one others (acquisition
price of ¥645 million) located in the Other Regional Areas. The Investment Corporation also acquired preferred equity securities (investment of ¥891 million) as a new investment method for external growth. The Investment Corporation issued the Fourth Series Unsecured
Investment Corporation Bonds (totaling ¥1,500 million and maturing in 5.5 years) on March 8, 2012, and used the procured funds as a
portion of source of funds to repay the First Series Unsecured Investment Corporation Bonds which matured on March 15, 2012. As of
April 30, 2012, the Investment Corporation had total unitholders’ capital of ¥147,154 million with 286,550 investment units outstanding.
The outstanding investment corporation bonds as of the end of the fiscal period under review (fiscal period ended April 30, 2012) totaled¥6,000 million. The Investment Corporation owned a portfolio of 83 properties with a total acquisition price of ¥286,867 million containing
a total leasable area of 340,589.96m2. The occupancy ratio was approximately 95.4%. A portfolio of 83 properties consists of 76 officebuildings, 4 residential properties, 2 central urban retail properties and one others. 66 properties are located in the Tokyo Metropolitan
Area and 17 properties are located in other regional areas.
BASIS OF PRESENTATIONThe Investment Corporation maintains its accounting records and prepares its financial statements in accordance with accounting
principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements ofInternational Financial Reporting Standards. The financial statements are prepared in accordance with the Investment Trust Act.
The financial statements are basically a translation of the Japanese audited financial statements of the Investment Corporation. In
preparing the accompanying financial statements, certain reclassifications have been made to the financial statements issued domesticallyin order to present them in a format which is familiar to readers outside Japan. Certain information in the business report and supplementary schedule has been omitted. Additional information has been added to the Japanese audited financial statements for the convenience of readers outside Japan and this includes disclosing the prior year’s comparatives as supplemental information in the English
translated financial statements although the Japanese audited financial statements only need to disclose the current year’s information.

Kenedix Realty Investment Corporation 19

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(A) SECURITIESNon-marketable securities classified as other securities are carried at cost. Cost of securities sold is determined by the moving averagemethod.
(B) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and equipment is calculated on a straight-line basis over the estimated useful lives of the assets ranging as stated below:
From November 1, 2011 to April 30, 2012

From May 1, 2011 to October 31, 2011

Buildings and structures

2-49 years

2-49 years

Machinery and equipment

3-17 years

3-17 years

Tools, furniture and fixtures

3-20 years

3-20 years(C) UNIT ISSUANCE COSTS
Unit issuance costs are amortized over a period of three years under the straight-line method.
(D) CORPORATE BOND ISSUANCE COSTS
Corporate bond issuance costs are amortized over a loan period under the straight-line method.
(E) ACCOUNTING TREATMENT OF TRUST BENEFICIARY INTERESTS IN REAL ESTATE
For trust beneficiary interests in real estate, which are commonly utilized in the ownership of commercial properties in Japan, all assets
and liabilities within trust are recorded in the relevant balance sheets and statements of income and retained earnings.
(F) LEASEHOLD RIGHTS
Fixed term leasehold with special agreement on buildings sales, and the building are amortized over a contractual period of forty-eight
years and nine months under the straight-line method.
(G) PROVISION FOR LOSS DUE TO DISASTER
For cost of repairs on impaired fixed assets due to the massive earthquake off the east coast of Japan, the amount reasonably estimable at the end of period is recognized as “provision for loss due to disaster” under current liability.
(H) REVENUE RECOGNITION
Operating revenues consist of rental revenues including base rents and common area charges, and other operating revenues including
utility charge reimbursements, parking space rental revenues and other miscellaneous revenues. 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 canbe reasonably estimated. Reimbursements from tenants including utility charge reimbursements are recorded on a gross basis and suchamounts are recorded both as revenues and expenses during the fiscal period, respectively.
(I) TAXES ON PROPERTY AND EQUIPMENT
Property-related taxes including property taxes, city planning taxes and depreciable property taxes are imposed on properties on acalendar year basis. These taxes are generally charged to operating expenses for the period, for the portion of such taxes corresponding to said period. Under the Japanese tax rule, the seller of the property at the time of disposal is liable for these taxes on the property
from the date of disposal to the end of the calendar year in which the property is disposed. The seller, however, is reimbursed by thepurchaser for these accrued property-related tax liabilities.
When the Investment Corporation purchases properties, it typically allocates the portion of the property-related taxes related to theperiod following the purchase date of each property through the end of the calendar year. The amounts of those allocated portions of
the property-related taxes are capitalized as part of the acquisition costs of the related properties. Capitalized property-related taxes
amounted to ¥23,881 thousand and ¥44,439 thousand as of April 30, 2012 and October 31, 2011, respectively. In subsequentcalendar years, such property-related taxes are charged as operating expenses in the fiscal period to which the installments of suchtaxes correspond.

20 Kenedix Realty Investment Corporation

(J) INCOME TAXES
Deferred tax assets and liabilities are computed based on the difference between the financial statements and income tax bases ofassets and liabilities using the statutory tax rates.
(K) CONSUMPTION TAXES
Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes. Non-deductible consumption
taxes applicable to the acquisition of assets are included in the cost of acquisition for each asset.
(L) DERIVATIVE FINANCIAL INSTRUMENTS
The Investment Corporation utilizes interest-rate swap agreements as derivative financial instruments only for the purpose of hedging its
exposure to changes in interest rates. The Investment Corporation deferred recognition of gains or losses resulting from changes in fairvalue of interest-rate swap agreements because its interest-rate swap agreements met the criteria for deferral hedging accounting.
However, the Investment Corporation adopted special treatment for interest-swap agreements if its interest-rate swap agreements met
the criteria for hedging accounting under this treatment, whereby the net amount to be paid or received under the interest-rate swap
contract is added to or deducted from the interest on the assets or liabilities for which the swap contract was executed. The hedge
effectiveness for interest-rate swap contracts is assessed each fiscal period except for those that meet the criteria of special treatment.
(M) ROUNDING OF AMOUNTS PRESENTED
Amounts have been truncated in the Japanese financial statements prepared in accordance with Japanese GAAP and filed withregulatory authorities in Japan, whereas amounts have been rounded to the nearest million in the accompanying financial statements.
Totals shown in the accompanying financial statements do not necessarily agree with the sums of the individual amounts.

3.

SCHEDULE OF PROPERTY
In millions of yen
As of April 30, 2012Land

Acquisition
costs

Accumulated
depreciation¥201,938¥

As of October 31, 2011
Book
value

Acquisition
costs

Accumulated
depreciation

¥

Book
value

—

¥201,938¥177,221—¥177,221

Buildings and structures

97,167

14,52682,641

89,33013,021

76,309Machinery and equipment

1,540

590

950

1,354

540

814

Tools, furniture and fixtures

430

211

219

406

190

216

Construction in progress

7

—

7

2

—

2

¥301,082¥15,327¥285,755¥268,313¥13,751¥254,562

Total

4.

SHORT-TERM DEBT, LONG-TERM DEBT AND CORPORATE BONDS

The following summarizes short-term debt, long-term debt and corporate bonds outstanding as of April 30, 2012:
Classification

Short-term debt

Current portion of long-term debt

Subtotal

Drawdown date

Last
repayment date

Weighted-averageinterest rate

July 29, 2011
October 31, 2011
December 26, 2011
January 31, 2012
June 30, 2008
February 27, 2009
October 29, 2010
December 8, 2009
June 30, 2008
January 13, 2010
February 18, 2010
April 28, 2011

July 31, 2012
October 31, 2012
October 31, 2012
January 31, 2013
June 30, 2012
August 31, 2012
October 31, 2012
December 8, 2012
December 28, 2012
January 15, 2013
February 18, 2013
April 30, 2013

1.04%
0.99%
0.91%
0.84%
2.15%
2.04%
1.45%
1.67%
2.26%
1.90%
1.90%
1.50%

Balance(In millions of yen)

¥

1,500
4,500
7,500
1,200
1,500
880
2,500
500
3,000
1,000
1,500
1,000
26,580Kenedix Realty Investment Corporation 21

Classification

Long-term debt

Subtotal
Corporate bonds

Drawdown date

Last
repayment date

Weighted-averageinterest rate

Balance(In millions of yen)

May 1, 2006
September 1, 2006
October 26, 2009
October 30, 2009
January 29, 2010
February 18, 2010
April 2, 2010
July 30, 2010
July 30, 2010
July 30, 2010
October 29, 2010
November 12, 2010
November 12, 2010
November 12, 2010
December 1, 2010
December 1, 2010
December 1, 2010
January 31, 2011
January 31, 2011
February 28, 2011
February 28, 2011
March 22, 2011
March 31, 2011
March 31, 2011
March 31, 2011
April 28, 2011
April 28, 2011
July 13, 2011
July 29, 2011
July 29, 2011
August 31, 2011
September 1, 2011
September 30, 2011
September 30, 2011
September 30, 2011
September 30, 2011
December 26, 2011
December 26, 2011
December 26, 2011
December 26, 2011
December 26, 2011
December 26, 2011
January 10, 2012
January 31, 2012
March 12, 2012
March 12, 2012
March 28, 2012
March 28, 2012
March 30, 2012
April 27, 2012

April 30, 2016
August 31, 2013
October 26, 2013
October 30, 2013
January 30, 2015
February 18, 2015
April 2, 2015
July 31, 2013
January 31, 2014
July 31, 2014
October 31, 2013
November 12, 2013
November 12, 2015
November 12, 2017
November 12, 2013
November 12, 2015
November 12, 2017
January 31, 2014
January 29, 2016
August 31, 2015
January 29, 2016
September 22, 2014
September 30, 2013
January 29, 2016
March 31, 2016
October 31, 2015
January 29, 2016
July 14, 2014
July 31, 2014
July 31, 2014
February 27, 2015
August 29, 2014
September 30, 2013
March 31, 2014
September 30, 2014
March 31, 2015
October 31, 2014
October 31, 2014
October 31, 2015
October 31, 2015
October 31, 2016
October 31, 2016
January 29, 2016
January 30, 2015
March 12, 2014
March 12, 2015
March 28, 2017
March 28, 2019
September 30, 2015
October 30, 2015

2.73%
2.12%
2.42%
2.45%
2.17%
2.19%
2.22%
1.49%
1.66%
1.73%
1.46%
1.58%
1.79%
2.02%
1.45%
1.55%
2.21%
1.57%
1.94%
1.91%
1.95%
1.63%
1.53%
1.91%
1.39%
1.86%
1.89%
1.54%
1.14%
1.40%
1.09%
1.15%
1.15%
1.16%
1.27%
1.29%
1.24%
1.26%
1.34%
1.32%
1.44%
1.42%
1.27%
1.19%
0.98%
1.08%
1.36%
1.77%
1.21%
1.27%

March 15, 2007
September 15, 2011
March 8, 2012

March 15, 2017
September 13, 2013
September 8, 2017

2.37%
1.59%
2.00%

5,000
3,000
900
1,800
1,080
4,813
1,800
500
3,700
3,700
500
2,700
2,000
2,300
800
1,000
700
1,300
800
3,000
500
2,700
2,000
2,000
1,000
1,500
1,000
1,000
3,200
300
1,500
1,000
1,000
2,500
1,000
2,500
2,500
5,000
4,500
2,500
4,500
2,500
2,500
1,500
6,300
1,000
500
2,400
2,000
1,000
104,793
3,000
1,500
1,500
6,000
¥137,373

Subtotal
Total

5.

REDUCTION ENTRY

The amount of reduction entry of property and equipment acquired by government subsidy
In thousands of yen

Buildings and structures

22 Kenedix Realty Investment Corporation

As of April 30, 2012

As of October 31, 2011

¥26,230¥26,230

6.

PER UNIT INFORMATION
Yen
From November 1, 2011 to April 30, 2012

From May 1, 2011 to October 31, 2011

Net asset value per unit

¥523,689¥524,420

Net income per unit

¥

8,865

¥ 11,593

286,550

263,341

Weighted average number of units (units)

The weighted average number of units outstanding of 286,550 and 263,341 were used for the computation of the amount of net
income per unit as of April 30, 2012 and October 31, 2011. Net income per unit after adjusting for residual units is not included because
there were no residual investment units.

7.

INCOME TAXESThe Investment Corporation is subject to corporate income taxes at a regular statutory rate of approximately 40%. However, theInvestment Corporation may deduct from its taxable income amounts distributed to its unitholders, provided the requirements are met
under the Special Taxation Measure Law of Japan. Under this law, the Investment Corporation must meet a number of tax requirements, including a requirement that it currently distribute in excess of 90% of its net income for the fiscal period in order to be able todeduct such amounts. If the Investment Corporation does not satisfy all of the requirements, the entire taxable income of the Investment
Corporation will be subject to regular corporate income taxes. Since the Investment Corporation distributed in excess of 90% of its
distributable income in the form of cash distributions totaling ¥2,683 million (including ¥143 million as the reversal of reserve for reduction
entry) and ¥2,750 million for the periods ended April 30, 2012 and October 31, 2011. Such distributions were treated as deductible
distributions for purposes of corporate income taxes. The effective tax rate on the Investment Corporation’s income was 0.06% and0.05% for the periods ended April 30, 2012 and October 31, 2011. The following summarizes the significant difference between thestatutory tax rate and the effective tax rate:
As of April 30, 2012

As of October 31, 2011

Statutory tax rate

39.33%

39.33%

Deductible cash distributions(41.52)(35.41)

Provision of reserve for reduction entry—(3.90)

Others2.25

0.03

Effective tax rate

0.06%

0.05%

The significant components of deferred tax assets and liabilities as of April 30, 2012 and October 31, 2011 were as follows:
In thousands of yen
As of April 30, 2012

As of October 31, 2011

Deferred tax assets:
Enterprise tax payable¥ 43

Amortization of leasehold rights

749

558

792

607

Subtotal deferred tax assets¥ 49

Valuation allowance

749

558

Total deferred tax assets

¥ 43

¥ 49

The Act to Revise the Income Tax Act, etc., in Order to Construct a Tax System Addressing Changes in the Socio-Economic Structure(Act No. 114 of 2011) and the Act on Special Measures for Securing Necessary Financial Resources to Implement Measures to Rebuild
Areas Devastated by the Great East Japan Earthquake (Act No. 117 of 2011) were promulgated on December 2, 2011. In accordancewith the promulgation, the effective statutory tax rate used to calculate the deferred tax assets and deferred tax liabilities concerning the
temporary differences, etc. expected to be reversed in the accounting periods starting on April 1, 2012 and after will be changed to
36.59%, and the effective statutory tax rate used to calculate the deferred tax assets and deferred tax liabilities concerning the temporary differences, etc. expected to be reversed in the accounting periods starting on April 1, 2015 and after will be changed to 34.16%,
respectively. The effect of the announced reduction of the effective statutory tax rate is immaterial.

Kenedix Realty Investment Corporation 23

8.

NET ASSETSThe Investment Corporation issues only non-par value units in accordance with the Investment Trust Act. The entire amount of the issue
price of new units is designated as stated capital. The Investment Corporation is required to maintain net assets of at least ¥50 million
as required by the Investment Trust Act.

9.

RELATED-PARTY TRANSACTIONSTRANSACTIONS WITH KENEDIX REIT MANAGEMENT, INC.
Kenedix REIT Management, Inc., a consolidated subsidiary of Kenedix, Inc., provides the Investment Corporation with property
management services and related services. For these services, the Investment Corporation pays Kenedix REIT Management, Inc.
property management fees in accordance with the terms of its Property Management Agreements. For these services, the Investment
Corporation paid ¥368 million to Kenedix REIT Management, Inc.

10.

BREAKDOWN OF RENTAL AND OTHER OPERATING REVENUES, PROPERTY-RELATED EXPENSES AND
GAIN ON SALE OF REAL ESTATE PROPERTY

Rental and other operating revenues, property-related expenses and gain on sale of real estate property for the periods from November 1,
2011 to April 30, 2012 and from May 1, 2011 to October 31, 2011 consist of the following:
In thousands of yen
From November 1, 2011 to April 30, 2012

From May 1, 2011 to October 31, 2011

Rental revenues¥6,581,677¥6,121,318

Common area charges

1,490,246

1,353,952

8,071,923

7,475,270

Parking space rental revenues

271,260

249,514

Utility charge reimbursement621,582

633,845

Miscellaneous

125,888

140,320

Rental and other operating revenues:

Subtotal
Others:Subtotal
Total rental and other operating revenues

1,018,730

1,023,679¥9,090,653¥8,498,949

Property management fees and facility management fees

¥911,939¥832,724

Depreciation

1,578,845

1,442,935

Utilities

663,800

617,943

Taxes

724,628

703,543

Insurance

14,084

14,655

Repairs and maintenance

165,367

152,453

Trust fees

47,27743,614

Loss on retirement of fixed assets

3,719

—

175,098

153,744¥4,284,757¥3,961,611¥

OthersTotal property-related expenses
Gain on sale of real estate property:
Revenue from sale of investment property—¥5,800,000

Cost of investment property—

5,122,100

Other sales expenses—

132,618—¥ 545,282

Gain on sale of real estate property

24 Kenedix Realty Investment Corporation

¥

11.

PROPERTY INFORMATION

Details of the property portfolio as of April 30, 2012 were as follows:
Residential
Properties

Type

Office Buildings

Location

Tokyo
Metropolitan Area

Other Regional
Areas

Tokyo
Metropolitan Area

61

15

3

Number of properties

Central Urban
Retail Properties

OthersOther Regional
Areas

Tokyo
Metropolitan Area

Other
Regional Areas

1

2

1

Property information(In millions of yen)

Acquisition price¥212,106¥52,295¥7,641¥1,800¥12,380¥ 645

Percentage of total acquisition price73.94%

18.23%

2.66%

0.63%

4.32%

0.22%

Net book value

212,908

51,228

7,154

1,807

12,331

686

Appraisal value

198,385

45,084

6,368

1,520

11,0001,100Percentage of total appraisal value

75.30%

17.11%

2.42%

0.58%

4.17%

0.42%

Financial results for the period from November 1, 2011 to April 30, 2012
Rental and other operating revenues(In thousands of yen)

¥6,556,908¥1,837,212¥223,760¥91,396¥337,886¥43,491

Rental revenues

5,866,539

1,580,734

201,997

81,614

302,654

38,385

Other revenues

690,369

256,478

21,763

9,782

35,232

5,106

1,837,809

680,462

55,90738,804

82,14010,790Property-related expenses
Property management fees

611,800

244,101

21,915

8,075

22,564

3,484

Taxes

515,644

162,372

15,367

7,959

20,817

2,469

Utilities

463,428

170,475

2,583

2,175

21,504

3,635

Repairs and maintenance109,087

29,595

5,736

11,203

9,746

-

8,137

4,861

419

323

199

145

Insurance

129,71369,058

9,887

9,069

7,310

1,057

NOI (Net Operating Income)

Trust fees and other expenses

4,719,099

1,156,750

167,853

52,592

255,746

32,701

Depreciation expenses

1,042,550

373,895

67,017

23,12866,871

5,384

Operating income from property leasing activities

3,676,549

782,855

100,836

29,464

188,875

27,317

Capital expenditures

707,836

145,90722,144160

11,42831,125

NCF (Net Cash Flow)¥4,011,263¥1,010,843¥145,709¥52,432¥244,318¥ 1,576

A breakdown of property-type as of April 30, 2012 was as follows:
Balance at the end of period(In millions of yen)Class of assets

Property type

Area

Property and equipment

Office Buildings

Tokyo Metropolitan Area

¥212,908

70.2%

Other Regional Areas

51,22816.9%

264,136

87.1%

Subtotal
Residential Properties

Tokyo Metropolitan Area

7,154

2.4%

Other Regional Areas

1,807

0.6%

8,961

3.0%

Tokyo Metropolitan Area

12,331

4.0%

Subtotal
Central Urban Retail Properties
Subtotal
OthersSubtotal
Total
Investment securities

Percentage of total assets

Other Regional Areas

12,331

4.0%

686

0.2%

686

0.2%

286,114

94.3%

897

0.3%

Bank deposits and other assets

16,273

5.4%

Total assets

303,284

100.0%

Total liabilities

153,22150.5%

Net assets¥150,063

49.5%

Kenedix Realty Investment Corporation 25

12.

FINANCIAL INSTRUMENTS

Fourteenth Fiscal Period (November 1, 2011 to April 30, 2012)(A) OVERVIEW(1) POLICY FOR FINANCIAL INSTRUMENTS
The Investment Corporation procures essential funds for acquiring properties and undertaking the repayment of loans primarily throughbank loans and the issuance of corporate bonds and new investment units. The Investment Corporation uses derivatives for the
purpose of hedging its exposure to changes in interest rates and does not enter into derivatives for speculative or trading purposes.
Management of surplus funds is undertaken in a prudent manner that considers fully such factors as safety, liquidity, interest rate
conditions and cash flows.
(2) TYPES OF FINANCIAL INSTRUMENTS AND RELATED RISK
Investment securities are preferred equity securities of TMK as set forth by the Act on Securitization of Assets and are exposed to credit
risk of the issuer and risk of fluctuation of value of its property.
Debt and corporate bonds are used primarily for procuring funds necessary for the acquisition of properties and have a redemption dateof a maximum of seven years following the accounting date. Although a certain portion of said liabilities are subject to interest rate
fluctuation risk, the Investment Corporation utilizes derivatives (interest-rate swap transactions) in order to reduce such risk.
Interest-rate swap transactions are used as derivative financial instruments. Utilizing interest-rate swap transactions, the Investment
Corporation fixes its interest expense for long-term debt bearing interest at a variable rate. With regard to hedge accounting methods,
hedging instruments and hedged items, hedge policy, and the assessment of the effectiveness of hedging activities, please see 2. (L)Derivative Financial Instruments.
(3) RISK MANAGEMENT FOR FINANCIAL INSTRUMENTS(a) Monitoring of market risk (the risks arising from fluctuations in interest rates and others)
The Investment Corporation uses interest-rate swap transactions in order to minimize risk arising from fluctuations in interest rates onfunds procured. The Investment Corporation periodically reviews the value of the property and financial condition of the issuer withregard to investment securities.
(b) Monitoring of liquidity risk (the risk that the Investment Corporation may not be able to meet its obligations on scheduled due
dates) associated with funds procurement
Although loans and other liabilities are subject to liquidity risk, the Investment Corporation reduces such risk by spreading out payment
due dates and by using diversified fund procurement methods. Liquidity risk is also managed by such means as regularly checking thebalance of cash reserves.
(4) SUPPLEMENTARY EXPLANATION OF THE ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market price available,
fair value is reasonably estimated. Since various assumptions and factors are reflected in estimating the fair value, different assumptions
and factors could result in a different fair value.
(B) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments on the balance sheet as of April 30, 2012 and estimated fair value are shown in the following table.
The following table does not include financial instruments for which it is extremely difficult to determine the fair value (Refer to Note 2 below).
In thousands of yen
Carrying value

Estimated fair value

Difference¥ 14,019,939¥ 14,019,939¥

Subtotal

14,019,939

14,019,939—

햲 Short-term debt

14,700,000

14,700,000—

햳 Corporate bonds(including current portion of corporate bonds)

6,000,000

5,874,300(125,700)

햴 Long-term debt(including current portion of long-term debt)

116,672,500

117,265,101

592,601

Subtotal¥137,372,500¥137,839,401¥466,901———

햲 Cash and bank deposits

Derivative Transactions (*)(*) The value of assets and liabilities arising from derivatives is shown at net value and with the amount in parentheses representing net liability position.

26 Kenedix Realty Investment Corporation—

NOTE 1: METHODS TO DETERMINE THE ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS AND OTHER MATTERSRELATED TO SECURITIES AND DERIVATIVE TRANSACTIONSASSETS햲 Cash and bank deposits
Since these items are settled in a short period of time, their carrying value approximates fair value.
LIABILITIES햲 Short-term debt
Since these items are settled in a short period of time, their carrying value approximates fair value.
햳 Corporate bonds
The fair value of corporate bonds is based on quoted market prices.
햴 Long-term debt
The fair value of long-term debt is based on the present value of the total of principal and interest discounted by the interest rate to be
applied if similar new loans were entered into. The fair value of long-term debt bearing interest at variable rate, which is subject to fixedinterest rates resulting from interest-rate swaps and special treatment applied to said swaps, is based on the present value of the totalof principal and interest, which is handled together with applicable interest-rate swaps, discounted by the interest rate to be applied if
similar loans were entered into.
DERIVATIVE TRANSACTIONS(1) ITEMS THAT ARE NOT APPLIED TO HEDGE ACCOUNTING
Not applicable(2) ITEMS THAT ARE APPLIED TO HEDGE ACCOUNTING

Hedge accounting
methodType of derivativetransactions

Interest-rate swaps:
Special treatment ofReceive/floating andinterest-rate swaps
pay/fixed

Contracted amount(In thousands of yen)
Maturing after 1 year

Fair value(In thousands of yen)

¥17,500,000¥16,500,000*¥17,500,000¥16,500,000

Hedged items

Long-term debt

Total

Calculation method for
applicable fair value* Special treatment of interest-rate swaps is reported at the fair value of applicable long-term debt. This is because such swaps are handled together with hedged
long-term debt.

NOTE 2: FINANCIAL INSTRUMENTS FOR WHICH IT IS EXTREMELY DIFFICULT TO DETERMINE THE FAIR VALUEClassification

Carrying value (In thousands of yen)Preferred equity securities¥896,655

Because no quoted market price is available and it is extremely difficult to determine the fair value, the above financial instruments are not included in the above table.

NOTE 3: REDEMPTION SCHEDULE FOR RECEIVABLES
Due within 1 year or less
(In thousands of yen)

Cash and bank deposits¥14,019,939

Total¥14,019,939

NOTE 4: REDEMPTION SCHEDULE FOR DEBT AND CORPORATE BONDS
In thousands of yen
Due within 1 year
or less

Due after 1 year
through 2 years

Due after 2 years
through 3 years

Due after 3 years
through 4 years

Due after 4 years
through 5 years

Short-term debt

¥14,700,000

¥

¥

¥

¥

Corporate bonds—

1,500,000——

3,000,000

1,500,000

Long-term debt

11,880,000

27,846,000

33,746,500

30,300,000

7,500,000

5,400,000

—

—

—

—

Due after
5 years¥—

Kenedix Realty Investment Corporation 27

13.

INVESTMENT AND RENTAL PROPERTIES

Fourteenth Fiscal Period (November 1, 2011 to April 30, 2012)
The Investment Corporation owns real estate for rental purposes mainly in the Tokyo Metropolitan Area for the purpose of generating
rental revenues.
The carrying value in the balance sheets and corresponding fair value of those properties are as follows:
Carrying value (In thousands of yen)
As of October 31, 2011

Net change

As of April 30, 2012

Fair value as of April 30, 2012
(In thousands of yen)¥254,921,755¥31,192,664¥286,114,419¥263,867,000

Notes: 1. The carrying value represents the acquisition cost less accumulated depreciation.
2. The fair value is the appraisal value or the survey value determined by outside appraisers. The fair value of KDX Omori Building is based on the sales priceof ¥4,200,000 thousand under the sales and purchase agreement dated February 23, 2012.
3. Among changes in the amount of real estate for rental purposes that occurred during the fiscal period under review, principal increases and decreases were
the acquisition of nine properties totaling ¥31,851,609 thousand and depreciation amounting to ¥1,578,845 thousand.

Income and loss in the fiscal period ended April 30, 2012 for real estate for rental purposes is listed in the Note “10. BREAKDOWNOF RENTAL AND OTHER OPERATING REVENUES, PROPERTY-RELATED EXPENSES AND GAIN ON SALES OF REAL ESTATEPROPERTY.”

14.

SUBSEQUENT EVENTSSALES OF PROPERTYThe Investment Corporation has concluded a purchase and sales agreement on February 23, 2012 and sold the following property on
May 11, 2012.
Property NameKDX Omori Building (Office Building)Type of Assets for Sale

Trust beneficiary interest in real estate

Location (Address)

1-6-8 Omori-kita, Ohta-ku, Tokyo

Buyer

Tokyo Property Service Co., Ltd. (Note)

Sales Price¥4,200 million

Gain on sale of real estate property is estimated to be ¥597 million for the fifteenth fiscal period. The aforementioned sales price excludes
sales costs, adjusted amounts for property and city-planning tax, consumption tax, regional consumption tax, etc.
Note: Tokyo Property Service Co., Ltd. has changed its company name from OOIKOUGYOU CO., LTD. on March 16, 2012.

28 Kenedix Realty Investment Corporation

Statements of Cash Flows (Unaudited)
Kenedix Realty Investment Corporation
For the period from November 1, 2011 to April 30, 2012 and the period from May 1, 2011 to October 31, 2011

In thousands of yen
From November 1, 2011
to April 30, 2012

From May 1, 2011
to October 31, 2011

¥ 2,541,809¥ 3,054,377

CASH FLOWS FROM OPERATING ACTIVITIES:
Income before income taxes
Adjustments to reconcile income before income taxes to
net cash provided by operating activities:
Depreciation and amortization

1,872,257

1,724,828

Interest income(674)(1,063)

Interest expense

1,058,930

1,036,388

Loss on retirement of fixed assets

3,719

—

Litigation settlement

10,000——(13,970)

Gain on donation of noncurrent assets
Changes in assets and liabilities:
Rental receivables
Consumption tax refundable(2,702)

12,640(220,729)

310,485

Accrued consumption tax(66,864)

28,956

Trade and other payables(30,365)

74,415

Rents received in advance

606,160(590,901)—

5,122,100

Property and equipment due to sale
Others, net(572,096)(258,096)

Subtotal

5,199,445

10,500,159

Interest income received
Cash payments of interest expense
Payments for loss on disaster
Litigation settlement paid
Cash payments of income taxes
Net cash provided by operating activities

674

1,063

(1,044,716)(1,037,432)—(28,598)(10,000)—(1,352)(1,171)

4,144,051

9,434,021(32,830,637)(15,230,474)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
Purchase of investment securities(891,000)—

Proceeds from leasehold and security deposits received

2,494,697

1,210,624—

669(900,339)(684,035)—

464,000

Proceeds from collection of lease and guarantee deposits
Payments of leasehold and security deposits received
Proceeds from withdrawal of time deposits
Payments of restricted bank deposits(131,125)—

Proceeds from restricted bank deposits

40,729100,404

Others, net
Net cash used in investing activities

(20)

—

(32,217,695)(14,138,812)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt

8,700,000

6,000,000

Payments of short-term debt

(4,200,000)(4,500,000)

Proceeds from long-term debt

38,700,000

14,000,000

Payments of long-term debt

(9,241,500)(18,801,500)

Proceeds from issuance of investment units—

13,938,969

Proceeds from issuance of investment corporation bonds

1,481,583

1,485,336

Redemption of investment corporation bonds(9,000,000)—

Payments of investment unit issuance costs(28,322)—

Payment of dividends(2,747,109)(2,310,038)

Net cash (used in) provided by financing activities

23,664,652

9,812,767

Net change in cash and cash equivalents(4,408,992)

5,107,976

Cash and cash equivalents at the beginning of period

17,928,003

12,820,027

Cash and cash equivalents at the end of period¥13,519,011¥17,928,003

See related notes.
Kenedix Realty Investment Corporation 29

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (UNAUDITED)CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, deposits placed with banks and short-term investments which are highly liquid,readily convertible to cash and with insignificant risk of market value fluctuation, with maturities of three months or less from the date ofpurchase.
CASH AND CASH EQUIVALENTS (UNAUDITED)Cash and cash equivalents consisted of the following as of April 30, 2012 and October 31, 2011:
In thousands of yen

Cash and bank deposits
Restricted bank deposits (Note)
Cash and cash equivalents

As of April 30, 2012

As of October 31, 2011

¥14,019,939¥18,338,535(500,928)(410,532)¥13,519,011¥17,928,003

Note: Restricted bank deposits are retained for repayment of tenant leasehold and security deposits.

30 Kenedix Realty Investment Corporation