19 │ Kenedix Realty Investment Corporation

BALANCE SHEETSAS OF APRIL 30, 2010 AND OCTOBER 31, 2009

In thousands of yen
As of April 30, 2010

As of October 31, 2009ASSETS
Current assets:
Cash and bank deposits¥

13,297,791¥

12,870,430

Rental receivables

151,363

184,068

Consumption tax refundable

48,308136,065

Other current assets
Total current assets

83,141

99,296

13,580,603

13,289,859

Property and equipment, at cost:Land

164,462,798

152,327,017

Buildings and structures

80,958,715

76,930,254

Machinery and equipment

1,264,468

1,228,084

Tools, furniture and ﬁxtures

340,770

327,711Less-accumulated depreciation
Net property and equipment(10,108,997)(8,650,220)

236,917,754

222,162,846
285,350

Other assets:
Ground leasehold

285,350

Organization costs

-

5,090

Corporate bond issuance costs

33,86539,647

Unit issuance costs

41,893

23,684

Other assets

707,019

513,945

Total assets¥

251,566,484¥

549,294¥

236,320,421

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

Short-term debt

469,905

37,050,000

24,500,000

17,054

15,105

Rents received in advance

1,245,403

1,133,738

Other current liabilities

179,264

171,408

39,041,015

26,290,156

Deposits received

Total current liabilities
Corporate bonds

12,000,000

12,000,000

Long-term debt

53,918,500

60,720,000

Leasehold and security deposits received

10,917,330

10,228,542-

Other liabilities
Total liabilities

14,554¥

115,876,845¥

109,253,252¥

133,129,755¥

124,973,750

Unitholders' equity
Unitholders' capital
Units authorized: 2,000,000 units
Units issued and outstanding: 233,550 units
As of April 30, 2010 and October 31, 2009, respectively
Retained earnings
Unrealized gain from deferred hedge transactions

2,567,480(7,596)

Total unitholders' equity
Total liabilities and unitholders' equity

2,102,249(8,830)135,689,639¥

251,566,484

127,067,169¥

236,320,421

See accompanying notes to the ﬁnancial statements.

Kenedix Realty Investment Corporation │ 20

STATEMENTS OF INCOME AND RETAINED EARNINGSFOR THE PERIOD FROM MAY 1, 2009 TO OCTOBER 31, 2009 AND THE PERIOD FROM NOVEMBER 1, 2009 TO APRIL 30, 2010

In thousands of yen
From November 1, 2009
to April 30, 2010

From May 1, 2009
to October 31, 2009

Operating revenues:
Rental revenues¥

Total operating revenues

8,067,448¥

7,921,862

8,067,448

7,921,862

Property-related expenses

3,714,418

3,652,105

Loss on sale of real estate-

440,771

Asset management fees

433,915423,183

Administrative service and custodian fees

77,22976,727

Other operating expenses

103,530

115,723

4,329,092

4,708,509

Operating expenses:

Total operating expenses
Operating income¥

3,738,356¥

3,213,353¥

932,081¥

907,825

Non-operating expenses:
Interest expense
Financing-related expenses

210,091

147,899

Amortization of organization costs

5,090

5,090

Amortization of unit issuance costs

32,063

23,684

Amortization of corporate bond issuance costs

5,782

5,878

(15,122)

19,7292,568,371

2,103,248

940

1,057

2,567,431

2,102,191

49

58

Others, net
Income before income taxes
Income taxes
Net income
Retained earnings at the beginning of period
Retained earnings at the end of period
See accompanying notes to the ﬁnancial statements.

21 │ Kenedix Realty Investment Corporation¥

2,567,480¥

2,102,249

STATEMENTS OF CHANGES IN UNITHOLDERS’ EQUITY
FOR THE PERIOD FROM MAY 1, 2009 TO OCTOBER 31, 2009 AND THE PERIOD FROM NOVEMBER 1, 2009 TO APRIL 30, 2010

In thousands of yen
Unitholders' Equity
Unitholders'
capitalBalance as of April 30, 2009¥

124,973,750

Retainedearnings¥

2,434,458

Unrealized gainfrom deferred hedgetransactions¥(10,110)

Total¥

127,398,098

Changes during the ﬁscal period
New unit issuance

-

-

-

-

Payment of dividends-(2,434,400)-(2,434,400)

Net income-

2,102,191-

2,102,191

Interest-rate swap

-

-

1,280

1,280

-

(332,209)

1,280(330,929)

Total changes
during the ﬁscal period
Balance as of October 31, 2009¥

124,973,750¥

2,102,249¥(8,830)¥127,067,169

Changes during the ﬁscal period--

8,156,005-(2,102,200)-(2,102,200)

Net income-

2,567,431-

2,567,431

Interest-rate swap

-

-

1,234

1,234

8,156,005

465,2311,234

8,622,470

New unit issuance

8,156,005

Payment of dividends

Total changes
during the ﬁscal period
Balance as of April 30, 2010¥

133,129,755¥

2,567,480¥(7,596)¥135,689,639

See accompanying notes to the ﬁnancial statements.

Kenedix Realty Investment Corporation │ 22

NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM MAY 1, 2009 TO OCTOBER 31, 2009 AND THE PERIOD FROM NOVEMBER 1, 2009 TO APRIL 30, 2010

1. ORGANIZATION AND BASIS OF PRESENTATIONORGANIZATION
Kenedix Realty Investment Corporation (“the Investment Corporation”) was established on May 6, 2005 under the Law
concerning Investment Trusts and Investment Corporations of Japan (“the Investment Trust Law”). On July 21, 2005, theInvestment 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 including two global offerings. The Investment Corporation also undertook an additional issue of 33,550
investment units through a public offering in Japan on November 16, 2009. Consequently, as of April 30, 2010, the end of the tenthfiscal period, the number of investment units issued and outstanding totaled 233,550 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 tomaximize 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, andendeavors to ensure a timely response to each and every opportunity. The Investment Corporation endeavors to develop adiversified investment portfolio named “KENEDIX Selection,” adopting a three-point investment criteria based on property type,area and size.
During the period ended April 30, 2010, the Investment Corporation also undertook an additional issue of 33,550 investment
units through a public offering in Japan on November 16, 2009, and undertook long-term borrowings of ¥7,000 million. The
Investment Corporation acquired five office buildings (total acquisition price of ¥15,610 million) in the Tokyo Metropolitan Area.
As of April 30, 2010, the Investment Corporation had total unitholders’ capital of ¥133,130 million with 233,550 investment units
outstanding. The Investment Corporation owned a portfolio of 70 properties with a total acquisition price of ¥235,769 million
containing a total leasable area of 271,260.81m2. The occupancy ratio was 94.4%. The portfolio of 70 properties consists of 63
office buildings, 5 residential properties and 2 central urban retail properties. 60 properties are located in the Tokyo Metropolitan
Area and 10 properties are located in Other Regional Areas.

BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with the provisions set forth in the Investment Trust
Law of Japan, the Japanese Corporation Law, the Financial Instruments and Exchange Law of Japan and related regulations, and in
conformity with accounting principles and practices generally accepted in Japan (“Japanese GAAP”), which are different in certain
respects as to the application and disclosure requirements of the 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 that were prepared forJapanese 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 theaccompanying financial statements, relevant notes have been added and certain reclassifications have been made from the financial
statements issued domestically in order to present 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 PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and equipment is calculated on a straight-line basis over theestimated useful lives of the assets ranging as stated below:
From November 1, 2009 to April 30, 2010

From May 1, 2009 to October 31, 2009

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

B ORGANIZATION COSTS
Organization costs are amortized over a period of five years, comprised of ten fiscal periods, with an equal amount amortized ineach fiscal period.

23 │ Kenedix Realty Investment Corporation

C UNIT ISSUANCE COSTS
Unit issuance costs are amortized over a period of three years under the straight-line method.
Underwriters’ commissions in connection with the issuance of unitholders’ equity are offset against proceeds raised since the“Spread Method” was used for the unit issuance. Under the Spread Method, securities underwriters underwrite the units at theissue price and offer them to investors at the offer price, which is different from the issue price. The difference between the offer
price and the issue price represents the underwriting commission received by the securities underwriters, eliminating the need forthe issuer to pay underwriting commissions. If securities underwriters had underwritten the units at the issue price and offered theunits to investors at an offer price equal to the issue price (known as the “Conventional Method”), a commission would have been
incurred and it would have been expensed as new unit issuance costs. Therefore, the Spread Method understated unit issuance costsby ¥254,421 thousand on the balance sheet and decreased amortization of unit issuance costs by ¥50,884 thousand and increased
income before income taxes on the income statement by the same amount compared to the Conventional Method for the period
from November 1, 2009 through April 30, 2010.

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, allassets and liabilities within trust are recorded in the relevant balance sheet and income statement accounts.

F 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 andtheir amounts can be reasonably estimated. Reimbursements from tenants including utility charge reimbursements are recorded
on a gross basis and such amounts are recorded both as revenue and an expense during the fiscal period, respectively.

G TAXES ON PROPERTY AND EQUIPMENT
Property-related taxes including property taxes, city planning taxes and depreciable property taxes are imposed on properties
on a calendar year basis. 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, isreimbursed 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 allocatedportions of the property-related taxes are capitalized as part of the acquisition costs of the related properties. In subsequentcalendar years, such property-related taxes are charged as operating expenses in the fiscal period in which the installments of suchtaxes are paid to the relevant tax authorities.

H 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.

I DERIVATIVE FINANCIAL INSTRUMENTS
The Investment Corporation utilizes interest-rate swap agreements as derivative financial instruments only for the purpose ofhedging its exposure to changes in interest rates. The Investment Corporation deferred recognition of gains or losses resulting fromchanges in fair value 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
agreement met the criteria for hedging accounting under this treatment whereby the net amount to be paid or received under theinterest-rate swap agreement is added to or deducted from the interest on the assets or liabilities for which the swap contract was
executed.

J 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.

Kenedix Realty Investment Corporation │ 24

NOTES TO FINANCIAL STATEMENTS

3. SCHEDULE OF PROPERTYLand
Buildings and structures
Machinery and equipment
Tools, furniture and ﬁxtures
Total

Acquisitioncosts¥ 164,463
80,9591,264
341¥ 247,027

In millions of yen
As of April 30, 2010
As of October 31, 2009
Accumulated
Acquisition
AccumulatedBook value
Book value
depreciation
costs
depreciation¥ 164,463¥
152,327¥ 152,327¥ 9,573
71,38676,930 ¥
8,191
68,739
399
865
1,228
341
887
137
204
328
118
210
¥ 10,109¥ 236,918¥ 230,813 ¥
8,650 ¥ 222,163

4. SHORT-TERM AND LONG-TERM DEBT
The following summarizes short-term and long-term debt outstanding as of April 30, 2010:
Classiﬁcation

Short-term debt

Current portion of long-term debt

October 26, 2009
October 30, 2009
January 29, 2010
February 26, 2010
April 30, 2010
August 1, 2005
October 31, 2008
July 31, 2008
February 29, 2008
June 30, 2008
September 22, 2008
July 15, 2008
September 30, 2008
April 17, 2007
May 1, 2006
April 30, 2009
April 30, 2009

October 26, 2010
October 29, 2010
January 31, 2011
February 28, 2011
April 28, 2011
July 30 ,2010
October 29, 2010
January 31, 2011
February 28, 2011
February 28, 2011
March 22, 2011
March 31, 2011
March 31, 2011
April 18, 2011
April 28, 2011
April 28, 2011
April 28, 2011

Weighted-averageinterest rate
1.79%
1.80%
1.36%
1.65%
1.40%
1.29%
1.57%
1.87%
1.37%
1.99%
1.71%
1.87%
1.82%
1.65%
2.20%
2.23%
2.23%

May 1, 2006
July 14, 2006
September 1, 2006
December 1, 2006
April 2, 2007
January 10, 2008
February 29, 2008
March 31, 2008
March 31, 2008
May 1, 2008
June 30, 2008
June 30, 2008
July 31, 2008
September 1, 2008
February 27, 2009
February 27, 2009
April 30, 2009
April 30, 2009
October 26, 2009
October 30, 2009
December 8, 2009
January 13, 2010
January 29, 2010
February 18, 2010
February 18, 2010
April 2, 2010

April 28, 2016
July 13, 2011
August 30, 2013
November 30, 2011
April 2, 2012
January 10, 2012
August 31, 2011
September 30, 2011
September 30, 2011
November 1, 2011
June 29, 2012
December 28, 2012
July 29, 2011
September 1, 2011
February 29, 2012
August 31, 2012
October 31, 2011
April 27, 2012
October 28, 2013
October 30, 2013
December 10, 2012
January 15, 2013
January 30, 2015
February 18, 2013
February 18, 2015
April 2, 2015

2.73%
2.15%
2.12%
1.96%
1.88%
1.50%
1.43%
1.61%
1.56%
1.91%
2.15%
2.26%
1.99%
1.78%
2.07%
2.04%
2.40%
2.40%
2.42%
2.45%
1.67%
1.90%
2.17%
1.90%
2.19%
2.22%

March 15, 2007
March 15, 2007

March 15, 2012
March 15, 2017

1.74%
2.37%

Drawdown date

Repayment date

SubtotalLong-term debt

Subtotal
Corporate bonds
Subtotal
Total

25 │ Kenedix Realty Investment Corporation

Balance(In millions of yen)
¥
1,500
3,500
1,300
500
2,000
9,500
500
3,500
2,000
1,000
1,250
2,000
2,000
1,500
2,500
1,500
1,000
¥
37,050¥ 5,000
1,000
3,000
2,500
2,000
2,500
1,500
3,000
2,000
1,000
1,500
3,000
3,500
1,000
480
960
3,500
2,000
980
1,960
500
1,000
1,176
1,500
5,363
2,000
¥
53,919
9,000
3,000
¥
12,000¥ 102,969

5. LINE OF CREDIT
The Investment Corporation has established a credit commitment line with a lender. The borrowing under the commitment line
agreement is ¥2 billion. The Investment Corporation had an outstanding balance of ¥2 billion as of April 30, 2010.
The commitment period of the commitment line agreement concluded with The Bank of Tokyo-Mitsubishi UFJ, Ltd. has already
expired. Furthermore, the expiration date of the commitment line agreement is March 31, 2011, set in the memorandum of
understanding executed on September 26, 2008. However, since the commitment period has already expired, the Investment
Corporation can not undertake new borrowings.

6. ASSETS PLEDGED AS COLLATERAL AND SECURED LOANS PAYABLE(As of April 30, 2010)

Assets pledged as collateral
Cash and bank deposits
Land
Buildings and structures
Machinery and equipment
Tools, furniture and ﬁxtures
Other assets
Total
Secured loans payable:
Short-term loans debt
Long-term loans debt
Total

In thousands of yen¥

5,213,604
117,509,969
51,514,053
544,088
121,981
1,146¥ 174,904,841¥

37,050,000
53,918,500¥ 90,968,500

7. PER UNIT INFORMATIONThe net asset value per unit as of April 30, 2010 and October 31, 2009 was ¥580,987 and ¥635,335. Net income per unit as of April
30, 2010 and October 31, 2009 was ¥11,125 and ¥10,510.
The weighted average number of units outstanding of 230,770 and 200,000 were used for the computation of the amount of net
income per unit as of April 30, 2010 and October 31, 2009.

8. 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 tobe able to deduct such amounts. If the Investment Corporation does not satisfy all of the requirements, the entire taxable incomeof 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 ¥2,567 million and ¥2,102 million forthe periods ended April 30, 2010 and October 31, 2009, such distributions were treated as deductible distributions for purposes ofcorporate income taxes. The effective tax rate on the Investment Corporation’s income was 0.04% and 0.05% for the periods endedApril 30, 2010 and October 31, 2009. The following summarizes the significant difference between the statutory tax rate and theeffective tax rate:

Statutory tax rate ..............................................................................
Deductible cash distributions ......................................................
Other .......................................................................................................
Eﬀective tax rate ................................................................................

From November 1, 2009
to April 30, 2010

From May 1, 2009
to October 31, 200939.33%(39.32)0.03
0.04%

39.33%(39.31)
0.03
0.05%

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 is required to maintain net assets of at least¥50 million as required by the Investment Trust Law.

Kenedix Realty Investment Corporation │ 26

NOTES TO FINANCIAL STATEMENTS

10. 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, theInvestment Corporation paid ¥305 million to Kenedix REIT Management, Inc.

11. BREAKDOWN OF RENTAL AND OTHER OPERATING REVENUES AND PROPERTY-RELATEDEXPENSES
Rental and other operating revenues and property-related expenses for the periods from November 1, 2009 to April 30, 2010 andfrom May 1, 2009 to October 31, 2009 consist of the following:
In thousands of yen
From November 1, 2009
to April 30, 2010
Rental and other operating revenues:
Rental revenues
Common area charges
Subtotal
Others:Parking space rental revenues
Utility charge reimbursement
Miscellaneous
Subtotal
Total rental and other operating revenues
Property management fees and facility management fees
Depreciation
Utilities
Taxes
Insurance
Repairs and maintenance
Trust fees
Loss on retirement of ﬁxed assets
OthersTotal property-related expenses¥

5,882,594
1,267,521
7,150,115¥

243,319560,259
113,755
917,333
8,067,448¥¥¥

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

From May 1, 2009
to October 31, 2009¥

801,877
1,477,410
508,338
648,231
16,759110,725
41,57912,537
96,962
3,714,418

¥

-

¥

¥

¥

5,711,053
1,195,072
6,906,125
231,982
617,328
166,427
1,015,737
7,921,862
764,052
1,451,833
529,106
536,723
16,098171,075
38,192
23,394
121,632
3,652,105

1,982,000
2,348,605
74,166440,771

12. LEASESThe Investment Corporation, as lessor, has entered into leases whose fixed monthly rents are due in advance with lease terms ofgenerally two years for office buildings and residential properties and with lease terms ranging from two to ten years for retailproperties. The future minimum rental revenues under existing non-cancelable operating leases as of April 30, 2010 and October
31, 2009 are as follows:
In thousands of yen
As of April 30, 2010
Due within one year
Due after one year
Total

27 │ Kenedix Realty Investment Corporation¥¥

1,285,413
7,940,847
9,226,260

As of October 31, 2009¥¥

1,059,032
7,538,786
8,597,818

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 interest-rate swap agreements, which are derivative
financial instruments, only for the purpose of mitigating future risks of fluctuations of interest rates, but does not enter into suchtransactions for speculative or trading purposes. The Investment Corporation entered into such derivative transactions to hedge
risk in accordance with its Articles of Incorporation 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 asof April 30, 2010: The estimated unrealized loss does not include the interest-rate swap agreements that met the criteria for the
special treatment.
(As of April 30, 2010)
Type
Interest-rate swap:
Fixed rate payable and ﬂoating rate receivable

Notional amount

Unrealized loss

¥25,000 million¥(13 million)

14. PROPERTY INFORMATION
Details of the property portfolio as of April, 2010 were as follows:TypeOﬃce Buildings

Location

Residential Properties

Central Urban Retail
Properties

Tokyo
Metropolitan Area

Other Regional
Areas

Tokyo
Metropolitan Area

Other Regional
Areas

Tokyo Metropolitan
Area

54

9

4

1

2

Number of properties

Property information (In millions of yen)
Acquisition price
Percentage of total acquisition costs
Net book value
Appraisal value at year end
Percentage of total appraisal value¥

180,856
76.71%
182,795
170,14179.17%¥

32,21513.66%
31,785
24,624
11.46%

¥

8,519
3.61%
8,242
7,095
3.30%

¥

1,800
0.76%
1,876
1,370
0.64%

¥

12,3805.25%
12,506
11,6705.43%

94,10684,036
10,07034,943
8,302
8,409
2,117
7,043
469
8,603
59,16322,781¥

353,231324,285
28,94676,24023,904
19,521
19,634
5,917
328
6,936
276,991
65,803Financial results for the period ended April 30, 2010 (In thousands of yen)
Rental and other operating revenues
Rental revenues
Other revenues
Property-related expenses
Property management fees
Taxes
Utilities
Repairs and maintenanceInsurance
Trust fees and other expenses
NOI (Net Operating Income)Depreciation expenses
Operating income from property leasing
activities
Capital expenditures
NCF (Net Cash Flow)¥

6,255,280
5,584,307
670,973
1,606,555
573,530
469,995
387,172
72,59810,50692,754
4,648,725
968,514¥

1,099,609
918,872
180,737
460,603
171,176
137,117
96,685
15,796
4,783
35,046
639,006
344,043¥

265,222238,616
26,606
58,667
24,965
13,188
2,730
9,371
673
7,740
206,555
76,269¥3,680,211

294,963130,286

36,382

211,188

214,377
4,434,348

100,716
538,290288
206,267

59,163

15,074
261,917

Kenedix Realty Investment Corporation │ 28

NOTES TO FINANCIAL STATEMENTS

A breakdown of property types as of April 30, 2010 was as follows:
Class of assets

Property typeOﬃce Buildings

Area
Tokyo Metropolitan Area
Other Regional Areas

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

182,795
31,785
214,580
8,242
1,876
10,118

72.7%
12.6%
85.3%
3.3%
0.7%
4.0%

12,506

5.0%

237,204
14,362
251,566
115,877
135,689

94.3%
5.7%
100.0%
46.1%
53.9%

Subtotal
Property andequipment

Residential Properties

Subtotal
Central Urban Retail
Properties
Total
Bank deposits and other assets
Total assets
Total liabilities
Net assets

Tokyo Metropolitan Area
Other Regional Areas
Tokyo Metropolitan Area¥¥¥

Percentage of
total assets

15. FINANCIAL INSTRUMENTS
Tenth Fiscal Period (November 1, 2009 to April 30, 2010)
Effective the fiscal year ended April 30, 2010, a new accounting standard for financial instruments and related implementation
guidance have been adopted.

1. OVERVIEW
1 POLICY FOR FINANCIAL INSTRUMENTS
The Investment Corporation procures essential funds for acquiring properties and undertaking the repayment of loans primarily
through bank 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
Debt and corporate bonds are used primarily for procuring funds necessary for the acquisition of properties and have a redemption
date of 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, pleasesee 2. (I) 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
on funds procured.
(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 the balance 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 priceavailable, 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.

29 │ Kenedix Realty Investment Corporation

2. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments on the balance sheets as of April 30, 2010 and estimated fair value are shown in thefollowing table.

(1) Cash and bank deposits
Total assets(1) Short-term debt
(2) Corporate bonds(3) Long-term debt(including current portion of long-term debt)
Total liabilities

Carrying value¥
13,297,791¥ 13,297,791
8,800,000
12,000,000

In thousands of yen
Estimated fair value¥
13,297,791¥ 13,297,791
8,800,000
11,415,600

82,168,500

81,417,950(750,550)¥ 102,968,500¥ 101,633,550¥ (1,334,950)

Diﬀerence(584,400)

Note 1: Methods to determine the estimated fair value of ﬁnancial instruments and other matters related to securities and derivative transactions.

ASSETS
1 CASH AND BANK DEPOSITS
Since these items are settled in a short period of time, their carrying value approximates fair value.

LIABILITIES
1 SHORTTERM DEBT
Since these items are settled in a short period of time, their carrying value approximates fair value.

2 CORPORATE BONDS
The fair value of corporate bonds is based on quoted market prices.

3 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 tobe applied if similar new loans were entered into. The fair value of long-term debt bearing interest at variable rate, which is subject
to fixed interest rates resulting from interest rate swaps and special treatment applied to said swaps, is based on the present value ofthe total of principal and interest, which is handled together with applicable interest-rate swaps, discounted by the interest rate tobe applied if similar loans were entered into.

DERIVATIVE TRANSACTIONS① Items that are not applied to hedge accounting
Not applicable② Items that are applied to hedge accounting

Hedge
accounting
methodType of derivativetransaction

Hedgeditems

Accounting
method, inprinciple

Interest-rate
swaps: Receive/
ﬂoating and pay/ﬁxedLong-term
debt

Specialtreatment ofinterest-rate
swapsInterest-rate
swaps: Receive/
ﬂoating and pay/
ﬁxed
Total

Long-term
debt

Contracted amount(in thousands of yen)

Fair value
Maturing within (in thousands of yen)
1 year

¥-1,500,000

23,500,000¥ 25,000,000¥

9,000,000¥ 9,000,000¥

Calculation method for
applicable fair value

Based on theamount provided(12,520) by counterparty
ﬁnancial
institutions*¥ (12,520)*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: Redemption schedule for receivables.

Cash and bank deposits
Total

Due in 1 year or less
(In thousands of yen)
¥ 13,297,791¥ 13,297,791

Note 3: Redemption schedule for debt and corporate bonds.

Kenedix Realty Investment Corporation │ 30

NOTES TO FINANCIAL STATEMENTS

In thousands of yen

Short-term debt
Corporate bonds
Long-term debt

Due in 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

Due after 5 years¥ 8,800,000
28,250,000

9,000,000
25,980,000

8,460,000

5,940,000

8,538,500

3,000,000
5,000,000

16. INVESTMENT AND RENTAL PROPERTIES
Tenth Fiscal Period (November 1, 2009 to April 30, 2010)
Effective the fiscal year ended April 30, 2010, a new accounting standard for disclosures regarding the fair value of investment andrental real estate properties and related implementation guidance have been adopted.
The Investment Corporation owns real estate for rental purposes mainly in the Tokyo Metropolitan Area for the purpose ofgenerating rental revenues.
The carrying value in the balance sheet and corresponding fair value of those properties are as follows:
Carrying value (In thousands of yen)
As of October 31, 2009

Net change¥ 222,449,460¥ 14,754,790

As of April 30, 2010
¥ 237,204,250

Fair value
As of April 30, 2010
(In thousands of yen)
¥ 214,900,000

Note 1: The carrying value represents the acquisition cost less accumulated depreciation.
Note 2: The fair value is the appraisal value or the survey value determined by outside appraisers.
Note 3: Among net changes during the ﬁscal period, principal increases were caused by the acquisition of ﬁve oﬃce buildings totaling ¥15,893,389 thousand, and principal decreases were
the retirement of ﬁxed assets at two properties amounting to ¥12,537 thousand.

Income and loss in the fiscal period ended April 30, 2010 for real estate for rental purposes is listed in the note “11. BREAKDOWNOF RENTAL AND OTHER OPERATING REVENUES AND PROPERTY-RELATED EXPENSES.”

31 │ Kenedix Realty Investment Corporation

STATEMENTS OF CASH FLOWS UNAUDITEDFOR THE PERIOD FROM MAY 1, 2009 TO OCTOBER 31, 2009 AND THE PERIOD FROM NOVEMBER 1, 2009 TO APRIL 30, 2010

In thousands of yen
From November 1, 2009
to April 30, 2010

From May 1, 2009
to October 31, 2009

CASH FLOWS FROM OPERATING ACTIVITIESIncome before income taxes¥

2,568,371¥

2,103,248

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

1,672,685

1,613,633

Interest expense

932,081

907,825

Loss on retirement of ﬁxed assets

12,53723,394

Changes in assets and liabilities:
Rental receivables

32,70576,500Consumption tax refundable

87,756(136,065)

Accrued consumption tax(30,679)(240,048)

Trade and other payables(4,781)(136,412)

Rents received in advance

111,665(39,880)-

2,348,605

Others, net(331,498)(192,155)

Subtotal

5,050,842

6,328,645(905,953)(912,655)

Property and equipment due to sale

Cash payments of interest expense
Cash payments of income taxes

(752)

(649)

4,144,137

5,415,341(16,241,402)(4,110,567)

1,436,443

613,790

Payments of leasehold and security deposits received(664,470)(692,215)

Proceeds from withdrawal of time deposits

1,000,000-

Payments of restricted bank deposits(165,814)(16,919)

Proceeds from restricted bank deposits

66,354

1,034

330

-

(14,568,559)(4,204,877)

Proceeds from short-term debt

3,800,000

5,000,000

Payment of short-term debt

(5,000,000)(5,000,000)

Proceeds from long-term debt

11,700,000

3,000,000

Payment of long-term debt

(4,751,500)(4,530,000)

Proceeds from issuance of investment units

8,105,733-

Payment of dividends(2,101,910)(2,434,003)

11,752,323(3,964,003)

1,327,901(2,753,539)

Net cash provided by operating activities

CASH FLOW FROM INVESTING ACTIVITIES
Purchases of property and equipment
Proceeds from leasehold and security deposits received

Others, net
Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIESNet cash (used in) provided by ﬁnancing activities
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of period
Cash and cash equivalents at the end of period

10,957,956¥

12,285,857

13,711,495¥

10,957,956

See related notes.

Kenedix Realty Investment Corporation │ 32

STATEMENTS OF CASH FLOWS UNAUDITED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 thedate of purchase.

CASH AND CASH EQUIVALENTS (Unaudited)
Cash and cash equivalents consisted of the following as of April 30, 2010 and October 31, 2009:
In thousands of yen
As of April 30, 2010

As of October 31, 2009

Cash and bank deposits ..............................................................................................

¥ 13,297,791........................................................

(621,934)(522,474)

More than 3-month ﬁxed deposits (Note 2) ...............................................................

(390,000)(1,390,000)

Cash and cash equivalents ........................................................................................

¥ 12,285,857¥ 10,957,956

Restricted bank deposits held in trust(Note 1)

Notes: 1. Restricted bank deposits held in trust are retained for repayment of tenant leasehold and security deposits.
2. More than 3-month ﬁxed deposits are ﬁxed deposits which have deposit terms of more than 3 months.

33 │ Kenedix Realty Investment Corporation¥ 12,870,430