7th Fiscal Period
May 1, 2008 - October 31, 2008

SEMIANNUAL REPORT
http://www.kdx-reit.com/eng/

INVESTMENT HIGHLIGHTS FORSEVENTH FISCAL PERIOD
General Breakdown of Unitholders
KENEDIX Realty Investment Corporation (KENEDIX-REIT)
is issuing a cash distribution of 15,618 yen to investment
unitholders (shareholders) as a distribution for operations
during the Seventh Fiscal Period running from May 1, 2008
to October 31, 2008.
Notes: 1. The amounts are rounded to thenearest 100 million yen.
2. The figures for the Sixth and Seventh
Fiscal Periods contain the projectedacquisition price of the building
portion of Sakae 4-chome Office
Building (Tentative Name) of 4.325
billion yen.

175.0
146.7

43.0

44.4

217.1
197.1

End of 5th Period(200,000 units)

226.3

12.7

12.7

Residential

12.3

CentralUrban Retail

16.0

16.0

69.1

137.9
115.9

12.3

81,920 units: 41.0%

10,189 units: 5.1%

9,968 units: 5.0%

10,720 units: 5.4%

96,845 units: 48.4%

98,863 units: 49.4%

91,126 units: 45.6%

11,364 units: 5.7%

10,855 units: 5.4%

16,234 units: 8.1%

Note: Figures are rounded to the first decimal place.

Name
NikkoCiti Trust and Banking Corporation (investment trust account)
The Master Trust Bank of Japan, Ltd. (trust account)
Japan Trustee Services Bank, Ltd. (trust account)
Goldman Sachs International
The Nomura Trust and Banking Co., Ltd. (investment trust account)
Kenedix, Inc.
Trust & Custody Services Bank, Ltd. (securities investment trust account)
Goldman Sachs and Company Regular AccountState Street Bank and Trust Company
The Bank of New York Treaty JASDEC Account
Total

188.4

12.3

80,314 units: 40.2%

Top Ten Unitholders (as of October 31, 2008)

16.0

20.7

18.9

End of 7th Period(200,000 units)

81,602 units: 40.8%

Office16.0

81.4

Other domestic corporations
Financial institutions(including securities companies)
Individuals and others

43.0

201.2
(billion yen)

Foreign corporations and individuals

End of 6th Period(200,000 units)

86.2

Units Held
17,903
15,597
13,076
12,025
11,478
7,850
7,147
6,512
5,763
4,384
101,735

Share of Outstanding Units
8.95%
7.79%
6.53%
6.01%
5.73%
3.92%
3.57%
3.25%
2.88%
2.19%
50.86%

Note: Ratios are rounded down to the second decimal place.

48.2

37.7

IR Schedule
End of
1st Period
2005/10End of
2nd Period

End of
3rd Period

2006/04

2006/10End of
4th Period
2007/04

End of
5th Period
2007/10End of
6th Period
2008/04

End of
7th Period
2008/10

7th Period

Operating Revenues

8,456

mn yenPeriod-on-period decrease of 652 million yen in capital gains
from sales
7th Period

Net Income

3,123

mn yenAdjusted total without property sales would be 2,823 million yen for theSeventh Fiscal Period and 2,829 million yen for the Sixth Fiscal Period

Distribution

15,618yen

per Unit

Unitholders’ Equity
per Unit

1 ❘ K ENEDIX

640,437

yen

TABLE OF CONTENTS
Investment Highlights for
Seventh Fiscal Period

1

A Letter from the CEO

2

A Letter from the General Managerof the Financial Planning Division

5

Financial Overview and Strategy

7

Sponsor Support

8

Basic Investment Strategy

9Strategic Portfolio Focus

10

Portfolio Evolution

11

Internal Growth

13

KENEDIX-REIT Portfolio Table

15

Financial Summary

17

Financial Statements

18

APRIL

JUNE

JULY

OCTOBERDECEMBERJANUARY

End ofﬁscal period

Performance for
period ending in
April is announced

Distributions arepaid for the period
ending in April

End ofﬁscal period

Performance for
period ending in
October is announced

Distributions arepaid for the period
ending in October

Information is regularly disclosed throughout the year via press releases and the website at www.kdx-reit.com/eng.

Disclaimer
This semiannual report includes translations of certain documents originally filed and made available in Japan in accordance with the Securities and Exchange Law of Japan. The English language
semiannual report was prepared solely for the convenience of readers outside Japan and is not intended to constitute a document for an offer to sell, or seeking an offer to buy, any securities of
KENEDIX Realty Investment Corporation (KENEDIX-REIT).
English terms for Japanese legal, accounting, tax and business concepts used herein may not be precisely identical to the concept of the equivalent Japanese terms. With respect to any and allterms herein, including without limitation, financial statements, if there exist any discrepancies in the meaning or interpretation thereof between the original Japanese documents and English translation contained herein, the original Japanese documents will always govern the meaning and interpretation.
None of KENEDIX-REIT, Kenedix REIT Management, Inc. nor any of their respective directors, officers, employees, partners, unitholders, agents, affiliates nor their advisors shall be responsible or
liable for the completeness, appropriateness, or accuracy of English translations or the selection of the portion(s) of any document(s) translated into English.
The financial statements of KENEDIX-REIT have been prepared in accordance with generally accepted accounting principles in Japan (“Japanese GAAP), which may materially differ in certain
respects from generally accepted accounting principles of other jurisdictions.
This semiannual report contains forward-looking statements. These statements appear in a number of places in this semiannual report and include statements regarding the intent, belief, or current
and future expectations of KENEDIX-REIT or Kenedix REIT Management, Inc. with respect to its business, financial condition and results of operations. In some cases, you can identify forwardlooking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or the negative of these terms or other similarterminology. These statements are not guarantees of future performance and are subject to various risks and uncertainties. Actual results, performance or achievements, or those of the industries
in which we operate, may differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. In addition, these forward-looking
statements are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise and involve known and unknown risks and uncertainties. Accordingly, readers of
this document should not interpret the forward-looking statements included herein as predictions or representations of future events or circumstances.
Potential risks and uncertainties also include those identified and discussed in this document. Given these risks and uncertainties, readers of this document are cautioned not to place undue
reliance on forward-looking statements, which speak only as of the date of information produced herein. We disclaim any obligation to update or, except in the limited circumstances required by
the Tokyo Stock Exchange, announce publicly any revisions to any of the forward-looking statements contained in these documents.

K E N E D I X ❘ 34

S

peakingYou

to

A Letter from the CEO

Never Drive in Neutral
Manual Steering, Not Automatic DriveQ

How have the global trends impacted your business model and results?

A I am not a person who gives in easily and blames results on external forces. It isirrefutable that the global recession has now encroached upon Japan and Asia, but to say
this has destroyed us would be rash. The fact is that we continue to maintain an occupancy
in the mid-90% range and we have just announced another strong dividend. The impact of
global markets has been the cost of financing – driving up fees – and is one excuse for thepresent malaise in the stock market, but we have continued to perform and are not juststanding by and watching. These factors, if anything, have forced us to become moreunique and flexible in measures to raise funds for new acquisitions. Our dynamic approachto management has enabled a shift in strategies employed for raising capital from follow-on
offerings to investment corporation bonds and finally a combination of financing and sales.
We are keen to drive external growth, internal growth and financial strategies half a stepahead of the market as this would provide us with a greater competitive advantage.
Q

You must prefer manual drive to automatic?

A You are right. It is important to not just sit back and do nothing because of the“times” or external factors. This is the time to prepare for future growth. We are preparing
the foundation for future growth so when the time comes we can apply our independentand speedy decision making to stay half a step ahead.

K ENEDIX ❘ 2

Q Right now in the market we often hear that banks are showing
preferential treatment to J-REITs with major sponsors and are“excessively” demanding of J-REITs that lack such major sponsors.
What are your thoughts concerning this?

First, one cannot blame others for one's difficulties. It would be easy
to blame banks but that doesn’t lead to any resolution. That being said, we
enjoy good relationships with our banks centered on mega banks but also
have extensively developed relationships with several institutions topromote diversification. This is a direct reflection of the fact that we havenever taken our financial support for granted. It is also a result of ourdynamic but prudent investment and management strategy.
A

It is only natural for a J-REIT with good sponsors to be preferentiallytreated in any economic climate – whether good or bad – as J-REITs
themselves have less credit. It is important for us to realize and maintaina certain asset size because that will enable greater profits and “secure” aneven stronger standing among banks.

It isimportantto remain
half a stepahead.

Furthermore, despite Kenedix, Inc. being an excellent sponsor and firm that has set the benchmark in real estate
asset management in Japan, we have added ITOCHU Corporation, a leading trading company with annual sales of
12,412.5 billion yen, to the shareholders in our asset manager in December 2008. ITOCHU, an active player in realestate with phenomenal sourcing capabilities, has taken a 10% share in our asset manager. We anticipate a broad
reinforcement of our property information sources and increasingly favorable view of KENEDIX-REIT as we
prepare for our next round of external growth.
Q Will you maintain your strategy of investing solely in mid-sized office buildings? Are they not regarded ahigh-risk property group?
A Some investors question this strategy in a bad market. They claim that the successful tenants of mid-sized
offices would switch to Class A space in these times because of the possibility of falling rents, thus creating
vacancies. KENEDIX-REIT has studied this market to grasp a better understanding of this phenomenon.
Interestingly, we have found no cases of this trend or the reverse of this trend occurring. The reality is that Class
A and Class B, or large and mid-sized, office markets are distinctly different.

Statistics released by the Tokyo government show that 94% of offices in Tokyo have 29 or less staff. Thus we firstand foremost enjoy the support of volume. If we provide good products and are known for providing them at afair price, tenants will come and stay. That is one reason why we were the first J-REIT to announce we would

MANAGEMENT POLICIES BASED ON J-REIT MARKET ENVIRONMENT
Achievements

Current situation

Management policies for the time being
Portfolio management
New investments
N

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Financial policies

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We focus on strengthening the financial base to seize regrowth
opportunities upon market upturn while securing stable cash distributions.

not recklessly pursue rent increases but
BREAKDOWN OF END-TENANTS BY SECTOR FOR OFFICE BUILDINGS(END OF 7TH PERIOD)
would extend leases at appropriate rates.
Though initially misinterpreted by some,
Construction
Individuals
31 tenants: 5.1%
23 tenants: 3.8%
this was very well received in the market.
Official (Others)
The fact is that in a difficult economy we
Manufacturing
2 tenants: 0.3%
87 tenants: 14.3%
value high occupancy much more than rent
Service
241 tenants: 39.6%
increases. Remember also that while rents
Wholesale, Retail & Food
Carriers & Telecom
153 tenants: 25.1%
were constantly pushed up over the past
15 tenants: 2.5%
several years in the U.S., rents in Tokyo only
Real Estate
Financial
23 tenants: 3.8%
34 tenants: 5.6%
bottomed out in 2005 after years of decline.
Thus they are technically affordable and,
TENANT ATTRIBUTES INCLUDING CAPITAL POSITION (Note)
more importantly, dependable. It is also vitalto note that though our clients are small- andListed companies and
Law firms and others
affiliated companies
10.7%
medium-sized enterprises (SMEs), they are
52.4%
Capital
of
10-50
mn
yen
predominantly members of major corporate
23.7%
groups and larger SMEs. Additionally, we are
Capital of 50-100 mn yen
2.2%
Capital of 500 mn yen or more
not solely dependent upon only a few number
3.3%
Capital of 100-500 mn yenof tenants. We have more than 600 tenants in
7.7%
our office buildings and the top three tenantsNote: For 5 properties acquired after Feb. 29, 2008 (excluding KDX Jimbocho Building,combined only account for 5.4% of the total.
which was acquired at 0% occupancy)
We are protected by a high volume market
and tenant diversification. Note that we haveterminated contracts on two of our tenants over the past year but
STATUS OF RENTAL DEPOSITS
the deposits that were collected more than covered their outstanding(END OF 7TH PERIOD)
rents and thus our deposits also provide a strong protective hedge in
10-13
this market.
monthsQ

What are the strengths of KENEDIX-REIT?

A In addition to our portfolio mentioned above, I would have to say
5-10
it is our quick independent decision making. We are ceaselessly
months
13 months
striving to be half a step ahead of the market. When the trend among
Less thanor more5 months
J-REITs was to muddle their investment focus, we sharpened ours to
mid-sized office buildings predominantly in Tokyo. This potentiallylowered the “cost of funds” provided by banks with an easy tounderstand product in the well-known market of Tokyo. When the focus has been on how to raise rents, we were
the first to incorporate a no-increase policy to reduce the stress on our tenants and shift the focus to occupancy
and cash flow. We did our most recent PO at what proved to be the last “best timing” in the market. We are able
to take such actions because we have investment professionals, financing professionals and property management
professionals that are independent of obligations to sponsors – allowing us to stay ahead while maintaining strict
compliance standards. In bad times it is important not to become unrealistically pessimistic and static, and ingood times it is crucial not to disregard the “rules” and go all out. We are not an all powerful company. We needto precisely interpret the present, keep our eye on the future and maintain our half a step advantage as we
continue to deliver to the market a good product that retains tenants, maintains rents and is trusted by financial
institutions and investors alike. This will enable us to meet targets and finish laying the foundation for future
growth as opportunities arise.

Taisuke Miyajima
CEO and President
Kenedix REIT Management, Inc.

Miyajima entered Kenedix, Inc. after serving in the Capital Markets Department of Mitsubishi UFJ Trustand Banking in the U.S. (Los Angeles Agency) and Japan. He worked in real estate investment advisory
for seven years, after which he transferred employment to serve as CEO and President of Kenedix REITManagement and executive officer of KENEDIX-REIT.

K ENEDIX ❘ 4

S

A Letter from the General Managerof the Financial Planning Division

peakingYou

toPrudent Financial Strategy
Key to Refinancing Success and Dynamic Management

Q The importance of the General Manager of the Financial Planning Division tends to increase in difficult times.
With J-REITs and real estate firms in Japan confronting full-blown refinancing risk, how do you lessen andovercome this risk?

Actually overcoming the refinancing risk is often singled out by the press as a key issue, but I don’t perceive
it in the same way. Part of the job of a CFO, which is similar to my position, is to arrange financing structures in amanner that enables their company to acquire properties and operate with little concern over the source of capitaland with as little risk as possible. Thus, overcoming this risk is a natural part of my comprehensive duties, but it
is not something that stands alone. We achieve this by consistently executing a strategy of diversifying debt
maturities (see page 6), fixing interest rates and diversifying capital sourcing and debt structures (short-termborowings, long-term borrowings and investment corporation bonds).
A

Q

Do these three strategies always maintain the same level of importance?

A We cannot afford to be overcommitted to a single source of funds. For example, when the economy wasstrong and the market was performing solidly, KENEDIX-REIT proactively raised funds on the equity market andby issuing bonds. The former, in theory, carries no repayment risk and the latter gave us access to funds at a fixedinterest and with a distant payment (see below). Of course, today both of these sources are near comatose andcan’t be touched for funds. We must thus use bank borrowings and other means to finance any moves we make.
In the Sixth Fiscal Period, we announced the investment strategy of focusing almost exclusively on mid-sized
office buildings. In implementation, we sourced the funds for these acquisitions primarily by divesting most of
our residential portfolio. During the current fiscal period, we sold outlying properties at a capital gain andarranged new financing to acquire centrally located office properties.

DEBT PROVIDERS AND BALANCE OF DEBTS (as of Dec. 11, 2008)

FIXED DEBT INTEREST RATES (as of Dec. 11, 2008)

Constructing strong relationships with multiple banks with the focus on megabanks(billion yen)

Proportion of debts at fixed interest rate vs.
floating interest rates

6th period 7th period Difference

5 ❘ K ENEDIX

Sumitomo Mitsui Banking Company

15.25

18.95

+3.7

The Chuo Mitsui Trust and Banking Co., Ltd.

12.5

14.5

+2.0

Aozora Bank, Ltd.

11.0

12.0

+1.0

Development Bank of Japan

8.0

11.0

+3.0

The Bank of Tokyo-Mitsubishi UFJ

7.8

9.8

+2.0

Mitsubishi UFJ Trust and Banking Corporation

7.2

7.2

0.0

Resona Bank, Ltd.

2.8

4.3

+1.5

The Norinchukin Bank

9.5

4.0

-5.5

Citibank Japan, Ltd.

0.0

2.5

+2.5

Mitsui Sumitomo Insurance Company

1.7

1.7

0.0

The Chiba Bank, Ltd.

2.0

0.8

-1.2

Investment Corporation Bonds

12.0

12.0

0.0

Total

897.5

987.5

+90

Floating interest rate
debt

7.1%

Fixed interest rate
debt

92.9%
Average-interest rate

Average life

● 1.85%● 2.5 years(including up-front fees)

Note: "Fixed interest rate debt" includes borrowings that wereconverted to fixed from floating through interest rate swaps

Q

We mustcontinue todynamically
respond to themarket while
maintaining
our core
strategies.

Why are you able to make such fluid shifts in strategies?

A This is possible due to the agglomeration of multiple factors:
1) Our team of phenomenal professionals enabling realistic andsmooth implementation, 2) A prudent and diligently built relationshipwith our supporting financial institutions, 3) The excellent ratings (seepage 7) awarded due to our prudent yet dynamic investment policy,4) A commitment to understanding where the market is and where it isgoing, and 5) Strong belief in ourselves, meaning we take heed ofstrategies by others but do not let these excessively color our
judgment. But don’t misunderstand this, we believe in our three
guiding strategies.
Q Do you see any shift in strategies in the coming Eighth Fiscal
Period?
A A clear shift is that we will mainly focus on sales of properties, if
desired prices can be obtained to finance office property acquisitions, aswell as repayments and obtaining cash on hand. With the return of near“zero” interest rates, we may want to consider floating interest rates fortheir potentially lower interest payments and terms. However, no distinct
shift in strategy of this nature will occur without proper deliberation
within the established decision-making structures of Kenedix REITManagement. It is important to note that we must continue to dynamically
respond to the market while maintaining our core strategies.

Tajima served in Chuo Mitsui Trustand Banking for twelve years where
he worked in business planning andsecuritization. He joined Kenedix, Inc.
after four years in structured finance at
Sumitomo Life Insurance.

Masahiko Tajima
Director and General Manager
Financial Planning Division

DIVERSIFICATION OF DEBT MATURITIES (as of Dec. 11, 2008)

Investment corporation bond

5.5
Short-term borrowings

9.0
1.5

Long-term borrowings(billion yen)

4.5

6.5

8.5 11.5 12.25 16.0

6.0

3.5

3.0

3.0

2008
2H

2009
1H

2009
2H

2011
2H

2012
1H

2012
2H

2013
1H

2010
1H

2010
2H

2011
1H

2013
2H

2014
1H

2041
2H

2015
1H

2015
2H

5.0

3.0

2016
1H

2016
2H

Note 1: Shows the amount of debt maturing in each Half.
2: 1H is from Apr. 1 to Sep. 30, 2H is from Oct. 1 to Mar. 31 of the following year and not identical with the fiscal period of KENEDIX-REIT(e.g. 2008 2H is from Oct. 1 2008 to Mar. 31, 2009)

K ENEDIX ❘ 6

FINANCIAL OVERVIEW AND STRATEGYEngineering a Dynamic Yet Conservative Strategy

CHANGES IN LTVKENEDIX-REIT is committed to a conservative yet
dynamic financing policy. The debt taken out by
KENEDIX-REIT is unsecured and unguaranteed aslong as its financial covenants are not violated fortwo consecutive fiscal periods. KENEDIX-REIT has
outstanding interest-bearing debt of 98.75 billion
yen as of December11, 2008 (announcement date
for KENEDIX-REIT's Seventh Fiscal Period results),
which breaks down into 81.75 billion yen in long-termborrowings, 5.0 billion yen in short-term borrowings
and 12.0 billion yen in bonds.

Loan-to-value kept low for prudence and flexibility.
47.0
%

45.6

%

4th
period2nd
period
38.7
%

%

3rd
period6th
period37.5%

1stperiodIn a period when J-REITs are struggling to refinance,
KENEDIX-REIT has proactively and successfullyrefinanced, and in the process has diversified
maturities to prevent an over-concentration of payment
deadlines at specific periods.

35.3
%

5th
period7.1%

17 bn yen

Short-termborrowings Current portionof long-termborrowings

Total
acquisition
price

Refinanced
borrowingsNewborrowings
5.6 bn yen

Sales price74.8 bn yen

Long-term borrowings andinvestment corporation bonds

3.5

17.75 bn yen
12.75

14.3 bn yen

75.7%

17.2%

7 bn yenThis financing strategy and the exemplary terms of
KENDEIX-REIT’s investment corporation bonds arebacked by strong credit ratings.

10.5 bn yen

4.5

1.0

9.0
5.0

1.0

11.5
8.0
(billion yen)

2.0
2008
1H

2008
2H

6.5
2009
1H

9.25

6.0

1.0

2009
2H

2.0
2010
2H

Debts as of end of 6th period
Debts refinanced in the 7th period

2010
1H

11.5

1.0

5.0
2011
1H

2011
2H

1.5
2.0
2012
1H

3.0

3.0

2012
2H

2013
1H

5.0
2013
2H

2014
1H

Rating agency
Moody's Investors Services
Japan Credit Rating Agency (JCR)

Rating
Baa1 (-)
A+ (stable)

Rating acquired
Feb. 2006
Dec. 2006

INVESTMENT CORPORATION BONDS (as of Dec. 11, 2008)
Name

7 ❘ K ENEDIX

Size
9 bn yen
3 bn yen

2014
2H

New borrowings in the 7th period for refinancing during the 7th period
New borrowings in the 7th period
Investment corporation bonds

CREDIT RATING (as of Jan. 15, 2009)

1st Bond
2nd Bond

7th
periodOUTSTANDING AMOUNT OF INTEREST BEARING
DEBTS BY REMAINING LIFE
(as of Dec. 11, 2008)

BORROWINGS IN THE 7TH PERIOD AND PROPERTY TRADING

Repayment
borrowings%

Note: LTV=Interest-bearing debt at end of period ÷Total assets

This is best shown in the chart below that portrays
the combination of refinancing, new borrowings andproceeds from sales used to cover loan payment
obligations and funds for acquiring new properties.
The successful spreading of payment maturities is also
shown in the chart.

19.25 bn yen

41.2
38.9

Interest rate
1.74%
2.37%

Maturity
5 years
10 years

Maturity date
Mar.15, 2012
Mar.15, 2017

2015
1H

2015
2H

2016
1H

3.0
2016
2H

Repayments in the 7th period

SPONSOR SUPPORT
Achieving an Even Greater Sponsorship TeamKENEDIX-REIT has been consistently supported by Kenedix, Inc. as its solesponsor through the Seventh Fiscal Period. Kenedix, Inc. was originallyformed in April 1995 as Kennedy-Wilson Japan and managed the real estate
operations of Kennedy-Wilson, a U.S. investor. Eventually the company
expanded into non-performing loan investment support and evolved into amajor real estate asset manager. In May 2005, the corporate name was changed
to the present name and Kenedix, Inc. continues to be a trusted real estate
manager for pension funds and other domestic and overseas institutional
investors, and as a first-tier company on the Tokyo Stock Exchange boasts 844
billion yen in assets under management as of September 2008. The Kenedix
Group invests in and manages a diverse group of assets with the central focus
on office buildings. Kenedix, Inc. also sponsors Japan Logistics Fund, Inc., theonly dedicated logistics J-REIT.
However, as still another sign of the dynamic, flexible management strategy ofPresident Miyajima, Kenedix REIT Management concluded that the severityof economic times and the need for a broader realty network
meant that a greater diversity in sponsors was essential. On
December 19, 2008, ITOCHU Corporation, one of Japan's
leading trading companies, acquired a 10% stake in
Kenedix REIT Management. ITOCHU boasts arich history of investing in real estate. Kenedix
REIT Management is convinced that ITOCHU
strengthens KENEDIX-REIT in its businessnetwork.

90%
ITOCHUThe asset management prowess of
Kenedix, Inc. combined with the businessscope and broad breadth of experienceof ITOCHU Corporation ensures that
KENEDIX-REIT will continue to be aleader among J-REITs.

10%

Name

ITOCHU Corporation

Established

December 1949

Representative

President: Eizo Kobayashi

Paid-in Capital

202,241 million yen

Annual Sales

12,412.5 billion yen (Fiscal 2008)

K ENEDIX ❘ 8

BASIC INVESTMENT STRATEGY

●

●

●

Our Basic Investment
and Management Policy
Focus investment on mid-sized officeproperties in the Tokyo Metropolitan
Area
Further raise proportion of officeproperties
Heighten portfolio quality by enhancing
the value of assets and replacing
portfolio properties●●

he mid-sized office real estate market in
Japan offers an overwhelming abundanceof properties and therefore acquisition
opportunities compared with large-scale
office properties●●

Mid-Sized Office Properties:
Our Characteristics and Forte●●

Market Environment
and Kenedix Expertise
Steady, positive results generated byincreasing rents and lower vacancy ratio
due to the favorable leasing market for officeproperties in the Tokyo Metropolitan Area
Many years of experience and know-how
possessed by the Kenedix Group in midsized office properties
Our proven ability to spot highly
competitive properties and handle leasing
and management of these properties

An affordable range for selling prices andrent levels enables high property liquidity
An expansive tenant stream fuels active
demand from small and mid-sizedcompanies as well as tenant diversity

KENEDIX-REIT is aiming to achieve
total asset value of

400 billion yen

to become the leading J-REIT specializing in
mid-sized office properties.

9 ❘ K ENEDIXSTRATEGIC PORTFOLIO FOCUS

KENEDIX-REIT is focused on constructing an optimal portfolio for our investors that is almost exclusively
focused on mid-sized office properties. These properties, as discussed in the Letter from the CEO, are well
positioned to robustly weather a recession.

PORTFOLIO BREAKDOWN BY USAGEGEOGRAPHIC CONCENTRATION OF PORTFOLIO(as of end of 7th period)(as of end of 7th period)

KENEDIX-REIT focuses on mid-sized offices.

By focusing on Tokyo, KENEDIX-REIT eliminates
economic risks tied to poor economic performanceoutside Tokyo.

Residential

Other Regional Areas

5.6%

35.3 bn yen
17.5%

Central Urban Retail

5.4%

Tokyo Metropolian Area
(excluding central Tokyo)

42.0 bn yen
20.8%

Ofﬁce

Central Tokyo

88.9%

123.9 bn yen
61.5%
Note: Central Tokyo = Chiyoda, Chuo, Minato, Shibuya and Shinjuku wards

REINFORCING THE PRESENCEE OF TOKYO IN PORTFOLIOKENEDIX-REIT has reinforced
orced its share of Tokyo
properties in the portfolio by acquiring properties inTokyo and divesting of regional
gional properties.

Acquired
143.1 bn yen in Central Tokyo

O
KU K
-5.1
bn yenSold+143.1bn yenA

FU● KDX Iwamoto-cho Building● KDX Harumi Building● KDX Hamamatsucho Dai-2 Building

TO

KYO

Sold 5.1 bn yen in Fukuoka● ZARA Tenjin Nishi-dori● Hakata Ekimae Dai-2 Building(during the 7th Period)

K E N E D I X ❘ 10

PORTFOLIO EVOLUTIONKENEDIX-REIT has proactively managed its
portfolio to ensure what it perceives to be theoptimal investment and management strategy
for the economic climate and real estatemarket.

3.35 bn yen
3.14 bn yen

2.97bn yen

ACQUIRING LARGER PROPERTIESThe size of properties acquired by KENEDIXREIT is climbing with larger assets comprisinga bigger position in the portfolio.

4th

3.25 bn yen

5thperiod6th

period7th

periodperiodNote: The figures for the Sixth and Seventh Fiscal Periods containthe projected acquisition price of the building portion of Sakae
4-chome Office Building (Tentative Name) of 4.325 billion yen.

SIZE
As the portfolio has grown, its construction
has transformed to place greater focus on
office buildings and size.

TYPE
End of 3rd Period(Oct. 31, 2006)

End of 3rd Period

64 properties
about 146.7 bn yen(Oct. 31, 2006)

8.2%

Less than 1.0 bn yen
16 properties
1.0-2.5 bn yen
28 properties

32.5%

Residential
32 properties

29.7%

Central Urban Retail22.6%

3 properties

6.7%

Ofﬁce

2.5-5.0 bn yen
13 properties
5.0-7.5 bn yen
6 properties
7.5-10.0 bn yen
1 property

29 properties

End of 7th Period(Oct. 31, 2008)

End of 7th Period(Oct. 31, 2008)

69 properties

0.6%

Less than 1.0 bn yen
2 properties

28.1%

1.0-2.5 bn yen
35 properties

7 properties

28.2%

2.5-5.0 bn yen
18 properties

Central Urban Retail

22.6%

Residential

2 properties

about 226.3 bn yen

15.7%

7.5-10.0 bn yen
4 properties

4.5%

Over 10.0 bn yen
1 property

Ofﬁce
60 properties

5.0-7.5 bn yen
9 properties

Note: The above charts represent comparisons based on acquisition prices.

11 ❘ K E N E D I X

KDX Harumi Building

KDX Iwamaoto-cho Building❙ Acquisition date June 30, 2008
❙ Type Office❙ Location Chuo-ku, Tokyo❙ Price 10.25 bn yen❙ Completion February 2008
❙ Occupancy at end of 7th Period 100.0%❙ Acquisition date May 1, 2008
❙ Type Office❙ Location Chiyoda-ku, Tokyo❙ Price 1.86 bn yen❙ Completion March 2008
❙ Occupancy at end of 7th Period 92.7%

Seventh Fiscal Period Portfolio Reconstruction
KENEDIX-REIT has further reconstructed its portfolio
during the Seventh Fiscal Period with the acquisition ofTokyo Properties and the selling of Fukuoka properties
at a profit.

KENEDIX-REIT is Acquiring Younger Buildings
AVERAGE AGE OF OFFICE BUILDINGS ACQUIREDIN EACH PERIOD
30 (age)
20
10

KDX Hamamatsucho Dai-2 Building
0

5th

6th

periodperiod7th

period*The table indicates the average age of office buildings
acquired in each period as of the end of October 2008.

❙ Acquisition date September 1, 2008
❙ Type Office❙ Location Minato-ku, Tokyo❙ Price 2.2 bn yen❙ Completion April 1992
❙ Occupancy at end of 7th Period 100.0%

KENEDIX-REIT secured capital gains from selling two regional properties.

L
SO

D

ZARA Tenjin Nishi-Dori
Sale date ❙ June 25, 2008
Type ❙ Central Urban Retail
Area ❙ Other Regional Areas
Initial acquisition price ❙ 3.68 bn yen
Sale price ❙ 4.1 bn yen
Completion ❙ November 2005

L
SO

D
Hakata Ekimae Dai-2 Building
Sale date ❙ July 30, 2008
Type ❙ Office
Area ❙ Other Regional Areas
Initial acquisition price ❙ 1.43 bn yen
Sale price ❙ 1.47 bn yen
Completion ❙ September 1984

K E N E D I X ❘ 12

INTERNAL GROWTH
Reinforcing the Portfolio from Within

COST REDUCTIONS THROUGH AIR
CONDITIONING WORK BIDSKENEDIX-REIT is committed to achieving growth andupgrading the efficiency of its portfolio through a variety
of measures.
❚ Reducing costs❚ KENEDIX-REIT has utilized the strength and networkof the Kenedix Group to reduce costs through thefollowing two measuresa Consolidated building maintenance firms fromeighteen to three for 25 Tokyo buildings to improve
quality, service and efficiency

5th Period

190 mn yen

6th Period

174 mn yen

7th Period

132 mn yen(31.6% reduction)(24.4% reduction)(39.3% reduction)

LEASE RENEWAL RESULTS DURING 7TH
PERIODb Use of a bid system for maintenance and repairs.
This has generated reductions of more than 100
million yen in each of the past three fiscal periods.

30.0%~ up: 1.9%
20~30% up: 3.6%

❚ KENEDIX-REIT also strategically decided to notnegotiate for rent increases but to cooperate withtenants and maintain occupancy. This contributes toshortening or eliminating vacancies and heightening theefficiency of operations.

10~20% up: 13.3

Increased
rents

5~10% up: 18.5%

43.4%

Maintained
current rents

56.6%

0~5% up: 6.1%

Proactive Asset Management Leads to Positive Growth❚ Diversified acquisition strategies contribute to ideal strategies for market and property conditions
a Use of right of first refusal with Kenedix Group to acquire the KDX Harumi Buildingb Renovate buildings with low occupancy prior to leasing activities to ultimately speed up leasingc Acquire superior, benchmark properties through pre-completion acquisition: Sakae 4-chome Office Building(Tentative Name)
The dynamic, flexible stance of KENEDIX-REIT is clear in the history of its leasing strategy and occupancy.

OFFICE BUILDING OCCUPANCY BY REGION

Implemented
full-ﬂedged negotiations
for rent increase

(%)

100

No negotiations forrent increase in principle

98
96
94
92
90

13 ❘ K E N E D I XStarted negotiations forrent increase of properties
in central Tokyo
2006/2

4

6

8

10

Tokyo Metropolitan Area
Other Regional Areas
12 2007/2

4

6

8

10

12 2008/2

4

6

8

10

KENEDIX-REIT also believes that a proactive IR strategy and strict
compliance adherence are vital elements of asset management.
❚ Active disclosure through information dissemination: Press
releases, actively updated both English and Japanese websites,
TDNet

Yuuji Kamimura
Compliance Officer●

27 years at Shinsei Bank

❚ Active disclosure through face-to-face meetings: 828 meetings(including conference calls) with domestic and foreign investors
between June 21, 2005 and December 1, 2008●

Served as compliance officer in thecompliance division of Shinsei Bankfor eight years before transferring to
KENEDIX REIT Management, Inc.

❚ Compliance is ensured through a strict decision-making flow andis led by a qualified compliance officer

DECISION-MAKING AT KENEDIX REIT MANAGEMENT
Preview

Discussion
and Review

Resolution
Reporting

Creation of management guidelines
Creation ofasset administration plan, etc.
Corresponding
Division

ComplianceOfﬁcerApproval for transactions withinterested parties

Resolution
Compliance
Committee*

Approval for transactions outsideof management guidelines

Board
of
Directors

AssetManagement
Committee
ReportingApproval for transactions that follow
management guidelines excluding
those with interested parties*One external menber: attorney

KENEDIX REIT MANAGEMENT, INC. ORGANIZATIONAL CHART
Shareholders' Meeting
Auditors
Board of Directors
Compliance Officer
Investment Committee

Compliance Committee

Representative Director

Investment Management
Division

Property Management
Division

Financial Planning
Division

Business Administration
Division

K E N E D I X ❘ 14

KENEDIX-REIT PORTFOLIO TABLE (End of Seventh Fiscal Period)
Property Name

Location

Acquisition Price(mn yen)Site Area(m2)

Floor Area
(m2)

A-1
A-2
A-3
A-4
A-5
A-6
A-7
A-8
A-9
A-10
A-12
A-13
A-14
A-15
A-16
A-17
A-18
A-19
A-20
A-21
A-22
A-23
A-24
A-25
A-26
A-27
A-28
A-29
A-30
A-31
A-32
A-33
A-34
A-35
A-36
A-37
A-38
A-39
A-40
A-41
A-42
A-43
A-44
A-45
A-46
A-47
A-48
A-49
A-50
A-51
A-52
A-53
A-54
A-55
A-56
A-57

KDX Nihonbashi 313 Building
KDX Hirakawacho Building
Higashi-Kayabacho Yuraku Building
KDX Hatchobori Building
KDX Nakano-Sakaue Building
Harajuku F.F. Building
FIK Minami Aoyama
Kanda Kihara Building
KDX Shinjuku-Gyoen Building
KDX Koishikawa Building
Portus Center Building
KDX Kojimachi Building
KDX Funabashi Building
KDX Hamacho Building
Toshin 24 Building
Ebisu East 438 Building
KDX Omori Building
KDX Hamamatsucho Building
KDX Kayabacho Building
KDX Shinbashi Building
KDX Shin-Yokohama Building
KDX Yotsuya Building
KDX Minami Semba Dai-1 Building
KDX Minami Semba Dai-2 Building
KDX Kiba Building
KDX Kajicho Building
KDX Nogizaka Building
KDX Higashi-Shinjuku Building
KDX Nishi-Gotanda Building
KDX Monzen-Nakacho Building
KDX Shiba-Daimon Building
KDX Okachimachi Building
KDX Hon-Atsugi Building
KDX Hachioji Building
KDX Niigata Building
KDX Ochanomizu Building
KDX Nishi-Shinjuku Building
KDX Toranomon Building
Toranomon Toyo Building
KDX Shinjuku 286 Building
Karasuma Building
KDX Hakata Building
KDX Sendai Building
KDX Roppongi 228 Building
Hiei Kudan-Kita Building
KDX Shin-Yokohama 381 Building
KDX Kawasaki-Ekimae Hon-cho Building
Nissou Dai-17 Building
Ikejiri-Oohashi Building
KDX Hamacho Nakanohashi Building
KDX Kanda Misaki-cho Building
KDX Hakata-Minami Building
KDX Kitahama Building
Shin-toshin Maruzen Building
KDX Jimbocho Building
KDX Gobancho Building

Chuo Ward, Tokyo
Chiyoda Ward, Tokyo
Chuo Ward, Tokyo
Chuo Ward, Tokyo
Nakano Ward, Tokyo
Shibuya Ward, Tokyo
Minato Ward, Tokyo
Chiyoda Ward, Tokyo
Shinjuku Ward, Tokyo
Bunkyo Ward, Tokyo
Sakai, Osaka
Chiyoda Ward, Tokyo
Funabashi, Chiba
Chuo Ward, Tokyo
Yokohama, Kanagawa
Shibuya Ward, Tokyo
Ota Ward, Tokyo
Minato Ward, Tokyo
Chuo Ward, Tokyo
Minato Ward, Tokyo
Yokohama, Kanagawa
Shinjuku Ward, Tokyo
Osaka, Osaka
Osaka, Osaka
Koto Ward, Tokyo
Chiyoda Ward, Tokyo
Minato Ward, Tokyo
Shinjuku Ward, Tokyo
Shinagawa Ward, Tokyo
Koto Ward, Tokyo
Minato Ward, Tokyo
Taito Ward, Tokyo
Atsugi, Kanagawa
Hachioji, Tokyo
Niigata, Niigata
Chiyoda Ward, Tokyo
Shinjuku Ward, Tokyo
Minato Ward, Tokyo
Minato Ward, Tokyo
Shinjuku Ward, Tokyo
Kyoto, Kyoto
Fukuoka, Fukuoka
Sendai, Miyagi
Minato Ward, Tokyo
Chiyoda Ward, Tokyo
Yokohama, Kanagawa
Kawasaki, Kanagawa
Yokohama, Kanagawa
Meguro Ward, Tokyo
Chuo Ward, Tokyo
Chiyoda Ward, Tokyo
Fukuoka, Fukuoka
Osaka, Osaka
Shinjuku Ward, Tokyo
Chiyoda Ward, Tokyo
Chiyoda Ward, Tokyo

5,940
5,180
4,450
3,680
2,533
2,450
2,270
1,950
1,610
704
5,570
5,950
2,252
2,300
5,300
4,640
3,500
3,460
2,780
2,690
2,520
1,950
1,610
1,560
1,580
2,350
1,065
2,950
4,200
1,400
6,090
2,000
1,305
1,155
1,305
6,400
1,500
4,400
9,850
2,300
5,400
2,350
2,100
3,300
7,600
4,700
3,760
2,710
2,400
2,310
1,380
4,900
2,220
2,110
2,760
1,951

1,047.72
1,013.85
773.43992.201,235.16
699.67369.47410.18383.63404.8913,936.63
612.17
1,180.41
554.801,287.16
724.22
1,123.93
504.26617.17536.11705.00996.65715.44606.45922.77526.43409.36
1,340.97
684.41580.991,182.40
239.72724.62460.62
1,110.56
1,515.28
626.06288.20869.01421.701,788.67
1,130.86
987.78408.86
1,844.83
911.24
1,968.13
629.00834.79462.29314.54
1,826.25
751.92457.64465.92335.708,613.09
8,002.97
5,916.48
4,800.43
6,399.42
3,812.44
1,926.98
2,393.94
2,594.88
1,866.58
79,827.08
5,323.81
5,970.12
4,133.47
8,483.17
4,394.58
7,334.77
3,592.38
3,804.86
3,960.22
6,180.51
3,329.68
4,236.59
3,315.93
2,820.64
3,147.70
1,695.07
7,885.40
5,192.87
2,668.91
7,824.03
1,882.00
3,603.63
2,821.21
6,810.29
7,720.08
2,017.63
2,277.38
8,346.83
3,432.04
12,632.68
6,537.33
5,918.30
2,235.30
11,425.31
7,673.67
7,420.87,4,016.61
3,482.96
3,280.41
1,536.60
13,238.16
4,652.96
3,439.37
3,292.13
1,893.11

A-58

Sakae 4-chome Office Building(Tentative Name)

Nagoya, Aichi

8,325

1,192.22

10,848.45

A-59

KDX Iwamoto-cho Building

Chiyoda Ward, Tokyo

1,864

266.86

1,618.65

A-60
A-61

KDX Harumi Building
KDX Hamamatsucho Dai-2 Building

Chuo Ward, Tokyo
Minato Ward, Tokyo

10,2502,200

2,230.69
368.28

12,694.32
2,478.90

201,290

62,510.17

380,676.18

B-3
B-4

Court Mejiro
Apartments Motoazabu

Shinjuku Ward, Tokyo
Minato Ward, Tokyo

1,250
1,210

1,581.91
639.41

3,326.07
1,685.14

No.

A
OfficeOffice Subtotal (60 Properties)

B
Residential

B-5

Apartments Wakamatsu-Kawada

Shinjuku Ward, Tokyo

1,180

412.42

1,858.51

B-18

Venus Hibarigaoka

Sapporo, Hokkaido

1,800

8,595.00

14,976.25

B-19

Residence Charmante Tsukishima

Chuo Ward, Tokyo

5,353

4,252.86

18,115.39

B-25
B-34

Court Shin-Okachimachi
Gradito Kawaguchi

Taito Ward, Tokyo
Kawaguchi, Saitama

878
1,038

311.22423.94

1,494.55
1,705.38

12,70916,216.76

43,161.29

C-1
C-2

Frame Jinnan-zaka
Shibuya Ward, TokyoKDX Yoyogi Building
Shibuya Ward, Tokyo
Central Urban Retail Subtotal (2 properties)

9,900
2,479

1,240.51
228.74

6,302.58
1,269.06

Residential Subtotal (7 properties)

C
CentralUrban Retail

TOTAL

15 ❘ K E N E D I X

12,3791,469.25

7,571.64

226,378

80,196.18

431,409.11

RENTAL NOI RETURNS (ANNUALIZED)Completion Date

Acquisition Date

Occupancy

Apr. 1974
Mar. 1988
Jan. 1987
Jun. 1993
Aug. 1992
Nov. 1985
Nov. 1988
May 1993
Jun. 1992
Oct. 1992
Sep. 1993
May 1994
Apr. 1989
Sep. 1993
Sep. 1984
Jan. 1992
Oct. 1990
Sep. 1999
Oct. 1987
Feb. 1992
Sep. 1990
Oct. 1989
Mar. 1993
Sep. 1993
Oct. 1992
Mar. 1990
May 1991
Jan. 1990
Nov. 1992
Sep. 1986
Jul. 1986
Jun. 1998
May 1995
Dec. 1985
Jul. 1983
Aug. 1982
Oct. 1992
Apr. 1988
Aug. 1962
Aug. 1989
Oct. 1982
Jul. 1982
Feb. 1984
Apr. 1989
Mar. 1988
Mar. 1988
Feb. 1985
Jul. 1991
Sep. 1988
Sep. 1988
Oct. 1992
Jun. 1973
Jul. 1994
Jul. 1990
May 1994
Aug. 2000

Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Aug. 2005
Sep. 2005
Nov. 2005
Mar. 2006
Mar. 2006
May 2006
May 2006
May 2006
May 2006
May 2006
May 2006
May 2006
May 2006
May 2006
May 2006
Jun. 2006
Jul. 2006
Jul. 2006
Sep. 2006
Dec. 2006
Jan. 2007
Mar. 2007
Mar. 2007
Mar. 2007
Mar. 2007
Mar. 2007
Apr. 2007
Apr. 2007
Apr. 2007
Jun. 2007
Jun. 2007
Jun. 2007
Jun. 2007
Jun. 2007
Jan. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Feb. 2008
Mar. 2008
Mar. 2008

100.0%
100.0%
100.0%
100.0%
96.5%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
98.2%
98.4%
100.0%
100.0%
100.0%
100.0%
75.4%
100.0%
100.0%
83.2%
100.0%
91.6%
91.2%
100.0%
100.0%
100.0%
86.2%
100.0%
100.0%
100.0%
100.0%
88.6%
85.6%
76.2%
90.2%
100.0%
78.6%
100.0%
100.0%
98.1%
100.0%
86.2%
78.0%
100.0%
97.5%
100.0%
100.0%
100.0%
100.0%
100.0%
95.4%
88.1%
80.9%
59.8%
85.7%

Land: Apr. 2008

NA

Jun. 2009

Building: Jul. 2009 (as scheduled)

NA

Mar. 2008

May 2008

92.7%

Feb. 2008
Apr. 1992

Jun. 2008
Sep. 2008

100.0%
100.0%

Mar. 1997
Jan. 2004

Aug. 2005
Aug. 2005

100.0%
94.6%

Feb. 2004

Aug. 2005

100.0%

Mar. 1989

Dec. 2005

88.7%

Jan. 2004

May 2006

100.0%

Oct. 2005
Feb. 2006

May 2006
Jun. 2006

100.0%
100.0%

Mar. 2005
Aug. 1991

Aug. 2005
Sep. 2005

97.9%
91.7%

KENEDIX-REIT maintains steady performance overmultiple fiscal periods through proactive portfolio
management.
4th
Period5th
Period6th
Period7th
Period

7th Period before Adjustment
for Real Property and City Taxes

Office5.3% 5.5% 5.6% 5.3%

5.4%

CentralUrban Retail

5.2% 5.1% 4.3% 4.8%

4.8%

Residential

5.4% 5.3% 5.3% 5.3%

5.2%

Total

5.3% 5.4% 5.5% 5.3%

5.4%

Note: Each of the figures represent the values after subtraction of real property
and city taxes. The real property taxes for the new properties – KDX Harumi
Building and KDX Iwamoto-cho Building – only reflect the land portion of thereal property taxes.

LEASING OF OFFICE BUILDINGS WITH INITIALLY LOWOCCUPANCIES
Strong relationships with leasing managers translates
into solid leasing performance.
(%)

100
80
60

KDX Hamacho
Building

KDX Kiba Building

KDX Harumi
Building

40
20

KDX Nishi-Gotanda Building
KDX Toranomon Building

0

Mar.
2006

Sep.
2006

Mar.
2007

Sep.
2007

KDX Jimbocho
Building

Mar.
2008

Sep.
2008

SUMMARY OF APPRAISED VALUES AT END OF SEVENTH
FISCAL PERIODThe KENEDIX-REIT portfolio as a whole, despite
appraisal values being lower than acquisition prices
and book values for residential properties, maintains astrong appraisal value relative to acquisition price andbook value.
(million yen)
Office➀ AcquisitionPrice➁ Book Value➂ End of Period
AppraisedValue➃ Difference fromAcquisition
Price (➂-➀)
Percentage➃/➀➄ Difference
from Book
Value (➂-➁)
Percentage➄/➁

CentralUrban Retail Residential

Total

196,965

12,37912,709 222,053

200,372

12,67912,742 225,795

211,106

14,21012,090 237,406

14,141

1,831

-619

15,353

7.2%

14.8%

-4.9%

6.9%

10,734

1,531

-652

11,613

5.4%

12.1%

-5.1%

5.1%

Note: The property name for Sakae 4-chome Office Building (Tentative Name)(A-58) has not yet
been decided as of today, as the building is still under construction. The property name will
be decided by the date KENEDIX-REIT acquires the building. In addition, the acquisition
price of 8,325 mn yen is the total of the land acquired on April 25, 2008 (4,000 mn yen)and the building planned to be acquired on July 1, 2009 (4,325 mn yen). The total leasablearea is based on the present design and specifications. The completion date is the planneddate.

K E N E D I X ❘ 16

FINANCIAL SUMMARY
Historical Operating Trends for the Third – Seventh Fiscal Periods

Periodunit

3rd Period
4th Period
5th Period
6th Period
7th Period(as of Oct. 31 2006) (as of Apr. 30, 2007) (as of Oct. 31, 2007) (as of Apr. 30, 2008) (as of Oct. 31, 2008)

Operating revenues

mn yen

5,288

5,778

7,208

8,582

8,456

(Rental revenues)

mn yen

5,131

5,647

7,208

7,630

8,156

Operating expenses

mn yen

2,723

3,091

3,737

4,517

4,311

(Property-related expenses)

mn yen

2,397

2,607

3,205

3,447

3,678

Operating income

mn yen

2,565

2,686

3,470

4,065

4,144

Ordinary income

mn yen

2,125

2,148

2,793

3,343

3,124

Net income (a)mn yen

2,124

2,148

2,792

3,342

3,123

Total assets (b)mn yen160,314

188,400

213,763

230,520

239,648

Interest-bearing debt (c)mn yen62,00088,50075,50089,75098,750Unitholders’ equity (d)mn yen90,93390,877

127,761

128,314

128,087

Unitholders’ capitalmn yen88,72988,729124,973

124,973

124,973

Number of investment units
issued and outstanding (e)unit

157,000

157,000

200,000

200,000

200,000

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

579,192

578,839

638,809641,570

640,437mn yen

2,124

2,148

2,792

3,342

3,123

Distribution per unit (f)/(e)yen

13,52913,682

13,96016,711

15,618(Earnings distributed per unit)

yen

13,52913,682

13,96016,711

15,618(Distribution in excess ofearnings per unit)

yen

-

-

-

-

-

%

1.7 (3.3)

1.2 (2.5)

1.4 (2.8)

1.5 (3.0)

1.3 (2.6)

Return on unitholders’ equity(annualized) (Notes 2 and 3)%

3.1 (6.2)

2.4 (4.8)

2.6 (5.1)

2.6 (5.2)

2.4 (4.8)

Unitholders’ equity ratio at
end of period (d)/(b)

%

56.7

48.2

59.8

55.7

53.4

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

%

38.7

47.0

35.3

38.9

41.2

Payout ratio (Note 4) (f)/(a)

%

99.9

100.0

99.9

99.9

99.9

Total distribution (f)Return on assets (annualized)(Notes 1 and 2)

Other reference
Number of properties

Properties

64

72

77

68

69

Total leasable floor aream2

192,085.34

223,322.77

248,653.07

248,625.52

256,214.30

Occupancy at end of period

%

95.3

95.9

96.9

95.9

95.6

Depreciation expenses for theperiodmn yen

1,135

1,243

1,392

1,430

1,445

Capital expenditures for theperiodmn yen

655

1,132

1,238

1,152

1,105

Leasing NOI (net operating
income) (Note 5)

mn yen

3,869

4,283

5,394

5,612

5,923

mn yen

3,102

3,261

4,184

4,259

4,269

yen

19,75920,772

20,92021,297

21,345

FFO (funds from operation)(Note 6)

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 x 100.
2. Annualized values for the Third Fiscal Period are calculated based on a period of 184 days, 181 days for the Fourth Fiscal Period, 184 days for the Fifth Fiscal
Period, 182 days for the Sixth Fiscal Period and 184 days for the Seventh Fiscal Period.
3. Return on unitholders’ equity = Net income/(Total unitholders’ equity at beginning of period + Total unitholders’ equity at end of period)/2 x 100.
4. Payout ratio is rounded down to the first decimal.
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
beneficiary interests in real estate or real estate).
7. FFO per unit = FFO/number of investment units issued and outstanding (figures below ¥1 rounded down).

17 ❘ K E N E D I X

FINANCIAL
STATEMENTS
7th Fiscal Period

From May 1, 2008 to October 31, 2008
Report of Independent Auditors
Balance Sheet
Statements of Income and Retained Earnings
Statements of Changes of Unitholders’ Equity
Statements of Cash Flows
Notes to Financial Statements19 ❘ K E N E D I X

BALANCE SHEETAS OF OCTOBER 31, 2008 AND APRIL 30, 2008

In thousands of yen
As of October 31, 2008

As of April 30, 2008ASSETS
Current assets:
Cash and bank deposits¥

13,029,801¥

13,192,761

Rental receivables

187,278

Consumption tax refundable

180,365-

Other current assets

67,69645,262

13,465,141

13,397,027

Land

155,906,794

150,671,196

Buildings and structures

74,546,241

69,663,667

Machinery and equipment

905,705

787,653

Tools, furniture and fixtures

382,011314,867(6,230,362)(4,953,431)

225,510,389

216,483,952

Ground leasehold

285,350

285,350

Organization costs

15,26920,359Corporate bond issuance costs

51,30657,184

Unit issuance costs

88,837130,306

Total current assets

159,004

Property and equipment, at cost:Less-accumulated depreciation
Net property and equipment
Other assets:

Other assets
Total assets

232,306¥

146,065

239,648,598¥

728,711¥230,520,243

LIABILITIES AND UNITHOLDERS' EQUITY
Liabilities
Current liabilities:
Trade and other payables¥

Short-term debt

24,000,000

Deposits received
Rents received in advance
Other current liabilities

793,006
31,750,000

6,411

4,504

1,238,195

1,172,675

177,809305,962

26,151,126

34,026,147

Corporate bonds

12,000,000

12,000,000

Long-term debt

62,750,000

46,000,000

Leasehold and security deposits received

10,643,623

10,176,842

Total current liabilities

Other liabilities
Total liabilities

16,272

3,092¥

111,561,020¥

102,206,081¥

124,973,750¥

124,973,750

Unitholders' equity
Unitholders' capital
Units authorized:2,000,000units
Units issued and outstanding:200,000units
As of October 31, 2008 and April 30, 2008, respectively
Retained earnings
Unrealized gain from deferred hedge transactions

3,123,699

Total unitholders' equity
Total liabilities and unitholders' equity¥

3,342,285(9,872)(1,873)

128,087,577

128,314,162

239,648,598¥

230,520,243

See notes to financial statements

K E N E D I X ❘ 20

STATEMENTS OF INCOME AND RETAINED EARNINGSFOR THE PERIOD FROM NOVEMBER 1, 2007 TO APRIL 30, 2008, AND THE PERIOD FROM MAY 1, 2008 TO OCTOBER 31, 2008

In thousands of yen
From May 1, 2008
to October 31, 2008

From November 1, 2007
to April 30, 2008

Operating Revenues:
Rental revenues¥

Profit on sale of real estate

8,156,517¥

7,630,465

299,717952,230

8,456,234

8,582,695

Property-related expenses

3,678,720

3,447,634

Loss on sale of real estate-

439,333

Asset management fees

442,470

424,142

Administrative service and custodian fees

74,27675,148Other operating expenses

116,030

130,783

4,311,495

4,517,040

Total operating revenues
Operating Expenses:

Total operating expenses
Operating income¥

4,144,738¥

4,065,655¥

803,790¥

618,126

Non-Operating Expenses:
Interest expense
Financing related expense

145,680

28,471

Amortization of organization costs

5,090

5,090

Amortization of unit issuance costs

41,46941,469Amortization of corporate bond issuance costs

5,878

5,814

Others, net

18,42522,9283,124,407

3,343,757

793

1,556

3,123,614

3,342,201

85

84

Income before income taxes
Income taxes
Net income
Retained earnings at the beginning of period
Retained earnings at the end of period
See notes to financial statements

21 ❘ K E N E D I X¥

3,123,699¥

3,342,285

STATEMENTS OF CHANGES IN UNITHOLDERS’ EQUITY
FOR THE PERIOD FROM NOVEMBER 1, 2007 TO APRIL 30, 2008 AND THE PERIOD FROM MAY 1, 2008 TO OCTOBER 31, 2008

In thousands of yen
Unitholders' Equity
Unitholders'
capitalBalance as of November 1, 2007¥

124,973,750

Retainedearnings¥

2,792,084

Unrealized
gain fromdeferred hedgetransactions¥(3,899)

Total¥

127,761,935

Changes during the fiscal period
New unit issuance

-

-

-

-

Payment of dividends-(2,792,000)-(2,792,000)

Net income-

3,342,201-

3,342,201

Interest-rate swap

-

-

2,026

2,026

-

550,201(1,873)548,327

Total changes
during the fiscal period
Balance as of April 30, 2008¥

124,973,750¥

3,342,285¥(1,873)¥

127,314,162

Changes during the fiscal period
New unit issuance

-

-

-

-

Payment of dividends-(3,342,200)-(3,342,200)

Net income-

3,123,614-

3,123,614

Interest-rate swap--

(7,998)(7,998)-(218,586)(7,998)(226,584)

Total changes
during the fiscal period
Balance as of October 31, 2008¥

124,973,750¥

3,123,699¥(9,872)¥

128,087,577

See notes to financial statements

K E N E D I X ❘ 22

STATEMENTS OF CASH FLOWSFOR THE PERIOD FROM NOVEMBER 1, 2007 TO APRIL 30, 2008, AND THE PERIOD FROM MAY 1, 2008 TO OCTOBER 31, 2008

In thousands of yen
From May 1, 2008
to October 31, 2008

From November 1, 2007
to April 30, 2008

Cash Flows from Operating Activities:
Income before income taxes¥

3,124,407¥

3,343,757

Adjustments to reconcile income before income taxes to
net cash provided by operating activities:
Depreciation and amortization

1,535,995

1,509,898

803,790

618,126

7,853

45,289Rental receivables(28,275)(17,093)

Consumption tax refundable(180,365)

47,552

Accrued consumption tax(179,988)

215,992

Trade and other payables(66,480)

263,920

Interest expense
Loss on retirement of fixed assets
Changes in assets and liabilities:

Rents received in advance
Property and equipment due to sale65,52031,3425,100,280

30,755,698

Others, net(151,165)(66,119)

Subtotal

10,031,573

36,748,362(751,791)(603,866)

(769)

(659)

Cash payments of interest expense
Cash payments of income taxes
Net cash provided by operating activities¥

9,279,013¥

36,143,837¥(15,579,837)¥(48,150,727)

Cash Flow from Investing Activities:
Purchases of property and equipment
Proceeds from leasehold and security deposits received

1,147,506

Payments of leasehold and security deposits received(680,726)(705,167)

Payments of restricted bank deposits(574,468)(1,130,321)

Proceeds from restricted bank deposits

1,299,219

71,434

11,100(10,915)

Others, net
Net cash used in investing activities

2,132,300¥(14,377,206)¥(47,793,396)¥

5,500,000¥

1,500,000

Cash Flows from Financing Activities:
Proceeds from short-term debt
Payment of short-term debt

(6,250,000)(2,250,000)

Proceeds from long-term debt

22,750,000

15,000,000

Payment of long-term debt

(13,000,000)-

Payment of dividends(3,340,016)(2,789,908)

Net cash provided by financing activities

5,659,984

11,460,092

Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of period
Cash and cash equivalents at the end of period
See notes to financial statements

23 ❘ K E N E D I X¥

561,791(189,467)

11,141,858

11,331,325

11,703,649¥

11,141,858

NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM NOVEMBER 1, 2007 TO APRIL 30, 2008, AND THE PERIOD FROM MAY 1, 2008 TO OCTOBER 31, 2008

1. ORGANIZATION AND BASIS OFPRESENTATIONORGANIZATION
Kenedix Realty Investment Corporation (“theInvestment Corporation”) is a real estate investment
corporation whose units are listed on the Tokyo
Stock Exchange. The Investment Corporation is
engaged in ownership and operation of selected officebuildings, residential and retail properties in Japan.
The Investment Corporation was incorporated as aninvestment corporation under the Law Concerning
Investment Trusts and Investment Corporations ofJapan, or the Investment Trust Law. Pursuant to thislaw, the Investment Corporation is externally managed
by a registered asset management company, Kenedix
REIT Management, Inc. (“the Asset Management
Company”), a wholly-owned subsidiary of Kenedix,
Inc. (“Kenedix”).
On May 6, 2005, the Investment Corporation was
originally formed with ¥200 million of initial capital
contributions from Kenedix, the Asset Management
Company and their executives and employees. On July20, 2005, the Investment Corporation raised ¥41,869
million of equity capital through an initial public
offering of 75,000 investment units and was listed on
the J-REIT section of the Tokyo Stock Exchange on thefollowing day.
On August 1, 2005, 29 properties with an aggregate
purchase price of ¥61,083 million were acquiredwith additional debt proceeds of ¥23,000 million andsubstantial operations of the Investment Corporation
were commenced from that date.
On August 16, 2005, the Investment Corporation
completed third-party allotment of 3,970 investment
units, generating an additional ¥2,216 million.
Subsequent to that, the Investment Corporationacquired 2 additional properties in September 2005.
During the period ended April 30, 2006, the Investment
Corporation acquired 4 additional properties byutilizing internal cash and bank borrowing.
On May 1, 2006, the Investment Corporation raised¥42,172 million of equity capital through a public
offering of 73,660 investment units and 26 properties
with an aggregate purchase price of ¥58,033 million

were acquired with additional debt proceeds of ¥16,000
million.
On May 26, 2006, the Investment Corporation
completed third-party allotment of 3,970 investment
units, generating an additional ¥2,273 million. During
the period ended October 31, 2006, the Investment
Corporation sold 2 properties and acquired 5
properties.
On March 15, 2007, the Investment Corporation issued
the investment corporation bonds. Their total amountis ¥12,000 million and terms are five years and ten
years.
On February 1, 2008, the Investment Corporation sold
23 residential properties (initial total acquisition priceof ¥30,343 million) to a wholly owned subsidiary of
Kenedix, Inc. and acquired 9 office buildings (totalacquisition price of ¥31,980 million) from a wholly
owned subsidiary of Kenedix, Inc. In addition, theInvestment Corporation acquired 5 office buildings(total acquisition price of ¥14,121 million), during theperiod ended April 30, 2008.
During the period ended October 31, 2008, theInvestment Corporation acquired 3 properties byutilizing internal cash and bank borrowing, and sold 2
properties.
At October 31, 2008, the Investment Corporation had
total unitholders’ capital of ¥124,974 million with
200,000 investment units outstanding. The Investment
Corporation owned a portfolio of 69 properties withtotal acquisition price of ¥222,053 million containing
total leasable area of 256,214m2. The occupancy ratio
was approximately 95.6%. A portfolio of 69 properties
consists of 60 office buildings, 7 residential properties
and 2 central urban retail properties. 58 propertiesare located in the Tokyo metropolitan area and 11
properties are located in other regional areas.

BASIS OF PRESENTATION
The accompanying financial statements have been
prepared in accordance with the provisions set forthin the Investment Trust Law of Japan, the JapaneseCorporation Law, the Financial Instruments andExchange Law of Japan and related regulations, and in
conformity with accounting principles and practices
generally accepted in Japan (“Japanese GAAP”), which

K E N E D I X ❘ 24

NOTES TO FINANCIAL STATEMENTS (cont.)

are different in certain respects as to the application and disclosure requirements of International Financial
Reporting Standards or accounting principles generally accepted in the United States of America.
The accompanying financial statements are a basically translation of the audited financial statements thatwere prepared for Japanese domestic purposes from the accounts and records maintained by the Investment
Corporation and filed with the Kanto Local Finance Bureau of the Ministry of Finance as required by the Financial
Instruments and Exchange Law. In preparing the accompanying financial statements, relevant notes have been
added and certain reclassifications have been made from the financial statements issued domestically in order topresent them in a form that is more familiar to readers outside Japan. The Investment Corporation’s fiscal period
is a six-month period which ends at the end of April and October of each year, respectively. The Investment
Corporation does not prepare consolidated financial statements because it has no subsidiaries.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(A) 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 maturitiesof three months or less from the date of purchase.

(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 May 1, 2008
to October 31, 2008

From November 1, 2007
to April 30, 2008

Buildings and structures

2-49 years

2-46 years

Machinery and equipment

3-17 years

3-17 years

Tools, furniture and fixtures

3-20years

3-20 years(C) ORGANIZATION COSTS
Organization costs are amortized over a period of five years, comprised of ten fiscal periods, with an equal amountamortized in each fiscal period.

(D) UNIT ISSUANCE COSTS
Unit issuance costs are amortized over a period of three years under the straight-line method.

(E) CORPORATE BOND ISSUANCE COSTS
Investment corporation bonds issuance costs are amortized over a loan period under the straight-line method.

(F) 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 and through which the Investment Corporation holds all of its real property, all assets andliabilities within trust are recorded in the relevant balance sheet and income statement accounts.

25 ❘ K E N E D I X

(G) 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 can be reasonably estimated. Reimbursementsfrom tenants including utility charge reimbursements are recorded on a gross basis and such amounts arerecorded both as revenue and expense during the fiscal period, respectively.

(H) TAXES ON PROPERTY AND EQUIPMENT
Property-related taxes including property taxes, city planning taxes and depreciable property taxes are imposedon properties on a calendar year basis. Under the Japanese tax rule, the seller of the property at the time ofdisposal 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 the purchaser 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 the period 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 ¥11 million and ¥174 million as of October
31, 2008 and April 30, 2008. In subsequent calendar years, such property-related taxes are charged as operating
expenses in the fiscal period in which the installments of such taxes are paid to the relevant tax authorities.

(I) INCOME TAXES
Deferred tax assets and liabilities are computed based on the difference between the financial statements andincome tax bases of assets and liabilities using the statutory tax rates.

(J) 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 recognitionof gains or losses resulting from changes in fair value of interest-rate swap agreements because its interest-rate
swap agreements met the criteria for deferral hedging accounting. But, 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, 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.

(K) ROUNDING OF AMOUNTS PRESENTED
Amounts have been truncated in the Japanese financial statements prepared in accordance with Japanese GAAP
and filed with regulatory authorities in Japan, whereas amounts have been rounded to the nearest million in theaccompanying financial statements. Totals shown in the accompanying financial statements do not necessarily
agree with the sums of the individual amounts.

K E N E D I X ❘ 26

NOTES TO FINANCIAL STATEMENTS (cont.)

3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following as of October 31, 2008 and April 30, 2008:
In thousands of yen
As of October 31, 2008

As of April 30, 2008

¥ 13,029,801¥ 13,192,761(1,326,152)(2,050,903)¥ 11,703,649¥ 11,141,858

Cash and bank deposits
Restricted bank deposits held in trust
Cash and cash equivalents

Restricted bank deposits held in trust are retained for repayment of tenant leasehold and security deposits.

4. SCHEDULE OF PROPERTY
In millions of yen
As of October 31, 2008Land
Buildings and structures
Machinery and equipment
Tools, furniture and fixtures
Total

Acquisition
costs

Accumulated
depreciation¥155,907-

74,546906

As of April 30, 2008
Acquisition
costs

Accumulated
depreciation

Book value¥ 155,907¥150,671-¥ 150,671¥5,89068,656

69,664¥ 4,678

64,986

241

665

788

198

589

Book value

382

100

282

315

77

237

¥ 231,740¥ 6,230¥ 225,510¥ 221,437¥ 4,953¥ 216,484

5. SHORT-TERM AND LONG-TERM DEBTS
The following summarizes short-term and long-term debt outstanding as of October 31, 2008:(As of October 31, 2008)

Classification

Unsecured short-term debt

Unsecured current portion of
long-term debt

Subtotal

27 ❘ K E N E D I X

Drawdown date

Repayment date

Weighted-averageinterest rate

Balance(In millions of yen)

January 10, 2008

January 10, 20091.15%

¥ 1,000

February 29, 2008

February 28, 2009

1.20%

500

May 1, 2008

November 1, 2008

1.20%

1,000

October 31, 2008

October 30, 2009

1.24%

1,500

October 31, 2008

October 31, 2009

1.52%

1,000

December 8, 2005

December 7, 2008

1.10%

2,000

March 1, 2006

February 28, 2009

1.45%

2,000

March 16, 2006

March 16, 2009

1.48%

2,500

May 1, 2006

April 30, 2009

1.63%

6,500

October 31, 2007

October 31, 2009

1.34%

2,000

April 25, 2008

October 25, 2009

1.56%

1,000

April 25, 2008

October 25, 2009

1.46%

3,000
¥ 24,000

Classification

Unsecured long-term debt

Drawdown date

Repayment date

Weighted-averageinterest rate

August 1, 2005

July 31 ,2010

1.29%¥ 9,500

May 1, 2006

April 30, 2011

2.20%

2,500

May 1, 2006

April 30, 2016

2.73%

5,000

July 14, 2006

July 13, 2011

2.15%

1,000

September 1, 2006

August 31, 2013

2.12%

3,000

December 1, 2006

November 30, 2011

1.96%

2,500

April 2, 2007

April 2, 2010

1.57%

2,000

April 2, 2007

April 2, 2012

1.88%

2,000

April 17, 2007

April 16, 2011

1.65%

1,500

January 10, 2008

January 10, 2012

1.50%

2,500

February 29, 2008

February 28, 2011

1.37%

2,000

February 29, 2008

August 31, 2011

1.43%

1,500

March 31, 2008

September 30, 2011

1.61%

3,000

March 31, 2008

September 30, 2011

1.56%

2,000

May 1, 2008

November 1, 2011

1.91%

1,000

June 30, 2008

February 28, 2011

1.99%

1,000

June 30, 2008

June 30, 2012

2.15%

1,500

June 30, 2008

December 28, 2012

2.26%

3,000

July 15, 2008

March 31, 2011

1.87%

2,000

July 31, 2008

January 31, 2010

1.68%

2,500

July 31, 2008

January 31, 2011

1.87%

3,500

July 31, 2008

July 31, 2011

1.99%

3,500

September 1, 2008

September 1, 2011

1.78%

1,000

September 22, 2008

March 22, 2011

1.71%

1,250

September 30, 2008

March 31, 2011

1.82%

2,000

October 31, 2008

October 31, 2010

1.57%

500

Subtotal
Corporate bonds
Subtotal
Total

Balance(In millions of yen)

¥ 62,750
March 15, 2007

March 15, 2012

1.74%

¥ 9,000

March 15, 2007

March 15, 2017

2.37%

3,000
¥ 12,000¥ 98,750

K E N E D I X ❘ 28

NOTES TO FINANCIAL STATEMENTS (cont.)

6. UNSECURED LINE OF CREDIT
The Investment Corporation established a credit commitment line with two lenders. The total borrowings
available under the commitment line agreements are ¥5 billion. Currently, the Investment Corporation has abalance of ¥5 billion based on the concerted agreements. The unused borrowings under the commitment line
agreement are ¥0.

7. PER UNIT INFORMATIONThe net asset value per unit as of October 31, 2008 and April 30, 2008 was ¥640,437 and ¥641,571. Net income perunit as of October 31, 2008 and April 30, 2008 was ¥15,618 and ¥16,711.
The weighted average number of units outstanding of 200,000 and 200,000 was used for the computation of theamount of net income per unit as of October 31, 2008 and April 30, 2008.

8. INCOME TAXESThe Investment Corporation is subject to corporate income taxes at a regular statutory rate of approximately
40%. However, the Investment 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 thislaw, the Investment Corporation must meet a number of tax requirements, including a requirement it currently
distribute in excess of 90% of its taxable income for the fiscal period in order to be able to deduct 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
approximately 100% of its distributable income in the form of cash distributions totaling ¥3,124 million and ¥3,342
million for the periods ended October 31, 2008 and April 30, 2008. Such distributions were treated as deductible
distributions for purposes of corporate income taxes. The effective tax rate on the Investment Corporation’s
income was 0.03% and 0.05% for the periods ended October 31, 2008 and April 30, 2008. The following summarizes
the significant difference between the statutory tax rate and the effective tax rate:

From May 1, 2008
to October 31, 2008

From November 1, 2007
to April 30, 2008

Statutory tax rate

39.39%

39.39%

Deductible cash distributions(39.38)(39.37)

0.02

0.03

0.03%

0.05%

Other
Effective tax rate

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

29 ❘ K E N E D I X

10. RELATED-PARTY TRANSACTIONS(A) TRANSACTIONS WITH Y.K. KW PROPERTY 11
Y.K. KW Property 11 is a wholly owned subsidiary of Kenedix. On June 30, 2008, the Investment Corporationacquired 1 property from Y.K. KW Property 11 for ¥10,250 million. The purchase price of this property wasdetermined based on an independently appraised value at the time of acquisition.

11. BREAKDOWN OF RENTAL AND OTHER OPERATING REVENUES AND PROPERTYRELATED EXPENSES
Rental and other operating revenues and property-related expenses for the periods from May 1, 2008 to October
31, 2008 and from November 1, 2007 to April 30, 2008 consist of the following:
In thousands of yen
From May 1, 2008
to October 31, 2008

From November 1, 2007
to April 30, 2008

Rental and other operating revenues:
Rental revenues¥ 5,847,510¥ 5,626,515

Common area charges

1,263,583

1,144,196

Subtotal

7,111,093

6,770,711

Parking space rental revenues

250,006

240,631

Utility charge reimbursement

668,719458,128

Miscellaneous

126,700

160,995

Others:

1,045,424

859,754

Total rental and other operating revenues

Subtotal¥ 8,156,517¥ 7,630,465

Property management fees and facility management fees¥¥

Depreciation

792,077

750,333

1,445,267

1,430,126

Utilities

611,722450,237Taxes

406,439395,277

Insurance

17,035

16,806

Repairs and maintenance

188,401

149,231

Trust fees

46,90457,312Others163,023

149,083

Loss on retirement of fixed assets

7,853

49,229Total property-related expenses¥ 3,678,720¥ 3,447,634¥ 5,578,810¥18,788,000

5,100,280

17,705,426

Profit on sale of real estate:
Revenue from sale of investment properties
Cost of investment properties
Other sales expenses
Profit on sale of real estate

178,813¥299,717130,344¥952,230

Loss on sale of real estate:
Revenue from sale of investment properties-¥12,702,000

Cost of investment properties-

13,050,272

Other sales expenses
Loss on sale of real estate¥

91,061
439,333

K E N E D I X ❘ 30

NOTES TO FINANCIAL STATEMENTS (cont.)

12. LEASESThe Investment Corporation, as lessor, has entered into leases whose fixed monthly rents are due in advancewith lease term of generally two years for office buildings and residential properties and with lease term ranging
from two to ten years for retail properties. The future minimum rental revenues under existing non-cancelable
operating leases as of October 31, 2008 and April 30, 2008 are as follows:
In thousands of yen
As of October 31, 2008

As of April 30, 2008

Due within one year

¥ 1,493,056¥ 1,689,845

Due after one year

8,487,580

9,711,097¥ 9,980,637¥ 11,400,942

Total

13. DERIVATIVES AND HEDGE ACCOUNTINGThe Investment Corporation has entered into interest-rate swap agreements with several Japanese financial
institutions to hedge its variable rate long-term debt obligations. The Investment Corporation utilizes interestrate swap agreements, which are derivative financial instruments, only for the purpose of mitigating future risksof fluctuations of interest rates, but does not enter into such transactions for speculative or trading purposes. The
Investment Corporation entered into such derivative transactions to hedge risk in accordance with its Articles ofIncorporation and the established risk management policies of the Asset Management Company.
The following summarizes the notional principal amounts and the estimated unrealized loss from interest rate
swap contracts as of October 31, 2008:
The estimated unrealized loss does not include the interest rate swap contracts that met the criteria for the
special treatment.
(As of October 31, 2008)
Type
Interest-rate swap:
Fixed rate payable and floating rate receivable

31 ❘ K E N E D I X

Notional amount

Unrealized loss

¥41,800 million¥(16 million)

14. PROPERTY INFORMATION
Details of the property portfolio as of October 31, 2008 were as follows:
Type

Office Buildings

Residential Properties

Central Urban
Retail Properties

Tokyo
Metropolitan
Area

Other Regional
Areas

Tokyo
Metropolitan
Area

Other Regional
Areas

Tokyo
Metropolitan
Area

50

10

6

1

2

¥165,950¥31,015¥10,909¥1,800¥12,380

Percentage of total acquisition costs

74.73%

13.97%

4.91%

0.81%

5.58%

Net book value

169,136

31,237

10,845

1,898

12,680Appraisal value at year end

180,675

30,431

10,4301,660

14,210Percentage of total appraisal value

76.10%

12.82%

4.39%

0.70%

5.99%

Location
Number of properties

Property information (In millions of yen)
Acquisition priceFinancial results for the period ended October 31, 2008 (In thousands of yen)
Rental and other operating revenues¥ 5,983,457¥ 1,289,908¥ 349,584¥ 88,302¥ 369,747

Rental revenues

5,233,886

1,076,943

317,166

78,889333,570

Other revenues

749,571

212,965

32,417

9,412

36,177

Property-related expenses

1,627,615

409,10267,49337,72976,756

Property management fees

542,021179,377

30,744

8,797

24,475

Taxes

301,875

56,902

16,0298,576

19,563

Utilities

461,387

117,167

4,034

2,067

23,871

Repairs and maintenance

136,033

28,921

6,046

10,972

5,458

Insurance

10,186

4,952

891

512

357

Trust fees and other expenses

176,112

21,783

9,749

6,805

3,032

NOI (Net Operating Income)

4,355,842

880,806

282,091

50,572292,991

965,635

277,005

94,391

22,973

71,2583,390,207

603,801

187,700

27,599221,733

Capital expenditures

788,901

312,298

-

-

4,470

NCF (Net Cash Flow)

3,566,942

568,508

282,091

50,572

288,521

Depreciation expenses
Operating income from property leasing
activities

K E N E D I X ❘ 32

NOTES TO FINANCIAL STATEMENTS (cont.)

A breakdown of property-type as of October 31, 2008 was as follows:
Area

Balance at the end of period(In millions of yen)

Percentage of
total assets

Tokyo Metropolitan Area

¥169,136

70.6%

Other Regional Areas

31,23713.0%

200,373

83.6%

Tokyo Metropolitan Area

10,845

4.5%

Other Regional Areas

1,898

0.8%

12,743

5.3%

Tokyo Metropolitan Area

12,680

5.3%

Other Regional Areas--

12,680

5.3%

Total

225,796

94.2%

Bank deposits and other assets

13,852

5.8%

Total assets

239,649

100.0%

Total liabilities

111,561

46.6%

Net assets¥128,088

53.5%

Property type

Office Buildings
Subtotal
Residential Properties
Subtotal
Central Urban Retail Properties
Subtotal

33 ❘ K E N E D I X

INVESTMENT HIGHLIGHTS FORSEVENTH FISCAL PERIOD
General Breakdown of Unitholders
KENEDIX Realty Investment Corporation (KENEDIX-REIT)
is issuing a cash distribution of 15,618 yen to investment
unitholders (shareholders) as a distribution for operations
during the Seventh Fiscal Period running from May 1, 2008
to October 31, 2008.
Notes: 1. The amounts are rounded to thenearest 100 million yen.
2. The figures for the Sixth and Seventh
Fiscal Periods contain the projectedacquisition price of the building
portion of Sakae 4-chome Office
Building (Tentative Name) of 4.325
billion yen.

175.0
146.7

43.0

44.4

217.1
197.1

End of 5th Period(200,000 units)

226.3

12.7

12.7

Residential

12.3

CentralUrban Retail

16.0

16.0

69.1

137.9
115.9

12.3

81,920 units: 41.0%

10,189 units: 5.1%

9,968 units: 5.0%

10,720 units: 5.4%

96,845 units: 48.4%

98,863 units: 49.4%

91,126 units: 45.6%

11,364 units: 5.7%

10,855 units: 5.4%

16,234 units: 8.1%

Note: Figures are rounded to the first decimal place.

Name
NikkoCiti Trust and Banking Corporation (investment trust account)
The Master Trust Bank of Japan, Ltd. (trust account)
Japan Trustee Services Bank, Ltd. (trust account)
Goldman Sachs International
The Nomura Trust and Banking Co., Ltd. (investment trust account)
Kenedix, Inc.
Trust & Custody Services Bank, Ltd. (securities investment trust account)
Goldman Sachs and Company Regular AccountState Street Bank and Trust Company
The Bank of New York Treaty JASDEC Account
Total

188.4

12.3

80,314 units: 40.2%

Top Ten Unitholders (as of October 31, 2008)

16.0

20.7

18.9

End of 7th Period(200,000 units)

81,602 units: 40.8%

Office16.0

81.4

Other domestic corporations
Financial institutions(including securities companies)
Individuals and others

43.0

201.2
(billion yen)

Foreign corporations and individuals

End of 6th Period(200,000 units)

86.2

Units Held
17,903
15,597
13,076
12,025
11,478
7,850
7,147
6,512
5,763
4,384
101,735

Share of Outstanding Units
8.95%
7.79%
6.53%
6.01%
5.73%
3.92%
3.57%
3.25%
2.88%
2.19%
50.86%

Note: Ratios are rounded down to the second decimal place.

48.2

37.7

IR Schedule
End of
1st Period
2005/10End of
2nd Period

End of
3rd Period

2006/04

2006/10End of
4th Period
2007/04

End of
5th Period
2007/10End of
6th Period
2008/04

End of
7th Period
2008/10

7th Period

Operating Revenues

8,456

mn yenPeriod-on-period decrease of 652 million yen in capital gains
from sales
7th Period

Net Income

3,123

mn yenAdjusted total without property sales would be 2,823 million yen for theSeventh Fiscal Period and 2,829 million yen for the Sixth Fiscal Period

Distribution

15,618yen

per Unit

Unitholders’ Equity
per Unit

1 ❘ K ENEDIX

640,437

yen

TABLE OF CONTENTS
Investment Highlights for
Seventh Fiscal Period

1

A Letter from the CEO

2

A Letter from the General Managerof the Financial Planning Division

5

Financial Overview and Strategy

7

Sponsor Support

8

Basic Investment Strategy

9Strategic Portfolio Focus

10

Portfolio Evolution

11

Internal Growth

13

KENEDIX-REIT Portfolio Table

15

Financial Summary

17

Financial Statements

18

APRIL

JUNE

JULY

OCTOBERDECEMBERJANUARY

End ofﬁscal period

Performance for
period ending in
April is announced

Distributions arepaid for the period
ending in April

End ofﬁscal period

Performance for
period ending in
October is announced

Distributions arepaid for the period
ending in October

Information is regularly disclosed throughout the year via press releases and the website at www.kdx-reit.com/eng.

Disclaimer
This semiannual report includes translations of certain documents originally filed and made available in Japan in accordance with the Securities and Exchange Law of Japan. The English language
semiannual report was prepared solely for the convenience of readers outside Japan and is not intended to constitute a document for an offer to sell, or seeking an offer to buy, any securities of
KENEDIX Realty Investment Corporation (KENEDIX-REIT).
English terms for Japanese legal, accounting, tax and business concepts used herein may not be precisely identical to the concept of the equivalent Japanese terms. With respect to any and allterms herein, including without limitation, financial statements, if there exist any discrepancies in the meaning or interpretation thereof between the original Japanese documents and English translation contained herein, the original Japanese documents will always govern the meaning and interpretation.
None of KENEDIX-REIT, Kenedix REIT Management, Inc. nor any of their respective directors, officers, employees, partners, unitholders, agents, affiliates nor their advisors shall be responsible or
liable for the completeness, appropriateness, or accuracy of English translations or the selection of the portion(s) of any document(s) translated into English.
The financial statements of KENEDIX-REIT have been prepared in accordance with generally accepted accounting principles in Japan (“Japanese GAAP), which may materially differ in certain
respects from generally accepted accounting principles of other jurisdictions.
This semiannual report contains forward-looking statements. These statements appear in a number of places in this semiannual report and include statements regarding the intent, belief, or current
and future expectations of KENEDIX-REIT or Kenedix REIT Management, Inc. with respect to its business, financial condition and results of operations. In some cases, you can identify forwardlooking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or the negative of these terms or other similarterminology. These statements are not guarantees of future performance and are subject to various risks and uncertainties. Actual results, performance or achievements, or those of the industries
in which we operate, may differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. In addition, these forward-looking
statements are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise and involve known and unknown risks and uncertainties. Accordingly, readers of
this document should not interpret the forward-looking statements included herein as predictions or representations of future events or circumstances.
Potential risks and uncertainties also include those identified and discussed in this document. Given these risks and uncertainties, readers of this document are cautioned not to place undue
reliance on forward-looking statements, which speak only as of the date of information produced herein. We disclaim any obligation to update or, except in the limited circumstances required by
the Tokyo Stock Exchange, announce publicly any revisions to any of the forward-looking statements contained in these documents.

K E N E D I X ❘ 34

7th Fiscal Period
May 1, 2008 - October 31, 2008

SEMIANNUAL REPORT
http://www.kdx-reit.com/eng/